Ironshore Specialty Ins. Co. v. Everest Indemnity Ins. Co. ( 2021 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 31 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
IRONSHORE SPECIALTY INSURANCE No. 20-55860
COMPANY, Individually and as Assignee
of H&R Construction Surfacing Inc., D.C. No.
2:20-cv-01652-AB-GJS
Plaintiff-Appellant,
v. MEMORANDUM*
EVEREST INDEMNITY INSURANCE
COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Andre Birotte, Jr., District Judge, Presiding
Submitted August 11, 2021
Seattle, Washington
Before: EBEL,** BRESS, and VANDYKE, Circuit Judges.
Ironshore Specialty Insurance Co. (“Ironshore”) appeals the district court’s
order dismissing its claims again Everest Indemnity Insurance Co. (“Everest”). We
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable David M. Ebel, United States Circuit Judge for the
U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
have jurisdiction under 28 U.S.C. § 1291. We review de novo the grant of a motion
to dismiss under Federal Rule of Civil Procedure 12(b)(6), construing the allegations
in the complaint in favor of plaintiff. Nguyen v. Endologix, Inc., 962 F.3d 405, 413
(9th Cir. 2020). We reverse.
1. The district court erred in dismissing Ironshore’s equitable contribution
claim as time-barred under the applicable two-year statute of limitations. See Cal.
Code Civ. Proc. § 339(1). If the parties’ Standstill Agreement tolled the statute of
limitations until October 6, 2019, Ironshore’s equitable contribution would have
been timely filed. Under California law, which applies to the interpretation of the
Standstill Agreement, “[a] [contract] provision will be considered ambiguous when
it is capable of two or more constructions, both of which are reasonable.” Int’l Bhd.
of Teamsters v. NASA Servs., Inc., 957 F.3d 1038, 1044 (9th Cir. 2020) (citation
omitted).
The district court held that the parties’ Standstill Agreement “clear[ly] and
unambiguous[ly]” operated only to “reflect Defendant’s promise to refrain from
raising the statute of limitations as a defense until the later of the two specified
dates.” But the Standstill Agreement is at the very least ambiguous on that point
because various provisions of the Agreement indicate that it was intended to toll the
limitations period itself and not simply Everest’s raising of a defense. See Int’l Bhd.
2
of Teamsters, 957 F.3d at 1044 (“[L]anguage in a contract must be interpreted as a
whole . . . .”).
Among other things, the Standstill Agreement states it is not admissible
“except for the purpose of proving the agreement to toll the statute of limitations
and laches periods as set forth in this Agreement.” (Emphasis added). Paragraphs
3 and 4 of the agreement also both provide start dates for the tolling periods that
predate the agreement. Everest does not explain why it would waive its right to
assert a defense for some period in the past. The last sentence of paragraph 4 also
states: “The purpose of this paragraph is to terminate the tolling of the Statute of
Limitations if Maison Reeves is either unwilling or unable to pursue the
Construction Defect Actions.” This sentence at the very least does not
unambiguously create a separate promise, as the district court concluded, and can
instead be read as clarifying when paragraph 4’s tolling periods apply “to terminate
the tolling of the Statute of Limitations.” (Emphasis added). In context, the phrase
“any defense . . . is tolled” can thus be reasonably interpreted to mean that the
defense is tolled because the statute of limitations was itself tolled.
Because the Standstill Agreement, while not artfully drafted, is at least
ambiguous on whether the parties intended to toll the limitations period until October
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6, 2019, this issue “cannot be resolved on a motion to dismiss.” ASARCO, LLC v.
Union Pac. R.R. Co., 765 F.3d 999, 1008–09 (9th Cir. 2014).1
2. The district court erred in dismissing Ironshore’s breach of contract
claim against Everest, which Ironshore brought as the assignee of rights obtained
from H&R Construction & Surfacing (“H&R”).
The Settlement Agreement between Ironshore and H&R provided that the
“[c]onsideration for [s]ettlement” was a $1.2 million stipulated judgment against
H&R, a covenant by Ironshore not to execute the judgment against H&R, and an
assignment to Ironshore of all H&R’s rights against Everest. Further, it provided
that the agreement was “intended as a full settlement and compromise” of all claims
between Ironshore and H&R. The district court held that this unambiguously
released H&R from liability for the stipulated judgment. We conclude the
agreement is at the very least not unambiguous on this point in Everest’s favor.
“The interpretation of a release is governed by the same principles applicable
to any other contractual agreement.” Marder v. Lopez, 450 F.3d 445, 449 (9th Cir.
2006). Under California law, when an insurer denies coverage and a defense to its
insured (as alleged here), the insured is entitled “to make a reasonable, noncollusive
settlement without the insurer’s consent and to seek reimbursement for the
1
Ironshore advances other arguments as to why its equitable contribution claim was
timely. We need not reach them because we conclude that the Standstill Agreement
was at least ambiguous on the tolling question.
4
settlement amount.” Hamilton v. Md. Cas. Co., 41 P.3d 128, 134 (Cal. 2002). “The
insured may assign its claims against the insurer to the third party in exchange for a
covenant not to execute on the settlement.” Risely v. Interinsurance Exch. of the
Auto. Club, 107 Cal. Rptr. 3d 343, 350 (Ct. App. 2010). But “a covenant not to
execute is not a release and, therefore, d[oes] not blot out the personal judgment
against the insured nor extinguish his claim against the insurance company.”
Consol. Am. Ins. Co. v. Mike Soper Marine Servs., 951 F.2d 186, 191 (9th Cir. 1991)
(applying California law).
In this case, the Settlement Agreement does not unambiguously release H&R
from liability for the amount of the stipulated judgment itself. Rather, as Ironshore
contends, a reasonable interpretation of the Settlement Agreement is that it released
H&R from any liability beyond the amount of the stipulated judgment. Ironshore
fairly argues that it would make little sense for the Settlement Agreement to release
H&R from the consideration that formed the basis of the agreement.2
Empire Indem. Ins. Co. v. N/S Corp., 571 F. App’x 344 (5th Cir. 2014) (per
curiam), is consistent with Ironshore’s proffered interpretation. There, the court held
2
We reject Everest’s argument that Ironshore forfeited this issue in the district court.
The district court did not clearly invoke forfeiture as a ground for dismissal and
dedicated most of its analysis to the merits of the release question. And because
Ironshore did clearly argue below that it could stand in the shoes of H&R in seeking
to enforce the stipulated judgment, we conclude under these circumstances that
forfeiture is not an appropriate basis for affirmance.
5
that the plaintiff could not collect from the defendant’s excess insurer any additional
amount beyond the settlement amount agreed to by the defendant and its primary
insurer. Id. at 347–48.3
3. The district court erred in dismissing with prejudice Ironshore’s claim
against Everest under California Insurance Code § 11580(b)(2). The district court
dismissed this claim in part on its interpretation of the Settlement Agreement’s
release, which was erroneous for the reasons explained above. The district court
also held, in the alternative, that Ironshore “failed to allege any facts demonstrating
that its settlement with H&R was reasonable or that any previous independent
adjudication of facts based on an evidentiary showing had occurred.” This also
provided an insufficient basis for dismissal of the section 11580(b)(2) claim with
prejudice.
At a minimum, Ironshore would be entitled to leave to amend this alleged
deficiency. But regardless, there was no deficiency. It is not apparent that the
reasonableness of the H&R settlement is an element of a section 11580(b)(2) claim
that the judgment creditor needs to plead to survive a motion to dismiss. See
Garamendi v. Golden Eagle Ins. Co., 10 Cal. Rptr. 3d 724, 739 (Ct. App. 2004)
3
Everest makes other arguments as to why Ironshore’s breach of contract claim fails.
The district court did not address these issues, nor has the district court considered
whether, even if these arguments were meritorious, Ironshore should be given leave
to amend to address them. We leave these issues for the district court on remand.
6
(stating the elements for a claim under California Insurance Code section
11580(b)(2)); cf. Pruyn v. Agric. Ins. Co., 42 Cal. Rptr. 2d 295, 309 (Ct. App. 1995)
(“[T]he bona fides of the settlement, and thus its enforceability against the defendant
insurers, cannot be determined against plaintiff on demurrer.”).
Regardless, even if Ironshore did need to allege that the settlement with H&R
was reasonable, it has done so sufficient to withstand a motion to dismiss. Ironshore
alleged that Everest breached the policy by “[r]efusing to pay for or contribute to
reasonable settlements that were less than the ultimate judgment against H&R.” And
it further incorporated by reference the Settlement Agreement, which states that the
agreement was entered into “in good faith and is not the product of any coll[u]sion
or fraud on the part of the” settling parties. These allegations were sufficient at the
motion to dismiss stage.
Nor was Ironshore required to allege that the settlement was subject to an
“independent adjudication.” An independent adjudication is necessary only when a
defending insurer asserts a “no action” clause against a settling insured under the
terms of the policy. See Risely, 107 Cal. Rptr. 3d at 347–48, 351; Nat’l Union Fire
Ins. Co. v. Lynette C., 33 Cal. Rptr. 2d 496, 505 (Ct. App. 1994). Here, Ironshore
pleaded that Everest unreasonably failed to provide a defense, in which case Everest
“is deemed to have waived its rights under the ‘no action’ clause by such conduct
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constituting a breach of its obligations under the policy.” Risely, 107 Cal. Rptr. 3d
at 352 (citation omitted).4
4. The district court erred in dismissing Ironshore’s claim for declaratory
relief because its dismissal of this claim was based in part on the erroneous
conclusion that Ironshore’s other claims failed as a matter of law. In addition, while
Ironshore’s request for declaratory relief does overlap with its other claims, we
cannot conclude that the declaratory relief count, as pleaded, relates only to past
conduct, as opposed to an actual, present controversy over rights and obligations
under the relevant agreements. See 28 U.S.C. § 2201(a); Newcal Indus., Inc. v. Ikon
Office Solution, 513 F.3d 1038, 1057 (9th Cir. 2008) (declaratory judgment
appropriate when it “would clarify or settle the legal relations in issue”) (quotation
marks omitted).
REVERSED AND REMANDED.
4
We decline to reach Everest’s argument that the amount of the stipulated judgment
was unreasonable. That is a factual question that the district court has yet to address,
but which it may consider on remand.
8