Court Opinion

ID: 3054655
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:55:21.791436+00
Date Added: 2024-06-11T09:51:18.162848
License: Public Domain

FILED
                            NOT FOR PUBLICATION                             DEC 21 2011

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

CALIFORNIA DAIRIES, INC., a                      No. 10-16684
California corporation,
                                                 D.C. No. 1:08-cv-00790-OWW-
              Plaintiff - Appellant,             GSA

  v.
                                                 MEMORANDUM *
RSUI INDEMNITY COMPANY,

              Defendant - Appellee.

CALIFORNIA DAIRIES, INC., a                      No. 10-16730
California corporation,
                                                 D.C. No. 1:08-cv-00790-OWW-
              Plaintiff - Appellee,              GSA

  v.

RSUI INDEMNITY COMPANY,

              Defendant - Appellant.

                   Appeal from the United States District Court
                       for the Eastern District of California
                Oliver W. Wanger, Senior District Judge, Presiding

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                     Argued and Submitted November 14, 2011
                             San Francisco, California

Before: THOMAS, GOULD, and BYBEE, Circuit Judges.

      Appellant California Dairies, Inc. (“CDI”) appeals from the district court’s

decisions granting motions to dismiss and for summary judgment, and the resulting

final judgment that rejected its insurance coverage claims against Appellee RSUI

Indemnity Co. (“RSUI”). These claims arose out of a class action lawsuit by

current and former employees alleging that CDI violated the California Labor

Code (the “Underlying Action”). RSUI asserts that two policy exclusions bar

CDI’s claims: Exclusion 4, which bars claims arising out of the Fair Labor

Standards Act and similar provisions of state laws; and Exclusion 7, which bars

claims arising out of lawsuits between “insured parties,” in this case CDI, and its

current and former employees.

      The district court held that Exclusion 4 bars coverage for some but not all

claims asserted against CDI in the Underlying Action, and that Exclusion 7

independently bars all claims. We have jurisdiction under 28 U.S.C. § 1291 and

review the district court’s grant of summary judgment and of motions to dismiss de

novo. Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F. 3d 1132, 1137 (9th

Cir. 2009); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030

                                         -2-
(9th Cir. 2008). We affirm the district court’s holding that Exclusion 7 bars all

claims in the Underlying Action.1

      CDI contends that Exclusion 7 does not apply because the claims in the

Underlying Action are Employment Practices Wrongful Acts (“EPWAs”) that are

excepted from Exclusion 7. CDI argues that the Underlying Action arises out of an

“[e]mployment-related misrepresentation to an Employee” on the theory that the

complaint in the Underlying Action alleges that CDI implicitly or explicitly

represented that it would follow applicable California laws. Alternatively, CDI

contends that the Underlying Action arises out of a “[f]ailure to provide or enforce

adequate or consistent organization policies or procedures relating to employment”

because if CDI did not pay its employees in compliance with California law, that

would “necessarily result” from a failure to provide or enforce policies and

procedures to comply with California law.

      Ambiguities in a policy are construed in favor of the insured, but words in

the policy “must be read in their ordinary sense” and an ambiguity “cannot be

based on a strained interpretation of the policy language.” Producers Dairy

Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 912 (1986). In our view accepting

      1
          Accordingly, we need not and do not reach any issue concerning Exclusion
4.

                                          -3-
CDI’s interpretation would strain the policy language by rendering superfluous the

EPWA provisions that give coverage for actions arising out of claims such as

“[w]rongful dismissal,” “discrimination,” “harassment,” and “[f]ailure to grant

tenure or practice privileges.” CDI acknowledges that the interpretation it urges

for the EPWA provisions provides “a blanket exception to Exclusion 7 for claims

brought by employees against [CDI],” but argues that in the absence of a blanket

exception, “the employment practices coverage provided by the policy would be

completely illusory.” We disagree. EPWA coverage is not illusory, but it is

limited to specific claims not asserted here. The Underlying Action does not allege

a failure to enforce organizational policies, and misrepresentation is not an element

of any of the claims it alleges. We conclude that Exclusion 7 applies and that the

Underlying Action does not arise out of an EPWA exception as defined by the

policy read in its ordinary sense.

      CDI also contends that RSUI waived Exclusion 7 because it did not rely on

Exclusion 7 in its pre-litigation denial of coverage letters. But California rejects an

automatic waiver rule. An insurer does not waive policy provisions merely by

failing to rely on them in denial of coverage letters. Waller v. Truck Ins.

Exchange, Inc., 11 Cal. 4th 1, 33 (1995). Instead, there must be an “intention on

the part of the insurer to relinquish additional reasons for denial,” as evidenced by

                                          -4-
“‘acts [that] are so inconsistent with an intent to enforce the right as to induce a

reasonable belief that such right has been relinquished.’” Id. at 33–34 (quoting

Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1559 (9th Cir.

1991)).

      CDI argues that RSUI waived Exclusion 7 by violating the California Fair

Claim Practice Regulations (“CFCPR”)—specifically 10 C.C.R. § 2695.7(b)(1),

which requires insurers to give all bases for denials of coverage when denying a

first party claim.2 It argues that “[s]uch disregard of the [CFCPR] is evidence a

jury could consider in determining that RSUI breached the implied covenant of

good faith and fair dealing.” But CDI presents no evidence showing a “disregard”

for the CFCPR. We have before us only that RSUI did not cite Exclusion 7 in its

      2
         Both parties agree that CDI is a first party claimant as defined by 10 C.C.R.
§ 2695.2(f). While “first party claim” is not explicitly defined by the regulations,
we agree with the district court’s holding that first party claims are those brought
by first party claimants.

                                           -5-
pre-litigation denial of coverage letters.3 If we accepted CDI’s reasoning, 10

C.C.R. § 2695.7(b)(1) would reinstate the automatic waiver rule rejected by

Waller, 11 Cal. 4th at 33. CDI has not shown a genuine issue of material fact as to

whether RSUI waived Exclusion 7.4

      AFFIRMED.

      3
        The claims adjuster who issued the denial letter testified that the failure to
cite Exclusion 7 was an unintentional oversight. CDI does not offer evidence to
rebut the claims adjuster’s testimony. Instead, CDI argues that RSUI must have
either acted with “complete disregard of the obligations it owed to California
policyholders” by failing to train its employees on 10 C.C.R. § 2695.7(b)(1) or that
its employees knew of this provision and understood that by failing to assert
Exclusion 7 in its denial letter that it was knowingly waiving that exclusion. The
record does not support these assertions.
      4
          We decline to reach RSUI’s argument that Exclusion 7 cannot be waived.

                                          -6-