NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ATAIN SPECIALTY INSURANCE 

COMPANY, a Michigan corporation, 

Plaintiff-Appellee, 

 v. 

ARMORY STUDIOS, LLC, a California 

limited liability company; PETER 

ACWORTH, an individual, 

Defendants-Appellants.

No. 19-15745 

D.C. No. 3:15-cv-05124-JD 

MEMORANDUM*

ATAIN SPECIALTY INSURANCE 

COMPANY, a Michigan corporation, 

Plaintiff-Appellant, 

 v. 

ARMORY STUDIOS, LLC, a California 

limited liability company; PETER 

ACWORTH, an individual, 

Defendants-Appellees.

No. 19-15820 

D.C. No. 3:15-cv-05124-JD 

Appeal from the United States District Court

for the Northern District of California

James Donato, District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent 

except as provided by Ninth Circuit Rule 36-3.

FILED

AUG 13 2020

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS
2 19-15745 

Argued and Submitted July 15, 2020

San Francisco, California

Before: SILER,** TALLMAN, and LEE, Circuit Judges.

The district court held that Atain Specialty Insurance Company (Atain) did 

not have a duty to defend Armory Studios, LLC (Armory) and Armory’s principal, 

Peter Acworth, in underlying state court lawsuits and that Atain is not entitled to 

reimbursement of a settlement paid in one of those underlying lawsuits, Adams v. 

Kink.com, et al., No. CGC–15–547035 (San Francisco Super. Ct.). We affirm.

First, we conclude that the district court did not err when it determined that 

Atain had no duty to defend Armory or Acworth in the underlying lawsuits. Under 

California law, an insurer must defend its insured against a third-party lawsuit if 

there is a “bare possibility of coverage.” Belmonte v. Emp’rs Ins. Co., 99 Cal. Rptr. 

2d 661, 663 (Cal. Ct. App. 2000). Therefore, we compare “the allegations of the 

complaint with the terms of the policy” and determine whether the facts alleged 

together with the facts known to the insurer at the inception of a lawsuit or tender of 

defense reveal a possibility that the claim is covered. Montrose Chemical Corp. v. 

Superior Court, 861 P.2d 1153, 1157 (Cal. 1993) (en banc).

Atain argues that the “Physical-Sexual Abuse Exclusion” precludes coverage.

** The Honorable Eugene E. Siler, United States Circuit Judge for the 

U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
3 19-15745 

The exclusion precludes coverage of “any ‘occurrence,’ suit, . . . or causes of action 

arising out of or resulting from the physical abuse, sexual abuse or licentious, 

immoral or sexual behavior intended to lead to, or culminating in any sexual act, 

whether caused by, or at the instigation of, or at the direction of, or omission by: The 

insured or the insured’s employees . . . .” Here, the exclusion applies because the 

state court complaints asserted that Armory and Acworth were liable for the 

plaintiffs’ contraction of HIV while plaintiffs were engaging in sexual acts at the 

direction of Armory and Acworth, among others. And the omissions clause 

precludes causes of action arising out of any sexual act that resulted from the 

omission of the insured, which covers the complaint allegations that Armory and 

Acworth failed to discover dangerous conditions caused by their tenants and failed 

to ensure their tenants were following required procedures. Thus, Atain had no duty 

to defend against any causes of action. 

Second, we conclude that Atain is not entitled to reimbursement of the Adams 

action settlement. To be entitled to reimbursement Atain must show that it satisfied 

each of the following requirements: “(1) a timely and express reservation of rights; 

(2) an express notification to the insureds of the insurer’s intent to accept a proposed 

settlement offer; and (3) an express offer to the insureds that they may assume their 

own defense when the insurer and insureds disagree whether to accept the proposed 

settlement.” Blue Ridge Ins. Co. v. Jacobsen, 22 P.3d 313, 320–21 (Cal. 2001). Atain 
4 19-15745 

did not satisfy the third requirement because it never made an express offer to 

Armory that it could assume its own defense. Therefore, Atain is not entitled to 

reimbursement of the Adams action settlement. 

Each party to bear its own costs. 

AFFIRMED.