Scottsdale Insurance Company v. Csc Agility Platform, Inc. ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAY 7 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SCOTTSDALE INSURANCE COMPANY, No. 19-55249
Plaintiff-counter- D.C. No.
defendant-Appellee, 2:17-cv-07762-PSG-GJS
v.
MEMORANDUM*
COMPUTER SCIENCES CORPORATION,
a Nevada corporation,
Defendant-Appellant,
CSC AGILITY PLATFORM, INC., FKA
Servicemesh, Inc., a Delaware corporation,
Defendant-counter-claimant-
Appellant.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Submitted May 5, 2020**
Pasadena, California
Before: M. SMITH, BADE, and BRESS, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Computer Sciences Corporation and CSC Agility Platform, Inc.
(collectively, “CSC”) appeal the judgment entered by the district court in favor of
Scottsdale Insurance Company in this insurance coverage dispute. We have
jurisdiction under 28 U.S.C. § 1291, we review the grant of summary judgment de
novo, Padfield v. AIG Life Ins. Co., 290 F.3d 1121, 1124 (9th Cir. 2002), and we
vacate and remand.
1. In its summary judgment ruling, the district court afforded Question 8
of the insurance renewal application its “ordinary meaning.” In doing so, the
district court rejected CSC’s expert testimony regarding trade usage as “arguably
irrelevant under California law.” CSC contends that this constituted error, and we
agree.
CSC’s expert, who is described as an expert on insurance policies covering
technology start-ups, testified that, “[i]n the context of underwriting a D&O policy
for a technology start-up, ‘contemplating being acquired’ is a term we use to mean
‘actively considering an offer to buy the company.’” He further opined that “a
technology start-up cannot be ‘contemplating being acquired’ without a term sheet
or concrete offer to purchase ‘the Company’ that can be ‘actively considered.’”
CSC argues that this testimony constitutes evidence of trade usage in the
technology start-up industry. We agree with CSC that the trade usage evidence
could be relevant. See Cal. Civ. Code § 1644 (“The words of a contract are to be
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understood in their ordinary and popular sense . . . unless a special meaning is
given to them by usage, in which case the latter must be followed.”); Ermolieff v.
R.K.O. Radio Pictures, 122 P.2d 3, 6 (Cal. 1942) (“[W]hile words in a contract are
ordinarily to be construed according to their plain, ordinary, popular or legal
meaning, as the case may be, yet if in reference to the subject matter of the
contract, particular expressions have by trade usage acquired a different meaning,
and both parties are engaged in that trade, the parties to the contract are deemed to
have used them according to their different and peculiar sense as shown by such
trade usage.”); S. Pac. Transp. Co. v. Santa Fe Pac. Pipelines, Inc., 88 Cal. Rptr.
2d 777, 785-86 (Ct. App. 1999).
Accordingly, we remand for the district court to consider CSC’s trade usage
argument under the foregoing legal standards. We express no opinion as to the
merits of the argument, namely, whether the parties in fact intended the phrase
“contemplate transacting any mergers or acquisitions” to have a particular trade
usage meaning, see, e.g., Wolf v. Superior Court, 8 Cal. Rptr. 3d 649, 663 (Ct.
App. 2004), and, if so, the nature of that particularized meaning. The district court
on remand may consider allowing the parties the opportunity for additional
briefing on these questions in determining whether there is a genuine issue of
material fact under the proper legal standards.
2. We decline to address the parties’ arguments regarding Question 7.
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The district court may address these arguments in the first instance should the need
arise.
3. The district court did not err by concluding as a matter of law that
ServiceMesh’s answer to Question 8 was material.1 CSC’s own expert testified
that the answer to Question 8 was material, and Scottsdale’s underwriter described
the many ways in which a “yes” answer to Question 8 may have affected
Scottsdale’s underwriting decision. Furthermore, under California law, “[t]he fact
that the insurer has demanded answers to specific questions in an application for
insurance is in itself usually sufficient to establish materiality as a matter of law.”
LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 67 Cal. Rptr. 3d 917, 924
(Ct. App. 2007) (quoting Thompson v. Occidental Life Ins. Co., 513 P.2d 353, 360
(Cal. 1973)).
4. The district court properly rejected CSC’s waiver defense. Under
California law, “[a]n insurer waives information about a material fact where it
neglects to make inquiry about material facts distinctly implied from other facts
that had been revealed.” Colony Ins. Co. v. Crusader Ins. Co., 115 Cal. Rptr. 3d
611, 619 (Ct. App. 2010) (emphasis added). Here, Scottsdale knew only that
1
Although we vacate the grant of summary judgment, we address the
propriety of the district court’s rulings on materiality, waiver, and estoppel “in case
the same issues arise on remand.” United States v. Mancuso, 718 F.3d 780, 796
(9th Cir. 2013).
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ServiceMesh was involved in merger discussions in October 2013 and was
acquired in November 2013. These facts did not distinctly imply that ServiceMesh
was in acquisition discussions in June 2013, when ServiceMesh submitted the
application. Waiver, therefore, does not apply.
5. The district court also properly rejected CSC’s estoppel defense.
Under California law, “where an insurer has actual knowledge that answers in an
application were false, the insurer may be estopped from arguing it was
defrauded.” Id. at 618. Here, Scottsdale did not know that ServiceMesh’s answers
were false. Thus, estoppel does not apply.
VACATED AND REMANDED. Each party shall bear its own costs on
appeal.
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