Court Opinion

ID: 2656467
Source: CourtListenerOpinion
Date Created: 2014-03-12 19:23:39.041182+00
Date Added: 2024-06-11T12:18:11.424347
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 13-2000

                         EVAN ARDENTE,

                      Plaintiff, Appellee,

                               v.

              THE STANDARD FIRE INSURANCE COMPANY,

                     Defendant, Appellant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF RHODE ISLAND

          [Hon. William E. Smith, U.S. District Judge]

                             Before

                   Torruella, Circuit Judge,
                  Souter,* Associate Justice,
                   and Selya, Circuit Judge.

     Daniel F. Sullivan, with whom Wystan M. Ackerman, Dana M.
Horton and Robinson & Cole LLP, were on brief for appellant.
     Kurt T. Kalberer II, with whom Christopher E. Hultquist and
DarrowEverett, LLP, were on brief for appellee.

                         March 12, 2014

*
   Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
          TORRUELLA,   Circuit   Judge.    Standard   Fire   Insurance

Company appeals from a district court order awarding Evan Ardente

summary judgment on his claim for breach of a yacht insurance

policy. Because the policy does not cover the type of damage

sustained by Ardente's yacht, we reverse.

                           I. Background

          Standard Fire insured Ardente's yacht. At some point

after purchasing the boat, Ardente noticed that its top speed had

decreased and that it was not navigating properly.       The parties

agree that these were symptoms of water damage to the yacht's hull.

They also agree about how water was getting into the hull.          A

ship's hull has holes for the installation of fixtures, such as

port lights. Normally, the material surrounding these so-called

"installation holes" is solid laminate, which is waterproof.      But

in Ardente's yacht, the installation holes are surrounded by balsa

wood, which is not waterproof.    Water seeping into the balsa wood

around the installation holes then spread throughout the hull.

          Ardente presented a claim to Standard Fire, which denied

coverage on the ground that the claim fell within an exclusion for

manufacturing defects.    Ardente sued in state court, alleging,

among other claims, breach of contract, whereafter Standard Fire

removed the case to federal court.     The parties then filed cross

motions for summary judgment.

                                 -2-
            The district court granted summary judgment in favor of

Standard Fire on all of Ardente's claims except for the breach of

contract allegation.      Ardente v. Standard Fire Ins. Co., 906 F.

Supp. 2d 22 (D.R.I. 2012).          On that claim, the district court

granted   Ardente    summary    judgment   with   respect   to   liability,

interpreting the policy in such a way that the damage fell within

an exception to the exclusion for manufacturing defects. The issue

of damages was reserved for trial, but the parties reached a

stipulation with respect to damages, and the district court entered

judgment.   Standard Fire appealed.

                               II. Discussion

            We review de novo both the district court's grant of

summary judgment and its interpretation of the insurance policy.

Penn-Am. Ins. Co. v. Lavigne, 617 F.3d 82, 84 (1st Cir. 2010).

Summary judgment is appropriate when the record, viewed in the

light most favorable to the nonmovant, reveals no genuine issue of

material fact and that the movant is entitled to judgment as a

matter of law.      See id.    This case presents no factual issues and

asks only whether Ardente's loss is covered by the policy, a legal

question properly resolved by summary judgment. See Littlefield v.

Acadia Ins. Co., 392 F.3d 1, 6 (1st Cir. 2004).

            The parties agree that Rhode Island law governs the

interpretation of the policy. Under Rhode Island law, if the terms

of an insurance policy are unambiguous, there is no further need

                                     -3-
for judicial construction.      Amica Mut. Ins. Co. v. Streicker, 583
A.2d 550, 551 (R.I. 1990).      To determine whether ambiguity exists,

the policy must be viewed in its entirety and the language must be

given its plain, everyday meaning.        Id. at 552.   Where a policy is

ambiguous, it will be construed against the insurer.           Id. But "[a]

policy is not to be described as ambiguous because a word is viewed

in isolation or a phrase is taken out of context.            A court should

not, through an effort to seek out ambiguity when there is no

ambiguity, make an insurer assume a liability not imposed by the

policy."    McGowan v. Conn. Gen. Life Ins. Co., 289 A.2d 428, 429

(R.I. 1972).

            Ardente's   Standard   Fire   policy   explicitly     disclaims

coverage for "loss or damage caused by or resulting from . . .

[d]efects   in   manufacture,    including   defects    in    construction,

workmanship and design other than latent defects as defined in the

policy" (emphasis added).       This provision is referred to as the

"manufacture-defect exclusion," and the emphasized exception to

that exclusion is referred to as the "latent-defect exception."

The parties agree that use of balsa wood instead of solid laminate

constitutes a manufacturing defect, but they disagree over whether

the defect falls within the latent-defect exception.

            The policy defines "latent defect" as "a hidden flaw

inherent in the material existing at the time of the original

building of the yacht, which is not discoverable by ordinary

                                   -4-
observation or methods of testing." The parties agree that the use

of balsa wood was a flaw that existed at the time of the original

building of the yacht and that it was not discoverable by ordinary

observation or methods of testing. The only dispute is whether the

balsa wood constitutes "a hidden flaw inherent in the material."

Standard Fire claims that the material, in this case the balsa

wood, was not flawed in any way; that it was perfectly good balsa

wood, and that it did what balsa wood does -- absorb water.

Unsurprisingly, Ardente takes the opposite tack and argues that

while the balsa wood itself was not flawed, the use of balsa wood,

instead of solid laminate, was certainly a flaw.

          The   district   court   sided   with   Ardente.   It   first

determined that the phrase, "flaw inherent in the material" -- part

of the definition of "latent defect" -- contained a contradiction.

According to the district court:

          The word "inherent" requires that a latent
          defect be characteristic of or intrinsic to
          the material. The word "flaw" imposes the
          exact opposite requirement. It includes
          problems with a specific piece of material,
          but not problems characteristic of the
          material itself. In short, giving the terms
          their plain and reasonable meaning, there can
          be no such thing as an inherent flaw.

Ardente, 906 F. Supp. 2d at 27.     Because ambiguity in an insurance

policy is interpreted against the insurer, the district court

refused to let this apparent contradiction render the entire

latent-defect exception meaningless.        Instead, to reflect the

                                   -5-
reasonable    expectations   of    the    insured,   the   district   court

interpreted "latent defect" to include the flawed use of unflawed

material. Said the district court, "The use of balsa wood in these

areas was a flaw in the construction of the Yacht, even if it was

not a flaw in the underlying material itself."         Id. at 28.

             We fear that the district court committed the error

against which McGowan warns: deeming a policy ambiguous, and thus

making an insurer liable, by taking a term out of context and

viewing it in insolation.         See 289 A.2d at 429.       The policy's

definition of "latent defect" -- "a hidden flaw inherent in the

material existing at the time of the original building of the

yacht, which is not discoverable by ordinary observation or methods

of testing" -- while not a model of precision, is not self-

contradictory.    Viewing the definition in its entirety and giving

the language its plain, everyday meaning, see Streicker, 583 A.2d

at 552, the gist is clear.         The phrase refers to flaws in the

material used to build the boat that were not noticeable.                 A

quintessential example, we imagine, is a piece of wood with a

hairline fracture or with an undetectable termite infestation.

             If anything, the definition could be criticized not as

self-contradictory but as redundant.         It mentions flaws that are

"hidden" but goes on to add that they must be "not discoverable by

ordinary observation or methods of testing," which is another way

of saying "hidden."     Indeed, the word "inherent" is yet a third

                                    -6-
means of emphasizing this same quality: In this context, inherent

means "within" and conveys that the flaw must impugn the material

in a way that evaded observation at the time it was handled.              While

"inherent"    may   not   have   been    the   best   choice    of   words,   and

reiterated an already redundant aspect of the definition, the

district court failed to give that term its everyday meaning by

reading it to require that the flaw inhere in every piece of the

type of material under consideration.

             We acknowledge that redundancy may itself be a form of

ambiguity; indeed, one canon of interpretation urges courts to give

each word meaning, thereby avoiding surplusage.                See Andrukiewicz

v. Andrukiewicz, 860 A.2d 235, 239 (R.I. 2004).                But we offer two

responses.     First, we note a general point -- colorfully made by

the Sixth Circuit -- about redundancy in insurance policies:

             [The] label ["redundancy"] surely is not a
             fatal one when it comes to insurance
             contracts . . . where redundancies abound. In
             just this one provision of the 80-page
             insurance contract, there are at least three
             truly redundant phrases . . . : (1) "loss or
             damage"; (2) "caused by or resulting from";
             and (3) "faulty, inadequate or defective." As
             in so many insurance contracts, iteration is
             afoot throughout--from an exclusion for "war
             and military action" to one for "fraudulent,
             dishonest or criminal acts or omissions" to
             one for flooding of "lakes, reservoirs, ponds,
             brooks, rivers, streams, harbors, oceans or
             any other body of water or watercourse" to
             numerous others.
                                 . . . .

                    All of this helps to reveal the limits
             of the interpretive canon . . . that courts

                                        -7-
            must avoid interpreting contracts to contain
            superfluous words. The canon is one among many
            tools for dealing with ambiguity, not a tool
            for creating ambiguity in the first place.
            Where there are two ways to read the text--and
            the one that avoids surplusage makes the text
            ambiguous--applying     the    rule    against
            surplusage is, absent other indications,
            inappropriate.

TMW Enterprises, Inc. v. Fed. Ins. Co., 619 F.3d 574, 577-78 (6th

Cir. 2010) (Sutton, J.) (citations and internal quotation marks

omitted).

            Second,   accepting   that       "inherent"   in   the   policy's

definition is redundant, we fail to see how this redundancy invites

the reading adopted by the district court and urged by Ardente.

Granting that ambiguity should be interpreted against the insurer

and in light of the reasonable expectations of the insured, if

ambiguity lives in the phrase "inherent flaw," that phrase, and not

another, should be so construed.        That remedy might, for example,

entail striking the word "inherent" so that the definition would

read, "a hidden flaw inherent in the material existing at the time

of the original building of the yacht, which is not discoverable by

ordinary observation or methods of testing."          But instead of doing

that, the district court changed the word "material" to "yacht,"

such that "latent defect" referred to a "hidden flaw in the yacht."

This   might   have   been   proper    had    ambiguity   marred     the   word

"material," but the district court found ambiguity not in that term

but in the term "inherent flaw."

                                      -8-
          For his part, Ardente does argue that the term "material"

is ambiguous.   He urges us to interpret "material" to mean not the

balsa wood, but something like, "all of the stuff that is near the

installation holes."    Part of that "stuff" is the balsa wood, and

it is that fact -- the fact that balsa wood makes up some of the

"stuff" surrounding the installation holes -- that, according to

Ardente, constitutes the flaw.

          Ardente's interpretation would create surplusage, and not

that of the relatively benign variety that comes with describing a

flaw as both "hidden" and "inherent."         His interpretation of the

word "material" would allow the latent-defect exception to swallow

the   manufacture-defect      exclusion,     rendering    the   exclusion

superfluous and doing violence to the policy. The policy expressly

excludes from coverage damage caused by "[d]efects in manufacture,

including defects in construction, workmanship, and design other

than latent defects."   To say that "material" in the definition of

"latent defect" refers not to an individual raw ingredient used in

constructing the yacht, but rather to a composite of various raw

ingredients that appear in close proximity in a particular area of

the ship, yields the following result: If a carpenter building the

yacht accidentally affixes balsa wood instead of solid laminate

around the installation holes, we could refer to the defect as a

"latent   defect"   instead    of   a     "defect   in   construction   or

workmanship."   Similarly, if an engineer drawing the blueprints of

                                    -9-
the yacht accidentally calls for balsa wood instead of solid

laminate to be placed around the installation holes, we could refer

to that defect as a "latent defect" instead of a "defect in

design."   But it is clear that the policy meant to exclude from

coverage precisely those types of defects.

           As a last ditch effort to support affirmance, Ardente

makes two arguments based on sources that are irrelevant here.

First, Ardente argues that the policy's definition of "latent

defect" guts the term of a broader meaning that it allegedly enjoys

under Rhode Island common law.     Citing one Rhode Island case and

Black's Law Dictionary, Ardente contends that, at common law,

"latent defect" would mean a hidden flaw in the yacht, as opposed

to a hidden flaw in the balsa wood.     But in the case cited, the

policy did not define "latent defect," see Neri v. Nationwide Mut.

Fire Ins. Co., 719 A.2d 1150, 1153-54 (R.I. 1998), and whatever

interpretation courts might adopt in the absence of an explicit

policy definition has no bearing on this case, where Ardente's

policy defines the term.

           Second, Ardente accuses Standard Fire of defining "latent

defect" to include flaws that some other insurance policies capture

with a separate "faulty materials" exception. Ardente cites TRAVCO

Insurance Co. v. Ward, 715 F. Supp. 2d 699, 710 (E.D. Va. 2010),

aff'd, 504 F. App'x 251 (4th Cir. 2013), where, because the policy

explicitly excluded loss caused by both "latent defects" and

                                 -10-
"faulty materials," the court avoided surplusage by interpreting

the undefined term "latent defect" not to include faulty materials.

Id. But Standard Fire was free to define "latent defect" to include

faulty materials and, given that its policy contains no separate

exclusion for "faulty materials," that seems to be precisely what

Standard Fire did.

           Because the damage to Ardente's yacht does not fall

within   the   latent-defect   exception   to   the   manufacture-defect

exclusion, Standard Fire -- not Ardente -- was entitled to summary

judgment on the breach of contract claim.             We need not reach

Standard Fire's alternative arguments supporting reversal.

                           III. Conclusion

           For the foregoing reasons, the district court's order

granting Ardente summary judgment on his breach of contract claim

is REVERSED, the judgment in favor of Ardente is VACATED, and the

district court is directed to grant Standard Fire's cross motion

for summary judgment and to enter judgment in Standard Fire's

favor.   No costs are awarded.

                                  -11-