(Article from Insurance Law Alert, July/August 2025)
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Holding
The First Circuit ruled that a district court abused its discretion in denying an insurer’s post-trial motion to reduce a jury’s damages award, finding that the award, which exceeded the policyholder’s claimed loss, lacked evidentiary support and thus must be reduced. Coco Rico, LLC v. Universal Ins. Co., 141 F.4th 321 (1st Cir. 2025).
Background
Coco Rico, a manufacturer of beverage concentrate, suffered damage to its facility when a hurricane hit Puerto Rico in 2017. It sought coverage under a property policy issued by Universal, which provided coverage for “business interruption” losses and certain “extra expenses.” When the parties could not agree on the amount of covered loss, Coco Rico sued, alleging breach of contract and bad faith. The suit sought payment for business interruption loss as well as compensatory and consequential damages, attorneys’ fees, and interest.
The case proceeded to trial, after which Universal moved for judgment as a matter of law on Coco Rico’s request for consequential damages. The court denied the motion and the jury ultimately found in Coco Rico’s favor on the breach of contract and bad faith claims. The jury awarded Coco Rico $873,000 for business interruption and extra expense loss, and $250,000 in consequential damages resulting from Universal’s bad faith.
The district court denied Universal’s renewed motion relating to consequential damages. The court also denied Coco Rico’s post-trial motion to amend the judgment to include attorneys’ fees and pre- and post-judgment interest. The court granted Universal’s motion to reduce the contractual damages award from $873,000 to $750,000, the policy limit for business interruption and extra expense coverage. But it rejected Universal’s argument that the award should be further reduced to $686,000, the amount of loss calculated by Coco Rico’s own expert.
Decision
The First Circuit ruled that the trial court abused its discretion in refusing to reduce the contractual damages award to $686,000. The court noted the deferential standard given to district courts as to such rulings, but concluded that the $750,000 award exceeded “any rational appraisal or estimate of the damages that could be based upon the evidence before the jury.” In particular, the First Circuit emphasized that the record lacked information about Coco Rico’s sales, projected earnings, or restoration efforts. Further, the court noted that while Coco Rico originally sought $900,000 in business interruption loss, its counsel and witnesses “expressly and repeatedly” stated its contractual damages were not more than $686,000 during trial.
With respect to consequential damages, the First Circuit applied a de novo standard of review. The court concluded that there was no reasonable basis for the district court to deny Universal’s motion for judgment as a matter of law. The First Circuit cited the lack of any testimonial evidence supporting consequential damages, noting that a statement by Coco Rico’s owner that “[e]very year we operate and don’t operate in Puerto Rico is . . . hundreds of thousands of dollars that it costs us not to be down here” was too general and conclusory to support a specific consequential damages dollar amount.
Finally, the First Circuit upheld the denial of attorneys’ fees and interest pursuant to Puerto Rico statutory law. Under the applicable Rules of Civil Procedure, such costs may be awarded only if Universal behaved “obstinately” during litigation. The court held that the factual record lacked evidence of such conduct and therefore that the district court’s refusal to award such costs was not an abuse of discretion.
Comments
The First Circuit’s denial of attorneys’ fees and interest highlights certain noteworthy principles. First, the First Circuit rejected the assertion that the jury’s finding of bad faith amounted to a finding of obstinate conduct. The court explained that the relevant statute expressly limits obstinate conduct to a party’s conduct during litigation, whereas the jury’s bad faith finding was based on Universal’s delay in fulfilling its contractual obligations—conduct that preceded litigation.
Second, the decision reaffirms the well-established principle that an insurer is not obstinate merely because its argument was ultimately unsuccessful. The First Circuit rejected the notion that Universal acted with obstinance in asserting various denials and affirmative defenses, noting that Universal provided reasoned explanations for its denials, even if those arguments ultimately proved unsuccessful.