good morning your honour's may please the court michael barrett on behalf of direct t v at this time and with the permission of the courts i would like to reserve two minutes of idle we wish you luck questions i will try to be mindful of the clock of your honor's i received the court's order last week and i think i would be remiss if i didn't address the court of appeals decision and gettys versus tri state insurance company at the outset and in that case the court of appeal held that expert testimony from psychiatrists was quote unquote properly considered in determining whether they actually question that case namely a conversation between a psychiatrist and another psychiatrist were made in the course of rendering professional services in the practice of psychiatry as was required by that policy in so hold in the court of appeal stated that the meeting of language in a contract involving a particular trade is determined by the trade usage of that because a person who contracts in this specific industry is held to have dealt in accordance with the industry's known usages of trade and by plying this rule to insurers issue insurance policies in a particular industry get is following precedent that has been in place for hundreds of years is codified in the california insurance code is recognized by leading treated insurance law treatises and in fact is consistent with the  appeals more recent decision and will feel superior court and the supreme judicial court of massachusetts decision in citi field versus national fire insurance company but a bit talk to me a little bit about this because i understand getty applied it to a professional insurance company but here i'm just trying to figure out how we can ascribe to factory mutual the knowledge and understanding of this industry term when it involves an industry that factory mutual is not a part of i mean isn't the reason for considering trade usage the mutual expertise and understanding of the  insured is similarly here factory mitch mitchell wrote a policy for direct t v to ensure its supply chain risk but that certainly is the origin of this i mean that the that it originated when people were contracting within the same industry and it was somewhat of a later flourish to say that if you were insuring such a business you were deemed timed or stay in the business you were insured yes your i guess i don't i don't  that that the original intent behind the uses of trade was that the parties are both engaging in that in that industry but applying it to insurance companies does no injustice because again the insurance company is in a  situation as opposed to two parties that are simply contracting an arm's length insurance company has an opportunity as a practical matter to gauge an underwriting they can understand directv supply chain they can inquire into the trade usage of particular read your briefs i thought that everybody knew what a direct supplier was it you know and when i look at getty's and we have professional services psychiatric professional services and we also have an insurance company that was taking an extraordinarily narrow view of what they were the psychiatric professional services may obviously be more expansive than what this insurance company wanted to be but a direct supplier isn't a a term that just exists within the business that direct v isn't a direct supplier exists with respect to almost all types of manufacturers or people that buy things from other people and it was one of those terms that as i said i thought we all knew what it meant until i found out that the sexpert said it meant something different in the business that directv was in so can we really take getty's and expand it to something such as a more context in which this claim arose in the context in which the policy was issued and in this case the policy was issued to a company in the electronic supply chain industry and there's again no injustice done if we apply the trade usage of those terms to the policy here and i would point out that the factory mutual understanding of the supply chain industry is expressed on the face of the policy itself this is not a party that's come into this with no understanding of the supply chain or what it's ensuring in fact the very clause that were interpreted today includes a pleasure in industry terms it's not just direct supplier it's direct supplier contract manufacture and contract service provider factory mutual admits that contract manufacture and contract service provider supply chain terms as the terms used in the industry in necessarily follows that it's at the very least reasonable that direct supplier would be interpreted  state but it seems to be in california it's certainly not your honor and but it is it is it is here and will feel superior court how it is that which is so when you have gross receipts maybe that means something unclear maybe it's like direct supplier that we all understand the gross receipts means but in that particular industry just like here in the supply chain industry extensive evidence is admitted to expose a plate number given the contract and that's precisely at the very least what's what's what's at issue here in my view the trade usage evidence really has two applications there's one which is whether or not it's strictly interpreted under the trade usage and therefore direct supplier means what we've submitted expert evidence on or at the very least it's a jury question excuse me doesn't it create a jury question because yours is not the only permissible interpretation under one is in the record that's correct your honor if the trade usage evidence is  competing interpretations of what direct supplier is in the industry and would necessarily require a reversal of the district court's order but i would like to have since it's been raised to address the evidence that has  been submitted by factory mitchell regarding the meaning of direct supplier in the industry and i would note that direct supplier the term does not appear anywhere in that evidence instead they focus on the first tier and second tier suppliers and and factory mutual has focused a great deal on this language but it's important to note that that language does not appear in the policy first year and second tier is not in the policy but that's really not before us is a stitch graber just mentioned the the most favorable outcome to directv here is that you go back to fight with the fact finder and present your evidence to the fact finder and the fact finder will decide what direct supplier means in the contract based on whatever competing evidence yes yes yes you are that's one out that's one outcome under the trade usage prong but again there's there's multiple there's multiple arguments so if trade usages is in fact applied here and and is the evidence is considered as extensive evidence of the trade uses then yes that would be the outcome but there are other there are other ways in which this can be the decision can be reversed for example one of the questions before the court separate apart from the trade usage is whether directv is reasonable and its interpretation that western digital is a direct supplier to directv under the policy and the one thing that i want to note on this point reasonable interpretation and directv cements that based on the lack of guidance on you mean you mean to have to prepare for them to prevail now as distinct from if there's a factual five later because if there are competing in for instance i can be drawn to competing meanings for the term then that goes to a fact find the correct or are on the on the trade usage point that would that would be correct with respect so you're arguing that direct supplier well if direct supplier has a plain meaning that we don't look to extrinsic evidence in my view the district  t used what i would consider the right meaning because direct seems to mean direct and not going through a third party for further processing so i'm not outcome is that the trade use is the political and then it's a fact question as to what is the trade usage in the industry that is that is one outcome but even if the trade is not applied i would think you're on thin ice from my pers but i think it is a it is certainly a question that is with respect to the trade you suggest soon that's the question you're referring to it's certainly an issue that i think is important when it comes to interpretive insurance policies but i think it is an issue that can be decided based on the authority that has been presented by the parties and as well as the authority noted by the court which would be to get a first strike didn't think that's enough for us to kind of predict how california would come out  i think it is when you combine it with the contractor rules set forth and wolfie's peer court as well as the longstanding history that parties that contract in the specific industry are deemed to have contracted with the users of trade in that industry the only real difference is that this is an insurance company contract and in the industry but to suggest that is somehow different from two parties in the industry seems to me to be not is not a very critical distinction they are ensuring that industry they have the opportunity to underwrite that industry and therefore presuming that they understand the issues of trade and then industry is not it is not a significant leap they are factory mutually concede was not a member of the trade industry not a member of the supply chain industry that is that scripture and i would i would i would concede that other than as an insurer of that industry but it's not physically supplying goods to please the court good morning and i'm scott johnson i represent factory mutual insurance company i want to address the relevancy of the get his case to the court asked us to be prepared to discuss at the oral argument in our view the get us case supports the district court's grant of summary judgment in this case and why is that well the policy and get us unlike the policy that factory mutual issued to directv ensure specified profession or trade namely psychiatrists in fact the court noted it was denominated psychiatry is perfection a liability policy and that was key to the court's holding that trade usage could be used for page one e g four of the cal reporter to reporter the subject policy was written by defendant gordon sold to psychiatry us both parties to the contract intended the meaning of the language used to describe the coverage should be the meaning of such language as used by psychiatry us so in the key it was that because the policy specifically ensured psychiatry interestingly get us has been cited in only one published california opinion in the forty nine years it's been in the books and that was that it's inglewood radiology versus hospital shared services to sixty we look to those ordinary and normal use to their ordinary and normal use you know that profession but that it was another medical so they had no intention to think about it in a broader context but here are the insurance policy talks about supply chain specifically and there's i'm looking at one page where it talks about supply chain time element coverage extensions so even though it's not a profession it's a particular rawest business why wouldn't the same principle apply that if you're looking at a cattle rancher you're looking at a supply chain or you're looking at some other industry why not appear anywhere in the policy well supply chain supply chain does but then the policy then would have a different interpretation the words direct supplier would have a different interpretation depending on what the insured is it  so why what's irrational about that if you insure a psychiatrist you ensure the cattle rancher you sure ensure an electronics industry why wouldn't you expect that the terms that similar terms might have a different ambiguity so even though it appears to be you know unambiguous when you look at it that that evidence can be introduced that makes it clear a there the court said at page six of the opinion the correct rule with reference to the admissibility of evidence as to trade usage under the circumstances here presented is that while words in a contract or ordinarily to be construed according to their plain ordinary popular or legal meaning as the case may be yet if in reference to the subject matter of the contract a particular expressions have by trade usage acquired a different meaning and here's the key language and both parties are engaged in that trade the parties to the contract are deemed to have used them according to their which is what may get us relevant is that it expands it from to electronics companies or to cattle ranchers to that industry and i'm unsure of that industry there one missing step there and that's subsequent cases to that room off erm with case subsequent california supreme court cases have said well you may not be in the same industry you have to have knowledge there has to be knowledge of this isn't there a general principle of insurance law that insurers are deemed to have knowledge of the industry that they have chosen to insure because beef for writing a policy they have the opportunity to investigate and obtain the knowledge about that industry and if they didn't they the insurance company kind of does does that to its detriment if it does not obtain the knowledge so through do they actually have to have actual knowledge or are they deemed to have the knowledge based on principles of insurance laws and the opportunity of the insurer to investigate and know its risk before it writes the policy base does it bring court authority you have to have knowledge or the trade you says has to be common knowledge and there's no evidence that factory mutual had knowledge of the trade usage in the electronic supply chain industry and it's certainly not common knowledge as no evidence of that the principle that you're referring to does both i believe is the insurance co three thirty five b having presumed knowledge of general usages of trade that statutes been around for a long time there's not been a single california case that has interpreted that statute to mean that insurance company is bound by trade usage in its insurance industry ac a fairly relatively universal concept that when an insurance company insurers a particular trade business profession or industry it's steam to know what it's getting itself into no court has ever held that no california court has ever held that and the district court here pointed out that that's that insurance co three thirty five b is referring to the insurance industry right that's why i said i'm not really thinking about the statute i'm sort of saying there are general principles that are so supported by case law elsewhere and i think you know again the difference between our case and get us is that policy was specifically denominated professional liability policy we do not have a policy specifically did nominated electronics supply chain industry policy if we did maybe with your have a good point but we do not have that type of a policy we have a generic policy applicable to any number of insureds and directly any number of insureds that have supply chains because there is specific spot supply change chain language in this policy it was it was contemplated not only that factory mutual was insuring direct t v for business interruption but also others in the supply chain correct and that's why they use the words direct supplier but that's not a standard ordinary just general liability sure of the risk since your business interruption policy this was specific to a company that the light on the supply chain lets a standard provision in the in the policy form it's now drafted specifically for direct t v and there's certainly no evidence of that and keep in mind one of the things about that particular provision there's testimony in the record from the underwriter that the standard form includes the word in direct as well as direct for supplier and they specifically eliminated the word in in direct so the only coverage we do accept the director t v can introduce this trade use is there any reason not to accept or first find that the expert declaration is insufficient well  in our view it's insufficient because they have not established that fact and you don't have the knowledge for one thing and i don't think there's been any step machine and that this is a widespread longstanding trade uses as they've alleged you know they call this a customer controlled supplier forget the exact words but those words appear nowhere in any particular case if you're no where any kind of a learned treatise or publication you can google of those words and you will not find anything on the internet this is something that was created by this expert to try to get insurance coverage for directv because they did not fit within the plain ordinary meeting of direct supplier but we do know that in a manufacturing operation sometimes you have your supplier the option to buy their parts from wherever they want as long as they meet a certain specification or you have the situation that you have here where you are the company you hired to manufacture something for you is limited to buying their parts from specific manufacturers or even a specific manufacturer and so it would seem that the possibility exists that in that case where you have limited them that insurance company might well want to investigate that because if that single source or double source in this case has a problem then that is going to interrupt the supply chain unlike a situation where your manufacturer supplier can buy from who whoever or whatever they company they want right i understand your point and you know the intent of the parties in the rule  intent at the time of contracting that governs this policy the two thousand and eleven policy none of those facts were ever shared with factory mutual at the time of contracting but it but it was was it the responsibility of the underwriters to make themselves aware of the risk that they were insuring and i think they did i mean that they did whatever they had to do to satisfy themselves of whatever risk they wanted to insure and one of the things that it is part of the underwriting is no coverage for indirect suppliers it's only going to be direct whatever that means but i think direct has a very plain ordinary meaning it means without intervention or intermediary and under  circles back to the principle that i'm california you can introduce evidence to create an ambiguity well i mean that that's the that's the very issue in the case where the evidence that they've submitted those trade usage evidence right and there's no  knowledge no evidence that fact mutual had any knowledge of that trade usage right which goes back to the question of whether the principle applies that an insurance company is deemed to understand the trade usage of the industries that it chooses to insure and i agree with you and no california court has ever held that well you get it if there's a good that's because that policy was specifically for a specified cited on appeal it's never been briefed we would request the opportunity provide a supplemental brief addressing the get his case well i'll consider it but that's one reason we issued the order for you to discuss it today i think we have discussed it sounded like we could discuss it further if we had more time but in closing as a district court found western digital here was not a direct supplier under any reasonable interpretation of those words as they are understood direct t v if you'll notice they did submit evidence to suggest that that was in fact the case that they altered their standard form to only provide coverage for direct suppliers for direct t v so so the notion that this is that this there's a distinction between the title of the policy as opposed to who the policy is issued to or who are the risks the policy ensures is simply a false distinction the policy here ensured supply but but notably factory mutual didn't offer any evidence to show that it ever communicated its unwillingness to provide coverage for indirect suppliers or more importantly whether or not it considered western digital to be an indirect supplier and i take i they didn't issue a policy form that had the term and direct supplier x doubt no you know john there's no evidence to establish that they deliberately declined coverage or do they communicated that intent to directv and they were not providing coverage for indirect suppliers and to everyone's stature meant there's no definition in the policy there is not there is not your honor there's no definition of direct reply and i think that goes to a concern raised by the district court and raised by a factor mutual as well which is that this could have multiple interpretations of direct supplier if we issue this policy to multiple insurance again the issue of direct t v that's the inquiry here but there is an easy way to remedy that you can define direct supplier or even not provide that specific type of coverage or you can specifically schedule locations that you are included as the contingent time element of patients instead of simply limiting it director direct supplier so there are options but fact from each of the none of those things and therefore it's bound by the trade usage