Court Opinion

ID: 4164105
Source: CourtListenerOpinion
Date Created: 2017-04-27 20:04:17.025503+00
Date Added: 2024-06-11T14:23:47.228962
License: Public Domain

NOT FOR PUBLICATION                        FILED
                    UNITED STATES COURT OF APPEALS                        APR 27 2017
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                              FOR THE NINTH CIRCUIT

MICHAEL FEIZ MEDICAL CORP.,                      No. 15-56652

       Plaintiff-Appellant,                      D.C. No. 2:15-cv-04195-MWF-
                                                 PJW
  v.
                                                 MEMORANDUM*
SCOTTSDALE INSURANCE CO.,

       Defendant-Appellee.

                   Appeal from the United States District Court
                       for the Central District of California
                  Michael W. Fitzgerald, District Judge, Presiding

                        Argued and Submitted April 5, 2017
                               Pasadena, California

Before: M. SMITH and N.R. SMITH, Circuit Judges, and FEINERMAN, District
Judge.**

       Plaintiff Michael Feiz Medical Corporation appeals from the district court’s

denial of its summary judgment motion and grant of Defendant Scottsdale

Insurance Company’s cross-motion for summary judgment. The parties dispute

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
             The Honorable Gary Feinerman, District Judge for the U.S. District
Court for the Northern District of Illinois, sitting by designation.
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whether Feiz’s business liability insurance policy (the policy) requires Scottsdale

to indemnify Feiz for two components—prejudgment interest on the breach of

contract damages, and attorney fees and costs—of an adverse arbitration award in a

case brought by a former employee against Feiz for breach of employment contract

and related California Labor Code violations. The district court held that

Scottsdale did not promise to indemnify Feiz for those amounts. We affirm in part,

reverse in part, vacate in part, and remand for further proceedings.

      Under California law, language in an insurance policy is given its ordinary

meaning as a layperson would understand it, and ambiguities are resolved in favor

of coverage. See AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1264-65 (Cal.

1990); Crane v. State Farm Fire & Cas. Co., 485 P.2d 1129, 1130 (Cal. 1971).

Exclusionary language must be “plain and clear,” and is “construed strictly against

the insurer.” See Crane, 485 P.2d at 1130.

      1. As to the arbitrator’s award of prejudgment interest on the breach of

contract damages, we reverse the district court’s ruling; the policy requires

Scottsdale to indemnify Feiz. The policy requires Scottsdale to pay any “Loss”

that Feiz incurred if it were sued for an “Employment Practices Wrongful Act.”

Among those wrongful acts is “breach of an actual or implied employment

contract.” The policy’s definition of “Loss” includes “damages, judgments,

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settlements, front pay and back pay, [and] pre-judgment or post judgment interest

awarded by a court” (emphasis added).

      Scottsdale identifies no policy language that unambiguously negates the

policy’s express promise of coverage for prejudgment interest. The policy

language on which Scottsdale relies excluded from coverage “amounts owed under

any employment contract.” However, the employment contract at issue is silent on

prejudgment interest, and it therefore cannot be said that prejudgment interest is

owed under that contract. Scottsdale next argues that California law treats

prejudgment interest as a component of the underlying contract damages, which

the policy indisputably excludes from coverage because it is an “amount[] owed

under any employment contract.” But the relevant question is how the contract

damages and prejudgment interest were treated not under California law, but under

the policy. The policy expressly referred to “damages” and “prejudgment …

interest” separately in its promise of coverage. Id. If the policy treated

prejudgment interest as part and parcel of damages, there would have been no need

to mention prejudgment interest in the promise of coverage. Therefore, because

prejudgment interest is expressly included in the policy’s coverage, and there is no

“plain and clear” language excluding that coverage, Scottsdale must indemnify

Feiz for amount of the prejudgment interest award.

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      2. As to the award of attorney fees and costs, we affirm the district court

only to the extent that it held Scottsdale is not required to indemnify Feiz for

attorney fees and costs attributable to the breach of contract claim, but we vacate

and remand for further proceedings on the indemnification of attorney fees and

costs attributable to the California Labor Code claims.

      The arbitrator awarded attorney fees and costs under the employment

contract, which expressly provided for the payment of such costs and fees required

to enforce the terms of the contract. Although attorney fees and costs are generally

included in the policy’s coverage, the policy expressly excludes from coverage

“amounts owed under any employment contract.” Because the attorney fees and

costs spent on the breach of contract claim are “amounts owed under [the]

employment contract,” the district court correctly held those amounts are excluded

from coverage, and Scottsdale is not required to indemnify Feiz for those amounts.

      However, by pegging the fees and costs award solely to the contract claim,

the arbitrator neglected to determine what amount of fees and costs was spent on

the Labor Code claims.1 Under California law, Feiz is entitled to attorney fees and

1 The happenstance that the arbitrator lumped all the fees and costs together and
deemed them awarded only under the contract does not relieve Scottsdale of its
duty to indemnify; rather, the court must look past the labels used to describe a
judgment to the nature of the obligation that underlies it. See Vandenberg v.
Superior Court, 982 P.2d 229, 245 (Cal. 1999) (“[C]ourts must focus on the nature
of the risk and the injury, in light of the policy provisions, to [determine
coverage].”).
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costs spent on the Labor Code claims. See California Labor Code section 218.5

(an employee who prevails in an action for the nonpayment of wages is entitled to

attorney fees and costs); Kirby v. Immoos Fire Prot., Inc., 274 P.3d 1160, 1167

(Cal. 2012). Those fees and costs fall within the policy’s coverage for “reasonable

and necessary legal costs, charges, fees, and expenses,” and there are no applicable

exclusions that remove these costs and fees from coverage. Therefore, Scottsdale

must indemnify Feiz for these amounts.

      On remand, the district court should apportion the attorney fees and costs

attributable to arbitrating the Labor Code claims and those attributable to

arbitrating the breach of contract claims, and require Scottsdale to indemnify Feiz

only for those fees and costs apportioned to the Labor Code violations.

      REVERSED in part as to prejudgment interest, AFFIRMED in part

and VACATED in part as to attorney fees and costs, and REMANDED.

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