Office Depot, Inc. v. Aig Specialty Insurance Co. ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS NOV 13 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
OFFICE DEPOT, INC., No. 19-55819
Plaintiff-Appellant, D.C. No.
2:15-cv-02416-SVW-JPR
v.
AIG SPECIALTY INSURANCE MEMORANDUM*
COMPANY, FKA American International
Specialty Lines Insurance Company,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Stephen V. Wilson, District Judge, Presiding
Argued and Submitted September 2, 2020
Pasadena, California
Before: SILER,** BERZON, and LEE, Circuit Judges.
Office Depot, Inc. (“Office Depot”) appeals the district court’s award of
summary judgment in favor of AIG Specialty Insurance Company (“AIG”). We
affirm.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
The district court held that AIG did not have a duty to defend or indemnify
Office Depot in a 2011 California False Claims Act lawsuit. The court reasoned that
the claims alleged in the underlying lawsuit (“Sherwin lawsuit”) do not fall within
the scope of the relevant insuring agreement and, even if they did, multiple policy
exclusions preclude coverage.
We review de novo the district court’s decision on cross-motions for summary
judgment. See St. Surfing, LLC v. Great Am. E & S Ins. Co., 776 F.3d 603, 607 (9th
Cir. 2014). We affirm the district court’s decision on the basis that the Sherwin
lawsuit falls under the “Contract Exclusion.”
1. The “Contract Exclusion” of the insurance agreement precludes
coverage of any claim “alleging, arising out of or resulting, directly or indirectly,
from any liability or obligation under any contract or agreement or out of any breach
of contract.” This exclusion does not apply to liabilities or obligations “an insured
would have in the absence of such contract or agreement.” Under California law,
the term “arising out of” requires “only a minimal causal connection or incidental
relationship.” Travelers Prop. Cas. Co. v. Actavis, Inc., 225 Cal. Rptr. 3d 5, 21 (Cal.
Ct. App. 2017) (“This broad interpretation of ‘arising out of’ applies to both
coverage provisions and exclusions.”). These clauses also exclude coverage of tort
claims which could not exist without the relevant underlying contracts. See Medill
v. Westport Insurance Co., 49 Cal. Rptr. 3d 570, 578–80 (Cal. Ct. App. 2006)
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(holding negligence and breach of fiduciary duty claims against directors were
excluded under the contract).1
Here, the allegations of the Sherwin lawsuit, directly, and indirectly, arose out
of Office Depot’s contractual obligations under the Master Agreements and USC
contract. This suit is based primarily on two contracts between Office Depot and
Los Angeles County. In Office Depot’s own words “[t]he heart of this suit is the
contention that Office Depot overcharged California government entities under the
terms of particular contracts.” Office Depot’s in-house counsel testified that “the
claims are related to [Office Depot’s] performance or nonperformance under [Office
Depot’s] government contracts . . . this is a complaint for violation of the False
Claims Act, but the claims and the allegations that he made were related to our
performance or nonperformance of our government contracts.” We conclude, noting
the uncomfortable breadth of such contract exclusions, that the allegations in the
Sherwin lawsuit are premised directly or indirectly on Office Depot’s contractual
1
The Medill court considered the breach of contract language in the context of
coverage provisions. Specifically, the court considered whether the claims in the
underlying lawsuit were covered because the policy’s definition of a covered
“loss” was defined in the policy not to include “damages ‘arising out of breach of
any contract.’” Medill, 49 Cal. Rptr. 3d at 578. Although the present case
considers the breach of contract language in the context of an exclusion, as
opposed to a definition within the scope of coverage, the court’s analysis in Medill
is still instructive.
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obligations and therefore the lawsuit is precluded from coverage under the contract
exclusion.
2. An insurer’s duty to indemnify arises when there is coverage of the
claim determined in light of the facts. See Buss v. Superior Ct., 939 P.2d 766, 773
n.10 (Cal. 1997). Based on the analysis of contract exclusion, the Sherwin lawsuit
is not covered under Office Depot’s policy with AIG. Therefore, we conclude that
AIG did not have a duty to indemnify Office Depot and affirm the district court.
Because there was no duty to defend or indemnify Office Depot, we decline to rule
on the other exclusions raised by the insurer.
AFFIRMED.
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