Court Opinion

ID: 4413295
Source: CourtListenerOpinion
Date Created: 2019-07-02 17:00:39.393721+00
Date Added: 2024-06-11T14:23:10.755342
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

NAUTILUS INSURANCE                  Nos. 17-16265
COMPANY,                                 17-16272
       Plaintiff-Appellant/              17-16273
          Cross-Appellee,
                                       D.C. No.
            v.                   2:15-cv-00321-JAD-
                                        GWF
ACCESS MEDICAL, LLC;
ROBERT CLARK WOOD II;
FLOURNOY MANAGEMENT,            ORDER CERTIFYING
LLC,                             QUESTION TO THE
     Defendants-Appellees/      NEVADA SUPREME
         Cross-Appellants.           COURT

                   Filed July 2, 2019

      Before: Ronald M. Gould, Sandra S. Ikuta,
         and Ryan D. Nelson, Circuit Judges.
2          NAUTILUS INS. CO. V. ACCESS MEDICAL

                          SUMMARY *

      Certified Question to Nevada Supreme Court

    The panel certified the following question of state law to
the Nevada Supreme Court:

        Is an insurer entitled to reimbursement of
        costs already expended in defense of its
        insureds where a determination has been
        made that the insurer owed no duty to defend
        and the insurer expressly reserved its right to
        seek reimbursement in writing after defense
        has been tendered but where the insurance
        policy contains no reservation of rights?

                             ORDER

    Pursuant to Rule 5 of the Nevada Rules of Appellate
Procedure, we respectfully certify to the Nevada Supreme
Court the question of law set forth in Section III of this order.
This question of law will be determinative of a question
pending before this court and there is no controlling
precedent in the decisions of the Nevada state courts.

                                  I.

    We summarize the material facts. After a business
partnership went sour, Ted Switzer filed a cross-complaint
against Access Medical, Flournoy, and Robert Clark Wood

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
          NAUTILUS INS. CO. V. ACCESS MEDICAL                 3

II (collectively “Insureds”) in California state court. In the
cross-complaint, Switzer brought thirty-one claims,
including a purported claim for interference with prospective
economic advantage because of the Insureds’ alleged
interference with relationships with hospitals with which
Switzer “enjoyed a long-standing and mutually beneficial
relationship.”       Specifically, Switzer alleged that:
(1) Insureds “acted to disrupt the relationship between
Switzer” and various hospitals; (2) the wrongful acts
“resulted in injury to the personal and business reputation”
of Switzer; (3) the wrongful acts caused various vendors to
stop using Switzer’s business and to use Access Medical’s
instead; and (4) the wrongful acts were malicious and done
with the intent to injure Switzer’s professional and business
well-being. Although never referenced in the cross-
complaint, at some point an email written by Jacqueline
Weide, a representative of Access Medical and Flournoy,
was uncovered. In the email, Weide advised a third-party
hospital that Access Medical wanted to contract to sell spinal
implants to them because the hospital’s “Distributor in the
California area is now banned from selling Alphatec
implants.” Switzer was the alleged Distributor.

    Insureds tendered defense of the cross-claim to their
insurance provider, Nautilus. Under the insurance policy,
Nautilus is required to defend Insureds against “any suit
seeking damages” because of a “personal and advertising
injury,” “arising out of . . . [o]ral or written publication, in
any manner, of material that slanders or libels a person or
organization or disparages a person’s or organization’s
goods, products or services.” After multiple refusals,
Nautilus agreed to defend Insureds under an express
reservation of rights.
4         NAUTILUS INS. CO. V. ACCESS MEDICAL

    In a May 19, 2014 letter, Nautilus reserved its right to
disclaim coverage, withdraw from defense, and obtain a
reimbursement of defense fees following a determination
that no potential for coverage existed for Access Medical
and Wood’s claims. Insureds did not object to payment of
defense counsel invoices. On October 2, 2014, Nautilus
issued a supplemental reservation of rights letter again
reserving the right to reimbursement of all attorneys’ fees,
expert fees, defense costs, indemnification payments, and
other litigation-related expenses paid in connection with its
defense of Access Medical and Wood. That same month,
Nautilus agreed to provide Flournoy with a defense against
the Switzer cross-complaint, subject to a full and complete
reservation of rights. Nautilus continued to pay for Insureds’
counsel. Finally, in an April 5, 2016 letter, Nautilus again
reserved the right to demand defense reimbursement costs.
Nautilus continued to pay defense costs after the letter was
sent.

    On February 24, 2015, Nautilus sought a declaratory
judgment in Nevada federal district court that Nautilus never
had a duty to defend or indemnify Insureds. Nautilus then
filed a motion for partial summary judgment. Nautilus did
not address that it was seeking reimbursement of defense
costs in either pleading. The Nevada district court found that
Nautilus’s duty to defend under the policy was not triggered
under Nevada law because Switzer’s cross-complaint did not
allege and the Weide email did not contain a false statement
that would support a claim for defamation, libel, or slander
under California law. Therefore, the district court construed
Nautilus’s motion as one for full summary judgment, entered
judgment in favor of Nautilus, and closed the case.

   Nautilus subsequently brought a motion for further relief
under 28 U.S.C. § 2202 seeking reimbursement of defense
          NAUTILUS INS. CO. V. ACCESS MEDICAL               5

costs incurred defending Insureds in the Switzer cross-
complaint. Insureds filed a motion for reconsideration
arguing that Nautilus had a duty to defend Insureds. The
district court denied both motions in the same order. On the
reimbursement issue, the district court concluded Nautilus
was not entitled to further relief because: (1) Nautilus did
not include a claim for reimbursement or damages in its
complaint; (2) Nautilus did not show it was entitled to relief
as a matter of law under § 2202; and (3) Nautilus did not
establish it was entitled to reimbursement under Nevada law.

    In a separate memorandum disposition, we affirmed the
district court’s determination that Nautilus did not owe a
duty to defend Insureds and reserved judgment on whether
Nautilus could seek further relief under § 2202, depending
on whether Nautilus is entitled to reimbursement under
Nevada law. Therefore, the only issue remaining is whether
Nautilus is entitled to reimbursement under Nevada law.

                             II.

    The district court determined Nautilus is not entitled to
reimbursement under Nevada law. Nevada state courts do
not appear to have spoken directly on this issue. Insureds
argue under Probuilders Specialty Insurance Co. v. Double
M. Construction, 116 F. Supp. 3d 1173, 1182 & n.4 (D. Nev.
2015), Nevada law only allows reimbursement where the
policy explicitly provides insurer’s defense is “subject to
such reservation of rights” as the insurer deems appropriate.
Nautilus argues that Probuilders is not so limited.

    Our understanding of Nevada law is that a reservation of
rights letter can generally be valid. See Havas v. Atl. Ins.
Co., 614 P.2d 1, 1 (Nev. 1980) (per curiam) (insurer “agreed
to investigate validity of the claim while specifically
reserving all defenses available to it”). The federal district
6         NAUTILUS INS. CO. V. ACCESS MEDICAL

court in Nevada determined that insurers have a right to
reimbursement if there is an “understanding” between the
parties that the insured would be required to reimburse costs
if it is later determined that the insurer had no duty to defend.
Capitol Indem. Corp. v. Blazer, 51 F. Supp. 2d 1080, 1090
(D. Nev. 1999). This understanding can exist outside the
terms of the policy. For example, acceptance of money from
the insurer can constitute an implied agreement to the
reservation of rights. Probuilders Specialty Ins. Co., 116 F.
Supp. 3d at 1182.

     Here, Nautilus advised Insureds on at least four
occasions that it was reserving all rights, including the right
to seek reimbursement. In each of the letters sent to
Insureds, Nautilus stated that it “further reserves the right to
seek reimbursement for any and all attorney fees, expert
fees, defense costs, indemnification payments, and any other
litigation-related expenses that it pays in connection with its
defense and indemnification.”

     To be sure, several courts have held that a unilateral
reservation of rights letter cannot itself create rights not
contained in the policy. See, e.g., Shoshone First Bank v.
Pac. Emp’rs Ins. Co., 2 P.3d 510, 515–16 (Wyo. 2000)
(opting to follow minority rule that insurer cannot recover
defense costs because “insurer is not permitted to
unilaterally modify and change policy coverage”). The
Illinois Supreme Court explained the difference between the
majority and minority rules:

        In general then, the decisions finding that an
        insurer is entitled to reimbursement of
        defense costs are based upon a finding that
        there was a contract implied in fact or law, or
        a finding that the insured was unjustly
        enriched when its insurer paid defense costs
          NAUTILUS INS. CO. V. ACCESS MEDICAL                 7

       for claims that were not covered by the
       insured’s policy.

Gen. Agents Ins. Co. of Am. v. Midwest Sporting Goods Co.,
828 N.E.2d 1092, 1101 (Ill. 2005). In adopting the minority
rule, the Illinois Supreme Court explained that in paying
defense costs pursuant to a reservation of rights:

       [T]he insurer is protecting itself at least as
       much as it is protecting its insured. Thus, we
       cannot say that an insured is unjustly
       enriched when its insurer tenders a defense in
       order to protect its own interests, even if it is
       later determined that the insurer did not owe
       a defense.

Id. at 1103.

     Courts that follow the majority rule, however, state that
it is in the best interests of both parties to allow insurers to
recoup their defense costs under a reservation of rights.
“Without a right of reimbursement, an insurer might be
tempted to refuse to defend an action in any part—especially
an action with many claims that are not even potentially
covered and only a few that are—lest the insurer give, and
the insured get, more than they agreed.” Buss v. Superior
Court, 939 P.2d 766, 778 (Cal. 1997).

    We understand that “[w]here Nevada law is lacking, its
courts have looked to the law of other jurisdictions,
particularly California, for guidance.” Eichacker v. Paul
Reverse Life Ins. Co., 354 F.3d 1142, 1145 (9th Cir. 2004)
(internal quotation marks omitted). Under California law,
“the insurer can reserve its right of reimbursement for
defense costs by itself, without the insured’s agreement.”
Buss, 939 P.2d at 784 n.27. “If that conclusion is reached,
8         NAUTILUS INS. CO. V. ACCESS MEDICAL

the insurer, having reserved its right, may recover from its
insured the costs it expended to provide a defense, which,
under its contract of insurance, it was never obliged to
furnish.” Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460,
468 (Cal. 2005).

    Because the Nevada Supreme Court has not spoken
directly on the issue of an insurer’s entitlement to
reimbursement of defense costs under a reservation of rights
and because such issues involve matters of state law and
policy best resolved by the highest court of Nevada,
certification of a question to the Nevada Supreme Court is
appropriate. We recognize that “[t]he written opinion of the
Supreme Court stating the law governing the questions
certified . . . shall be res judicata as to the parties.” Nev. R.
App. P. 5(h).

                              III.

    The question of law we certify is:

        Is an insurer entitled to reimbursement of
        costs already expended in defense of its
        insureds where a determination has been
        made that the insurer owed no duty to defend
        and the insurer expressly reserved its right to
        seek reimbursement in writing after defense
        has been tendered but where the insurance
        policy contains no reservation of rights?

We do not intend our framing of this question to restrict the
Nevada Supreme Court’s consideration of any issues it
deems relevant. If the Nevada Supreme Court accepts
certification, it may in its discretion reformulate the
question. Adamson v. Port of Bellingham, 899 F.3d 1047,
1052 (9th Cir. 2018).
           NAUTILUS INS. CO. V. ACCESS MEDICAL                   9

                               IV.

    Nautilus’s appeal presents an issue of Nevada state law
which will be determinative of an issue essential to the
resolution of claims raised in the present case. For this
reason, we respectfully request that the Nevada Supreme
Court accept and decide the question herein certified.

   The clerk of this court shall forward a copy of this order,
under official seal, to the Nevada Supreme Court, along with
copies of all briefs and excerpts of record that have been filed
with this court.

    Further proceedings in our court are stayed pending the
Nevada Supreme Court’s decision whether it will accept
review and, if so, receipt of the answer to the certified
question. This case is withdrawn from submission until
further order from this court. The clerk is directed to
administratively close this docket, pending further order.
The panel will resume control and jurisdiction on the
certified question upon receiving an answer to the certified
question or upon the Nevada Supreme Court’s decision to
decline to answer the certified question.

    The parties shall notify the clerk of this court within
14 days of any decision by the Nevada Supreme Court to
accept or decline certification. If the Nevada Supreme Court
accepts certification, the parties shall file a joint status report
every six months after the date of acceptance, or more
frequently if the circumstances warrant.

    IT IS SO ORDERED.

                                 Ronald M. Gould
                                 Circuit Judge
10       NAUTILUS INS. CO. V. ACCESS MEDICAL

                 Supplemental Material

   Pursuant to Rule 5 of the Nevada Rules of Appellate
Procedure, we include here the designation of the parties
who would be the appellants and appellees in the Nevada
Supreme Court, as well as the names and addresses of
counsel.

For Appellant/Cross-Appellee Nautilus Insurance Company:

Linda Wendell Hsu
Selman Breitman LLP
33 New Montgomery Street
San Francisco, California 94105

For Appellees/Cross-Appellants Access Medical LLC and
Robert Clark Wood II:

Jordan P. Schnitzer
The Schnitzer Law Firm
9205 W. Russell Road
Building 3, Suite 240
Las Vegas, Nevada 89148

L. Renee Green
Kravitz Schnitzer & Johnson, Chtd.
Suite 200
8985 S. Eastern Avenue
Las Vegas, Nevada 89123
         NAUTILUS INS. CO. V. ACCESS MEDICAL           11

For Defendant-Appellee/Cross-Appellant Flournoy Management
LLC:

James E. Harper
Harper Selim
1707 Village Center Circle
Suite 140
Las Vegas, Nevada 89134