Court Opinion

ID: 2828157
Source: CourtListenerOpinion
Date Created: 2015-08-18 20:03:45.840117+00
Date Added: 2024-06-11T13:40:01.989343
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                           AUG 18 2015
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

DARRYN BEGUN; JAY R. BEGUN;                      No. 13-16211
GREG TUCKER; CONRAD HEWITT,
                                                 D.C. No. 3:12-cv-03649-EDL
              Plaintiffs - Appellants,

 v.                                              MEMORANDUM*

SCOTTSDALE INSURANCE
COMPANY,

              Defendant - Appellee.

                   Appeal from the United States District Court
                       for the Northern District of California
                 Elizabeth D. Laporte, Magistrate Judge, Presiding

                           Submitted August 14, 2015**
                             San Francisco, California

Before: TALLMAN and CALLAHAN, Circuit Judges, and ROSENTHAL,***
District Judge.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
        ***
            The Honorable Lee H. Rosenthal, United States District Judge for the
Southern District of Texas, sitting by designation.
      Darryn Begun, Jay R. Begun, Greg Tucker, and Conrad Hewitt

(“Appellants”), former directors and officers of the now defunct Clickbooks.com,

Inc., appeal the district court’s denial of their motion for summary judgment and

grant of Scottsdale Insurance Company’s cross-motion. The central issue on

appeal is whether a professional services exclusion in a Business and Management

Indemnity Insurance Policy (the “Policy”) barred coverage for claims in the

underlying action against Appellants. We have jurisdiction under 28 U.S.C.

§ 1291, and we affirm.

      We apply California law in this diversity suit. See Edgerly v. City & Cty. of

S.F., 713 F.3d 976, 982 (9th Cir. 2013). The duty to defend depends on whether

the insurance policy in question potentially covers the alleged liability. See Gray

v. Zurich Ins. Co., 65 Cal. 2d 263, 275 (1966). Appellants initially tendered their

defense to Scottsdale during the pendency of the underlying action against them.

The district court properly found Scottsdale had no duty to defend at that time

because the claims in the underlying action centered on Appellants’ personal

failure, or their failure as the alter egos of Clickbooks, to render payroll services,

which qualify as professional services under California law. Cf. Tradewinds

Escrow, Inc. v. Truck Ins. Exch., 97 Cal. App. 4th 704, 713 (2002). The claims

thus arose “from the performance of a professional service, not merely at the same

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time the insured was otherwise providing professional services to a third party.”

Food Pro Int’l, Inc. v. Farmers Ins. Exch., 169 Cal. App. 4th 976, 991 (2008)

(emphasis added). Therefore, the professional services exclusion barred coverage.

See Tradewinds, 97 Cal. App. 4th at 713. It is irrelevant whether Appellants

personally rendered these services because the underlying action alleged

deficiencies “arising out of” the failure to provide professional services. See

Medill v. Wesport Ins. Corp., 143 Cal. App. 4th 819, 833 (2006). Scottsdale had

no duty to defend at the time of the original tender.

      Appellants again tendered their defense to Scottsdale one month after the

conclusion of the underlying action. They argued extrinsic evidence obtained

during discovery in the underlying action showed that the claims against them

arose from their actions as directors and officers, not for failure to render

professional services. Even considering all the available extrinsic evidence,

Scottsdale had no duty to defend Appellants. Although the plaintiff in the

underlying action made statements about Appellants’ failures as officers, he did so

to substantiate his alter ego theory, not to hold them liable in these roles.

      In addition, when an insured waits to present evidence that may give rise to a

duty to defend until after the conclusion of the underlying action, an insurer is not

required to consider the evidence. The insurer may deny the re-tender based solely

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on the evidence available to it during the pendency of the underlying action. See

Monticello Ins. Co. v. Essex Ins. Co., 162 Cal. App. 4th 1376, 1388-89 (2008).

Appellants did not present extrinsic evidence to Scottsdale until after the

conclusion of the underlying action. Scottsdale was thus permitted to deny

Appellants’ second tender—based exclusively on information contained in the

operative complaint—for the same reasons as the original tender.

      AFFIRMED.

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