Court Opinion

ID: 152305
Source: CourtListenerOpinion
Date Created: 2010-08-05 00:04:28+00
Date Added: 2024-06-11T17:24:28.124307
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                AUG 04 2010

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

                            FOR THE NINTH CIRCUIT

EASTWOOD INSURANCE SERVICES,                     No. 09-55384
INC.,
                                                 D.C. No. 8:08-cv-00553-AG-AN
              Plaintiff - Appellant,

  v.                                             MEMORANDUM*

U. S. SPECIALTY INSURANCE
COMPANY,

              Defendant - Appellee.

                   Appeal from the United States District Court
                      for the Central District of California
                   Andrew J. Guilford, District Judge, Presiding

                        Argued and Submitted April 6, 2010
                               Pasadena, California

Before: PREGERSON and BEEZER, Circuit Judges, and GRAHAM, Senior
District Judge.**

       Eastwood Insurance Services, Inc. (“Eastwood Insurance”) sued its insurer,

U.S. Specialty Insurance Company (“Speciality Insurance”), for failing to defend

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Circuit Rule 36-3.
       **
             The Honorable James L. Graham, Senior United States District Judge
for the Southern District of Ohio, sitting by designation.
Eastwood Insurance against claims by Elizabeth Ayala (“Ayala”), a former

Eastwood Insurance employee, for wrongful termination and violations of the

Family Medical Leave Act (“FMLA”) and the California Family Rights Act

(“CFRA”). The district court granted Speciality Insurance’s motion for summary

judgment, holding that the “interrelated claims” provision of its policy barred

coverage for claims made against Eastwood Insurance during the policy period

because the claims were based on the same series of facts as pre-policy claims for

sexual harassment and retaliation. We have jurisdiction under 28 U.S.C. § 1291,

and we reverse and remand.

      Under the liability policy issued by Speciality Insurance, Eastwood

Insurance was insured from losses “arising from Claims first made against

[Eastwood] during the [applicable policy period].” The policy excluded coverage

for claims arising out of the same facts and circumstances as a pre-policy claim.

Before Eastwood Insurance’s policy took effect, Ayala filed a complaint of

discrimination before the California Department of Fair Employment and Housing

(“DFEH”) alleging sexual harassment and retaliation by her supervisor at

Eastwood Insurance. Ayala also filed a civil lawsuit in state court, which went to

arbitration.

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      After Specialty Insurance issued its policy to Eastwood Insurance and while

Ayala arbitrated her sexual harassment and retaliation claims, Ayala took medical

leave due to depression. Eastwood fired Ayala when she failed to provide a

medical certification to extend her medical leave within five days of a written

request to do so. Ayala then filed claims for wrongful termination and violations

of FMLA and CFRA in a third DFEH complaint, in a motion to amend her first

state court complaint, and in a second state court complaint.

      Speciality Insurance refused to defend Eastwood Insurance against Ayala’s

wrongful termination and FMLA and CFRA claims because Speciality Insurance

determined that those claims were interrelated with the pre-policy harassment and

retaliation claims. Ayala eventually prevailed in arbitration and was awarded

$300,753 in damages against Eastwood Insurance. Later on, Eastwood Insurance

filed suit against Speciality Insurance in California state court for failing to defend

Eastwood Insurance against Ayala’s wrongful termination and FMLA/CFRA

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claims.1 After Speciality Insurance removed the action to federal court, the district

court granted Speciality Insurance’s motion for summary judgment. The district

court concluded that Speciality Insurance did not have a duty to defend Eastwood

Insurance against Ayala’s wrongful termination and FMLA/CFRA claims because

those claims were barred by the interrelated claims provision in Specialty

Insurance’s policy.

      We review de novo a district court’s grant of summary judgment.

McDonald v. Sun Oil Co., 548 F.3d 774, 778 (9th Cir. 2008). The duty to defend

arises if “the insurer learns facts – whether from the complaint, the insured or

another source – which create a potential for the third party to assert a covered

claim.” Devin v. United Services Auto. Ass’n, 8 Cal. Rptr. 2d 263, 268 (Ct. App.

1992).

      Speciality Insurance was on notice that Ayala’s wrongful termination and

FMLA/CFRA claims were potentially covered by the policy. These claims were

all made within Speciality Insurance’s policy period and arose from different facts

      1
        Eastwood Insurance also asserts that Speciality Insurance had a duty to
defend it against Ayala’s second DFEH complaint, which was filed within the
policy period, but before she was terminated. There is no evidence that Eastwood
Insurance informed Speciality Insurance of the second DFEH complaint or that it
requested a defense for that complaint. Accordingly, Speciality Insurance did not
have a duty to defend Eastwood Insurance against that complaint. See Gray v.
Zurich Insurance Co., 419 P.2d 168, 175-177 (Cal. 1966).

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and circumstances than Ayala’s pre-policy sexual harassment and retaliation

claims. Ayala’s FMLA/CFRA claims arose from the fact that Eastwood Insurance

fired Ayala for failing to provide the necessary medical certification to extend her

medical leave.2 These claims were completely separate and distinct from the

sexual harassment and retaliation that Ayala experienced at the hands of her

supervisor. Because Ayala’s wrongful termination and FMLA/CFRA claims arose

from different facts and circumstances than Ayala’s pre-policy sexual harassment

and retaliation claims, the interrelated claims provision does not exclude the

wrongful termination and FMLA/CFRA claims from coverage.

      Speciality Insurance argues that Ayala’s wrongful termination and

FMLA/CFRA claims interrelate with her pre-policy sexual harassment and

retaliation claims because Ayala alleged in her motion to amend her first state

court complaint that these claims were related. This argument fails. To determine

whether an insurer has a duty to defend an insured, California courts consider

whether the insurer had any information that indicated a particular claim was

covered. See Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal. 2005).

California courts do not rely on the allegations in a third-party complaint to

      2
       FMLA and CFRA require employers to give employees 15 days to provide
medical certification. See 29 C.F.R.§ 825.305(b); Cal. Admin. Code, tit. 2,
§ 7297.4(b)(3).

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determine whether coverage exists. See Gray v. Zurich Ins. Co., 419 P.2d 168, 176

(Cal. 1966) (“To restrict the defense obligation of the insurer to the precise

language of the pleading would not only ignore the thrust of the cases but would

create an anomaly for the insured . . . [thus, in] light of the likely overstatement of

the complaint and of the plasticity of modern pleading, we should hardly designate

the third party as the arbiter of the policy’s coverage.”).

      Eastwood Insurance specifically informed Speciality Insurance that it could

be held liable on Ayala’s new claims for wrongful termination and violation of

FMLA/CFRA because it failed to provide Ayalasufficient time to produce her

medical certification. Because Speciality Insurance had this information,

Speciality Insurance knew that the wrongful termination and FMLA/CFRA claims

were potentially covered by the policy and, therefore, had a duty to defend

Eastwood Insurance against these claims in the third DFEH complaint, the motion

to amend, and the second state court complaint.

      Speciality Insurance’s duty to defend extended to the entire suit. See State

v. Pac. Indem. Co., 75 Cal. Rptr. 2d 69, 75-76 (Ct. App. 1998) (holding that under

California law, if any part of any claim is potentially covered, the insurer has a

duty to defend the entire lawsuit, and may seek reimbursement from the insured for

defense costs “that could be specifically allocated to the defense of claims that

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were not even potentially covered”). Accordingly, the trial court’s grant of

summary judgment in favor of Speciality Insurance is REVERSED and the matter

is REMANDED for further proceedings in accordance with this disposition.

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