Atain Specialty Insurance Comp v. Armory Studios, LLC ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 13 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ATAIN SPECIALTY INSURANCE No. 19-15745
COMPANY, a Michigan corporation,
D.C. No. 3:15-cv-05124-JD
Plaintiff-Appellee,
v. MEMORANDUM*
ARMORY STUDIOS, LLC, a California
limited liability company; PETER
ACWORTH, an individual,
Defendants-Appellants.
ATAIN SPECIALTY INSURANCE No. 19-15820
COMPANY, a Michigan corporation,
D.C. No. 3:15-cv-05124-JD
Plaintiff-Appellant,
v.
ARMORY STUDIOS, LLC, a California
limited liability company; PETER
ACWORTH, an individual,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
James Donato, District Judge, Presiding
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Argued and Submitted July 15, 2020
San Francisco, California
Before: SILER,** TALLMAN, and LEE, Circuit Judges.
The district court held that Atain Specialty Insurance Company (Atain) did
not have a duty to defend Armory Studios, LLC (Armory) and Armory’s principal,
Peter Acworth, in underlying state court lawsuits and that Atain is not entitled to
reimbursement of a settlement paid in one of those underlying lawsuits, Adams v.
Kink.com, et al., No. CGC–15–547035 (San Francisco Super. Ct.). We affirm.
First, we conclude that the district court did not err when it determined that
Atain had no duty to defend Armory or Acworth in the underlying lawsuits. Under
California law, an insurer must defend its insured against a third-party lawsuit if
there is a “bare possibility of coverage.” Belmonte v. Emp’rs Ins. Co., 99 Cal. Rptr.
2d 661, 663 (Cal. Ct. App. 2000). Therefore, we compare “the allegations of the
complaint with the terms of the policy” and determine whether the facts alleged
together with the facts known to the insurer at the inception of a lawsuit or tender of
defense reveal a possibility that the claim is covered. Montrose Chemical Corp. v.
Superior Court, 861 P.2d 1153, 1157 (Cal. 1993) (en banc).
Atain argues that the “Physical-Sexual Abuse Exclusion” precludes coverage.
**
The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
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The exclusion precludes coverage of “any ‘occurrence,’ suit, . . . or causes of action
arising out of or resulting from the physical abuse, sexual abuse or licentious,
immoral or sexual behavior intended to lead to, or culminating in any sexual act,
whether caused by, or at the instigation of, or at the direction of, or omission by: The
insured or the insured’s employees . . . .” Here, the exclusion applies because the
state court complaints asserted that Armory and Acworth were liable for the
plaintiffs’ contraction of HIV while plaintiffs were engaging in sexual acts at the
direction of Armory and Acworth, among others. And the omissions clause
precludes causes of action arising out of any sexual act that resulted from the
omission of the insured, which covers the complaint allegations that Armory and
Acworth failed to discover dangerous conditions caused by their tenants and failed
to ensure their tenants were following required procedures. Thus, Atain had no duty
to defend against any causes of action.
Second, we conclude that Atain is not entitled to reimbursement of the Adams
action settlement. To be entitled to reimbursement Atain must show that it satisfied
each of the following requirements: “(1) a timely and express reservation of rights;
(2) an express notification to the insureds of the insurer’s intent to accept a proposed
settlement offer; and (3) an express offer to the insureds that they may assume their
own defense when the insurer and insureds disagree whether to accept the proposed
settlement.” Blue Ridge Ins. Co. v. Jacobsen, 22 P.3d 313, 320–21 (Cal. 2001). Atain
3 19-15745
did not satisfy the third requirement because it never made an express offer to
Armory that it could assume its own defense. Therefore, Atain is not entitled to
reimbursement of the Adams action settlement.
Each party to bear its own costs.
AFFIRMED.
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