Praetorian Insurance Co. v. Marshaun Tate ( 2018 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUL 10 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
PRAETORIAN INSURANCE CO., No. 17-15303
Plaintiff-Appellee, D.C. No.
2:13-cv-02639-MCE-EFB
v.
MARSHAUN TATE; et al., MEMORANDUM*
Defendants-Appellants,
and
A R BUSINESS GROUP, INC., DBA U.S.
Tire & Wheel; et al.,
Defendants.
Appeal from the United States District Court
for the Eastern District of California
Morrison C. England, Jr., District Judge, Presiding
Argued and Submitted June 15, 2018
San Francisco, California
Before: MURPHY,** PAEZ, and IKUTA, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Michael R. Murphy, United States Circuit Judge for
the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
Praetorian Insurance Co. (“Praetorian”) brought a declaratory judgment
action against Marshaun Tate; S.T., through his guardian ad litem, Kenneth Tate;
Eliseo Quintero; and Aida Quintero (collectively “Tate”). Tate purchased used
tires from U.S. Tire & Wheel (“USTW”); USTW installed those tires on Tate’s
vehicle. One of the tires failed and Tate’s vehicle overturned, resulting in the
deaths of two passengers and serious injuries to Marshaun Tate and S.T. When
Tate sued USTW in California state court, USTW tendered its defense and
indemnity to Praetorian, its insurer. In response, Praetorian brought this action in
federal court, claiming the Used Tire Exclusion (the “Exclusion”) in its garage
operations policy with USTW precluded coverage. The district court granted
summary judgment in favor of Praetorian. Tate appeals. Exercising jurisdiction
under 28 U.S.C. § 1291, we reverse and remand.
To validly exclude coverage, insurers must satisfy two “rigid drafting rules”:
they must conspicuously place the exclusionary language and “the language itself
must be plain and clear.” Haynes v. Farmers Ins. Exch., 89 P.3d 381, 390
(Cal. 2004). Whether an exclusion meets these requirements “is a question
of law” for the court. Alterra Excess & Surplus Ins. Co. v. Snyder, 184 Cal.
Rptr. 3d 831, 840 (Cal. Ct. App. 2015) (quoting Hartford Cas. Ins. Co. v.
Swift Distribution, Inc., 326 P.3d 253, 259 (Cal. 2014)). The district court
correctly determined the Exclusion is plain and conspicuous.
2
Relying on Haynes, Tate argues the Exclusion is not conspicuous.
The endorsement containing the Exclusion bears no meaningful resemblance
to the endorsement at issue in Haynes. The first page of the policy
specifically notes that all endorsements are part of one complete policy.
The next page contains both an alphanumeric and textual description of the
relevant endorsement. The textual description is: “USED TIRES AND
RECAPPED TIRES EXCLUSION ENDORSEMENT.” The Exclusion is
set out as a single-page document. At the top of that page, the policy states:
“THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT
CAREFULLY.” The next line repeats, in all capital and bold letters, the
nature of the Exclusion. The nature of the exclusion is again repeated, in all
capital and bold letters just above the body of the Exclusion. Finally, the
Exclusion specifically states it “shall apply to any continuation,
reinstatement, renewal or replacement of the above mentioned policy. ”
Thus, the identification and placement of the Exclusion does not suffer from
any of the flaws identified in Haynes. To the extent Tate asserts Praetorian
was under a special burden to personally apprise USTW’s principals about
the Exclusion because it knew USTW sold used tires, the argument fails for
the reason pointed out by the district court: it is not supported by citation of
3
meaningfully relevant precedent. Haynes makes clear that enforceability is
resolved under an objective legal standard.
The Exclusion is also sufficiently plain and clear. It excludes
coverage for bodily injury arising out of the failure of any tire that was not
new when sold or installed. The term “arising out of” has a well -defined
meaning in California law. Jon Davler, Inc. v. Arch Ins. Co., 178 Cal. Rptr.
3d 502, 509-11 (Cal. Ct. App. 2014). The exclusion withdraws coverage
whenever a used tire sold or installed by USTW fails and th e failure is
causally related to bodily injury. See id. Any lay reader would understand
the import of this description. See Haynes, 89 P.3d at 390.
Although the district court correctly ruled that the Exclusion is
enforceable, it erred in concluding Praetorian is entitled to a declaratory
judgment in its favor on the duty to defend. Controlling precedent in
California makes it difficult for an insurer to obtain a declaration that it
does not have a duty to defend an insured. See generally Montrose Chem.
Corp. v. Superior Court, 861 P.2d 1153, 1157–64 (Cal. 1993). Under this
onerous standard, summary judgment in favor of Praetorian is only proper if
the record before the district court conclusively establishes that Tate’s state -
court claims against USTW cannot fall within the terms of the garage
operations policy. Id. at 1161. If there is any doubt as to whether the facts
4
so establish, Tate is entitled to summary judgment on the question of
Praetorian’s duty to defend USTW. Id. at 1160 (holding that a “bare
‘potential’ or ‘possibility’ of coverage” will trigger the duty to defend).
Dennis Carlson, a mechanical engineer with a particular expertise in
tires, offered an expert opinion as to the cause of the “[tire] failure and/or
rollover” accident. Carlson opined that USTW committed several errors in
selling and installing the tires at issue here: (1) placing the newest ti res on
the front axle of Tate’s Explorer; (2) selling tires, without regard to whether
used or unused, that were older than six years from manufacture; (3)
installing the wrong size tires on the Explorer; and (4) installing the wrong
type (all-season instead of all-terrain) of tires on the Explorer. Carlson
concluded as follows:
The actions by USTW . . . were improper and did not follow
industry recommendations independent of whether the tires
installed on Mr. Tate’s vehicle were used or unused at the time
of sale. Additionally, the installation of the wrong type and size
tires on Mr. Tate’s Explorer was improper and could have
equally contributed to the failure and/or rollover event
regardless of whether the tires were used or unused at the time
of sale.
When he was cross-examined by Praetorian’s attorney during his deposition,
Carlson reiterated that two of the alleged negligent acts on the part of
USTW particularly contributed to the failure of the tire and two particularly
contributed to the rollover of the Explorer. Thus, reading the summary
5
judgment record in the manner most favorable to Tate, the nonmoving party,
Carlson’s testimony supports the notion that the Explorer overturned not
necessarily because of the tire failure, but because improper all-season tires
(i.e., tires of an improper type and size) were installed on the Explorer and
the older tires were placed on the rear axle. These two allegedly negligent
acts do not relate to the used nature of the tires supplied to Tate by USTW ,
or indeed, to tire failure at all. 1 Instead, based on Carlson’s testimony, a
reasonable jury could conclude, among a spectrum of possible findings, that
the Explorer would have overturned at highway speeds even absent a tire
failure or would not have overturned, even upon the failure of a rear tire, if
that tire had been the proper type, proper size, or had been properly placed.
Under the standard set forth in Montrose Chemical Corp., Tate has carried
his burden of demonstrating at least a bare possibility that some aspects of
the state-court negligence claims against USTW will fall within the garage
operations coverage of the policy and will not be excluded by the Exclusion.
This is especially true given California law regarding concurrent causation
in the context of insurance coverage and exclusions. See, e.g., State Farm
1
To be clear, Praetorian does not claim the negligent acts alleged in
Tate’s state-court actions against USTW would not fall within the
parameters of the garage operations policy it issued to USTW if the tires at
issue were new.
6
Mut. Auto. Ins. Co. v. Partridge, 514 P.2d 123, 130–31 & 130 n.11 (Cal.
1973).
Because Praetorian failed to conclusively demonstrate that Tate’s
claims cannot fall within the terms of its garage operations policy with
USTW, the district court erred in granting declaratory judgment in
Praetorian’s favor. Instead, the district court should have granted summary
judgment in favor of Tate on the question of Praetorian’s duty to defend
USTW.
REVERSED and REMANDED.
7