Court Opinion

ID: 4523683
Source: CourtListenerOpinion
Date Created: 2020-04-08 20:00:37.247286+00
Date Added: 2024-06-11T12:09:48.110664
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        APR 8 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

ERICKSON-HALL CONSTRUCTION                      No.    19-55319
COMPANY, a California Corporation,
                                                D.C. No.
                Plaintiff-Appellant,            3:18-cv-02462-GPC-MSB

 v.
                                                MEMORANDUM*
HARTFORD FIRE INSURANCE
COMPANY, a Connecticut Corporation;
SCOTTSDALE INSURANCE COMPANY,
a Ohio Corporation,

                Defendants-Appellees.

                   Appeal from the United States District Court
                     for the Southern District of California
                   Gonzalo P. Curiel, District Judge, Presiding

                             Submitted April 3, 2020**
                               Pasadena, California

Before: BEA and BADE, Circuit Judges, and DRAIN,*** 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 Gershwin A. Drain, United States District Judge for
the Eastern District of Michigan, sitting by designation.
      Erickson-Hall Construction Co. appeals the district court’s grant of the

motions to dismiss filed by Defendant-Appellees Scottsdale Insurance Company

and Hartford Fire Insurance Company. Erickson-Hall provided its employees with

life and disability insurance benefits by purchasing and administering policies

issued by third-party insurers to its employees (“Employee Benefits Plans”). To

cover risks of loss arising from potential mistakes in administering the Employee

Benefits Plans, Erickson-Hall obtained “fiduciary liability” insurance coverage

from Scottsdale and Hartford. The district court held that because Erickson-Hall

incurred its claimed losses as a result of its contractual obligation to employees to

provide the Employee Benefits Plans, any claim for indemnification and coverage

would fall outside the scope of the insurance policies issued by Hartford or

Scottsdale. For the reasons discussed below, both elements of this holding are

erroneous. We therefore reverse the district court’s decision and remand for

further proceedings.

      First, it is not correct that Erickson-Hall’s claimed losses were amounts it

owed under a preexisting contractual obligation. Erickson-Hall contracted with its

employees to administer the Employee Benefits Plans (which were issued by third-

party insurers), not to make benefit payments under the Employee Benefits Plans

when coverage is owed. Thus, Erickson-Hall’s claimed losses were not “amounts

[Erickson-Hall was] obligated to pay [its employees] by contract, independent of

                                          2
any Wrongful Act.” Health Net, Inc. v. RLI Ins. Co., 141 Cal. Rptr. 3d 649, 665

(2012), as modified on denial of reh’g (June 12, 2012). To the contrary, but for the

allegedly negligent acts of Erickson-Hall’s Controller, the premiums would have

been paid, the Employee Benefits Plans would have been in effect, and the

employees’ benefits would have been paid by third-party insurers. In the absence

of such alleged negligence, Erickson-Hall would never have been liable for the

claimed loss amounts.

      Second, under California law, an insured’s losses for breach of contract are

not uninsurable as a matter of law. Vandenberg v. Superior Court, 982 P.2d 229,

244 (Cal. 1999) (rejecting “the ex contractu/ex delicto distinction.”). Rather, “[t]he

nature of the damage and the risk involved, in light of particular policy provisions,

control coverage.” Id. Here, both insurance policies provide coverage for an error

or omission in Erickson-Hall’s “[a]dministration” of its employee benefits,

including “[g]iving counsel” to (or “counseling”) employees as to their

participation in such benefits and “[h]andling records in connection” with such

benefits.

      The complaint alleges facts sufficient to show that the Controller utterly

failed to counsel employees that their Employee Benefits Plans had lapsed on

account of nonpayment of premiums. This constitutes an “omission” in the

Employee Benefits Plans’ “administration” that resulted in an “employee benefits

                                          3
injury” or a “Loss,” as defined by each policy. The complaint also alleges that the

Controller mishandled documentation—by failing to receive and process premium

invoices, deduct premium amounts from employees’ paychecks, and paying

premiums on behalf of Erickson-Hall and its employees—with respect to the plans.

This constitutes another “error” or “omission” in the Employee Benefits Plans’

“administration.” Thus, the “nature of the damage and the risk” that Erickson-Hall

sought to cover, id., was exactly that which did in fact transpire: The Employee

Benefit Plans were negligently administered, resulting in a loss to Erickson-Hall.

      Accepting these factual allegations as true for the purposes of deciding the

insurers’ motions, see Fed. R. Civ. P. 12(b)(6); Garmon v. County of Los Angeles,

828 F.3d 837, 842 (9th Cir. 2016), Erickson-Hall has carried its burden that the

loss falls within the basic scope of coverage. However, the district court did not

consider Hartford’s or Scottsdale’s arguments that certain policy exclusions bar

coverage. See Royal Globe Ins. Co. v. Whitaker, 226 Cal. Rptr. 435, 437 (1986).

We therefore reverse the district court’s dismissal and remand for reconsideration

of the insurers’ arguments as to exclusions that were raised in support of their

respective motions to dismiss.

      REVERSED AND REMANDED.

                                          4