Michael Dobson v. Twin City Fire Insurance , 590 F. App'x 687 ( 2015 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT JAN 15 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
MICHAEL J. DOBSON, an individual; et No. 12-56729
al.,
D.C. No. 8:11-cv-00192-DOC-
Plaintiffs - Appellants, MLG
v.
MEMORANDUM*
TWIN CITY FIRE INSURANCE
COMPANY, an Indiana corporation and
THE HARTFORD FINANCIAL
SERVICES GROUP, INC., a Delaware
corporation,
Defendants - Appellees.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted December 10, 2014
Pasadena, California
Before: SILVERMAN, BEA, and CHRISTEN, Circuit Judges.
Plaintiffs Michael Dobson, Richard Teasta, Allen Braun, the Insureds, and
Ironshore Indemnity, Inc., their excess carrier, appeal the district court’s summary
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
-2-
judgment in favor of primary insurer Twin City Fire Insurance Co. and its parent
The Hartford Financial Services Group, and the district court’s denial of their
partial motion for summary judgment. We have jurisdiction under 18 U.S.C. §
1291. Reviewing both the grant and denial of summary judgment de novo,
Padfield v. AIG Life Ins. Co., 290 F.3d 1121, 1124 (9th Cir. 2002), and reviewing
evidentiary rulings for abuse of discretion and prejudice, Pyramid Techs., Inc. v.
Hartford Cas. Ins. Co., 752 F.3d 807, 813 (9th Cir. 2014), we reverse.
I. Policy Coverage for Invotex Action and Creditors Committee’s Claim
The district court correctly ruled that to the extent the underlying lawsuit
against the Insureds sought restitution for fraudulent transfers rather than damages,
such claims are not covered by the Twin City policy. Unified W. Grocers v. Twin
City Fire Ins. Co., 457 F.3d 1106, 1115 (9th Cir. 2006). To the extent the claims
are based on allegations of “wilful act[s]” by, rather than negligence of, the
Insureds, they are also not insurable. Cal. Ins. Code § 533. However, the breach
of fiduciary duty claim does not seek specific restitution, but rather “damages” for
many overarching breaches of duty allegedly committed by the Insureds. Thus, it
is within coverage as alleging “wrongful acts.” The earlier Creditors’ Committee
claim also included a covered breach of fiduciary duty element, and the district
court erred in concluding that no coverage existed for that claim.
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Further, neither the policy’s “prior notice” exclusion nor the “claim first
made” exclusion bar coverage. Those exclusions apply only to claims based on or
related to prior claims that were the subject of “any notice given under any other
directors and officers, management liability, or similar insurance policy.” The
earlier BAR and OCDA actions were noticed under another insurance policy, but
in those cases it was the insured business entity that was sued, so the notice would
have been given under the entity’s comprehensive general liability coverage. The
Insureds were named as natural person representatives of the entity in one action,
but they were not sued themselves. Therefore, there was no prior notice under a
“directors and officers . . . or similar insurance policy” triggering the exclusions.
II. Defendants Wrongfully Denied Coverage
Defendants unequivocally denied coverage of the Creditors’ Committee’s
claim and the Invotex Action. Their argument that their communications with the
Insureds regarding coverage were “reservation of rights” letters in which they also
offered to pay a small portion of the Insureds’ costs for the breach of fiduciary duty
claim, is belied by the fact that Defendants repeatedly and emphatically stated that
“no coverage is available.” But there was coverage, as just explained. Defendants’
wrongful denial of coverage was an antecedent breach, excusing the Insureds’
failure to obtain Defendants’ consent prior to any settlement.
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III. Plaintiffs Submitted Appropriate Evidence of Loss
The district court ruled that Plaintiffs submitted only two forms of evidence
of defense costs: a memorandum summarizing certain costs, and testimony by the
Insureds estimating their defense costs. The district court excluded this evidence
sua sponte on the ground that it violated the best evidence rule. Defendants’
failure to object to this evidence waived any objection. Skillsky v. Lucky Stores,
Inc., 893 F.2d 1088, 1094 (9th Cir. 1990). We note also that Defendants make no
effort to defend this ruling now. In any event, we fail to see how this evidence
would have been objectionable on best evidence grounds. The exclusion of this
evidence was erroneous.
IV. Conclusion
Because part of the Creditors’ Committee’s claim and part of the Invotex
Action were covered by the Insureds’ policy, and because Defendants breached the
same policy’s terms by improperly denying coverage, the district court’s denial of
Plaintiffs’ motion for partial summary judgment, and grant of Defendants’ motion
for summary judgment, was in error. The decision is REVERSED and the case is
REMANDED for proceedings consistent with this Memorandum.