Court Opinion

ID: 4030783
Source: CourtListenerOpinion
Date Created: 2016-09-01 20:01:03.907473+00
Date Added: 2024-06-11T14:35:25.630952
License: Public Domain

FILED
                             NOT FOR PUBLICATION
                                                                            SEP 01 2016

                      UNITED STATES COURT OF APPEALS                    MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                             FOR THE NINTH CIRCUIT

HEIDE KURTZ, solely in her capacity as           No. 14-55931
Chapter 7th Trustee for the Estate of
Namco Financial Exchange Corp.,                  D.C. No.
                                                 2:11-cv-07010-DMG-JCG
               Plaintiff-Appellant,

 v.                                              MEMORANDUM*

LIBERTY MUTUAL INSURANCE
COMPANY, a Massachusetts Corporation;
et al.,

               Defendants-Appellees.

                     Appeal from the United States District Court
                        for the Central District of California
                       Dolly M. Gee, District Judge, Presiding

                             Submitted August 30, 2016**
                                Pasadena, California

Before:        SILVERMAN, FISHER, and WATFORD, Circuit Judges.

      Heide Kurtz, as Chapter 7 trustee for the estate of Namco Financial Exchange

          *
             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).
Corp. (“NFE”), appeals the district court’s grant of summary judgment in favor of

Liberty Mutual Insurance Company, Zurich American Insurance Company, Axis

Insurance Company, and Twin City Fire Insurance Company (collectively

“Insurers”). NFE held itself as an Internal Revenue Code § 1031 “qualified

intermediary.”1 Rather than safeguarding customer funds, however, NFE’s high

ranking officials stole millions of dollars from its clients. In this diversity action,

Kurtz sought to recover on behalf of those clients under the commercial crime

insurance policies that Insurers issued to NFE in 2007. We have jurisdiction under

28 U.S.C. § 1291. We affirm.

       We review the district court’s grant of summary judgment de novo, Fanucchi

& Limi Farms v. United Agri Prods., 414 F.3d 1075, 1080 (9th Cir. 2005), and we

apply California substantive law. Intri-Plex Techs., Inc. v. Crest Grp., Inc., 499

F.3d 1048, 1052 (9th Cir. 2007) (in a diversity action, the law of the forum state

applies).

       The district court properly granted summary judgment for Insurers on Kurtz’s

breach of contract and declaratory relief claims because Insurers established as a

       1
         Section 1031 of the Internal Revenue Code allows entities that invest in real
estate to defer payment of capital gains taxes on the proceeds of the sale of a
property if the entity deposits the proceeds into an account with a “qualified
intermediary” and then uses those proceeds to purchase a “like-kind” property
within a specified period of time. See 26 U.S.C. § 1031; 26 C.F.R. § 1.1031(k)-1.

                                             2                                     14-55931
matter of law that NFE made a material misrepresentation on its insurance

application. See Douglas v. Fid. Nat’l Ins. Co., 177 Cal. Rptr. 3d 271, 283-84 (Cal.

Ct. App. 2014) (explaining that a material misrepresentation “in an application for

insurance entitle[s] an insurer to rescind an insurance policy” and “establishes a

complete defense in an action on the policy,” and setting forth test for materiality).

      While an insurer may fail to establish its defense of misrepresentation if an

insurance application question is ambiguous, the district court properly concluded

that no such ambiguity existed here. See Am. Mut. Liab. Ins. Co. v. Goff, 281 F.2d

689, 691-93 (9th Cir. 1960) (“[W]e cannot say that the lower court erred in finding

that appellant had failed to establish its defense of misrepresentation,” where the

question on the insurance application was “far from clear[.]”). Question 3 on the

insurance application asked: “Are proceeds from 1031 transactions held in bank

accounts segregated from those of your operating funds?” The district court

properly concluded that Question 3 was not ambiguous because the question is not

“capable of two or more constructions, both of which are reasonable,” in looking at

the application as a whole, and “in the circumstances of the case.” MacKinnon v.

Truck Ins. Exch., 73 P.3d 1205, 1212-13 (Cal. 2003) (setting forth principles for

construing contracts). Namely, the only reasonable interpretation of Question 3 is

that it asks whether NFE holds “proceeds from 1031 transactions” in separate bank

                                           3                                     14-55931
accounts from NFE’s bank account holding its operating funds.

      The district court properly concluded that Insurers did not waive their

misrepresentation defense because, although NFE changed its answer to Question 3,

whether NFE misrepresented facts in the revised application was not “distinctly

implied in other facts,” nor did NFE’s misrepresentation constitute an obvious red

flag. Old Line Life Ins. Co. v. Super. Ct., 281 Cal. Rptr. 15, 19 (Cal. Ct. App. 1991)

(an insurer may waive its right to disclosure of material facts by neglecting to

inquire as to material facts, “where they are distinctly implied in other facts of which

information is communicated,” Cal. Ins. Code § 336, or by failing “to follow up

obvious leads”).

      Finally, the district court properly granted summary judgment on Kurtz’s

breach of the implied covenant of good faith and fair dealing claim because it

correctly concluded that Insurers were entitled to rescind the policies. See Brizuela

v. Calfarm Ins. Co., 10 Cal. Rptr. 3d 661, 673 (Cal. Ct. App. 2004) (“[A]bsent any

potential for coverage under an insurance policy, there can be no breach of the

implied covenant of good faith and fair dealing because the covenant is based on the

contractual relationship between the insured and the insurer.” (citation and internal

quotation marks omitted)).

      AFFIRMED.

                                           4                                       14-55931