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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

For the First Circuit

No. 13-2348

AJC INTERNATIONAL, INC.; AJC LOGISTICS, LLC,

Plaintiffs, Appellants,

UNDERWRITERS LLOYDS OF LONDON

Plaintiff,

v.

TRIPLE-S PROPIEDAD

Defendant, Appellee,

ECONOMY INTERNATIONAL SERVICES, INC.;

MANUEL ESPINOSA-CASANOVA, d/b/a Economy International Services,

Inc.; JOHN DOE; JANE DOE; INSURANCE COMPANIES X, Y, Z,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Francisco A. Besosa, U.S. District Judge]

Before

Thompson, Lipez, and Barron,

Circuit Judges.

Manolo T. Rodríguez-Bird, with whom Jiménez Graffam & Lausell

was on brief, for appellants.

William A. Schneider, with whom Morrison Mahoney LLP was on

brief, for appellee.

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June 12, 2015

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THOMPSON, Circuit Judge. This is an insurance case

grounded on diversity. The parties agree that the policy in

question provides coverage for a particular loss of perishable

foodstuffs. So that's the easy part. What the parties need us to

decide is exactly how much coverage there is -- $500,000 or

$25,000? For the reasons below, we agree with the district court's

answer: $25,000.

I. BACKGROUND

The underlying facts are undisputed and not particularly

numerous. Based in Puerto Rico, Economy International Systems,

Inc. ("Economy") provides cold-storage for its clients' food

products until they are ready for distribution to customers. 

During the summer of 2010, Economy was keeping more than

a million dollars worth of foodstuffs -- things like seafood, beef,

and chicken -- on ice for appellants AJC International, Inc. and

AJC Logistics, LLC.1 Unfortunately, the walk-in freezers in which

AJC's products were stored malfunctioned on a few different days,

and the problem didn't come to light until Economy noticed the

temperature in its freezers was off. Economy discovered a strong

odor emanating from product boxes, a pretty clear indication that

the food inside had gone bad. 

1

 The parties do not distinguish between these two

corporations. And neither do we, especially as it makes no

difference to the outcome. From now on, we'll just call them,

collectively, "AJC."

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The United States Department of Agriculture stepped in

and ordered the destruction of the beef and chicken products. AJC

worked with the U.S. Food and Drug Administration to come up with

any way to salvage the seafood, but it, too, ended up being tossed. 

Having suffered a loss in excess of one million dollars,

AJC sought recovery under Economy's insurance policy issued by

appellee Triple-S Propiedad, Inc. ("Triple-S"). The parties agree

that the nature of the loss was in the manner of food spoilage, and

that the spoilage was caused by a mechanical breakdown of Economy's

freezers. And they both agree that the Triple-S policy provides

coverage for AJC's loss as "personal property of others." Though

they agree on this much, the parties couldn't reach an accord as to

the amount of coverage -- AJC believes it is entitled to $500,000,

while Triple-S says the most AJC can get out of it is $25,000. 

Invoking diversity jurisdiction, AJC filed suit against

Triple-S in the district court and sought a ruling that it may

recover $500,000 under the policy.2 Each side moved for summary

judgment, asserting no trial was needed to answer this contract

interpretation coverage question.

The motions were referred to a magistrate judge, who

issued a detailed report and recommendation. The magistrate judge

found the Policy's terms clear and unambiguous and concluded that

2

 AJC also sued Economy in the district court, but it never

answered the complaint and was ultimately defaulted. Economy is

not a party to this appeal.

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language in the Policy's coverage for losses caused by equipment

breakdown limited AJC's recovery to $25,000. Accordingly, the

magistrate judge recommended that Triple-S's motion be granted and

AJC's denied. The district judge adopted the magistrate judge's

findings and recommendations in full, denied AJC's motion for

summary judgment, and granted Triple-S's. Unsatisfied, AJC

appealed.

II. DISCUSSION

A. Standard of Review

Cross-motions for summary judgment require the district

court to "consider each motion separately, drawing all inferences

in favor of each non-moving party in turn." D & H Therapy Assocs.,

LLC v. Bos. Mut. Life Ins. Co., 640 F.3d 27, 34 (1st Cir. 2013)

(citing Merchs. Ins. Co. of N.H., Inc. v. U.S. Fid. & Guar. Co.,

143 F.3d 5, 7 (1st Cir. 1998)). But see P.R. Am. Ins. Co. v.

Rivera-Vazquez, 603 F.3d 125, 133 (1st Cir. 2010) (noting that when

"cross-motions for summary judgment are filed simultaneously, or

nearly so, the district court ordinarily should consider the two

motions at the same time," but if it "opts to consider them at

different times, it must at the very least apply the same standards

to each").

Our review is de novo. Sch. Union No. 37 v. United Nat'l

Ins. Co., 617 F.3d 554, 558 (1st Cir. 2010). We follow the

familiar summary judgment rules and affirm summary judgment "only

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if the record discloses no genuine issue as to any material fact

and the moving party is entitled to judgment as a matter of law." 

Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of

London, 637 F.3d 53, 56 (1st Cir. 2011) (citations omitted). "[W]e

are not straitjacketed by the [district] judge's reasoning -- quite

the contrary, we are free to uphold [the court's] order on any

basis present in the record." Stor/Gard, Inc. v. Strathmore Ins.

Co., 717 F.3d 242, 247 (1st Cir. 2013).

B. Applicable Law and Policy Language

The parties do not dispute that Puerto Rico law applies

in this diversity case. And quite rightly so. See EnergyNorth

Natural Gas, Inc. v. Century Indem. Co., 452 F.3d 44, 47-48 (1st

Cir. 2006). Before getting into the specific Policy language

bearing on our analysis and the parties' arguments about how it

applies to the undisputed facts, it is helpful to talk about a few

basic principles of Puerto Rico insurance law. 

i. General Principles of Construction

Under Puerto Rico's Insurance Code, P.R Laws Ann., tit.

26, § 101, et seq., "[e]very insurance contract shall be construed

according to the entirety of its terms and conditions as set forth

in the policy, and as amplified, extended, or modified by any

lawful rider, endorsement, or application attached to and made a

part of the policy." Id. § 1125. As the Puerto Rico Supreme Court

has explained

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[w]ith regard to the interpretation of

insurance contracts, . . . these "should be

generally understood within their most common

and usual meaning, not paying much attention

to grammatical rigour, but to the general use

and popular meaning of the idioms. The

insured who acquires a policy is entitled to

rely on the coverage offered to him when

reading its clauses in the light of the

popular meaning of the words used therein."

Pagán Caraballo v. Silva Delgado, 22 P.R. Offic. Trans. 96, 101

(1988) (quoting Morales Garay v. Roldán Coss, 10 P.R. Offic. Trans.

909, 916 (1981)). "[E]xclusionary clauses are not favored, [and]

should be strictly construed and in such a way that the policy's

purpose of protecting the insured is met." Id.

Any ambiguities in the policy language "shall be resolved

in favor of the insured." Id. This is because "[t]he

interpretation of obscure stipulations of a contract must not favor

the party occasioning the obscurity." Meléndez Piñero v. Levitt &

Sons of P.R., Inc., 129 P.R. Dec. 521, 546 (1991). Further, when

a Puerto Rico insurance contract is ambiguous, "the insurance

policy stipulations are construed strongly against the insurer and

liberally in favor of the insured." Id. at 547; see also Quiñones

López v. Manzano Pozas, 141 P.R. Dec. 139, 155 (1996) ("[N]ice

constructions that would allow insurers to dodge liability are not

favored."). 

On the other hand, Puerto Rico law does "not compel

constructions in favor of the insured when a clause favors the

insurer, and its meaning and scope is [sic] clear and unambiguous." 

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Quiñones López, 141 P.R. Dec. at 155 (citing cases); cf.

Littlefield v. Acadia Ins. Co., 392 F.3d 1, 8 (1st Cir. 2004)

(applying New Hampshire law and observing that "we may not find a

term ambiguous merely because it eliminates coverage"). "In such

cases, it [i.e., the unambiguous clause] should be held as binding

on the insured." Quiñones López, 141 P.R. Dec. at 155; see also

Nieves v. Intercontinental Life Ins. Co. of P.R., 964 F.2d 60, 63

(1st Cir. 1992) ("If the wording of the contract is explicit and

its language is clear, its terms and conditions are binding on the

parties." (citing cases)).3

ii. Policy Language

To set the stage for the rest of our discussion, we begin

with a run-down of the Policy language relevant to this appeal.

First, the very basics. The Policy defines the words

"you" and "your" to mean the "Named Insured shown in the

3

 We note there is some authority for the proposition that

Puerto Rico's rules of construction may be relaxed and applied more

even-handedly in a commercial setting, where the insured can be

expected to have knowledge of the particular subject matter of the

policy beyond that of an ordinary individual. See Meléndez Piñero,

129 P.R. Dec. at 548-49 (recognizing that while the wording of a

particular commercial general liability policy "may be too

technical and sophisticated for the average person who buys a

policy," a principal of the insured construction company "would

construe such terms as would a specialized average businessman with

vast experience in the construction field," and rejecting the

notion that "a construction company thoroughly familiar with urban

development projects would think that when it buys liability

insurance it is actually buying property insurance, a performance

bond or a warranty of goods and services"). The parties do not

make any arguments along these lines, though.

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Declarations." Turning to those Declarations, we see the Named

Insured is "Manuel Espinosa DBA Economy International Services." 

Thus, when reading the Policy, "you" and "your" mean Economy, and

only Economy.4 Similarly, the terms "'we,' 'us' and 'our' refer to

the Company providing this insurance," Triple-S.

This case deals with a claim of loss to AJC's property

while it was stored in Economy's freezers. The Policy includes

"Personal Property of Others" as a category of "Covered Property." 

More specifically (and excising language not germane to our

analysis) Triple-S agreed to cover such property as follows:

A. COVERAGE

We will pay for direct physical loss of or

damage to Covered Property . . . caused by or

resulting from any Covered Cause of Loss.

1. Covered Property

Covered Property, as used in this Coverage

Part, means the following types of property

for which a Limit of Insurance is shown in the

Declarations:

. . . 

c. Personal Property of Others

that is:

(1) In your care, custody or

control; . . . 

However, our payment for loss of

or damage to personal property

of others will only be for the

4

 AJC concedes it is neither a named nor additional insured. 

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account of the owner of the

property.

Per the Declarations, the limit of coverage for "Personal Property

of Others" is $500,000.5

The Policy goes on, though, to exclude certain causes of

loss from coverage. Excluded from coverage -- meaning that TripleS "will not pay for loss or damage caused directly or indirectly"

by a particular cause -- is any "loss or damage caused by or

resulting from . . . [m]echanical breakdown." From now on, we'll

call this the "Mechanical Breakdown Exclusion."

But because Economy wanted the Policy to cover losses

caused by mechanical breakdown, it sought, and Triple-S added, an

endorsement which specifically provided "Equipment Breakdown

Coverage." The resulting Equipment Breakdown Endorsement, as

relevant here, provides:

5

 The Declarations also reflect a separate "Spoilage Coverage"

with a $50,000 limit, but this coverage is limited to spoilage

caused by a "power outage." The parties agree that this coverage

does not apply, as the spoilage in this case was caused by

mechanical breakdown and not a power outage. So, we don't have to

worry about that provision here.

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A. The Building and Personal Property

Coverage Form is modified as follows:

Additional Coverages

The following is added to 4. Additional

Coverages:

Equipment Breakdown

(1) We will pay for loss caused by or

resulting from an "accident" to "covered

equipment." As used in this Additional

Coverage, an "accident" means direct physical

loss as follows:

(a) mechanical breakdown . . . 

(2) Unless otherwise shown in a Schedule, the

following coverages also apply to loss caused

by or resulting from an "accident" to "covered

equipment". These coverages do not provide

additional amounts of insurance. 

. . . 

(c) Spoilage

(i) We will pay for your loss of

"perishable goods" due to

spoilage.

. . . 

The most we will pay for loss or damage under

this [Spoilage] coverage is $25,000 unless

otherwise shown in a Schedule.

To keeps things clear, from now on we'll call the coverage for

spoilage of perishable goods added by this Endorsement "Spoilage

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Coverage." We'll also refer to the $25,000 limit referenced at the

end of the Spoilage Coverage the "Spoilage Sublimit."6

The added Endorsement provides its own exclusions:

B. The Causes of Loss-- Basic Form, Broad

Form or Special Form is modified as follows:

Exclusions

(1) All exclusions and limitations apply

except:

(a) In the Causes of Loss-- Special 

Form:

(i) Exclusions B.2.a, B.2.d.(6)

and B.2.e.

One of the referenced, now-inapplicable exclusions to Equipment

Breakdown Coverage is Exclusion B.2.d.(6) -- the Mechanical

Breakdown Exclusion. 

The Endorsement sets forth other, new exclusions to its

specific Equipment Breakdown Coverage that are not found in the

main body of the Policy. For example, things such as structures,

foundations, insulating material, sprinkler piping, and sewer

piping are not "covered equipment." Also excluded is any "damage

caused by or resulting from" Economy's "failure to use all

reasonable means to protect the 'perishable goods' from damage

6

 The Equipment Breakdown Endorsement defines several terms

used therein, including "accident," "covered equipment," and

"perishable goods." We don't need to worry about these

definitions, though, because the parties do not dispute that

Economy's freezers constituted "covered equipment" or that AJC

suffered a loss of "perishable goods" as a result of an "accident."

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following an 'accident,'" along with damage caused by or resulting

from "any defect, virus, loss of data or other situation within

'media.'" Additionally, the Endorsement modifies some of the

exclusions found in the Policy's main body by adding or subtracting

language.

This run-down is sufficient to get the lay of the land. 

Other relevant provisions will be identified and discussed as

needed below.

C. Coverage Analysis

i. Framing the Issues

Now for the parties' arguments on appeal. In pursuit of

its coverage claim, AJC does not take the position that the Policy

is ambiguous. Instead, it relies on the Policy's plain language to

say that the Equipment Breakdown Endorsement deleted the Mechanical

Breakdown Exclusion found in the original Policy. It pins this

argument on Section B.1(a)(i) of the Equipment Breakdown

Endorsement, which states that "[a]ll exclusions and limitations

apply except" for certain specifically-enumerated ones -- including

the Mechanical Breakdown Exclusion -- listed immediately after. 

AJC urges us to find that this contractual language deletes those

exclusions from the original Policy. And with the exclusion

deleted, AJC reasons, coverage is then found in the Policy's main

body (the Personal Property of Others provisions), not the

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Endorsement.7 AJC goes on to say that this means the $500,000

coverage limit for Personal Property of Others (which is set forth

in the Declarations) is available to satisfy its claims.8

Not surprisingly, Triple-S disagrees with AJC, telling us

that the "clear and unambiguous terms of the Triple-S Policy

provide a $25,000 sub-limit for spoilage of 'perishable goods'

caused by or resulting from equipment breakdown." Appellee Br. at

18. Thanks to the Policy's exclusion of losses caused by

mechanical breakdown (as happened here), Triple-S says, instead of

$500,000 being available for loss to the Personal Property of

Others, $0 is. In other words, the main body of the Policy

provides no coverage for AJC's loss. But, Triple-S explains, the

Equipment Breakdown Endorsement added coverage for losses stemming

from equipment breakdown back to the Policy, including situations

7 As AJC puts it, coverage is "pursuant to Section A. of the

Building and Personal Property Coverage Form." Appellant Br. at

20.

8 AJC further posits that, "[i]f, in fact, the $500,000.00

coverage limit in the Triple-S Policy is not available for a loss

caused by or resulting from a mechanical breakdown of frozen food

products owned by a client of the insured (Economy), then this

coverage limit is illusory." Appellant Br. at 22. While the Court

is familiar with the concept of illusory coverage, AJC does not

explain what it means by an illusory coverage limit. And even if

we presume that what AJC actually means to say is that the coverage

itself is what's illusory, AJC fails to tell us how this can be so

when both parties agree that there is coverage for AJC's loss. Any

argument along the lines of illusory coverage or an illusory

coverage limit (whatever that might be) has been waived for failure

to develop it on appeal. See United States v. Zannino, 895 F.2d 1,

17 (1st Cir. 1990).

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like here where an equipment breakdown results in loss of

perishable goods. Furthermore, Triple-S argues that the

Endorsement's Spoilage Coverage comes with its own $25,000 limit,

which caps AJC's recovery at $25,000.9

ii. Analysis

Now that we've laid out the applicable law, Policy

provisions, and the parties' arguments, we can get to the bottom of

this dispute. 

Because neither party contends the Policy or its

Mechanical Breakdown Exclusion is ambiguous, we will not go out of

our way to find ambiguity. In the absence of claimed ambiguity,

our job under Puerto Rico law is to simply apply the provisions as

written. We begin, as we must, with the plain language.

1. Policy Language

As noted, the parties agree on the essential facts: 

AJC's perishable goods spoiled while in Economy's care, resulting

in financial loss to AJC. They agree the spoilage resulted from a

mechanical breakdown of Economy's freezers, and that AJC's goods,

as Personal Property of Others, fall under the Policy's definition

of Covered Property.

Turning to the Policy itself, we see that Triple-S agreed

it would "pay for direct physical loss of or damage to Covered

9

 Triple-S raises a few other arguments, but we do not need to

reach them to decide this appeal.

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Property . . . caused by or resulting from any Covered Cause of

Loss." Policy, Building and Personal Property Coverage Form, § A. 

This type of policy, "called, in insurance lingo, an 'all risks

policy' -- covers all physical loss to the [specified] property

unless 'caused by or resulting from' an excluded peril." 

Stor/Gard, 717 F.3d at 244. The Equipment Breakdown Exclusion then

precludes coverage for losses caused by or resulting from the peril

of mechanical breakdown. Policy, Causes of Loss - Special Form,

§ B.(2)(6).

Significantly, though, the Policy is individualized so as

to contain the Equipment Breakdown Endorsement, which adds

"Equipment Breakdown Coverage" back to the Policy. Under this

coverage, Triple-S agreed to pay for certain losses "caused by or

resulting from an 'accident' to 'covered equipment.'" Policy,

Equipment Breakdown Endorsement ("Endorsement") § A.(2). The

Endorsement also explicitly adds coverage for a "loss of

'perishable goods' due to spoilage," id. at § A.(2)(c)(i), which is

what we've been calling Spoilage Coverage.

In light of the agreed upon facts, it is clear from the

Endorsement's plain language that Spoilage Coverage applies to

AJC's loss. There is no dispute about this. The question is, just

how much coverage is available? The Spoilage Coverage itself,

setting forth its own Sublimit, suggests an answer: "The most we

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will pay for loss or damage under this coverage is $25,000 unless

otherwise shown in a Schedule." Id. at § A.(5)(c).10

AJC raises a couple of arguments as to why we should

interpret the Policy and Equipment Breakdown Endorsement as

providing $500,000 of coverage for its loss. Neither, we believe,

has merit.

2. Deletion of the Mechanical Breakdown Exclusion

We start with AJC's contention that the Equipment

Breakdown Endorsement "expressly deleted" the Mechanical Breakdown

Exclusion altogether. AJC relies (almost exclusively) on our

opinion in Fidelity Co-Operative Bank v. Nova Casualty Co., 726

F.3d 31 (1st Cir. 2013), to say that we have already decided

language similar to that in the Endorsement deletes an exclusion.

Although AJC makes Fidelity the centerpiece of its

argument, it is of no assistance. The long and short of it is that

the policy and endorsement at issue there involved quite different

language than appears in the Triple-S Policy. In Fidelity, an

amendatory endorsement provided simply that certain "[e]xclusions

are deleted." 726 F.3d at 37 (emphasis added). This clear text,

we found, resulted in the deletion of the "entire exclusion" at

issue there. Id. at 37 n.2.

10 AJC does not argue that any Schedule applies to increase the

$25,000 Spoilage Sublimit.

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The contractual language here is not even close to what

we had before us in Fidelity. Most obviously, the Equipment

Breakdown Endorsement does not say that it deletes the Mechanical

Breakdown Exclusion. It provides instead that "[a]ll exclusions

and limitations apply except" for those specifically designated,

including the Mechanical Breakdown Exclusion. And, per the plain

language, the exceptions referred to are inapplicable only insofar

as the reestablished additional coverage provided by the

Endorsement is concerned.11 Far from deleting that Exclusion from

the original Policy, the Equipment Breakdown Endorsement simply

renders it inapplicable to certain coverage situations, like when

perishable goods spoil as a result of "an 'accident' to 'covered

equipment.'" See Endorsement § A.(2). In sum, Fidelity's

dissimilar contract language does not support AJC's proposition

that the Equipment Breakdown Endorsement's language in Economy's

policy deleted the Mechanical Breakdown Exclusion.

Having disposed of its Fidelity-based argument, AJC is

left with the bald assertion that the Endorsement "expressly

deleted the [M]echanical [B]reakdown [E]xclusion." Appellant Br.

at 18. Beyond citing to Fidelity, AJC does not explain how the

Endorsement does so. Since nowhere does the Endorsement state that

11 Further, use of the word "apply" presupposes the continuing

existence of the Mechanical Breakdown Exclusion. After all, it

would be nonsensical to say that something which no longer exists

in the world (having been deleted) does or does not apply in a

particular situation.

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it deletes the Exclusion, this omission is practically enough on

its own to doom AJC's position. And what's more, we find that

AJC's take doesn't jibe with the Policy's overall structure or

plain language.

First, by setting forth new "Additional Coverages"

previously unknown to the Policy (including Spoilage Coverage), the

Endorsement acts as a sort of "mini-policy." Like the Policy

itself, the Endorsement sets forth an insuring agreement complete

with its own definitions, detailed conditions, and deductible. The

Endorsement even has something to say about exclusions. As we have

seen, it specifies that certain existing exclusions do not apply to

the Endorsement's coverage, it modifies other exclusions, and it

adds still others that are only applicable to the Endorsement's

brand of Equipment Breakdown Coverage.12 Against this backdrop, it

is clear that the Equipment Breakdown Endorsement is meant to do

much more than simply delete an exclusion.

Furthermore, and perhaps most telling of all, the

Endorsement does explicitly delete a portion of one of the original

12 For example, the Endorsement excludes things like

foundations, cabinets, insulating material, sewer pipes, water

pipes, excavation or construction equipment, and equipment mounted

on a vehicle from its definition of "covered equipment." 

Endorsement § B.(3)(a). And among other causes of loss, it

excludes coverage for loss or damage caused by or resulting from "a

hydrostatic, pneumatic or gas pressure test of any boiler or

pressure vessel," along with loss caused by or resulting from "an

insulation breakdown test of any type of electrical equipment." 

Id. at § B.(3)(b)(iii).

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exclusions in certain situations. And -- unlike the policy we

construed in Fidelity -- the Endorsement explicitly limits the

effect of that deletion to coverage under the Endorsement itself. 

Specifically, the Endorsement states that

[i]f the Causes of Loss-- Special Form

applies, as respects this endorsement only,

the last paragraph of Exclusion B.2.d.13 is

deleted and replaced with the following: But

if loss or damage by an "accident" results, we

will pay for that resulting loss or damage.

Endorsement § B.(2)(c) (emphasis added).14 Had Triple-S intended

to delete the Mechanical Breakdown Exclusion, surely it would have

used the word "delete" to say so. Instead, it made the Mechanical

Breakdown Exclusion inapplicable solely to the Endorsement's

coverage. That Triple-S chose not to use simple language deleting

the Mechanical Breakdown Exclusion, when it obviously knew how to

do so, further demonstrates that the Equipment Breakdown

Endorsement did not delete the Exclusion from the Policy.

13 The referenced paragraph appears immediately after seven

specific exclusions (including the Mechanical Breakdown Exclusion)

in the original Policy and states, "[b]ut if loss or damage by the

'specified causes of loss' or building glass breakage results, we

will pay for that resulting loss or damage." Causes of Loss -

Special Form, § B.(2)(d). "Specified Causes of Loss," in turn, is

itself defined in the Endorsement as "[f]ire; lightning; explosion;

windstorm or hail; smoke; aircraft or vehicles; riot or civil

commotion; vandalism; leakage from fire extinguishing equipment;

sinkhole collapse; volcanic action; falling objects; weight of

snow, ice or sleet; water damage." Id. at § F.

14 Although each party set forth this particular policy

language in its brief, neither makes any argument based upon it.

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In essence, AJC's position that the Endorsement deleted

the Exclusion effectively asks us to redraft the Policy's clear and

unambiguous language. Accepting this invitation would contravene

the well-established tenets of Puerto Rico's insurance law

requiring us to interpret and apply unambiguous provisions of an

insurance contract as they are written. We, therefore, reject

AJC's argument that the Equipment Breakdown Endorsement deletes the

Mechanical Breakdown Exclusion.

 Let's take stock of what this means for coverage. The

Mechanical Breakdown Exclusion continues to exist in the Policy. 

And the only coverage to which the Exclusion does not apply is that

additional coverage set forth in the Equipment Breakdown

Endorsement. So, coverage for AJC's loss must flow from that

Endorsement because any potential alternative source of coverage

falls prey to the Mechanical Breakdown Exclusion. Thus, the only

coverage available for AJC's loss is provided by the Spoilage

Coverage, as set forth in the Equipment Breakdown Endorsement.

3. $25,000 Spoilage Coverage Limit

This brings us to AJC's final argument.

As we mentioned, the Endorsement's Spoilage Coverage

comes with its own $25,000 Spoilage Sublimit. See Endorsement

§ A.(2)(c) ("The most we will pay for loss or damage under this

coverage is $25,000 unless otherwise shown in a Schedule."). 

Although it is not particularly clear from its brief (or oral

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argument), AJC seems to be arguing that even if coverage for its

loss is found in the Endorsement's Spoilage Coverage rather than

the main Policy, the $500,000 coverage limit in the Declarations

nevertheless prevails over the lower Spoilage Sublimit. This is

because, in AJC's view, the Sublimit applies only to spoilage of

goods owned by the Named Insured, Economy, and not goods owned by

Economy's clients. AJC asserts that, since the $25,000 Spoilage

Sublimit does not apply to its loss, the $500,000 limit set forth

in the Declarations becomes available to it.15 Triple-S, however,

tells us that the Spoilage Sublimit applies to Economy's loss of

perishable goods no matter who owns those goods.

To unravel this question, we return to the Endorsement's

language. The relevant part of the Spoilage Coverage provision

states the following: "We will pay for your loss of 'perishable

goods' due to spoilage." Recall that "you" and "your" refer only

to the Named Insured, Economy. Thus, what this provision says is

that Triple-S will pay up to $25,000 for "Economy's loss of

'perishable goods' due to spoilage." Since AJC's goods spoiled

while in Economy's freezers, this $25,000 Sublimit kicks in to

limit AJC's recovery.

15 AJC does not, however, explain why this might be so where

the only coverage for spoilage is by way of the Mechanical

Breakdown Endorsement, not from the main Policy itself. This turns

out to be academic anyway, given our ultimate conclusion.

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 Attempting to get out from under the Spoilage Sublimit,

AJC urges us to add a "your" to the sentence and read it to say

that Triple-S will only pay for "Economy's loss of Economy's

'perishable goods' due to spoilage." This interpretation simply

cannot be squared with the Endorsement's plain and unambiguous

language.

According to its terms, the $25,000 Sublimit comes into

play where Economy is responsible for the spoilage of perishable

goods, regardless of who owns them. This comes as no surprise. 

Economy's business, after all, is storing other companies'

perishable goods. So it makes sense that Economy would seek to

obtain insurance coverage for those goods.16 This commerciallysensible rationale, along with the explicit Policy language

employed by the contracting parties (Economy and Triple-S), work

hand-in-hand to convince us that it would be unreasonable for us to

read an extra "your" into the Spoilage Coverage. In the absence of

any ambiguity in the Policy language, Puerto Rico law calls for us

to apply the Endorsement and its $25,000 Spoilage Sublimit as

16 We note that when the Puerto Rico Supreme Court considers

an insurance policy in its entirety, as we do here, it does not

hesitate to "take into account certain extrinsic elements that may

shed light on the intention of the parties." Soc. de Gananciales

v. Serrano, 145 P.R. Dec. 394, 400 (1998). "These elements may

vary according to the circumstances of each particular case, but

they generally are: the parties' contracting intention, the

premium agreed on, the circumstances surrounding the negotiation

and the contract, and the practices and customs established by the

insurance industry." Id. at 401. We, too, feel free to consider

these factors as necessary.

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written. We may not judicially redraft the Policy to reflect AJC's

wishes.

Here, it is uncontested that AJC suffered a loss to its

perishable goods as a result of Economy's malfunctioning freezers. 

We have already determined that coverage for this loss is provided

by the Spoilage Coverage set forth in the Equipment Breakdown

Endorsement. Thus, pursuant to the clear terms of the Spoilage

Sublimit, the most that Triple-S is required to pay out due to this

loss is $25,000. Any other conclusion would be contrary to the

Endorsement's plain language and run afoul of basic precepts of

Puerto Rico insurance law. We, therefore, apply the Endorsement

and Spoilage Sublimit as written, and we conclude that the most AJC

may recover for Economy's loss of AJC's perishable goods is

$25,000.17

17 One last note: AJC's brief includes an allegation that

Triple-S "has admitted that the coverage under Personal Property of

Others and its Limit of $500,000.00 is available for damage caused

by an equipment breakdown." Appellant Br. at 22. Although AJC

cites the addendum to its brief to support this statement, see id.,

AJC waited until its reply brief to explain that this admission

comes from the parties' proposed pretrial stipulations of fact, see

Appellant Reply at 8 n.2. Assuming an argument along these lines

hasn't been waived, United States v. Arroyo-Blas, 783 F.3d 361, 366

n.5 (1st Cir. 2015) (recognizing that we need not address arguments

that a party saves for its reply brief), and that it is appropriate

for us to consider materials submitted in an addendum to a party's

brief but not the joint appendix, see Appellee Br. at 4 n.1

(pointing this out), it is unavailing. 

The proposed stipulation states, "Triple-S admits that the

coverage under Personal Property of Others and its Limit of

$500,000.00 is available for damage caused by an equipment

breakdown." Recall that the Equipment Breakdown Endorsement

provides more than just Spoilage Coverage. See, e.g., Endorsement,

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III. CONCLUSION

For the foregoing reasons, the district court's judgment

is affirmed.

§ A.(1)(a) (providing coverage for a mechanical breakdown of

covered equipment). Because we hold that coverage for AJC's loss

is found solely by way of the Endorsement's Spoilage Coverage, the

door remains open to the possibility that claims falling under

different coverage provisions in the Endorsement could be covered

up to $500,000. There is simply nothing inconsistent between the

Triple-S admission and our holding today.

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