USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________
No. 93-2352
IN RE SAN JUAN DUPONT PLAZA HOTEL FIRE LITIGATION.
__________
AMERICAN INTERNATIONAL INSURANCE COMPANY OF PUERTO RICO
and INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA,
Cross-Claimants, Appellants,
v.
AMERICAN NATIONAL FIRE INSURANCE COMPANY,
Cross-Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, U.S. District Judge]
___________________
____________________
Before
Boudin, Circuit Judge,
_____________
Bownes, Senior Circuit Judge,
____________________
and Stahl, Circuit Judge.
_____________
____________________

Robert S. Frank, Jr. with whom Mark D. Cahill, Bret A. Fausett,

____________________
______________ _______________
Jeffrey A. Levinson, Choate, Hall & Stewart, William R. Kardaras,
___________________ ______________________ ___________________
Louise A. Kelleher and Cooper, Brown, Kardaras & Scharf were on
__________________
________________________________
briefs for American International Insurance Company of Puerto
Rico and Insurance Company of the State of Pennsylvania.
Kent R. Keller with whom William A. Kurlander, John C. Holmes,
_______________
____________________ ______________
J. Steven Bingman and Barger & Wolen were on brief for American
_________________
_______________
National Fire Insurance Company.
____________________
January 27, 1995
____________________

BOUDIN, Circuit Judge.

_____________
Lyon v.
____
2116,

This appeal

is a companion

Pacific Employees Insurance Co., Nos.

________________________________
which is decided today

in a separate

to

93-2115, 93-

opinion.

Here,

appellants American International Insurance Company of Puerto

Rico

("AIIC")

and

Insurance
challenge

Company

Pennsylvania

("ISOP")

sponte grant
______

of summary judgment for

of

the district

the

State

court's

of
sua
___

American National Fire

Insurance
defense

Company ("ANFIC")
costs.

The

court's action
procedurally

on AIIC/ISOP's

appellants contend

in granting
flawed

that the

district

summary judgment sua sponte was

___________

because

they

had

opportunity to present a defense.

primary general

cross-claim for

no

notice

and

no

AIIC and ISOP were the

liability insurers for the

Dupont Plaza and

related entities when the hotel fire occurred on December 31,

1986.

Their

insureds

included the

Corporation, Holders Capital

Systems

International

Associates ("HELA")
shareholder

and

entities.1

As the

Dupont Plaza

Corporation ("Holders"),

("HSI"),

Hotel

and William Lyon,

director

San Juan

of

the

Equipment

Hotel
Leasing

in his capacity
various

Dupont

primary insurers for the hotel,

as a
Plaza

AIIC and

____________________
1Holders, in which Lyon and others had an ownership
interest, was
the holding
company for various
hotel
operations. HSI, a subsidiary of Holders, owned and operated
the Dupont Plaza. HELA is a limited partnership, in which
Lyon was a limited partner, that leased hotel equipment to
various hotels including the Dupont Plaza.
-2-2-

ISOP

financed

the

hotel's

defense

of

the

massive

fire

litigation, expending over $40,000,000 in defense costs.

At the time of

the fire, ANFIC was the

liability insurer for the

primary general

William Lyon Company, a California

residential construction and development company, and related

entities,

including

explains

in

("PEIC")

and

William

detail,

Pacific

First State

among several

Employers

Insurance

excess insurers

and its related insureds

coverage

Lyon individually.
Insurance

Company

at the time of the

Lyon
____

Company

("FSIC") were

for the William

provided additional

As

Lyon Company

fire, and their

layers of protection

over and

above ANFIC's primary coverage.

In
PEIC and

general, as

is typical

FSIC provided

coverage.

Like

the

policy's

only direct

in excess

coverage similar to
PEIC

and

link to

FSIC

listed as an insured,

Lyon was involved in

the PEIC and

ANFIC's primary

policies, the

the Dupont

status as a named individual insured; no

was

insurance cases,

and no listed

the hotel business.

Plaza

ANFIC

was Lyon's

Dupont Plaza entity

insured other than
In

addition, like

FSIC policies, the ANFIC policy

limited Lyon's

individual coverage to the conduct

of businesses of which he

was the "sole proprietor."

Soon after the fire-injury suits began, Lyon and Holders
tendered their

defenses to ANFIC.

ANFIC

agreed to

defend

Lyon,

but reserved its rights to deny coverage on the ground

-3-3-

that Lyon had

declined to
insured.

In

not been

sued in an

defend Holders on the

insured capacity.
basis that it

April 1988, ANFIC filed

was not an

a declaratory judgment

action in a California federal court against Lyon and

to resolve the coverage issues.
consolidated

with the

ANFIC

others

This action was subsequently

multi-district

litigation in

Puerto

Rico and eventually dismissed without prejudice.

AIIC,

ISOP

and ANFIC

were

all

eventually joined

as

defendants in the first phase of the fire-injury litigation-AIIC

and ISOP in September

In February 1989,
ANFIC,
Lyon and

1987 and ANFIC

AIIC and ISOP filed a

seeking contribution

for their

in January 1989.

cross-claim against
costs

for defending

the other Dupont Plaza entities related to him.

In

May 1989, when phase I was resolved by settlement, AIIC, ISOP

and ANFIC all contributed their coverage limits as damages to

the victims' settlement fund--a

combined $1 million for AIIC

and

ANFIC--with ANFIC

ISOP

reserving

and $1
its

million

for

rights later

to

dispute

expressly

its obligation

to

contribute to defense costs.

In

phase

III of

the

litigation,

undertook the unenviable task

FSIC policies

the district

On December 7, 1992, in

court ruled that

did not cover the

Lyon or any of the Dupont

court

of sorting out the contractual

liabilities of the various insurers.

Order No. 469,

the district

the PEIC

and

fire-related obligations of

Plaza entities connected to him, a

-4-4-

result that we have today affirmed in Lyon.

____
largely

paralleled the

encouraged by Order No.

PEIC

and FSIC

Since its policy

policies, ANFIC

469 to move for summary

was

judgment on

AIIC/ISOP's cross-claim for defense costs.

Because the district court's
pre-trial

motions had

long

deadline for the filing of

since passed,

ANFIC was

first

required to obtain
out of time.
motion

the court's permission to file the motion

On February 25, 1993, ANFIC filed a twelve-page

seeking

leave

to

file

for

summary

judgment,

predicating its request on the identity of the issues decided

in

Order

ANFIC's

No. 469.

The

motion

proposed summary

procedural arguments

an

judgment

substance of

arguments and

why the court should

summary judgment filing.

establish

outlined the

presented

allow the belated

ANFIC also requested that the court

appropriate

briefing

schedule

for

summary

judgment filings.
On March

9,

opposition to

1993, AIIC

and

ANFIC's motion

procedural

and

substantive

opposition

briefly

urged

ISOP filed

seven-page

for leave, setting

forth both

grounds

differences

for

denial.

between

The
primary

insurer's defense obligation and an excess insurer's coverage

obligation,
claim

hoping

against

asserted

ANFIC

by Holders

to distinguish
from

the

and Lyon

-5-5-

AIIC/ISOP's contribution

liability
against PEIC

coverage
and FSIC.

claims
The

opposition

did not

contain

any analysis

or discussion

of

California law on the duty to defend.

In the event the court

granted ANFIC's motion for leave

to file, AIIC and ISOP requested similar permission to file a

cross-motion for

summary judgment to affirm

contribute to Lyon's
motion

defense.

seeking production

claiming that those

AIIC and ISOP

of

ANFIC's

files contained

ANFIC's obligation to defend

ANFIC's duty to

Lyon.

also filed

underwriting

files,

admissions relating
Although the motion

to
did

not identify the supposed admissions, on appeal AIIC and ISOP

suggest only that
was responsible

the files might help establish

that ANFIC

for including an allegedly ambiguous omnibus

clause in its policy.

On September
No. 495,

2, 1993, the district

granting summary judgment for

cross-claim for

defense costs.

Treating

court entered Order

ANFIC on AIIC/ISOP's
ANFIC's motion for

leave to file as a request for summary judgment, the district

court ruled
PEIC and

that ANFIC's

primary policy, like

FSIC policies,

Dupont Plaza

entities.

did not

cover Lyon

Because AIIC/ISOP's

the parallel
or any of

the

cross-claim was

"distinct and separate from any remaining claims" in the fire

litigation,

the

court

dismissing the cross-claim

entered

Final

Judgment

in its entirety.

No.

The court also

dismissed AIIC/ISOP's request for production of documents

moot.

12

as

On October 8, 1993, in Order No. 506, the court denied

-6-6-

AIIC/ISOP's

timely

motion to

reconsider,

and

this appeal

followed.
As a
is

preliminary matter, ANFIC argues

limited

to a

review

district court's
and that
only.

denial of

our inquiry is

See,
___

No.

506,

the motion for

therefore for

which is

the

reconsideration,

abuse of

discretion

e.g., Mariani-Giron v. Acevedo-Ruiz, 945 F.2d 1,

____ _____________
____________

3 (1st Cir. 1991).

notice

of Order

that this appeal

ANFIC points to the fact that appellants'

of appeal is entitled, "Notice of Appeal to the First

Circuit Court of Appeals From Order No. 506 of District Court

Judge Raymond L.
ISOP

Acosta Dated

contend Order

No.

October 8, 1993."

495, the

AIIC

district court's

and

summary

judgment ruling, is also before this court.

An

appeal

reconsideration
judgment.

from
is

not

the
an

LeBlanc v. Great

denial
appeal

of
from

motion

for

the

underlying

American Ins. Co.,

6 F.3d 836,

_______
839 (1st Cir.
(collecting

1993), cert.
_____
cases).

from the denial

notice of

of a

an appeal

where the appellant's

clear."

________________________

Id.
___

denied, 114 S.
______

But we

Ct. 1398

have allowed "a

timely Rule 59(e)

from the underlying

in designating

timely appeal

motion to serve
judgment in

intent to appeal from

A mistake

"as

long as

the intent

to

as

cases

the judgment is

a judgment

notice of appeal will not ordinarily result in a

appeal

(1994)

appeal from

in the

loss of the
a specific

judgment can be fairly inferred from the notice, and appellee

-7-7-

is

not misled by the mistake."

Kelly v. United States, 789

_____
_____________

F.2d 94, 96 n.3 (1st Cir. 1990).

AIIC/ISOP's
intent

notice

of

to appeal the summary

the notice referred to

appeal

manifests

AIIC/ISOP's

judgment ruling.

The body of

Order No. 469 and Final

Judgment No.

12.

The

notice, filed

district

court's

on November 1,

denial

October 8, 1993, was

of

1993, following

the motion

to

timely for an appeal

and Final Judgment No. 12.

the

reconsider

of Order No.

See Fed. R. App. 4(a).

___

on
469

The title

of the notice, which refers only to the motion to reconsider,

is

not dispositive,

prejudiced in any way

and there

is no

claim that

ANFIC was

by the mislabeled notice.

See Kotler
___ ______

v. American Tobacco Co., 981 F.2d 7, 11-12 (1st Cir. 1992).

____________________
We turn

now to the

district court's decision

summary

judgment in favor of ANFIC.

granted

summary judgment,

there

When the district court

was no

summary judgment pending before it;

motion

requesting

opposition.
parties'

leave

These filings

respective

to

to grant

formal motion

it had only the

file

and

the

the

ANFIC's

AIIC/ISOP's

did outline the substance

positions on

for

merits.

of the

Still,

in

formal terms, the district court's ruling was "the functional

equivalent

of

sua sponte grant

___________

of

summary

judgment."

Stella v. Town of Tewksbury, 4 F.3d 53, 55 (1st Cir. 1993).

______
_________________
In Stella, we recognized that a district court can grant
______
summary

judgment

on its

own

-8-8-

initiative

so

long

as

the

parties' procedural interests are

In particular, discovery

4 F.3d

at 55.

must be far enough examined

to let

the court accurately decide

of

material

fact

protected.

whether there are genuine issues

and to

make

the

parties

evidence that they can

adduce.

need

district court

notice from

consider

the

a grant of summary

Id.
___

aware of

Further,
of

the litigants

its intention

the

district

judgment,
would

court

was

for the only

to

judgment, so that the litigants

can present their arguments and their evidence.

_______
In this case, there was

the

Id.
___

on the one hand no notice

considering

grant

issue pending was

grant permission to file such

of

that

summary

whether the court

a motion.

On the other

hand, the parties in the course of presenting their positions

on the

latter issue also revealed

much of what they

had to

say on the substance of the merits of summary judgment.

The

matter is further complicated because AIIC/ISOP also took the

position
motion,

that,
they

before
needed

responding
additional

to

summary

discovery

in

judgment
order

to

illuminate the question who drafted the omnibus clause in the

ANFIC policy.

If we
summary

were completely

judgment

issue

district

court, it

that the

essence of the

satisfied or

certain that

had

been fully
_____

might be

that the

the merits
presented

reasonable to

to

the

conclude either

Stella notice requirement

______
failure to

of the

satisfy it was

had been
harmless.

-9-9-

See Stella, 4 F.3d at 56 n.4.

___ ______

Further, our own opinion today

in the companion case significantly limits the arguments left

open to

AIIC/ISOP and also

request

irrelevant.

significant

legal

But
issue,

appears to render
there
not

does

its discovery

remain unresolved

squarely

addressed

by

a
the

district court, so we are persuaded that a remand is the most

appropriate solution.
Broadly speaking, as to coverage
position appears to be
and

for liability, ANFIC's

materially identical to that of

FSIC decided in the companion Lyon case.

PEIC

The reasons we

____
have

given in that case

clear that
against

for exculpating PEIC

claims of liability

ANFIC

endorsement
Lyon that
____

would

also

and FSIC make

coverage by Lyon

fail.

The

or Holders

sole

proprietor

appears in the ANFIC policy, and we have held in

this endorsement

clause without regard

limits claims under

to who drafted

the omnibus

the provisions.

Yet,

there is a further argument, vigorously pressed by AIIC/ISOP,

that
the

the duty to defend under California law is broader than

duty

coverage

to

indemnify

claim

has

and applies

"potential"

wherever

validity

even

liability
though

it

ultimately fails.
There is apparently no dispute that under California law
the duty to

defend is

Horace Mann Ins. Co. v.

____________________
1993).

AIIC/ISOP

say

broader than the

duty to

Barbara B., 846 P.2d 792,

__________
that wherever

-10-10-

there

is

indemnify.
795 (Cal.
potential

coverage

under a

policy--by potential

"arguable"--the duty to defend exists.

to

assume that, if there was a

defend at the outset,

the defense
coverage

they appear

All parties also seem

duty on the part of ANFIC to

then it is liable for

costs even if

to mean

contribution to

the potential claim

is later resolved in the

negative.

Corp. of Cal. v. Superior Court, 861 P.2d

______________
_______________

of liability
Montrose Chem.
______________

1153, 1157 (Cal.

1973); Continental Casualty Co. v. Zurich Ins. Co., 366 P.2d

________________________
________________
455, 461 (Cal. 1961).
ANFIC, however, says that the duty to defend in arguable
cases does not extend to those
whether the
policy;

putative insured

and

ANFIC cites

support its position.

1383,

1388 (Cal.

in which the dispute is about

is actually insured

California

Wint v.
____

cases

under the

that it

thinks

Fidelity & Cas. Co., 507 P.2d

___________________

1973); McLaughlin
__________

v. National Union Fire

____________________

Ins. Co. of Pittsburgh, Pa., 29 Cal. Rptr. 2d 559, 570 (Cal.

____________________________
Ct. App. 1994).
that (in its
individual
claimant,

ANFIC also seems

to think that it

view) the burden of proof

or company is protected

whereas proving

that a

matters

to establish that an

by a policy

is upon the

restriction or

exclusion

applies is upon the insurer.

We
burden of
in

are

doubtful whether

this

supposed

difference in

proof matters in a case in which the facts are not

dispute, but

the

extent of

the

duty to

defend

under

California law

may be a debatable

point.

While law

on the

-11-11-

duty to defend in
in

potential coverage cases might

be limited

the fashion that ANFIC suggests, it is also possible that

the

duty to

defend exists

arguably coverage,
dispute.
exists

In
at

liability

in any

which there

regardless of what policy

the alternative,

least

case in

where

the

perhaps the
defendant

litigation is a named

in

is

language is in
duty to
the

defend

underlying

insured, and the dispute as

to coverage turns on whether the insured is sued in a covered

"capacity."
Assuming there is a duty to defend in arguable cases and
that ANFIC's
wash,

distinction between types of

the question

arguable.

While our

would remain

whether coverage

reading of the policy language

may somewhat impair AIIC/ISOP's position,

California

disputes does not

law the duty to

here was
in Lyon
____

nevertheless under

defend is evaluated

in terms of

likelihoods

at the outset of
______

Mann, 846 P.2d

____

at 795.

litigation.

A court's

See, e.g., Horace

___ ____ ______

later conclusion that

provision should be read one way, and that extrinsic evidence

is

beside

contrary

the point,
view

does

not necessarily

was inarguable.

The

mean

standard

that the

of what

is

them

are

arguable is itself a matter of California law.

Although
essentially

the

issues

legal ones,

as

we

there

have

posed

are numerous

reasons why

remand is appropriate so the district court can

matter in the

first instance.

consider the

Discovery aside,

it is

not

-12-12-

completely clear
can
court

that the parties have

about the "merits," since

has

been

summary judgment

directed

said everything they

much of the

to the

briefing in this

procedural

and not to the merits.

propriety

of

Since the reach of

California law on the duty to defend is disputed, our concern

that

the parties may not

have mustered all

of their merits

arguments and citations is not a formality.

Further, we are not wholly certain that our narrowing of
the issues is justified.

Although our companion opinion

Lyon
____

any

probably eliminates

drafted the omnibus clause

litigants has
light of

had an

Lyon.
____

willingness
litigation is
claim;

much of

as ANFIC

penalties
defend.

opportunity to

assume

concern about

in the ANFIC policy, none

Similarly,

to

basis for

we are

Lyon's

who

of the

address this

issue in

skeptical that

ANFIC's

defense

in

the

an admission vis-a-vis

points out,

in

underlying

the AIIC/ISOP

it could

be subject

to harsh

if it

breached the

duty to

under California law

Still, the presence of this kind of dangling dispute

shows why the wiser course is to remand.

Finally, although

we are reluctant to

prolong what has

been extraordinarily burdensome litigation,

no judge on this

panel

compares

familiarity with

to

the

district

the facts, the procedural

possible ramifications
dispute.

presiding

of California law in

The district court did

-13-13-

judge

in

his

history, and the

relation to the

not in its grant of summary

judgment discuss the

to indemnify
claims

asserted distinctions between the

duty

and a duty to defend or their connection to the

of contribution

pressed by

AIIC/ISOP in

this case.

This is one more reason why a remand is the wiser outcome.

On
the

remand, we think that the proper course would be for

district court to invite

ANFIC to file

a formal motion

for summary judgment and to allow AIIC/ISOP to file papers in

opposition,
If

or a cross-motion

any party

necessary, it
not

wishes to

discovery

but

otherwise

after

so.

As already

obvious factual issues

the

district

the

favor, or both.

claim that additional

is free to do

discerned any

in their own

parties

court

is

have had

discovery is
noted, we have

requiring further
free
an

to

determine

opportunity

to

remanded
________

for

present their positions.

The

judgment

is

vacated
_______

and the

case

further proceedings in accordance with this opinion.

-14-14-