Court Opinion

ID: 4674639
Source: CourtListenerOpinion
Date Created: 2021-04-05 20:00:30.350183+00
Date Added: 2024-06-11T08:03:20.702774
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                               APR 5 2021
                    UNITED STATES COURT OF APPEALS                         MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

LANDMARK AMERICAN INSURANCE                      No.   18-56353
COMPANY, a corporation,
                                                 D.C. No.
              Plaintiff-Appellee,                2:16-cv-09169-R-PJW

 v.
                                                 MEMORANDUM*
TAISEI CONSTRUCTION
CORPORATION, a Delaware corporation,

              Defendant-Appellant,

 and

DOES, Does,

              Defendant.

                    Appeal from the United States District Court
                       for the Central District of California
                     Manuel L. Real, District Judge, Presiding

                      Argued and Submitted August 10, 2020
                              Pasadena, California

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: WARDLAW and CLIFTON, Circuit Judges, and HILLMAN,** District
Judge.

      Taisei Construction Corporation (“Taisei”) appeals from the district court’s

entry of summary judgment in favor of Landmark American Insurance Company

(“Landmark”).1 We have jurisdiction pursuant to 28 U.S.C. § 1291, review the

district court’s rulings on the parties’ cross-motions for summary judgment de

novo, and vacate and remand. See Guatay Christian Fellowship v. Cnty. of San

Diego, 670 F.3d 957, 970 (9th Cir. 2011).

      Taisei argues that the district court erred in entering summary judgment in

favor of Landmark because the court improperly applied the substantial prejudice

standard in assessing whether Taisei breached its duty of cooperation under the

      **
             The Honorable Timothy Hillman, United States District Judge for the
District of Massachusetts, sitting by designation.
      1
        Although the Opening Brief’s “Issues Presented” section purports to pose
the question of whether the district court erred in denying Taisei’s own motion to
dismiss and its “Standard of Review” section sets forth the standard for denial of a
motion to dismiss, Taisei’s argument is framed entirely in terms of what it
contends was the district court’s error in entering summary judgment in favor of
Landmark. Accordingly, Taisei has waived the argument that the district court
erred in denying its motion to dismiss. See Cal. Pac. Bank v. Fed. Deposit Ins.
Corp., 885 F.3d 560, 570 (9th Cir. 2018); see also Fed. R. App. P. 28(a)(8)(A).
                                          2
insurance policies.2 We agree. To assert a defense to its duty to defend based on

Taisei’s breach of the insurance policies’ cooperation clauses, Landmark had the

burden to prove that it suffered substantial prejudice as the result of the breach.

Nw. Title Sec. Co. v. Flack, 6 Cal. App. 3d 134, 140–41 (1970) (“[B]reach cannot

be a valid defense unless the insurer was substantially prejudiced thereby.”) (citing

Campbell v. Allstate Ins. Co., 60 Cal. 2d 303, 305 (1963)). “[P]rejudice is not

presumed as a matter of law from [ ] breach,” rather, “actual prejudice must be

shown.” Id. at 141 (citing Billington v. Interinsurance Exch. of S. Cal., 456 P.2d

982, 987 (Cal. 1969) (in bank)). For example, substantial prejudice may be found

when the insurer can demonstrate that, absent the breach, “there [is] a substantial

likelihood the trier of fact would have found in the insured’s favor,” id. at 141–42,

or that the insured “could have settled the case for a . . . smaller sum than that for

which [the] insured ultimately settled the claim,” id. at 143.

      2
         The district court granted summary judgment in favor of Landmark on the
declaratory relief claim, determining that Taisei breached the insurance policies’
cooperation clauses. The district court then relied on that determination to grant
summary judgment in favor of Landmark on the breach of contract and equitable
reimbursement claims and to deny Taisei’s motion. The district court concluded
that Taisei’s breach of the cooperation clauses constituted a breach of contract and
that the breach extinguished Landmark’s duty to defend under the insurance
policies, thus entitling Landmark to reimbursement of expenses incurred after the
breach.
                                            3
      In granting Landmark’s motion for summary judgment, the district court

incorrectly relied on our court’s unpublished memorandum disposition, Cybernet

Ventures, Inc. v. Hartford Ins. Co. of the Midwest, 168 Fed. App’x. 850, 852 (9th

Cir. 2006),3 to conclude, as a general principle, that “[i]nsurers are substantially

prejudiced when, before trial, an insured does not allow counsel appointed by the

insurer to conduct the defense, or otherwise fails to cooperate with the insurer’s

defense.” Relying on that principle alone, the district court found that Taisei’s

request that the Lee Firm withdraw as counsel and demand that Youngerman &

McNutt be appointed caused Landmark substantial prejudice because Landmark

was unable to control the defense. In other words, the district court presumed

substantial prejudice from breach rather than engaging in an independent analysis

of actual prejudice. Similarly, in denying Taisei’s motion for summary judgment,

the district court concluded that there was no genuine dispute of material fact that

Taisei breached the policies’ cooperation clauses without engaging in a seperate

actual prejudice analysis.

      3
         An unpublished memorandum disposition is not precedent, and a
memorandum disposition issued before January 1, 2007, may not be cited unless it
falls within one of the exceptions set forth in Ninth Circuit Rule 36-3(c). None of
those exceptions applies here. See Ninth Cir. R. 36-3.
                                           4
      The issue of substantial prejudice is one of fact to be resolved by the trial

court in the first instance. Flack, 6 Cal. App. 3d 134 at 141. Summary judgment

cannot properly be based on those presumptions, especially in the factual context

here, where it is far from undisputed based on the existing record that Landmark

did actually suffer substantial prejudice.

      Accordingly, we vacate the judgment and remand to the district court for

further proceedings. That could include consideration of whether there is a genuine

issue of material fact concerning substantial prejudice.

      The costs of appeal are taxed against Landmark and awarded to Taisei as the

substantially prevailing party. See Cortobello v. DeVito, 777 F.3d 1058, 1068 (9th

Cir. 2015); Fed. R. App. P. 39.

      VACATED AND REMANDED.

                                             5