Court Opinion

ID: 621281
Source: CourtListenerOpinion
Date Created: 2012-01-21 01:01:47+00
Date Added: 2024-06-11T17:50:55.944733
License: Public Domain

FILED
                             NOT FOR PUBLICATION                               JAN 20 2012

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

                             FOR THE NINTH CIRCUIT

NATIONAL UNION FIRE INSURANCE                    No. 10-17194
COMPANY OF PITTSBURGH,
PENNSYLVANIA; et al.,                            D.C. No. 5:04-cv-01593-JW

                Plaintiffs-counter-defendants
- Appellees,                                     MEMORANDUM*

  v.

SEAGATE TECHNOLOGY, INC.,

                Defendant-counter-claimant -
Appellant.

NATIONAL UNION FIRE INSURANCE                    No. 10-17215
COMPANY OF PITTSBURGH,
PENNSYLVANIA; et al.,                            D.C. No. 5:04-cv-01593-JW

                Plaintiffs-counter-defendants
- Appellants,

  v.

SEAGATE TECHNOLOGY, INC.,

                Defendant-counter-claimant -
Appellee.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                    Appeal from the United States District Court
                       for the Northern District of California
                    James Ware, Chief District Judge, Presiding

                     Argued and Submitted December 5, 2011
                            San Francisco, California

Before: ALARCÓN, CALLAHAN, and N.R. SMITH, Circuit Judges.

      Seagate Technology, Inc. (“Seagate”) appeals and its insurers, National

Union Fire Insurance Company of Pittsburgh, PA (“National”), American

International Underwriters Insurance Company (“AIU”), and American

International Speciality Lines Company (“AISLIC”), cross appeal the district

court’s September 2, 2010 Judgment Pursuant to Federal Rule of Civil Procedure

54(b) and the orders that underlie the judgment.1 We have jurisdiction pursuant to

28 U.S.C. § 1291. We reverse the district court’s rulings that AIU owed a duty to

defend and that the other insurers’ duty to defend terminated. We affirm all

remaining issues appealed.

       “We review a grant of summary judgment de novo.” Hudson Ins. Co. v.

Colony Ins. Co., 624 F.3d 1264, 1266 (9th Cir. 2010). In addition, a district court’s

interpretation of state law is reviewed de novo. Trishan Air, Inc. v. Fed. Ins. Co.,

      1
            Because the parties are familiar with the facts and procedural history,
we do not restate them here except as necessary to explain our decision.

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635 F.3d 422, 426-27 (9th Cir. 2011). “When interpreting state law, federal courts

are bound by decisions of the state’s highest court. In the absence of such a

decision, a federal court must predict how the highest state court would decide the

issue using intermediate appellate court decisions, decisions from other

jurisdictions, statutes, treatises, and restatements as guidance.” Id. at 427 (internal

quotation marks and citation omitted).

      1.     “[A] liability insurer owes a broad duty to defend,” which arises under

California law when “a suit [] potentially seeks damages within the coverage of the

policy.” Horace Mann Ins. Co. v. Barbara B., 846 P.2d 792, 795 (Cal. 1993)

(citation omitted). In fact, the duty to defend is so broad that it only requires “a

bare ‘potential’ or ‘possibility’ of coverage as the trigger of a defense duty.”

Montrose Chem. Co. v. Superior Court, 861 P.2d 1153, 1160 (Cal. 1993). “The

determination whether the insurer owes a duty to defend usually is made in the first

instance by comparing the allegations of the complaint with the terms of the

policy.” Horace Mann, 846 P.2d at 795. Any doubt, as to whether a duty to

defend is triggered, is resolved in favor of the insured. See id. at 796. Here, the

complaint in the underlying action alleges that Seagate falsely claims that its

technology is equivalent to Convolve Inc.’s technology. Because the duty to

defend is broad and the complaint creates a bare potential of coverage for

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disparagement, the district court did not err in concluding that the underlying

complaint potentially created liability for disparagement thereby giving National

and AISLIC a duty to defend Seagate.

      2.     “[W]e generally will not consider arguments raised for the first time

on appeal, although we have discretion to do so.” In re Am. W. Airlines, Inc., 217

F.3d 1161, 1165 (9th Cir. 2000). Here, the issue, whether AIU had a duty to

defend even though it is an excess (or secondary) insurer, was considered by the

district court and not waived by AIU. In the district court, Seagate argued that,

even though the primary insurers’ policy limits were not exhausted, AIU still owed

a duty to defend. The district court also acknowledged the issue by specifically

explaining why AIU had a duty to defend even though (a) it was a secondary

insurer; (b) the primary insurers did not defend; and (c) the prayer for relief in the

underlying action exceeds the policy limits of both primary insurers.

      AIU is an excess insurer. Even if the underlying complaint potentially

creates liability for an insurer, an excess or secondary insurer has no duty to defend

if the primary insurer’s policy limits have not been exhausted. Cmty.

Redevelopment Agency v. Aetna Cas. & Sur. Co., 57 Cal. Rptr. 2d 755, 759-60 (Ct.

App. 1996). This rule holds true even if the potential liability exceeds the policy

limits, Diamond Heights Homeowners Ass’n. v. Nat’l Am. Ins. Co., 277 Cal. Rptr.

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906, 914 (Ct. App. 1991), or the primary insurer refuses to defend, see Ticor Title

Ins. Co. v. Employers Ins. of Wausau, 48 Cal. Rptr. 2d 368, 374 (Ct. App. 1995).

Thus, the district court erred in concluding that AIU owed a duty to defend to

Seagate, because it is a secondary insurer and the primary insurers’ (National and

AISLIC) policy limits have not been exhausted. Further, even though Seagate’s

potential liability exceeds the primary insurers’ policy limits and the primary

insurers refused to defend, AIU owes no duty to defend. For these reasons, the

claims against AIU are dismissed.

      3.     The duty to defend continues “until [the insurers] can conclusively

refute th[e] potential” that liability will arise under the policies. Montrose, 861

P.2d at 1160. Here, the insurers did not meet their high burden. While this is a

close issue, the district court erred in ruling that the duty to defend terminated,

because, while Convolve made representations to prevent Seagate’s insurers from

intervening in the underlying action, the statements did not conclusively refute the

potential for a disparagement claim.

      4.     An insurer acts in bad faith only when “the reason for withholding” a

defense was “unreasonable or without proper cause.” Love v. Fire Ins. Exch., 271

Cal. Rptr. 246, 255 (Ct. App. 1990). “The mere denial of benefits, however, does

not demonstrate bad faith.” Hanson v. Prudential Ins. Co. of Am., 783 F.2d 762,

                                           5
766 (9th Cir. 1985). Here, although a duty to defend existed (based on the

allegations in the complaint), that alone does not make the insurers’ denial of a

defense unreasonable. Moreover, the insurers investigated the claims, compared

the allegations to the insurance policy, and concluded that there was no potential

liability. This conclusion is not unreasonable. The district court accurately

described the case as a close case regarding the duty to defend. The district court

held that the complaint did not trigger a duty to defend, but later reconsidered and

held that the complaint did trigger a duty to defend. The district court thereafter

terminated the same duty based on facts alleged to have happened after the

complaint was filed. Thus, although the insurers’ denial of a defense was

erroneous, the insurers did not withhold a defense unreasonably or without proper

cause.2

      2
         Seagate sought additional discovery regarding bad faith in order to identify
its insurers’ subjective intent and to prevent summary judgment. However, the
district court did not abuse its discretion by denying discovery under Rule 56(f) of
the Federal Rules of Civil Procedures. See VISA Intern. Serv. Ass’n v. Bankcard
Holders of Am., 784 F.2d 1472, 1475 (9th Cir. 1986). First, the subjective intent of
the insurer is irrelevant for determining bad faith. Bosetti v. U.S. Life Ins. Co., 96
Cal. Rptr. 3d 744, 769 (Ct. App. 2009). Second, Seagate failed to show how
additional discovery would preclude summary judgment. See Qualls v. Blue Cross
of Cal., Inc., 22 F.3d 839, 844 (9th Cir. 1994).

                                          6
      5.     Seagate argues that it is entitled to punitive damages; however,

because there is no bad faith denial of a defense, an argument for punitive damages

does not need to be addressed.

      6.     “Where there is a duty to defend, there may be a duty to indemnify;

but where there is no duty to defend, there cannot be a duty to indemnify.” Certain

Underwriters at Lloyd's of London v. Superior Court, 16 P.3d 94, 102 (Cal. 2001).

Because we have concluded that the duty to defend did not terminate, there may be

a duty to indemnify. Accordingly, the district court properly concluded that the

question of indemnity is not ripe for consideration.

      7.     Prejudgment interest under California Civil Code § 3287 is

appropriate when the amount owed is certain or capable of calculation. Invoices

allow damages to be capable of being made certain by calculation. See Marine

Terminals Corp. v. Paceco, Inc., 193 Cal. Rptr. 687, 690 (Ct. App. 1983). Thus,

the district court did not err in determining that interest is to be calculated from the

invoice dates.

      8.     Because the complaint tendered by Seagate triggered the duty to

defend, the district court did not err in finding AISLIC liable for interest related to

the period prior to Seagate’s tender of Convolve’s interrogatory response.

      The parties shall bear their own costs.

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AFFIRMED in part and REVERSED in part.

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