NOT FOR PUBLICATION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 APPEALS2 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 i s 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 “b are 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

complai nt 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 possibi lity 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 Exc lusion” 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 : T he

insured or the insured’s employees

. . . . ” Here, the exclusion applies because the

state court complaints asserted that Armory and Acw orth 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 d efend 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 exp ress 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 wh ether to accept the proposed

settlement.” Blue Ridge Ins. Co. v. Jacobsen , 22 P.3d 313, 320

– 21 (Cal. 2001). Atain4 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

.