Court Opinion

ID: 4514063
Source: CourtListenerOpinion
Date Created: 2020-03-09 20:00:38.968294+00
Date Added: 2024-06-11T08:49:24.081373
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                            MAR 9 2020
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                           FOR THE NINTH CIRCUIT

757BD, LLC, a New Mexico limited                No.    18-16760
liability company,
                                                D.C. No. 2:14-cv-01312-DJH
             Plaintiff-Appellant,

 v.                                             MEMORANDUM*

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA, a
foreign insurer,

             Defendant-Appellee.

                   Appeal from the United States District Court
                            for the District of Arizona
                   Diane J. Humetewa, District Judge, Presiding

                            Submitted March 5, 2020**
                                Phoenix, Arizona

Before: HAWKINS, OWENS, and BENNETT, Circuit Judges.

      Plaintiff-appellant 757BD, LLC (“757BD”) appeals from the summary

judgment grant to National Union Fire Insurance (“National Union”), concluding that

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
coverage was not available under the National Union policies because there was no

property damage caused by an occurrence during the policy period. We affirm.

         In early January 2005, 757BD purchased an aircraft with the assistance of

National Union’s insured Aero Jet. Aero Jet was allegedly involved in pre-purchase

negotiations and inspection of the aircraft, and later entered into a Management

Services Agreement with 757BD relating to the aircraft on January 21. Aero Jet was

insured by National Union under a Gold Medallion Comprehensive Business Aircraft

Policy for two successive periods from January 30, 2005, to April 30, 2006, and from

April 30, 2006, through April 30, 2007.

         In November 2005, Aero Jet discovered “bubbling paint” on the wings of the

aircraft and other evidence of corrosion. A metallurgist expert investigated the cause

and concluded that the likely cause was exposure to chloride-based paint stripper

when the aircraft was repainted in 2002 by Duncan Aviation. The aircraft was out of

service for some time and 757BD spent a substantial sum of money repairing the

plane.

         757BD then filed a complaint in the underlying lawsuit against Duncan

Aviation, the seller of the aircraft, Aero Jet, and others.1 Among other things, the

         1
          Duncan was dismissed from the litigation after reaching a settlement with
757BD, and the claims against the seller were dismissed for lack of personal
jurisdiction.
                                          2
complaint alleged claims against Aero Jet for breach of fiduciary duty and negligent

misrepresentation in connection with the purchase of the aircraft, claiming Aero Jet

knew or should have known of the true condition but represented the aircraft was in

normal working condition. Aero Jet sought coverage from National Union for the

claims against it, but National Union denied liability coverage and refused to defend.

      Aero Jet and 757BD entered into a stipulated judgment on the claims for breach

of fiduciary duty and negligent misrepresentation. Aero Jet and 757BD then entered

into a Damron agreement,2 in which Aero Jet assigned all of its rights against National

Union to 757BD. Stepping into the place of the original insured, 757BD seeks

indemnification from National Union under its policy which went into force on

January 30, 2005, and covered the purchased plane as a “scheduled aircraft.”

      The relevant portions of the policy provide:

            The Company will promptly pay on behalf of the insured all sums
      which the Insured becomes legally obligated to pay as damages because
      of bodily injury and property damage caused by an occurrence during the
      policy period arising out of the ownership, maintenance or use of a
      scheduled aircraft.

      The policies define “property damage” as:

      2
         Damron v. Sledge, 460 P.2d 997 (Ariz. 1969). Under this type of settlement
agreement, the insured agrees to liability for the underlying incident and assigns all
rights against the insurance company to the injured party, who agrees not to execute
the judgment against the insured. See Desert Ridge Resort LLC v. Occidental Fire &
Cas. Co., 141 F. Supp. 3d 962, 966–67 (D. Ariz. 2015). The insurer is liable only if
the judgment constitutes a liability falling within its policy. See id.
                                          3
             [A]ccidental damage to or destruction of the tangible property of
      others caused by an occurrence during the policy period and the resultant
      loss of use of the property. Property damage also includes the loss of use
      of tangible property of others that is not physically damaged but that is
      caused by an occurrence during the policy period.

      “Occurrence” is defined by the policies as:

            [A]n accident, including continuous or repeated exposure to
      conditions, which results in bodily injury or property damage neither
      expected nor intended by the Insured. However, the definition will
      include bodily injury or property damage resulting from the efforts to
      prevent dangerous interference with any covered aircraft operations.

I.    Property Damage

      757BD’s underlying complaint did allege property damage to the aircraft, but

not connected with the claims alleged against National Union’s insured. Rather, the

complaint alleges that defendant Duncan caused damage to the aircraft from its

negligent paint job, allegations which are not the subject of this appeal.

      In contrast, Aero Jet stipulated to judgment on Claim VIII for breach of

fiduciary duty and Claim IX for negligent misrepresentation. As to these counts, the

complaint alleged that 757BD had suffered monetary damage from its reliance on

Aero Jet’s inspection of the aircraft prior to purchase and from Aero Jet’s alleged

failure to discover/turn over all relevant maintenance records pertaining to the aircraft.

      Interpreting a similar policy under California law, the Ninth Circuit held there

was no “property damage” under the policy for claims based on a seller’s alleged

                                            4
misrepresentation of the property’s condition. Safeco Ins. Co. v. Andrews, 915 F.2d

500, 502 (9th Cir. 1990) (the “claims do not expose [the seller] to liability for any

damage to tangible property, but rather for economic loss resulting from [the seller’s]

alleged failure to discover and disclose facts relevant to the property’s value and

desirability”); see also Am. Family Mutual Ins. Co. v. Craig, 2009 WL 10673964, *4

(D. Ariz. 2009) (unpublished); Travelers Indem. Co. v. Arizona, 680 P.2d 1255, 1258

(Ariz. Ct. App. 1984).3 The district court correctly held that the claims against Aero

Jet did not allege “property damage” within the meaning of the policy.

II.   Occurrence during Policy Period

      Moreover, even if there were “property damage” within the meaning of the

policy, 757BD has yet another insurmountable hurdle to clear:           there was no

occurrence within the period of the policy.

      An “occurrence” is an “accident” (including continuous or repeated exposure

to conditions) which results in bodily injury or property damage. The word accident

is “generally defined as an undesigned, sudden, and unexpected event, usually of an

afflictive or unfortunate character, and often accompanied by a manifestation of

force.” GRE Ins. Grp. v. Green, 980 P.2d 963, 965 (Ariz. Ct. App. 1999) (internal

      3
        Indeed, the complaint itself alleges the aircraft was already in an excessively
corrosive condition which Aero Jet should have discovered and disclosed during its
inspection. “It is axiomatic that X cannot be a proximate cause of Y if Y has already
occurred before X.” People v. Palmer, 35 Cal. Rptr. 3d 373, 383 (Ct. App. 2005).
                                          5
quotation marks omitted). Arizona cases have concluded that misrepresentations—

negligent or intentional—do not qualify as accidents or occurrences. See, e.g., W.

Cas. & Surety Co. v. Hays, 781 P.2d 38, 40 (Ariz. Ct. App. 1989); see also Great Am.

Assurance Co. v. PCR Venture of Phoenix LLC, 2014 WL 11497799, at *6–7 (D.

Ariz. 2014) (unpublished) (car rental agent’s alleged misrepresentation about

supplemental liability insurance was not an “accident”); Kema Steel, Inc. v. Home Ins.

Co., 736 P.2d 798, 799 (Ariz. Ct. App. 1986) (negligent failure to procure medical

insurance not an “occurrence”).

      Moreover, all of the allegations against Aero Jet pertain to its inspection of the

aircraft, alleged misrepresentations about the working condition of the aircraft, and

failure to turn over repair records, all in connection with the purchase of the aircraft.

But Aero Jet’s policy with National Union did not become effective until January 30,

2005. Therefore, as the district court held, “even if damages caused by the alleged

misrepresentation and breach of fiduciary duty could somehow be construed as

‘property damage,’ that damage occurred before the policy’s effective date and there

is no coverage.”

      AFFIRMED.

                                           6