Narragansett Jewelry Co. v. St. Paul Fire & Marine Insurance ( 2009 )


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  •              United States Court of Appeals
    For the First Circuit
    No. 08-1008
    NARRAGANSETT JEWELRY CO., INC., d/b/a C&J JEWELRY, CO., INC.
    Plaintiff, Appellant,
    v.
    ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
    Defendant, Appellee.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF RHODE ISLAND
    [Hon. Ernest C. Torres, U.S. District Judge]
    Before
    Torruella, Baldock,* and Howard,
    Circuit Judges.
    James J. McGair, with whom Thomas C. Angelone and Hodosh,
    Spinella & Angelone, P.C. were on brief, for appellant.
    Paul S. Callaghan, with whom James A. Ruggieri and Higgins,
    Cavanagh & Cooney, LLP were on brief, for appellee.
    February 6, 2009
    *
    Of the Tenth Circuit, sitting by designation.
    HOWARD, Circuit Judge.             This appeal arises out of an
    insurance coverage dispute between appellant Narragansett Jewelry
    Co. Inc., d/b/a C & J Jewelry Co. Inc. ("Narragansett") and its
    general liability insurer, appellee St. Paul Fire and Marine
    Insurance Co. ("St. Paul").             Narragansett sought defense and
    indemnity from St. Paul in connection with a civil action filed
    against it by Slane & Slane Designs, LLC ("Slane") in the Southern
    District   of    New   York   ("the   underlying     action"   or    "the   Slane
    lawsuit").      Following St. Paul's denial of coverage, Narragansett
    filed suit in Rhode Island federal district court for breach of the
    insurance contract and for a declaratory judgment that St. Paul was
    required to provide coverage. Narragansett sought to recover money
    it expended in the Slane lawsuit, including attorneys fees and the
    amount it paid in settlement.1               The district court granted St.
    Paul's   motion    for   summary      judgment,    from   which     Narragansett
    appeals.     Finding no error in the district court's analysis or
    conclusion, we affirm.
    I.
    Under Rhode Island law -- which both parties agree
    governs this case -- an insurer's duty to provide a defense to
    litigation brought against its insured is determined by comparing
    the allegations in the underlying complaint against the insured to
    1
    The Slane lawsuit was settled while the instant matter was pending
    in the district court.
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    the language of the relevant insurance policy. This is referred to
    as "the pleadings test." Progressive Cas. Ins. Co. v. Narragansett
    Auto Sales, 
    764 A.2d 722
    , 724 (R.I. 2001).           "'[I]f the pleadings
    recite facts bringing the injury complained of within the coverage
    of the insurance policy, the insurer must defend irrespective of
    the insured's ultimate liability . . . .'"           
    Id.
     (quoting Peerless
    Ins. Co. v. Viegas, 
    667 A.2d 785
    , 787 (R.I. 1995)).
    II.
    We begin our analysis by figuratively "laying the           . . .
    complaint alongside the policy . . . ."        Employers' Fire Ins. Co.
    v. Beals, 
    240 A.2d 397
    , 402 (R.I. 1968).               We start with the
    complaint.2    Slane is a jewelry design company that contracted with
    Narragansett    in   1996.     Pursuant   to   the    parties'   agreement,
    Narragansett was to develop jewelry models and molds based on Slane
    designs, and to produce jewelry ordered by Slane.                Once Slane
    designed a particular piece of jewelry, it was Narragansett's job
    to produce a model to serve as a template from which the jewelry
    could be mass produced.      Upon Slane's approval of the model, a mold
    would be created for use in the mass production process.
    The gist of Slane's complaint was that Narragansett
    "failed and refused to develop models of consistent and usable
    quality and which were free of defects."       More specifically, Slane
    2
    Slane followed its original complaint with an amended complaint.
    We refer to the latter unless otherwise indicated.
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    charged that Narragansett's models were not properly calibrated, or
    were defective in other ways that prevented them from being used to
    manufacture    the   final   products.   Slane   also   claimed   that
    Narragansett damaged and lost numerous models belonging to Slane.
    Finally, Slane asserted that Narragansett either failed to deliver
    the final product, or delivered goods long after the expected
    delivery date.
    Slane's original complaint, filed in May 2002, set forth
    causes of action for breach of contract, breach of express and
    implied warranties, negligence, negligent misrepresentation, and
    breach of the covenant of good faith and fair dealing.      After St.
    Paul denied coverage, Slane filed an amended complaint in March
    2003 adding a count entitled "Entrustment-Negligence," alleging
    that Narragansett damaged jewelry models which Slane entrusted to
    Narragansett for use in the production of jewelry.      St. Paul again
    denied coverage, and Narragansett's declaratory judgment action
    followed.
    In relevant part, the Comprehensive General Liability
    policy St. Paul issued to Narragansett provides that St. Paul will
    "pay amounts [Narragansett] is legally required to pay as damages
    for covered . . . property damage that happens while this agreement
    is in effect and is caused by an event."         The policy defines
    "property damage" as "physical damage to tangible property of
    others, including all resulting loss of use of that property" or
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    "loss of use of tangible property of others that isn't physically
    damaged."     The St. Paul policy also contains several exclusions,
    describing matters that are not covered by the policy.                        One of
    these, the Control of Property exclusion, provides that the policy
    does not "cover property damage to . . . [p]ersonal property that's
    in the care, custody, or control of [Narragansett]."
    III.
    The district court granted St. Paul's motion for summary
    judgment     on    the   basis    of    the   Control   of     Property    exclusion,
    concluding        that   the    factual   allegations     in    the    "Entrustment-
    Negligence" count3 ineluctably describe a loss related to Slane's
    property -- molds and models -- in Narragansett's "care, custody or
    control."     We review the district court's summary judgment ruling
    de novo, construing the record evidence in the light most favorable
    to Narragansett. Dennis v. Osram Sylvania, Inc., 
    549 F.3d 851
    , 855
    (1st Cir. 2008).         "Summary judgment is appropriate 'where there is
    no genuine issue as to any material fact . . . and the movant is
    entitled to judgment as a matter of law.'"               New Fed. Mortgage Corp.
    v.   Nat'l    Union      Fire    Ins.     Co.,   
    543 F.3d 7
    ,    11   (1st   Cir.
    2008)(quoting Fed. R. Civ. P. 56(c)).
    In determining whether the allegations in a complaint are
    sufficient to create a duty to defend, we apply general rules of
    3
    Narragansett conceded during the proceedings below that only the
    "Entrustment-Negligence" count in the amended complaint could be
    construed to afford it coverage.
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    contract     construction        and   give     words    their    "plain,      ordinary
    meaning." Allstate Ins. Co. v. Russo, 
    641 A.2d 1304
    , 1306-07 (R.I.
    1994).     Any doubts about the sufficiency of the allegations are
    resolved in favor of the insured.                
    Id.
    St.    Paul    argues     that   the      explicit   language      of   the
    complaint    compels       a    conclusion    that      the   Control    of    Property
    exclusion applies to deny coverage.               Specifically, St. Paul points
    out that the "Entrustment-Negligence" claim alleges that "Slane &
    Slane owned certain models which it entrusted to [Narragansett] for
    use in the production of jewelry," and that                   Narragansett "caused
    physical damage to such models . . . ."                  Narragansett responds by
    hypothesizing that the alleged loss and/or damage possibly occurred
    during the shipment process when placed in the hands of a third-
    party carrier, and thus not in Narragansett's care, custody or
    control.     We agree with the district court that Narragansett's
    argument misses the mark.
    Regardless of what might be "possible," there are no
    allegations    in    the       Slane   lawsuit    that    support    Narragansett's
    hypothesis.        Indeed, the exact opposite is true.                  The complaint
    specifically and repeatedly alleges that Narragansett caused the
    damage at issue.        Narragansett relies on Shelby Ins. Co. v. Ne.
    Structures, Inc., 
    767 A.2d 75
     (R.I. 2001), a building-collapse case
    in   which    the    Rhode       Island   Supreme        Court    stated      that   the
    "possibility" of coverage was sufficient to bring the complaint
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    within the scope of the relevant policy.      Shelby, however, is
    readily distinguishable.   There, while the underlying complaint
    charged faulty workmanship, which would be excluded from coverage,
    
    id. at 77
    , the defendant/insured's underlying answer directly
    raised the substantive defense that the collapse was caused by an
    "Act of God," such as high winds, which might be covered.      
    Id.
    Here, the pleadings in the underlying case contain no similar claim
    that the alleged damage was caused by third party.   Narragansett's
    post-hoc speculation about third parties not referenced in the
    underlying lawsuit cannot suffice to avoid the plain language of
    both the complaint and the policy.4
    The decision of the district court is Affirmed.
    4
    Because we affirm on the basis of the Control of Property
    Exclusion, we do not address the other exclusions discussed by both
    sides.
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