N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
STAR INSUR

ANC E C OM PANY, Pla i ntiff-c ounte rde fe nda nt-Appe lla

nt,
v. SUNW EST M ETALS, INC .,

De fe nda n t-c ounte r-c la im antAppe lle e . No. 15-56562 D.C . No. 8:13-c v-01930-DFM
M EM O R ANDUM *

STAR INSUR

ANC E C OM PANY, Pla i ntiff-c ounte rde fe nda nt-Appe lle e , v. SUNW EST M ETALS, INC .,

De fe nda n t-c ounte r-c la im antAppe lla nt. No. 15-56568 D.C . No. 8:13-c v-01930-DFM

Appe a l from

the Unite d

Stat e s Distric t C ourt for the C e ntra l Distric t of C a lifornia 

# F IL ED
MAY18 2017 M OLLY C. DW Y E R, CLERK U. S. CO URT O F APPEALS

* This disposition is not a ppropria te for public at ion a

nd is not pre c e de nt e xc e pt a s provide d

by Ninth C irc uit R

ule 36-3.Dougla s F. M c C orm ic k, M a gistra te Judge , Pre s iding Argue d a nd Subm itte d April 5, 2017 Pa sa de n a , C a l ifornia B e fore : WARDLAW

and C ALLAHAN, C irc uit Judge s, a nd QUIST, ** Distric t Judge
. Star Insura

nc e C om pa ny (“ Star” ) a

p pe a ls the distric t c ourt’ s judgm e nt in favor of Sunwe st M e t a ls, Inc . (“ Sunwe s t” ) on Sunwe st’ s bre a c h of c ontra c t c la im ste m m ing from

Sta r’ s re s c ission of Sunwe st’ s fire insura nc e polic y . Sunwe st
c ross-a ppe a ls (i) the c ourt’ s de te rm ination tha t Sta r wa s not re quire d to prove inte ntional m isre pre se ntation to give rise to a right to re s c ind, a

nd (ii) the c ourt’ s
re duc t ion of Sunwe s t’ s judgm e nt a ward to pre ve nt doublere c ove ry . W e have jurisdic tion unde r 28 U.S.C
. § 1291, a nd we a ffirm
. A. Sunwe st ope rate d a

re c y c ling fa c ility that proc e sse d va rious c om m oditie s inc l uding m e ta ls, pla stic s, pa pe r, and gla s s. B e ginning in August 2011, Sunwe st ha d fire c ove ra ge unde r Star’ s Sc ra p De a le rs Program

(“ the Program ” ) pursua

nt to two c onse c utive y e ar-long polic ie s. To be e ligiblefor the Program , no m ore tha n 15 pe rc e n t of a

prospe c tive insure d’ s re ve nue m ay c om e from pa pe r and pla stic s

* * The Honora

ble Gordon J. Quist, Unite d State s Distric t Judge for the W e ste rn Distric t of M ic h iga n, sitting by

de signa tion. 2proc e s sing. Through its broke r, Thom a s Dunla

p Insura nc e Age nc y , LLC (“ Dunla p ” ), Sunwe s t re p re se n te d tha t ne arly a ll of its re v e n

ue c am e from m e ta ls proc e s sing. Tha

t wa sn’ t true ; in re a lity , pa pe r proc e ssing c om

p rise d the va st
m a jority

— ne a rly 66 pe rc e nt— of Sunwe st’ s re ve nue . 1 In April 2013, Sunwe st suffe re d a c at a strophic fire . Sunwe st file d a c la im unde r its polic y , but inste a d of honoring the polic y , Sta

r re s c inde d it ba se d on Dunla p’ s m isre pre se ntations. Sunwe st sue d Sta r for, inte r alia , bre a c h of c ontra c t,
and, a fte r a

five -day be nc h tria l , the distric t c ourt gra nte d judgm e nt in fa

vor of Sunwe st, finding tha

t it wa s owe d ne arly

$978,000 under the polic y . The c ourt de te rm i ne d tha

t Sta r ha d wa ive d its right to re sc ind by fa i ling to inve stiga

t e
e vide nc e of m isre p re s e n tation. B . Star wa ive d its right to re sc ind the polic y if it ignore d inform ation tha t

“ distinc tly

im plie d ” m isre p re s e n tation of truefa c t s re ga rding Sunwe st’ s ope ra tions. C a l. Ins. C ode § 336. W

he t he r Star ha d knowle dge of m i sre pre se ntations is a que stion of fa c t tha

t, a fte r a be nc h tria l, we re vie w for c le ar e rror. Se e M agnuson
v . V ide o Y e ste ry e ar , 85 F .3d 1424, 1427 (9th C ir . 1996). W he the r the right to

1 Sunwe st c om

m unic ate d with Sta

r through Dunla

p. Sunwe st m a inta ins, a

nd Sta r doe s not dispute , tha

t Sunwe st ha d no knowle dge of Dunla p’ s m isre pre se ntations. 3re sc ind re quire s a showing of inte

ntiona l m isre pre se n tation a nd whe t he r the distric t
c ourt prope rly offse t Sunwe st’ s a ward are que stions of la

w tha t we re vie wde novo. Se e id. 2 1. As a ge ne ra l rule , a

n insure r m ay

“ re ly upon [the insure d] . . . for suc h inform a t ion a s it de sire s” i n de te rm ining whe the r to provide c o v e ra ge . Old Line LifeIns. C

o. v . Supe rior C

ourt , 229 C a l. App. 3d 1600, 1604 (1991) (inte rna l quota t ion m arks om itte d). B ut

it m ay not blindly

ignore e vide nc e of
m isre pre se ntation, c olle c t pre m ium s, a nd the n opportunistic a lly re sc i nd onc e a
c la im is file d. Unde r C a lifornia la w, “ [t] he right to information of m ate ria l fa c ts
m ay be wa ive d

. . . by ne gle c t to m ake inquirie s a s to suc h fa c ts, whe re the y are distinc tly im plie d in othe r fa c ts of whic h inform ation is c om m unic at e d.” C a l. Ins. C ode § 336. W

he re an insure r ha s “ be fore it inform ation tha t pla i nly indic ate [s] that the insure d’ s sta

te m e nts [a

re ] not true ,” it ha s a

“ duty of furthe r inquiry ” to de te rm i ne the “ pe rtine nt fa c ts.” Ruthe rford v . Prude ntial Ins. C o. of Am. , 234 C a l
. App. 2d 719, 733–34 (1965). This inc lude s a duty to inve stiga

te “ inform ation whic h if pursue d with re a s ona ble dilige n c e ” would re ve a l m isre p re se ntations.

2 B e c a

use we uphold thedistric t c ourt’ s judgm e nt on theque stion of wa ive r, we ne e d not de c i de whe the r Star wa s re quire d to show tha t Dunla p’ s m isre pre se ntations we re inte ntiona l, rathe r tha n ne glige nt. 4DuBe c k v . C al. Phy sic ians’ Se r

v . , 234 C a l. App. 4th 1254, 1267 (2015) (inte rna l quota t ion m arks om itte d). The distric t c ourt ide ntifie d num e rous pie c e s of e vide nc e spa nning ne arly two y e ars tha

t “ d istinc tly

im plie d” the fa l sity

of inform ation in Sunwe st’ s insura nc e a pplic a tions a

nd subse que n t c om

m unic ations with Sta

r. For e xam

ple , (i) Sunwe st’ s we b site a dve rtise d pa pe r and pla stic re c y c ling a s a m a i n pa rt of its busine ss; (ii) a

Se pte m be r 2011 siteinspe c tion of Sunwe st re ve a le d tha t Sunwe st

“ fill[e d] la

rge dum p ste r bins” with, inte r

alia , pa pe r produc ts; a

nd (iii) two othe

r site inspe c t ions— one in Ja nua ry 2012 a nd one in 2008, the

re port of whic h Sta

r
re c e ive d in Fe brua

ry 2012—

n ote d substa

ntia l pa p e r proc e ssing. Sta

r wa s c le arly
aware tha t the a pplic ation inform ation wa s inc onsiste nt with the se fa c ts, a s indic a te d by

its re pe a te d inquirie s into Sunwe st’ s ope ra tions. Theanswe rs Sta r
re c e ive d from

Dunla p w e re non-re sponsive , a

nd sim ply re i te ra te d tha

t 100 pe rc e nt of Sunwe st’ s a

nnua l re v e nue c a

m e from m e ta l produc ts. The distric t c ourt did not c le arly e rr in finding tha t Sta r ha d be fore it inform a t ion tha

t “ distinc tly

im plie d” m ate ria l m isre pre se ntations, a nd tha t it fa ile d to sa tisfy its duty

to inve stiga

te suc h e vide nc e . The duty of inquiry

re quire s a

n insure r to not only

a sk que stions, but a

lso to inve stiga

te answe rs. Se e DuBe c k, 234 C a l. App. 4th a

t 1267. He re , S ta

r m a de inquirie s, but the n ignore d the ina de qua c y

5of the answe rs it re c e i v e d. Ha ving turne d

a blind e y e for ne arly

two y e a rs, Sta r
wa ive d its right to re sc ind whe n Sunwe st file d a c la i m . Se eid. at 1256, 1268. 2. Sunwe st c ross-a

ppe a ls the distric t c ourt’ s re duc tion in its re c ove ry from Sta r by a portion of Sunwe st’ s re c ove ry from Dunla

p. Sunwe st se ttle d its suit a ga inst Dunla p for, inte r alia , m ak ing e rrone ous re pre se ntations to Sta r. The distric t c ourt found tha t a pproxim a te ly

$232,000 of the $535,000 se ttle m e n t re pre se nte d losse s Sunwe st inc urre d unde r its fire insura nc e polic y . B e c a

use Sunwe st’ s ne arly $978,000 re c ove ry

from Sta r on its bre a c h of c ontra c t c la im a lso c ove re d its fire loss, the distric t c o urt offse t the judgm e nt a ga inst Sta r by the $232,000 it re c e ive d from Dunla p to pre ve nt doublere c o ve ry . Thus, Sunwe st’ s tota l re c ove ry from Sta r
am ounte d to a

pproxim ate ly $746,000, not inc luding pre judgm e nt inte re st a

nd c osts of suit unde r Fe de ra l R

ule of C ivil Proc e dure 54(d)(1). The distric t c ourt a c te d within its e quita b le disc re t ion in gra

nting theoffse t. Se e Plut v . Fire man’s Fund Ins. C o. , 85 C a l. App. 4th 98, 108 (2000). C a l ifornia
c ourts ha ve de c line d to e xte n d the c olla t e ra l sourc e rule to c ontra c t-ba se d c la im s. Id. at 107–08. Unlike

tort da m a ge s, “ [c ] ontra c t da

m a ge s a re ge ne ra lly

lim i te d to those within the c o n te m

p l a tion of thepa

rtie s whe n the c ontra c t

wa s e nte re d into.” Id. at 108 (inte rna l quota

tion m arks om itte d) (c iting R e sta te m e nt (Se c ond) of
6C ontra c t s § 347 c m t. e , whic h sta

te s tha t “ [t] he injure d

pa rty is limite d to da

m a ge s ba se d on his a c tua l loss c a use d by the bre a c h” ). B e c a

use Sunwe st re c ove re d
c ontra c t da

m a ge s from Star, its “ re c ove ry is re duc e d if [its] losse s a re avoide d or
m itiga te d.” Id. Sunwe st’ s losse s we re m itiga te d by its se ttle m e nt with Dunla p. The re fore , the distric t c ourt did not err in lim iting Sunwe st’ s tota l re c ove ry to its

“ a c tua l loss.” Se e id. (inte rna l quota tion m arks om i tte d). AFFIRM E D.

7