Certain Underwriters @ Lloyd's v. Bear, LLC ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS DEC 31 2019
FOR THE NINTH CIRCUIT MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
CERTAIN INTERESTED No. 18-55668
UNDERWRITERS AT LLOYD’S,
LONDON, D.C. No.
3:15-cv-00630-BTM-BLM
Plaintiff–Counter-Defendant–Appellee,
v. MEMORANDUM*
BEAR, LLC,
Defendant–Counter-Claimant–Third-Party
Plaintiff–Appellant,
v.
MARSH USA INC.,
Third-Party Defendant–Appellee.
Appeal from the United States District Court
for the Southern District of California
Barry T. Moskowitz, District Judge, Presiding
Argued and Submitted December 11, 2019
Pasadena, California
Before: N.R. SMITH and WATFORD, Circuit Judges, and KORMAN,** District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Edward R. Korman, United States District Judge for
the Eastern District of New York, sitting by designation.
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Bear, LLC (“Bear”) appeals from the district court’s grant of summary
judgment in favor of Certain Interested Underwriters At Lloyd’s, London
(“Underwriters”), disposing of all claims between Bear and Underwriters. Bear also
appeals from the district court’s judgments in Bear’s third-party action against
Marsh USA Inc. (“Marsh”), disposing of parts of that action at summary judgment,
and of the rest after a bench trial. We have jurisdiction under 28 U.S.C. § 1291, and
we affirm.
1. The district court properly held that the all-risk marine insurance contract
(the “Policy”) between Bear and Underwriters did not cover Bear for the fire that
destroyed its yacht. The Policy contained a provision (the “Repair Clause”) that
purported to require Bear to obtain Underwriters’ “prior agreement” when, inter
alia, the yacht would undergo “major . . . repairs” or “hot work . . . (other than
soldering),” or when the yacht was in a shipyard that “requested a waiver of
subrogation.” The Repair Clause further purported to “reserve [Underwriters’] rights
to . . . charge an appropriate additional premium” as consideration for its agreement.
The fire was caused by hot work (either welding or grinding) performed on the yacht
as part of a major repair (the “Repair”) at a shipyard that had asked Bear for a waiver
of subrogation. Bear never obtained, and never attempted to obtain, any agreement
from Underwriters related to the Repair prior to the fire.
The parties disagree over whether the Repair Clause should be classified as a
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warranty or an exclusion, but we need not decide that issue. Regardless of how it is
classified, the Repair Clause, read in the context of the entire Policy and applied to
the facts of this case, unambiguously expresses an intent that, absent an additional
agreement, Underwriters would have no obligation to cover damage to the yacht
arising from the circumstances of the Repair. See O’Brien v. Progressive N. Ins. Co.,
785 A.2d 281, 288, 291 (Del. 2001). Thus, the Repair Clause’s plain meaning
entitled Underwriters to deny coverage for the fire.1
Bear also argues that the Repair Clause is unenforceable because it renders
coverage illusory and violates the reasonable expectations of the average yacht
owner. This argument is unavailing for two reasons. First, Bear has not established
that the Repair Clause vitiates the coverage offered by any of the Policy’s insuring
provisions to an extent that renders the coverage illusory. Cf. First Bank of Del., Inc.
v. Fid. & Deposit Co. of Md., 2013 WL 5858794, at *8–9 (Del. Super. Ct. Oct. 30,
2013).
1
When Bear’s counsel was asked at oral argument what difference it would
make whether or not the Repair Clause were classified as a warranty, Bear’s counsel
did not address the distinction between warranties and exclusions. Oral Arg. 3:03–
6:11. Instead, he responded that, if the Repair Clause is not a warranty, but rather a
“condition precedent” requiring only certain notice to Underwriters, Underwriters
would be required to establish that they were prejudiced by the lack of notice. Id.But, as Bear’s counsel later conceded, Oral Arg. 47:37–48:28, the Repair Clause
could only have any chance of being construed as a notice requirement if it were
held ambiguous and extrinsic evidence were considered.
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Second, even if Bear had established that the Repair Clause rendered certain
coverage illusory, the Repair Clause would still be enforceable because its
enforcement could not violate any reasonable expectation that Bear had at the time
it entered the Policy. When an insurance policy contains “conflicting” terms or “a
hidden trap or pitfall,” Delaware courts “will look to the reasonable expectations”
not, as Bear contends, of the average consumer, but rather “of the insured at the time
when he entered into the contract.” Hallowell v. State Farm Mut. Auto. Ins. Co., 443
A.2d 925, 927 (Del. 1982); accord Bermel v. Liberty Mut. Fire Ins. Co., 56 A.3d
1062, 1071–72 (Del. 2012) (quoting Hallowell); see also Axis Reinsurance Co. v.
HLTH Corp., 993 A.2d 1057, 1064–65 (Del. 2010). Bear is a sophisticated party and
had a “duty to read” the Policy. Hallowell, 443 A.2d at 928. Bear also received
several clear and conspicuous warnings from its broker before entering the Policy
that should have disabused Bear of any expectation of coverage under circumstances
like those from which the fire arose.2
2. Turning to Bear’s third-party action against its broker, Marsh, the district
court properly held at summary judgment that Patrice Grossinger owed no duty to
Bear. Grossinger was a Marsh employee who served Larry Jodsaas, the owner of
2
Among the warnings Bear received were documents stating “NO
COVERAGE is provided in respect of refit, alteration, rebuild, remodeling, major
repairs, any and all hot work other than soldering, OR where the yard has requested
any waiver of subrogation.”
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Bear, solely as a personal lines broker, assisting him with homeowners and
automobile insurance. She never had anything to do with the insurance of Bear’s
yacht and had never seen the Policy or any communications about it involving Bear’s
yacht insurance broker, who was also a Marsh employee.
Nevertheless, Bear argues that Grossinger owed Bear a duty as its agent or
subagent. But, contrary to Bear’s position, even assuming arguendo that Marsh was
Bear’s agent, the mere fact that Grossinger was a Marsh employee did not
automatically render her Bear’s agent or subagent. See J.P. Morgan Sec., LLC v.
Geveran Investments Ltd., 224 So. 3d 316, 329 (Fla. Dist. Ct. App. 2017). Subagency
requires that an agent properly appoint the subagent to act on the principal’s behalf.
See Bellaire Sec. Corp. v. Brown, 124 Fla. 47, 75 (1936); Segars v. State, 94 Fla.
1128, 1134–35 (1927). Since there is no evidence that anyone ever appointed
Grossinger to act on Bear’s behalf, Grossinger was not Bear’s agent or subagent.
Bear also argues that, pursuant to the “undertaker’s doctrine,” Grossinger
owed Bear a duty that sprang into existence the moment she allegedly “undertook”
to advise Jodsaas about the yacht’s insurance during a phone call the day before the
fire. However, this “undertaker’s doctrine” theory was never raised below, and
implicates a host of new issues, including a potential conflict-of-law issue, that
Bear did not adequately brief. Thus, we deem this theory forfeited. See Alaska
Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 546 n.15 (9th Cir. 1991) (“It is
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well established that an appellate court will not reverse a district court on the basis
of a theory that was not raised below.”); Indep. Towers of Wash. v. Washington, 350
F.3d 925, 929–30 (9th Cir. 2003). Moreover, even if we were to consider it, the
theory appears to lack merit, as Bear fails to cite authority showing that the
undertaker’s doctrine would be triggered here, where there is no evidence that
Grossinger ever made any promise or other kind of commitment to render advice
regarding the yacht’s insurance.
3. The district court also properly held at summary judgment that Marsh
satisfied its duty to explain the Policy to Bear. We agree with Bear that the district
court should not have construed Florida law to divide broker liability claims into
those based on the “duty to inform and explain” and those based on the “duty to
advise and recommend,” see Certain Interested Underwriters at Lloyd’s, London v.
Bear, LLC, 260 F. Supp. 3d 1271, 1280, 1283 (S.D. Cal. 2017). Nevertheless, the
record at summary judgment established that Marsh had given Bear several
explanations and warnings about the Policy, and explicitly about the Repair Clause
in particular. Thus, there was no genuine factual dispute concerning whether Marsh
provided Bear with adequate information and explanation about the Policy.
4. After conducting a bench trial on Marsh’s potential liability for breaching
a duty to reasonably advise Bear of its insurance options and recommend other
insurance policies (i.e. the “Chubb” and “SRL” policies), the district court properly
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held that Marsh is not liable. We agree with Bear that the requirement imposed by
the district court of a “rare,” “special relationship,” Bear, LLC v. Marsh USA, Inc.,
2018 WL 1905458, at *5–6 (S.D. Cal. Apr. 20, 2018), was unmoored from Florida
law. While the nature of the broker-client relationship is relevant to the scope of
brokers’ duties under Florida law, see Adams v. Aetna Cas. & Sur. Co., 574 So. 2d
1142, 1156 (Fla. Dist. Ct. App. 1991), we are not convinced that Florida strictly
limits any duty to reasonably give advice and make recommendations to those
brokers who have rare, special relationships with their clients. See Warehouse
Foods, Inc. v. Corp. Risk Mgmt. Servs., Inc., 530 So. 2d 422, 423–24 (Fla. Dist. Ct.
App. 1988); Seascape of Hickory Point Condo. Ass’n, Inc., Phase III v. Associated
Ins. Servs., Inc., 443 So. 2d 488, 491 (Fla. Dist. Ct. App. 1984). Thus, we disregard
the portion of the district court’s post-trial Findings Of Fact And Conclusions Of
Law concerning the nature of the relationship between Bear and Marsh.
Yet, even if Marsh owed Bear a duty to reasonably advise and recommend,
the district court’s judgment in Marsh’s favor is adequately supported by its finding
that Marsh did not breach that duty in a manner that damaged Bear. Contrary to
Bear’s suggestion that the district court applied the wrong standard of care, the
district court held Marsh to the standard of what “a reasonable broker” would have
done, Bear, 2018 WL 1905458, at *7, which is consistent with the case Bear cites
on this issue, Warehouse Foods, 530 So. 2d at 423 (“[a]n agent is required to use
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reasonable skill and diligence”). While the district court did not directly rule on what
Bear describes as its claim for negligent procurement, the court rightly concluded
that the Policy was adequate for Bear’s expressed needs, see id., including the
planned yard visit Bear noted in its application. See Bear, 2018 WL 1905458, at *6–
8. And the district court correctly held that Bear bore the burden to show that it
would have recovered $17,250,000 (the damages sought) under the Chubb policy
and/or the SRL policy if Marsh had given Bear reasonable advice and
recommendations. See Mondesir v. Delva, 851 So. 2d 187, 189 (Fla. Dist. Ct. App.
2003); Capell v. Gamble, 733 So. 2d 534, 535 (Fla. Dist. Ct. App. 1998); D.R. Mead
& Co. v. Cheshire of Fla., Inc., 489 So. 2d 830, 831 (Fla. Dist. Ct. App. 1986).
Also contrary to Bear’s position, the district court did not violate the law of
the case, by—after holding at summary judgment that the Repair Clause
unambiguously required Underwriters’ agreement to cover the Repair—crediting a
Marsh broker’s trial testimony suggesting that, hypothetically, notwithstanding the
Repair Clause, Bear would have received coverage for the Repair if it had only
notified Underwriters of the accident that required the Repair to be done. Bear’s
argument fails at the outset because “[t]he law of the case doctrine does not . . . bar
a court from reconsidering its own orders before judgment is entered or the court is
otherwise divested of jurisdiction over the order.” Askins v. U.S. Dep’t of Homeland
Sec., 899 F.3d 1035, 1042 (9th Cir. 2018). Moreover, since the unambiguous text of
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the Repair Clause was dispositive of Bear’s contract dispute with Underwriters, but
not of Bear’s tort claims against Marsh, the district court’s rulings are not
incompatible with each other.
5. Finally, the district court did not abuse its discretion by denying Bear’s
Rule 59 motion seeking to revisit whether the Repair Clause allowed Underwriters
to deny coverage for the fire. Among other things, the new evidence upon which the
motion was based—the testimony described in the preceding paragraph—would
have been immaterial to the coverage dispute, as it could not override the Repair
Clause’s unambiguous text. See O’Brien, 785 A.2d at 289.
AFFIRMED.