Court Opinion

ID: 9893764
Source: CourtListenerOpinion
Date Created: 2023-10-30 17:01:15.658457+00
Date Added: 2024-06-11T09:05:28.381445
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                       OCT 30 2023
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

VIZIO, INC.,                                    No.    22-55755

                Plaintiff-Appellant,            D.C. No.
                                                2:20-cv-06864-ODW-AS
 v.

ARCH INSURANCE COMPANY, et al.,                 MEMORANDUM*

                Defendants-Appellees.

                   Appeal from the United States District Court
                      for the Central District of California
                   Otis D. Wright II, District Judge, Presiding

                      Argued and Submitted October 3, 2023
                            San Francisco, California

Before: McKEOWN, CALLAHAN, and LEE, Circuit Judges.

      In this insurance coverage case, Vizio appeals the district court’s order

granting Arch Insurance’s motion to dismiss. We have jurisdiction under 28 U.S.C.

§§ 1332, 1367, and 2201. We affirm on other grounds.

      Arch issued an insurance policy to Vizio and provided coverage excess to

Navigators Insurance’s primary policy, meaning that Arch only covered losses that

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
exceeded the $5 million limit of the Navigators Policy. The Arch Policy “follows

form” to Navigators’ policy, so it has the same terms except for those specifically

contradicted by the Arch Policy. Vizio also had a separate line of general liability

coverage with Chubb.

      After consumers filed class action lawsuits against Vizio in connection with

its Smart TV products (the “Smart TV Litigation”), Vizio notified both Navigators

and Arch of its potential insurance claims in a February 2016 email. Arch requested

more information, while Navigators denied coverage, citing a policy exclusion.

Vizio twice forwarded Navigators’ denial letter to Arch, but Vizio never provided

Arch with any substantive updates about the Smart TV Litigation. Arch, in turn,

failed to convey a coverage decision, though internal records show that Arch decided

to deny coverage. About two years later, without seeking or receiving Arch’s

consent, Vizio settled the Smart TV Litigation for $17 million.

      The district court dismissed Vizio’s fourth amended complaint with prejudice,

holding (among other things) that Vizio failed to properly notify Arch of its claim

after the underlying policy limit was exhausted. We review de novo a district court’s

decision to grant a motion to dismiss. Los Angeles Lakers, Inc. v. Fed. Ins. Co., 869

F.3d 795, 800 (9th Cir. 2017). We also review the district court’s “interpretation of

an insurance policy” and “interpretation of [California] law de novo.” LSCC LLC v.

Wilco Life Ins. Co., 829 F. App’x 245, 246 (9th Cir. 2020).

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      1. The district court erred in holding that providing notice prior to exhaustion

was improper. The Arch Policy requires that Vizio “give notice to the Insurer of any

Claim or potential Claim in conformance with the notice provisions of the Primary

Policy except that such notice shall be delivered to” Arch. Navigators’ Policy, in

turn, dictates that Vizio must “give the Insurer notice in writing of any Claim which

is first made during the Policy Period as soon as practicable after the… Company…

becomes aware of such Claim.”

      The district court conflated two issues: (1) whether Vizio provided proper

notice to Arch of its claim and (2) whether Arch, as an excess insurer, had to

indemnify Vizio for the Smart TV Litigation at the time that notice was given.

Addressing the second issue, the district court rightly determined that Arch at that

time had no duty to defend or indemnify because the primary policy limit had not

yet been exhausted. But it does not follow from that premise that Vizio’s notice was

insufficient. Just because Arch was not required to indemnify Vizio when it received

notice of the Smart TV Litigation does not mean that Vizio did not fulfill its own

obligation to notify Arch of any “Claim or potential Claim.” The Arch Policy does

not require that notice of a claim follow exhaustion of the underlying Navigators

Policy. So Vizio’s February 2016 email was adequate notice.

      2. Vizio failed to comply with the consent provision before settling. Vizio

admits that it did not obtain Arch’s consent prior to settling the Smart TV Litigation

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as required under the Arch Policy. Vizio argues that it was not required to obtain

Arch’s consent because (1) the Arch Policy did not incorporate the Navigators

Policy’s consent provision, (2) the Arch Policy conflicts with and therefore

supersedes the Navigators consent provision, and (3) Arch’s contractual breach

excuses Vizio’s breach. Each argument fails.

      First, Vizio argues that its contract with Arch did not incorporate the consent

provision. It suggests that “only ‘coverage’ follows form to Navigators’ Policy, and

nowhere does Arch’s Policy establish ‘consent’ to be a prerequisite to coverage.”

But the full text of the provision belies that understanding: “Except as otherwise

provided in this Policy, coverage under this policy shall follow form to, and apply

in conformance with, the provisions of the Primary Policy.” “A following form

excess policy has the same terms and conditions as the underlying primary policy.”

Haering v. Topa Ins. Co., 198 Cal. Rptr. 3d 291, 296 (Ct. App. 2016). So the

Navigators Policy’s consent provision is incorporated into the Arch Policy.

      Second, Vizio argues that Arch’s policy conflicts with Navigators’ policy.

Not so. Vizio claims that Arch’s policy “contains its own provision regarding

‘Duties In The Event Of A Claim,’” which does not require Vizio to receive Arch’s

consent prior to settlement. But this provision merely ensures that Vizio would

notify Arch of its claims. It does not conflict with the consent provision in the

Navigators Policy.

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       Lastly, Vizio argues that, if the consent provision applies, Vizio was excused

from performing because Arch allegedly breached the policy first by not properly

responding to Vizio’s February 2016 email. But Vizio fails to allege facts that would

plausibly show that Arch breached any of its duties under the policy. Moreover,

even if Arch breached the policy as alleged, this would not excuse Vizio from

seeking Arch’s consent to the settlement.

       Insurance contracts in the state of California incorporate the terms of

California’s insurance regulations. City of Shasta Lake v. Cnty. of Shasta, 88 Cal.

Rptr. 2d 863, 873 (Ct. App. 1999). Vizio relies on California Code of Regulations

Title 10, Section 2695.7(b) for the proposition that an insurer’s failure to accept or

deny a claim within 40 days of tender is a breach of the insurance policy. But

Section 2695.7(b) only applies after an insurer receives a “proof of claim,” which is

defined as evidence of a claim that “reasonably supports the magnitude or the

amount of the claimed loss.” 10 C.C.R. § 2695.2(s). In contrast, a “notice of claim”

is defined as a “notification to an insurer . . . that reasonably apprises the insurer that

the claimant wishes to make a claim against a policy . . . and that a condition giving

rise to the insurer’s obligations under that policy or bond may have arisen.” 10

C.C.R. § 2695.2(n).

       Vizio’s February 2016 email to Arch is a notice of claim, not a proof of claim.

That email did not “reasonably support[] the magnitude or the amount of the claimed

                                            5
loss”—nor could it because the lawsuit had just been filed. 10 C.C.R. § 2695.2(s).

Vizio’s complaint even characterizes the February 2016 email as a notice of claim.

And in accordance with Section 2695.5(e)’s provision for a notice of claim, Arch

responded in less than a week that it had begun an investigation and requested

updates (but it never received substantive updates).

      Vizio also alleges Arch breached the contract when it internally denied

coverage and never informed Vizio. See Cal. Code of Regs. § 2695.7(b)(1). Vizio

cites Low v. Golden Eagle Ins. Co., 110 Cal. App. 4th 1532, 1544 (2003) for the

proposition that an “insurer’s breach of its policy renders a prior written consent

provision unenforceable.” Golden Eagle, however, holds that “it is only when the

insured has requested and been denied [coverage] by the insurer that the insured may

ignore the provisions forbidding the incurring of defense costs without the insurer’s

prior consent.” Id. at 1547. In other words, Arch’s alleged breach would only excuse

Vizio’s non-consensual settlement if Vizio had requested and been denied coverage.

But Arch never informed Vizio that it would deny coverage, and Vizio never

followed up or provided Arch with any substantive updates about the Smart TV

Litigation. Thus, Vizio, having never been notified of a denial of coverage, still had

an obligation to obtain Arch’s consent to any settlement, notwithstanding Arch’s

alleged breach. Without notice, Arch was denied the opportunity to participate in

                                          6
the settlement negotiations, which the insurance contract established as a

prerequisite to Arch’s duty to pay.

      3. Vizio’s claim for the breach of the implied covenant of good faith and fair

dealing fails. Under California law, “without a breach of the insurance contract,

there can be no breach of the implied covenant of good faith and fair dealing.”

Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1034 (9th Cir. 2008).

Because Vizio breached the policy by not soliciting Arch’s consent prior to

settlement, no benefits were due, and Arch therefore did not breach the contract.

      4. Vizio’s equitable contribution claim fails. Equitable contribution “is the

right to recover, not from the party primarily liable for the loss, but from a co-obligor

who shares such liability with the party seeking contribution.” Fireman’s Fund Ins.

Co. v. Md. Cas. Co., 77 Cal. Rptr. 2d 296, 303 (Ct. App. 1998) (emphasis deleted).

“As a general rule, there is no contribution between a primary and an excess carrier.”

Reliance Nat. Indem. Co. v. Gen. Star Indem. Co., 85 Cal. Rptr. 2d 627, 635 (Ct.

App. 1999) (citing id. at 304 n.4).

      Chubb—Vizio’s other primary insurer that contributed to the settlement and

defense costs—assigned Vizio its equitable contribution claim against Arch, an

excess carrier on a separate line of coverage. This claim fails because there is no

right of contribution when the insurers do not share the same level of coverage.

Reliance, 85 Cal. Rptr. 2d at 635.

                                           7
      Vizio also argues that upon exhaustion of the Navigators Policy, Arch’s policy

“‘becomes primary insurance’ by its plain terms.” But its reading conflicts with

“well-settled insurance principles.” Id. at 634. “Primary coverage is insurance

coverage whereby, under the terms of the policy, liability attaches immediately upon

the happening of the occurrence that gives rise to liability” while “‘[e]xcess’ or

secondary coverage is coverage whereby, under the terms of the policy, liability

attaches only after a predetermined amount of primary coverage has been

exhausted.” Id. (quoting Olympic Ins. Co. v. Emps. Surplus Lines Ins. Co., 178 Cal.

Rptr. 908, 911 (Ct. App. 1981)). Arch was indisputably an excess insurer because

it only had an obligation to indemnify Vizio once the $5 million limit of the

Navigators Policy was exhausted.

      AFFIRMED.

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