Court Opinion

ID: 3285751
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:00:33.711688+00
Date Added: 2024-06-11T12:17:56.281263
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 15-2386

                      PACIFIC INDEMNITY COMPANY,

                        Plaintiff, Appellant,

                                  v.

                             JOHN DEMING,

                         Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Leo T. Sorokin, U.S. District Judge]

                                Before

                    Torruella, Lynch, and Barron,
                           Circuit Judges.

     Daniel Q. Harrington, with whom Cozen O'Connor was on brief,
for appellant.
     Joseph M. Noone, with whom Julie M. Brady and Avery Dooley &
Noone LLP were on brief, for appellee.

                             July 5, 2016
              LYNCH, Circuit Judge.           In this Massachusetts diversity

case, plaintiff Pacific Indemnity Company ("Pacific") seeks to

recover damages from John Deming as a result of damages Deming

caused to a condominium insured by Pacific.                  Deming, a tenant, not

an   owner,    of    Unit   1801    at    1   Huntington      Avenue     in    Boston,

Massachusetts, caused flooding that damaged Unit 1601 in that

building.      Pacific, which insured Unit 1601, paid Unit 1601's

owners $351,159.01 as a result of the incident and, as Unit 1601's

subrogee, sought to recover damages in this amount as well as pre-

judgment interest and costs from Deming.

              The   district     court,       on    cross-motions       for    summary

judgment, granted judgment in favor of Deming and dismissed the

case.    Pac. Indem. Co. v. Deming, 140 F. Supp. 3d 152, 162 (D.

Mass. 2015).        The district court concluded that Pacific's rights

to subrogation were waived based on a clause in the bylaws of 1

Huntington Avenue's condominium trust ("Bylaws") that unit owners

"shall carry insurance," and that "all such policies shall contain

waivers of subrogation."           Id. at 156–61.

              We disagree.       We think the best reading of the plain

language of the Bylaws, Master Deed, and Declaration of Trust

(collectively       "condominium        documents"),    is     that    the    required

waivers of subrogation do not apply to tenants.                      However, in any

event,   Deming      presented     no    evidence     that    Unit    1601's    owners

actually      waived   their     insurer's         subrogation       rights    against

                                         - 2 -
tenants.      And so, even if the Bylaws did require unit owners to

purchase insurance that contains waivers of subrogation as to

claims against tenants, Pacific can pursue its claims against

Deming.    We reverse the district court's order and remand.

                                       I.

              The parties have stipulated to the following facts:         In

2010, Deming rented Unit 1801 at 1 Huntington Avenue in Boston

under a lease with that unit's owner.          On May 27, 2013, he fell

asleep after turning on the bathtub faucets in the master bathroom.

The   water    from   the   bathtub    overflowed   and   leaked   into   the

condominium units below, causing considerable damage.              Pacific,

which insured Unit 1601, paid $351,159.01 to that unit's owners as

a result of the incident.       The parties stipulate that Deming was

negligent in turning on the bathtub faucets and then falling asleep

while they were running.

              On August 4, 2014, Pacific brought a diversity action in

the Massachusetts federal district court seeking to recover the

amount it had paid to the owners of Unit 1601.1           Pacific pled that

under its policy,2 "and otherwise by operation of law, Pacific is

      1   The complaint was originally brought against Tabitha
Deming, but it was amended on December 19, 2014, to replace Tabitha
with John Deming.

      2   Pacific Indemnity's insurance policy contained a section
called "Transfer of rights," which stated:

                                      - 3 -
duly subrogated to [Unit 1601 owners'] rights against Deming for

the damages."

           Deming filed an answer on January 5, 2015, demanding a

jury trial and raising several affirmative defenses.              On June 18,

2015, Deming filed a motion for summary judgment, arguing, inter

alia,   that    "[t]he     waiver   of   subrogation    contained    in   the

plaintiff's insurance policy is enforceable and prohibits the

plaintiff's claims against the defendant."

           Deming, in support of his motion for summary judgment,

took the position that "the obligation to secure insurance policies

with such waivers is a requirement of the condominium association"

and   pointed   to   the   Declaration    of   Trust   of   the   condominium

association, Trinity Place Condominium.          The Declaration of Trust

provided in Paragraph 3.E of its Bylaws:

           Each Unit Owner shall carry insurance at his
           own expense for his own benefit insuring,
           inter alia, his carpeting, wallcoverings other
           than   paint,    drapes   and   other   window
           treatments, furniture, furnishings and other
           personal property owned by the Unit Owner, and
           personal liability, and loss assessment
           coverage, provided that all such policies
           shall contain waivers of subrogation, and

           All of your rights of recovery will become our
           rights to the extent of any payment we make
           under this policy. A covered person will do
           everything necessary to secure such rights;
           and do nothing after a loss to prejudice such
           rights. However, you may waive any rights of
           recovery from another person or organization
           for a covered loss in writing before the loss
           occurs.

                                    - 4 -
               further provided, that the liability of the
               carriers issuing insurance obtained by the
               Trustees shall not be affected or diminished
               by reason of any such additional insurance
               carried by a Unit Owner.

Deming argued that "[b]y agreeing to the requirements of the

condominium association, Pacific's insured purchased an insurance

policy that permitted waiving the right of subrogation."

               On July 8, 2015, Pacific opposed Deming's motion for

summary judgment and filed a cross-motion for summary judgment.

It argued, inter alia, that "[b]ecause defendant, who admits that

he    is   a   mere   tenant   of   a    Unit     Owner    of    the   Trinity   Place

Condominium . . . cannot establish that there is any contractual

impediment      to    plaintiff's       pursuit    of     this    subrogation    claim

against him, plaintiff is entitled to judgment against defendant."

Pacific claimed that its policy language, which provided that the

insured "may waive any rights of recovery from another person or

organization for a covered loss in writing before the loss occurs,"

was     not    "self-effectuating"         but     rather        "merely   authorized

plaintiff's insureds/subrogors to enter into separate agreements

which      waive      subrogation       against     particular         'persons'    or

'organizations.'"         Pacific said that Deming "can point to no

document indicating that he is such a 'person' who received a pre-

loss waiver." Pacific maintained that "the only possibly pertinent

language would have to be that contained in Section 3E of the By-

Laws," which Pacific contended could not be interpreted to apply

                                         - 5 -
to tenants.         Deming opposed the cross-motion on July 29, 2015, and

Pacific replied on August 4, 2015.3

                The district court entered a memorandum and order on

October 16, 2015, in which it allowed Deming's motion for summary

judgment and denied Pacific's cross-motion.                  Pac. Indem. Co., 140

F. Supp. 3d at 154.          The district court noted that Trinity Place's

Bylaws required unit owners to obtain an insurance policy that

"shall" contain a waiver of subrogation and concluded that this

provision applies to tenants. Id. at 158–60. It held, inter alia,

(1) that the Bylaws in the case were covenants that ran with the

land, id. at 158, and so "Deming is both bound by and benefits

from the waiver of subrogation provision because that provision is

one that runs with the land," id. at 159; (2) that "the plain

meaning        of   the   Bylaws   subjects   Deming    to    the   insurance   and

subrogation waiver imposed on Unit Owners," id.; and (3) that

"allowing Pacific to recover from another Unit Owner (or in this

case       a   tenant),    because   its   insured     breached     his   or   [her]

obligation to obtain insurance containing a waiver of subrogation,

would frustrate the clear intent of the condominium By-laws and

       3  The district court then issued an electronic order on
September 3, 2015, saying that "[t]he Master Deed states certain
provisions 'run with the land,'" and allowing the parties to file
supplemental memoranda "addressing the significance, if any, of
this language to [their] Motion[s]." The parties did file such
supplemental memoranda.

                                       - 6 -
allow Pacific to benefit from its insured's breach, an untenable

result," id. at 161.     This appeal followed.

                                      II.

A.      Standard of Review

             Generally, we review orders granting summary judgment de

novo.    Tang v. Citizens Bank, N.A., No. 15-2003, 2016 WL 2946379,

at *4 (1st Cir. May 19, 2016).            Here, Deming contends that this

should be considered review of a "case stated," and as such, we

should review for clear error.              See United Paperworkers Int'l

Union, Local 14, AFL-CIO-CLC v. Int'l Paper Co., 64 F.3d 28, 31

(1st Cir. 1995).     Deming is incorrect.

             "[U]nder our precedent, in certain, somewhat unusual

cases, [the plenary summary judgment] standard does not apply.            In

a nonjury case, when the basic dispute between the parties concerns

only the factual inferences that one might draw from the more basic

facts to which the parties have agreed, and where neither party

has sought to introduce additional factual evidence or asked to

present witnesses, the parties are, in effect, submitting their

dispute to the court as a 'case stated.'"          Id.   In such cases, the

district court "may engage in a certain amount of factfinding,

including the drawing of inferences," and we review these factual

inferences for clear error.         Id.

             The case stated doctrine does not apply here.             As an

initial    matter,   while   "the    actual    meaning   of   a   contractual

                                     - 7 -
provision         which      can   reasonably      accommodate      two     or     more

interpretations should be left to the jury[,] . . . the question

whether       a     provision      can   reasonably       support     a     proffered

interpretation is a legal one, to be decided by the court."4                      Fleet

Nat'l Bank v. Anchor Media Television, Inc., 45 F.3d 546, 556 (1st

Cir.       1995).      We    review   legal   conclusions    de     novo.        United

Paperworkers, 64 F.3d at 32.             And to the extent Deming argues that

"Pacific seeks to overturn the factual inferences drawn by the

District Court," this argument fails.

               First, this is not a "non-jury" case.              See García-Ayala

v. Lederle Parenterals, Inc., 212 F.3d 638, 644 (1st Cir. 2000);

United Paperworkers, 64 F.3d at 31.5                 Second, "this circuit and

others inquire into the intentions of the parties and the district

court judge, as evidenced by the record on appeal."                  García-Ayala,

212 F.3d at 644.            Here, neither the parties nor the district court

exhibited the intent to have the district court resolve their

motions as a case stated.                See id. at 644 n.4.          Further, the

district       court      specifically    stated    the   standard    for    summary

       4  As discussed in Part II.B, infra, the parties do not
dispute that contract law applies to interpretation of the
condominium documents.
       5  Deming demanded a "trial by jury on all issues," and
this demand "may be withdrawn only if the parties consent," Fed.
R. Civ. P. 38(d). Pacific said that it "would not and does not
consent to such a withdrawal," and Pacific is entitled to rely on
Deming's jury claim.    See Lamex Foods, Inc. v. Audeliz Lebrón
Corp., 646 F.3d 100, 106 (1st Cir. 2011).

                                         - 8 -
judgment and said that in accordance with this standard, it would

view the record in the light most favorable to the non-moving

party.

          Our    review   is   de     novo,   "drawing   all   reasonable

inferences in favor of the non-moving party."             Roman Catholic

Bishop of Springfield v. City of Springfield, 724 F.3d 78, 89 (1st

Cir. 2013).     As we have repeatedly held, "[o]n an appeal from

cross-motions for summary judgment, the standard does not change;

we view each motion separately and draw all reasonable inferences

in favor of the respective non-moving party." Id.; see also United

Paperworkers, 64 F.3d at 31 n.2.

B.   Paragraph 3.E of the Bylaws

          "The general rule is well established that upon the

payment of a loss the insurer is entitled to be subrogated pro

tanto to any right of action which the insured may have against a

third person whose negligence or wrong caused the loss."         New Eng.

Gas & Elec. Ass'n v. Ocean Accident & Guarantee Corp., 116 N.E.2d

671, 683 (Mass. 1953).     Here, the Bylaws at Paragraph 3.E, set

forth in full earlier, provide that "[e]ach Unit Owner shall carry

insurance at his own expense for his own benefit insuring . . .

personal property owned by the Unit Owner," and that "all such

policies shall contain waivers of subrogation."          Importantly, the

terms of this clause do not specify the scope of the subrogation

rights to be waived.

                                    - 9 -
           Reading the document as a whole, we look to Paragraph

3.A.1 of the Bylaws, which appears in the same "Insurance" section

of the Bylaws as Paragraph 3.E.          Paragraph 3.A.1 discusses the

scope of "waivers of subrogation" within the Trustees' insurance:

"The Trustees shall be required to obtain and maintain . . .

Property Insurance," and "[t]he Property Insurance shall, insofar

as practicable, contain waivers of subrogation as to any claim

against the Trustees, their agents and employees, Unit Owners,

their respective employees, agents and guests."         (Emphasis added.)

Under its terms, it is clear that property insurance obtained by

the Trustees under Paragraph 3.A.1 need not waive the insurer's

right to subrogate claims against tenants.

           The district court applied Massachusetts contract law to

interpret the condominium documents, and the parties do not dispute

that contract law applies to interpretation of the condominium

documents on appeal.     See, e.g., Hancock v. Chambers, No. 13-P-

80, 2014 WL 959702, at *3 (Mass. App. Ct. Mar. 13, 2014) (applying

contract   principles   to   interpret    condominium    documents);   cf.

Mueller v. Zimmer, 124 P.3d 340, 359 (Wyo. 2005) ("Bylaws are

contractual in nature. . . . Unsurprisingly, bylaws are interpreted

according to the principles applicable to the interpretation of

contracts.").6 Under contract interpretation principles, the scope

     6    The parties do not dispute that Massachusetts law
applies in this diversity case. See Servicios Comerciales Andinos,

                                 - 10 -
of "waivers of subrogation" provided in Paragraph 3.A.1 bears on

the interpretation of Paragraph 3.E.            See J.A. Sullivan Corp. v.

Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986) ("[E]very phrase

and clause must be presumed to have been designedly employed, and

must be given meaning and effect, whenever practicable, when

construed     with     all   the   other   phraseology     contained    in    the

instrument, which must be considered as a workable and harmonious

means for carrying out and effectuating the intent of the parties."

(alteration in original) (quoting Charles I. Hosmer, Inc. v.

Commonwealth, 19 N.E.2d 800, 804 (Mass. 1939))); cf. Fay, Spofford

& Thorndike, Inc. v. Mass. Port Auth., 387 N.E.2d 206, 210 (Mass.

App. Ct. 1979) ("[W]hen an essential term of a contract is missing,

that contract is ambiguous and it falls to us to interpret the

contract sensibly in the light of the terms of the document taken

as a whole . . . .").

              Here, the inclusion of a specific scope of "waivers of

subrogation" in Paragraph 3.A.1 juxtaposed with Paragraph 3.E's

mention of "waivers of subrogation" absent any defined scope lends

itself   to    at    least   three   possible   interpretations:       (1)   that

Paragraph      3.A.1    provides     the   outer   limit    of   "waivers      of

subrogation" in Paragraph 3.E, but that Paragraph 3.E may be less

inclusive than Paragraph 3.A.1; (2) that the scope of "waivers of

S.A. v. Gen. Elec. Del Caribe, Inc., 145 F.3d 463, 478 (1st Cir.
1998).

                                     - 11 -
subrogation" in Paragraph 3.E is the same as that of "waivers of

subrogation"       in      Paragraph    3.A.1;    or    (3)    that   "waivers     of

subrogation" in Paragraph 3.E is not limited in scope the way

"waivers of subrogation" is in Paragraph 3.A.1, and so could apply

to claims against anyone.              Pacific argues in favor of the first

approach.       We think that the first or second approach provides a

better reading, as we do not understand the condominium documents

to suggest waivers of subrogation would waive claims against

anyone.     The tenant is not a party to the agreement, and is not

named as a party in Paragraph 3.E.               See Kaf-Kaf, Inc. v. Rodless

Decorations, Inc., 687 N.E.2d 1330, 1332–33 (N.Y. 1997) ("While

parties    to    an     agreement   may   waive      their    insurer's    right   of

subrogation, a waiver of subrogation clause cannot be enforced

beyond the scope of the specific context in which it appears.").

            Our reading is consistent with the holdings of two other

courts considering like issues, albeit not under Massachusetts

law.   See Cmty. Ass'n Underwriters of Am., Inc. v. McGillick, No.

09-4891,    2010      WL    5467673,     at   *4–5     (D.N.J.   Dec.     30,   2010)

(concluding that condominium bylaw provision requiring "[a]ll

policies of physical damage insurance shall contain waivers of

subrogation and of any reduction of pro-rata liability of the

insurer as a result of any insurance carried by Unit Owners" did

not "accrue to the benefit of tenants"); Schiller v. Cmty. Tech.,

Inc., 78 A.D.2d 762, 763–64 (N.Y. App. Div. 1980).                    And, as said

                                        - 12 -
in the second case, "[a]lthough the offering plan does not specify

to     whom     the    waivers      must   extend,     the   reasons   for    waiving

subrogation rights only apply to potential claims against other

unit owners . . . . The goal is to insure and protect the

condominium owners, and that goal is satisfied without extending

the waiver of subrogation to negligent third parties."                            Id. at

763.

                However, we need not resolve the question of Paragraph

3.E's scope nor look to extrinsic evidence because even if 3.E

were        thought    to   apply    to    claims    against   tenants,      it    would

nonetheless be insufficient to effectuate a waiver of subrogation

for reasons we now proceed to discuss.7

C.      Unit 1601's Waiver of Subrogation

                Regardless of Paragraph 3.E's scope, nothing in the

record suggests that Unit 1601's owners actually waived their

insured's subrogation rights.

                Specifically, Paragraph 3.E of the Bylaws requires unit

owners        to      procure    insurance      that     contains      "waivers       of

subrogation."           Pacific's policy includes that the insured "may

waive any rights of recovery from another person or organization

for a covered loss in writing before the loss occurs."                    (Emphasis

        7 The parties also contest whether the Bylaws should be
treated as covenants that run with the land. We need not resolve
that issue for this same reason.

                                           - 13 -
added.)        However, these two documents, even when read together, do

not amount to an actual waiver of subrogation.                Pacific's policy

merely giving the insured the option to waive rights of recovery

cannot be read as a waiver of subrogation.                 And the only way to

understand Paragraph 3.E as constituting a waiver of subrogation,

as Deming does, is to read the requirement to purchase insurance

with       a   waiver    of   subrogation    as   itself   being   a   waiver   of

subrogation.          But that reading is contrary to the plain text, and

we reject it.8           See Gen. Convention of New Jerusalem in the U.S.

of Am., Inc. v. MacKenzie, 874 N.E.2d 1084, 1087 (Mass. 2007)

("When the words of a contract are clear, they must be construed

in their usual and ordinary sense . . . .").

                The     district   court    found   that   unit    owners   "were

required, unconditionally, to obtain insurance with a waiver of

subrogation" and that if Pacific's "insured did not actually obtain

insurance with a waiver of subrogation, then at best, its insured

breached his or her obligation."             Pac. Indem. Co., 140 F. Supp. 3d

at 160.        Then, adopting the reasoning of a New York Supreme Court

case, Allstate Indem. Co. v. Virfra Holdings LLC, No. 155762/2012,

2013 N.Y. Misc. LEXIS 6878 (N.Y. Sup. Ct. July 3, 2013), the

       8  We note that there may also be a question of whether
Pacific needs to be a party to any writing waiving subrogation.
See McGillick, 2010 WL 5467673, at *3. However, Pacific's argument
implies that it need not be a party to such an agreement so we do
not address the question here.

                                       - 14 -
district court held that "allowing Pacific to recover from another

Unit Owner (or in this case a tenant), because its insured breached

his or [her] obligation to obtain insurance containing a waiver of

subrogation, would frustrate the clear intent of the condominium

By-laws and allow Pacific to benefit from its insured's breach, an

untenable result," Pac. Indem. Co., 140 F. Supp. 3d at 161.

           We disagree that such a result is "untenable" because it

is   entirely   consistent   with    the     plain   language   of   both   the

insurance policy and the Bylaws.            See Wickman v. Nw. Nat'l Ins.

Co., 908 F.2d 1077, 1084 (1st Cir. 1990) ("We are bound by this

plain language, and we may not distort it in an effort to achieve

a desirable or sympathetic result."); cf. MacKenzie, 874 N.E.2d at

1087 ("[W]e do not admit parol evidence to create an ambiguity

when the plain language is unambiguous.").               Reaching the same

result under similar circumstances, the court in McGillick noted

that "while the [defendants] may counter-claim for breach of

contract, any alleged breach . . . in failing to waive subrogation

does not preclude Plaintiff's suit."           2010 WL 5467673, at *3.

           And so, under the facts of this case, Pacific is not

subject to a waiver of subrogation and can pursue its claims

against Deming.

                                     III.

           For the reasons above, the order of the district court

is reversed, and the case is remanded.

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