Fce Benefit Administrators, Inc. v. Indian Harbor Insurance Company ( 2023 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 3 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
FCE BENEFIT ADMINISTRATORS, INC., No. 22-15484
Plaintiff-Appellant, D.C. No. 3:21-cv-00186-CRB
v.
MEMORANDUM*
INDIAN HARBOR INSURANCE
COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Charles R. Breyer, District Judge, Presiding
Argued and Submitted January 26, 2023
San Francisco, California
Before: GOULD, RAWLINSON, and BRESS, Circuit Judges.
This is an insurance dispute between an insured, Appellant FCE Benefit
Administrators, Inc. (“FCE”), and insurer, Appellee Indian Harbor Insurance
Company (“Indian Harbor”), over the coverage afforded under an errors and
omissions policy. FCE sued Indian Harbor, claiming that Indian Harbor breached
this policy by refusing to reimburse FCE beyond a $3 million per-claim limit on
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
defense costs and damages arising out of a $5.7 million arbitration award entered
against FCE. Indian Harbor counterclaimed for restitution, claiming that FCE owed
it several hundred thousand dollars that Indian Harbor had paid beyond this $3
million limit. The district court granted summary judgment in favor of Indian
Harbor on both issues, and FCE appealed. We have jurisdiction under 28 U.S.C. §
1291. We “review the district court’s grant of summary judgment de novo,” Bliss
Sequoia Ins. & Risk Advisors, Inc. v. Allied Prop. & Cas. Ins. Co., 52 F.4th 417, 419
(9th Cir. 2022), and we affirm.
1. The district court correctly held that the policy’s $3 million per-claim limit
applies to the defense expenses and damages arising from the underlying arbitration
proceeding against FCE. The policy has two per-claim limits on liability: (1) a $3
million limit for “any claim by reason of an actual or alleged act or omission . . .
committed prior to June 6, 2017”; and (2) a $5 million limit for “any claim based
exclusively on acts or omissions . . . committed on or after June 6, 2017.” And,
relevant to this dispute, the policy “consider[s as] a single claim” “[t]wo or more
claims arising out of the same or related facts, circumstances, situations, transactions
or events, or arising out of the same or related acts or omissions[.]”
2
Here, the claims1 asserted in the underlying arbitration are related under this
policy. The underlying arbitration was a single proceeding brought by two related
insurance companies for whom FCE managed group health plans. The claimants
sought to recover for damages they had incurred as a result of FCE’s alleged errors
and omissions in managing such plans dating back to, at least, 2014. Under the
policy’s related claims provision, the claims asserted in arbitration arose from
“related facts, circumstances, situations, transactions or events” and constituted a
“single claim.” And because this claim arose (at least in part) from errors and
omissions committed by FCE before June 6, 2017, the $3 million per-claim limit
applied.
FCE offers several counterarguments, none of which is persuasive. FCE
argues that the underlying claims are too distinct to be related. However, given the
breadth of the related claims provision in the policy and the California Supreme
Court’s “broad” construction of such provisions, Bay Cities Paving & Grading, Inc.
v. Lawyers’ Mut. Ins. Co., 855 P.2d 1263, 1271 (Cal. 1993),2 we hold that the claims
are related. FCE also contends that the related claims provision does not pertain to
the issue of which coverage limit applies. That contention is without support in the
1
Like the district court, we conclude that even if the policy consisted of multiple
claims, the policy considers them to be a single claim under the related claims
provision, and so the same result follows as if there were just one claim.
2
California law applies to this action.
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policy or California law. See Homestead Ins. Co. v. Am. Empire Surplus Lines Ins.
Co., 52 Cal. Rptr. 2d 268, 273 (Cal. Ct. App. 1996) (recognizing that related claims
provisions “exist[] to clarify other policy provisions” including provisions related to
“limits of liability”). Next, FCE insists that the district court erroneously construed
the term “by reason of,” as it appeared in the $3 million per-claim limit, broadly.
However, the record shows that some of FCE’s errors and omissions took place
before June 6, 2017.3 By any reasonable construction, the $3 million claim limit
applies. Finally, FCE relies on the “potentiality of coverage” standard to argue
Indian Harbor had to pay up to the largest limit afforded under the policy because it
was (allegedly) unclear at the outset of the arbitration which limit applied. We reject
that argument. The standard cited by FCE applies to an insurer’s duty to defend.
Hartford Cas. Ins. Co. v. Swift Distrib., Inc., 326 P.3d 253, 258 (Cal. 2014). There
is no question that Indian Harbor defended FCE in the underlying arbitration. The
duty to defend is not at issue.
2. We also agree with the district court that Indian Harbor is entitled to
summary judgment on its counterclaim for restitution. The California Supreme
Court has recognized that an insurer’s payment of defense costs and damages beyond
3
FCE insists that the district court erroneously relied on the Seventh Circuit’s
opinion confirming the arbitration award against FCE in reaching this conclusion.
This contention is without merit for (at least) the simple reason that the record
outside of that decision unquestionably supports the district court’s conclusion.
4
what is required by an insurance policy may entitle the insurer to restitution on that
excess amount. See Buss v. Superior Ct., 939 P.2d 766, 777 (Cal. 1997). Here,
Indian Harbor paid several hundred thousand dollars in excess of the $3 million per-
claim limit. The district court did not err in awarding Indian Harbor restitution of
that excess amount. FCE counters that restitution is improper here because it alleges
that it relied on this excess amount in reaching a settlement. However, we agree
with the district court that FCE did not offer evidence from which a reasonable finder
of fact could conclude that FCE relied on this relatively small amount in settling a
nearly $6 million award.
AFFIRMED
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