officers policy purchased from scottsdale insurance company the respondent by westinghouse digital l l c their prior and former who is now defunct they sued to obtain the benefit of coverage that they're now defunct employer purchased for their benefit they see coverage for a lawsuit alleging that they are liable for work that they did at westinghouse digital and for westinghouse digital the insureds burden in the situation is to establish the existence of a potential for coverage the burden then shifts to the insurer to establish the absence of any such potential the underlying case in this in this matter is formidable it spans two hundred pages of factual allegations against twenty eight different defendants spanning multiple decades and literally circling the globe this case is the quintessence of a mixed case there are both covered claims and uncovered claims insurance posit that the covered claims are the allegations against them for liability for work that they performed for their employer westinghouse digital including responding to a subpoena issued to their employer in two thousand and eleven and two thousand and twelve the california supreme court unhorsed man held the court's look not to whether uncovered acts predominate in assessing coverage but rather to whether there is any potential for of a potential for us so we don't want to examine that the real question is whether the explosion let's say for prior litigation can be a firm or whether the explosion for prior knowledge or for that matter the fragile x y why doesn't at least one of those three exclusions absolve the insurance company from each of those three exclusions fails for separate and independent reasons the insurance company must establish that all of the allegations against the insurance fall within one of the three exclusions and those three exclusions do not cover all of the allegations against the insurance including allegations of responding to a subpoena and two thousand and eleven and two thousand and twelve i'll take first the exclusion for the fraudulent acts exclusion in that exclusion that the timing precludes coverage the exclusion requires a final judgment against quote such ensured the only final judgment at issue here is a two thousand and ten order or judgment affirming an arbitration award on a breach of contract against westinghouse digital electronics and richard hong the former o under an alter ego liability barry westinghouse digital electronics was the prior licensee of the westinghouse trademark and trade name for consumer electronics it affected an assignment for the benefit of creditors and april of two thousand and ten whereby it assigned all of its assets and all of its liabilities to credit management association which then liquidated those assets assigned some of the liabilities to satisfy creditors westinghouse digital i'll see the insurer the a named insured here was the subsequent to the other insurers under the severability clause of the policy where you where is that clause in the policy your honor that clause can be found on page seventy four of the third volume of the excerpts of record it's the last full sentence and the exclusions sections of the policy that the that the insurance company wrote it provides that no wrongful act of one or more insurance shall be imputed to any other insurance for the purpose of determining the applicability of any of the above exclusions that's only for the wrong l act portion of the policy correct your honor the the exclusion actually applies to all of the exclusions and wrongful acts is found within the language of the of the insurance further those wrongful acts occurred prior to the two thousand and ten judgment if any entire language in the fraudulent acts provision your honor that language modifies every single one of the exclusions if the court looks at page one  that excerpts of record the court will see that it's a non indented phrase at the end that modifies every single for every single exclusion clause of the policy your honor with respect speaking to the  the fraudulent acts exclusions because there is a sever ability clause the court examines the california supreme court decision of maine where there the california supreme court answered a certified question from this court asking what california insurance law would apply in the event of a policy that includes a severability clause as well as an intentional acts exclusion which excludes intentional acts of quote an insured and vs safeco company in two thousand and ten the california supreme court responded to this court question identifying that applying the policies coverage and its exclusions individually to each person protected by the policy and exclusion of coverage for a specific kind of culpable conduct applies only to the individual insured who committed i this case that's mr hong who was adjudicated to to have conducted wrongful acts in the two thousand and ten arbitration those wrongful acts cannot be imputed under the language of the of the scottsdale policy itself and the main clear decision to page seventy four your honor it's the last sentence before subpart d it if you pay seventy for the excerpts a record i'm sorry it's page one of four of the excerpts of record it's the last sentence of subparts to and i'll read it no wrongful act of one or more insurance shall be imputed to any other insurance for the purpose of determining the applicability of any of the above exclusions so the wrongful acts of mr hong cannot be used to preclude coverage for the insurance  fraudulent acts and so i'm curious as to why you think the language for wrongful act bleeds over into fraudulent acts when there is a specific provision for wrongful acts and one for fraudulent acts under the exclusion of your honor the answer to that goes to the difference between the broad scope of the ensuring laws and the narrow scope of the exclusion the broad scope of the insuring clause provides that the insurance are entitled to coverage for any loss arising out of wrongful acts performed during the course and scope of their performance of their work at westinghouse digital the scope of the exclusion only cars only covers wrongful acts performed by that specific insurance based on the existence of the severability clause and then in clear decision so essentially you have an exclusion carving out a small subset of the larger duty to defend which is the reason that the insurance contend that they have met their burden of establishing the existence of a duty to defend in this mixed case due to the fear is different then the exclusion the duty to be and defend is very broad but then we look at the just exclusion to see whether or not they prefer to cure coverages of school did under the language of the policy that's correct your honor and the issue here is whether or not scottsdale was proper in denying any right of the duty to defend for any of these insurance in order for the insurance company to take solace in the exclusions the scope of the exclusion must subsume all of the allegations against the potential insurance if the insurance positions that there are allegations in the underlying action again a two hundred page complaint that include both covered and uncovered claims that's the reason why the insurers contend that there is an existence of coverage based on the california supreme court authorities of montrose an arrow judge the court will look at whether or not there is any potential claim against any of the insurance that could potentially give rise to coverage under the policy while the insurance company has focused on these exclusions the insurance company has not identified how each of these exclusions covers every single possible allegation against these insurance in the underlying case the insurance company has never identified how one of the three  defines claim as five separate procedural predicates including arbitration scotsdale then crowd doesn't also doesn't also include the manslaughter yes your honor i does include a demand letter it also identifies that is that what happened here your honor respectfully it's not what happened here the the demand letter at issue under the in the arbitration was a demand letter from tattling to westinghouse digital electronics for breach of contract that was a demand to w d e a separate entity four separate acts in addition a demand letter an arbitration demand commences an arbitration much the way a complaint commences a complaint a complaint initiates litigation if the court looks at the definition of claim within the policy the that policy language identifies a claim as  a civil litigator a civil proceeding seeking monetary damages commenced by the service of a complaint or similar proceedings sending someone a draft complaint is not a demand letter it's an initiation a civil proceeding which is some part of claim here we have an arbitration demand that is being described as you quote demand letter as a back door to avoid the fact that the policy does not clearly on its face identify as arbitration as a procedural predicate for the prior litigation exclusion in addition it does not and so on that point i have one of the concerns and that is whether we have jurisdiction at this stage as i recall the court ordered westinghouse to get substitute counsel or the claims to be stricken westinghouse did not replace council but the court failed to strike the claim so don't we have a problem as to whether we have a final order here  believe we do have a problem under the ninth circuit decision of andersen versus all state that this court exam encouraged a practical rather than technical construction of finality he there is no danger of piecemeal appeal confronting this court is similar to what the situation faced by the andersen court westinghouse digital has no employees no officers no counsel in addition the insurance company has conceded that the arguments made here on behalf of the in the individual additional insurance equally would apply to westinghouse digital so there's no risk of appeals and the the order dismissing westinghouse digital would simply have been a missed ministerial task and jurisdiction exists under andersen versus  that site is six thirty f second six seventy seven at page six eighty one  another exclusion that scotsdale has claimed applies that the insurance claims does not is the prior knowledge exclusion this exclusion does not apply because again there are temporal concerns the exclusion applies to facts known before the continuity date but that continuity date was april twenty ten the time of the assignment for the benefit of creditors there could not be prior knowledge of acts that occurred in two thousand and eleven two thousand and twelve two thousand and thirteen and two thousand and fourteen as are alleged against the insurance in this case the benefit of creditors to credit management association fastened in the assignment for the benefit of creditors through an asset purchase agreement to westinghouse digital and down to its insurance those companies the same people they're not your honor and i appears from the record and from the arbitration proceedings that westinghouse digital w d e was i mean they essentially proceedings through an administrative proceeding there the assignment of benefits for the creditors went into the credit management association and then appears to me that it was the same people that were running these companies your out of the confusion largely arises from the fact that both entities were licensees of the westinghouse trademark and trade name so logically the names are similar because they both paid money people to use their work as individuals that work at westinghouse digital electronics that subsequently were hired at westinghouse digital l l c that's not uncommon in a credit in the n s i meant for the benefit of creditors someone will come along and at westinghouse digital l l c yes your honor however the focus of this situation your honor is on the reasonable expectations of the additional insurance who suddenly no longer working for westinghouse digital ended up named in a rico liability claim seeking sixty two million dollars for doing acts including responding to a subpoena on behalf of westinghouse digital l l c a reasonable person will look to their directors and officers policy under that situation to pride provide solace for the allegations against some of the people family members of your honor some of the twenty eight defendants that were identified in the underlying action are family members of mr hong none of the appellant's in this action are family members they were simply employees insurance in this case are directors and officers of westinghouse digital l l c the entity that purchased the assets from credit management association after the a b c while there are common employees the ownership is different the structure is different etc these were separate entities that placed separate policies scottsdale has admitted that it accepted policy premiums for the directors and officers policy to protect these insurers from anyone who might come after them for doing their job good morning me please a court my name is valerie rojas on behalf of scottsdale insurance company i believe there are several reasons why just as judge carter's decision was correct and i'll take the strongest reason in my opinion you know the word is do we have a final order affecting all of the participants in the district court we do have a final order i do not believe we have a final judgment although we submitted a final judgment for reasons unknown to me it was never entered your honor is correct that the judge did order westinghouse digital to obtain counsel and indicated it would be dismissing that plaintiff if it did not well if the order did not apply to westinghouse then we have a problem way there is there is a missing party now the standing the fact i guess is now defunct but the point is that this could be cleared up very simply by letting it whatever is the cited here affects western house digital equally i do agree with my opponent on that and that the andersen case does apply to allow this or to proceed very  well getting back to the prior demand or litigation exclusion that is the one exclusion that council has not argued the severability clause applies to i do have a response to that which i will get to later but taking the prior demander litigation exclusion for sed that exclusion undisputedly applies to this situation this is a situation that started back in february of two thousand and nine involving the exact same parties that being mr wong mr wong as a common party throughout all of these entities he is the one in which the arbitrator and then the court found to be engaged in fraud along with mr wu and several others including some of the insureds here that is the common theme what has happened is an ongoing effort by tatton to recover for a breach of contract the two thousand and six contract this case is very similar to other cases that have already been the same prior pending litigation exclusion was evaluated in that case in a court found it to be a political because the arbitration or the underlying action was based upon an arbitration in the court found that that was an ongoing dispute and therefore the prior pending litigation exclusion applied similarly the korten property id court versus greenwich insurance three seventy seven federal appendix six forty eight ninth circuit twenty ten also found that an ongoing dispute triggers the prior pending litigation exclusion here we do not need to get into the argument that my opponent has addressed and that is whether arbitration is in fact  we have here a prior demand letter fact that cannot be disputed in february of two thousand and nine a letter was addressed to western house digital mr wong demanding one thousand million dollars and arbitration if he didn't pay it that demand letter triggered an arbitration which then triggered a final judgment which then triggered proceedings in bankruptcy court in which the court found that the award could not be avoided because it was based on fraud  continued its efforts as the insurance allegedly played a shell game in an effort to avoid that arbitration award that left us with this underlying action here this underline action is just yet one other attempt to collect for mr wong and westinghouse digital electronics which then became westinghouse digitals breach of the two thousand and six contract because of that the prior demand litigation has to apply to the situation it doesn't matter that there are new parties or new claims that was the exact argument addressed by the courts and m l direct that seventy nine callout fourth one thirty seven california court of appeal in two thousand the court held that the phrase arising out of is not ambiguous but that it's very broad and because it's very broad it's immaterial that there are new claims new parties in the underlying tattling action at the heart of the tatton action is multiple references to tack tongues effort to collect for the two thousand and six breach of contract is that why we don't get into the severability clause as your position our position is we would never i would never concede it's a can a severability clause first and foremost why you think that because the insurance relied upon rely upon a clause which is common commonly called a severability clause and that's appear in the fraudulent acts exclusion the prior pending demand litigation or the prior knowledge it's immaterial to either to any of the exclusions in this case because the words wrongful act do not appear in the exclusions you cannot write in to a policy words that do not appear yet that is exactly what my opponent would like this court to do that's the first reason your honor i'd also like to add additional reason is that my opponent does not even argue that the severability clause applies to the prior demand letter or pending litigation exclusion so we don't even have to deal with that issue to apply that exclusion their argument is simply that we have a quote unquote mixed action which i would disagree with as well in my view a mixed action an insurance law refers to a case in which there are both covered and uncovered claims we do not concede this is a mixed action because no claims are covered not only are they excluded by the prior pending demand and litigation exclusion they are excluded by two other exclusions the first being the prior fraud and skipping the fragile act exclusion that exclusion does not include the word wrongful act it doesn't because wrongful act would imply coverage there cannot be coverage for wrongful and dishonest facts that exclusion makes it clear so we don't have to deal with the severability clause for that exclusion as well and that exclusion applies regardless of what insured it doesn't matter that these particular insurance were held to engage in fragile x it's sufficient that one insured any insured engage language but i would also point your honor to national bank of california versus progressive casualty insurance company one thirty eight f's two d nine nine nine thirty eight  supp two d nine one nine nine nine nine thank you in that case there was an arbitration award in which an insured was found to have engaged in fraud and the court found that the arbitration award for fraud was sufficient and the fraudulent accept we i mean there there can be no dispute that there is a finding of fraud your honour's correct the opponent of our views only that it shouldn't apply to them and goes into this argument regarding the reasonable expectations of the insured however i would i would point out that data now and they have jumped the analysis before evaluating the reasonable expectations of the insured the court must first find that the language is ambiguous the language inappropriate what is appropriate to is to look at the language of the policy and the face of the complaint the complaint is long and lengthy conceded but the complaint is still based upon the two thousand and nine demand letter the two thousand and nine demand letter asked for the money and then there was a continuing effort to avoid paying that one thousand million dollars for that reason the prior knowledge exclusion also appl as a lower court court pointed out it would be an reasonable for mr wong to claim that he had no knowledge that the underlying demand letter would eventually lead to another claim he saw from tatton exaction that they were prepared to go after him not only personally but in subsequent transactions whatever proof whatever company he created it was his effort to avoid pain that led to the creation of westinghouse digital but that is immaterial that there are separate entities the people in the actions are all the same also could you point me to the language in national bank that you rely upon to support your argument that an act i want of the assurance is to the other and that you want me to the person i cannot your honor i can i do not have that in front of me i apologize but i can point out to your honor that the policy language refers to any fraudulent act of any insured as long as the judgment was against that insurer and that is exactly what we have in this situation the fraudulent axis luzhin also applies in the severability clause does not apply for the reasons i mentioned the wrongful the term wrongful act does not appear in that exclusion so there are now three exclusions of the court can choose from and determining that scottsdale does not owe a duty to defend because there is no potential for coverage but i would like to address one other point that we have made and that we have reserved on appeal although that the court below did not address it it's still scott sells position that the insureds have not met their initial burden of establishing coverage in order to establish coverage of the insurers have to establish that the claim in the underlying action is for a wrongful act part of the definition of wrongful act includes acts committed solely in their a director of officer of the company the underlying tattling action goes way beyond any actions committed solely in their capacity the insurers capacity as employees of westinghouse digital it goes beyond that because it also discusses actions that preceded the existence of that company and also refer to the fact that those individuals have engaged in this conspiracy to personally benefit themselves for those reasons the insured cannot meet the initial burden of establishing that this underlying action is even covered so now we have four opportunities there are both there's the wrongful act definition which precludes coverage in the first instance there is a prior pending demand letter or litigation which excludes coverage entirely there's a prior knowledge exclusion which also excludes coverage for all claims entirely and then there is also the fraudulent act exclusion which excludes coverage entirely all of the exclusion to designed to address this type of situation in which insurers are engaged in an ongoing dispute before the policy even inset the fraudulent acts exclusion is designed to address this very situation in which an insured has engaged in fraudulent activity not only do insurance companies not want to insure fraudulent activity it is an insurer will as a matter of law to begin with the exclusion simply makes clear that the insurer does not want a potential for coverage does not want to provide a duty to defend him if so to gain reimbursement for those expenses for all of those reasons scott still was entitled to summary judgment and the court's decision granting a summary judgment was correct if there are no other questions i will  an initial matter i would like to address an issue as to the record at the arbitration award was an arbitration award against westinghouse digital electronics and richard hung counsel indicated there was an adjudication as to mr wu that is incorrect he was not a party to that litigation in his acts and actions were not adjudicated in addition looking to the prior knowledge exclusion counsel reference looking at what was in mr hung's mind under the transport insurance case which is  california court of appeal decision from two thousand and fourteen i'll provide the site two to two cal at fourth one two one six it is the intent of the named insurance who govern not mr hong one looks at the this the intent of these individuals the appellant's in this action to assess the scope of coverage finally i'd like to ask the court to consider barnett which is another california court of appeal decision in barnett the court fell i found in two thousand and one where a person is sued as an additional insured under a policy issued to a corporation that person is entitled to a defense if he or she was acting in an assured capacity when they were allegedly engaged in a wrongful conduct here the insurers have been and i have been sued for alleged wrongful conduct in responding to a subpoena on behalf of their employer scott still takes the position that perhaps these individuals were responding to a subpoena on behalf of their employer for their own personal benefit but the burden here lies with the insurance company to establish that the only reason these insurance responded to a subpoena to their employer was to their own personal benefit our health we understand your argument thank you both counsel