Court Opinion

ID: 4232833
Source: CourtListenerOpinion
Date Created: 2017-12-27 21:00:37.297369+00
Date Added: 2024-06-11T14:43:13.843418
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                       DEC 27 2017
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

SUNRISE SPECIALTY COMPANY, INC.                 No.    16-16856
and ROBERT WEINSTEIN,
                                                D.C. No. 4:16-cv-01461-HSG
                Plaintiffs-Appellants,

 v.                                             MEMORANDUM*

SCOTTSDALE INSURANCE COMPANY,

                Defendant-Appellee.

                   Appeal from the United States District Court
                     for the Northern District of California
                 Haywood S. Gilliam, Jr., District Judge, Presiding

                          Submitted December 7, 2017**
                            San Francisco, California

Before: M. SMITH and IKUTA, Circuit Judges, and MCAULIFFE,*** District
Judge.

      *
             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).
      ***
              The Honorable Steven J. McAuliffe, United States District Judge for
the District of New Hampshire, sitting by designation.
      This is an insurance coverage dispute. The insureds, Sunrise Specialty

Company, Inc. (“Sunrise”) and its CEO, Robert Weinstein, appeal from the district

court’s entry of summary judgment in favor of the insurer, Scottsdale Insurance

Company (“Scottsdale Insurance”). We have jurisdiction under 28 U.S.C. § 1291,

and review the district court’s entry of summary judgment de novo. Campidoglio

LLC v. Wells Fargo & Co., 870 F.3d 963, 973 (9th Cir. 2017).

      In October of 2014, three of Sunrise’s minority shareholders (and former

members of its board of directors) filed suit against Sunrise and Weinstein alleging,

among other things, that Weinstein had breached his fiduciary obligations to the

corporation. Sunrise promptly notified Scottsdale Insurance of the suit and

demanded a defense and indemnification under the policy. Scottsdale denied

coverage, invoking the policy’s “insured vs. insured exclusion,” noting that

because each of the plaintiffs had previously served on Sunrise’s board of directors,

each was an “Insured” as defined in the policy.

      Sunrise and Weinstein sued Scottsdale Insurance in federal court, asserting

claims for breach of the insurance policy and breach of the duty to defend, as well

as breach of the covenant of good faith and fair dealing. The district court granted

Scottsdale’s motion for summary judgment, concluding that the pertinent policy

language was unambiguous, there were no genuinely disputed issues of material

fact, and the policy’s “insured vs. insured” exclusion applied. Accordingly, the

                                          2                                    16-16856
court ruled that Scottsdale had, as a matter of law, properly denied coverage. This

appeal followed.

      All parties agree that the plaintiffs in the underlying state suit are “Insureds”

as defined in the policy and, therefore, the policy’s “insured vs. insured” coverage

exclusion does apply. But Sunrise and Weinstein contend that an exception to that

exclusion, known as the “derivative claim exception,” also applies, thereby

triggering coverage. The district court found that it did not, and we agree.

      The “derivative claim exception” applies only if the underlying suit was

“brought derivatively by a securities holder” and was “instigated and continued

totally independent of, and totally without the solicitation, assistance, active

participation of, or intervention of, any Insured.” Sunrise argues that the

underlying plaintiffs were merely “nominal parties” who did not instigate, assist, or

actively participate in the underlying lawsuit. That suggestion is speculative and

unsupported by the record. Moreover, because a lawsuit cannot be instigated and

continued totally independent of its named plaintiffs, the derivative exception

would still apply even if the named plaintiffs had a minimal role in conducting the

litigation. But, in any event, Scottsdale refuted the argument that the plaintiffs

were merely nominal. The record reveals that the underlying complaint includes

statements taken directly from personal emails that Weinstein sent to the

underlying plaintiffs. Plainly, then, those underlying plaintiffs (all of whom are

                                           3                                       16-16856
“Insureds”) at least “assisted” and/or “actively participated” in drafting the

complaint by providing counsel with copies of those emails.

      The record discloses no genuine dispute with respect to any material fact.

The district court correctly concluded that, as a matter of law, the “derivative claim

exception” does not apply, and Scottsdale properly denied coverage under the

policy pursuant to the “insured vs. insured” coverage exclusion.

      AFFIRMED.

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