Fajardo Shopping Center v. Sun Alliance Insurance Company of Puerto Rico

Fajardo Shopping Center (FSC) (plaintiff) was a three-building structure located in the municipality of Fajardo, Puerto Rico. FSC sustained significant damage during Hurricane Hugo. In particular, double-tee beams supporting the roof lost their structural integrity and collapsed. FSC was insured by Sun Alliance Insurance Company of Puerto Rico (SAIC) (defendant) at the time of the hurricane. SAIC advanced $150,000 for emergency repairs to FSC. FSC engaged an engineer to prepare an estimate of damages. The engineer concluded that 75,000 square feet of roof would need to be replaced and estimated the cost to be almost $1.5 million. FSC submitted the engineer’s report to SAIC. SAIC hired another engineer to complete an independent inspection. The SAIC engineer concluded that the damage was not due to the windstorm, but due to preexisting conditions that caused weakness in the beams. Based on the report of SAIC’s engineer, SAIC agreed to pay for limited repairs, totaling a little under $100,000 after applying credit for the prior emergency advance, the coinsurance, and the deductible. FSC undertook additional investigation to prove that the damage was caused by the hurricane and not by a preexisting latent defect. FSC submitted updated proof to SAIC, showing the damages to be close to $2 million. SAIC rejected the claim, and FSC filed suit to recover damages. SAIC argued that the damages were excluded under a clause in the insurance contract that excepted losses caused by faulty design, construction, and workmanship. The district court granted summary judgment on the issue of liability in favor of FSC, and SAIC appealed.