Yahoo! Inc. v. National Union Fire Insurance

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 23 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
YAHOO! INC., No. 19-16475
Plaintiff-Appellant, D.C. No. 5:17-cv-00489-EJD
v.
MEMORANDUM*
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA, a
Pennsylvania corporation,
Defendant-Appellee.
YAHOO! INC., No. 19-17462
Plaintiff-Appellee,
D.C. No. 5:17-cv-00489-EJD
v.
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA, a
Pennsylvania corporation,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of California
Edward J. Davila, District Judge, Presiding
Argued and Submitted May 10, 2021
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Pasadena, California
Before: R. NELSON and BADE, Circuit Judges, and HELLERSTEIN,** District
Judge.
Yahoo! Inc. and National Union Fire Insurance Company cross-appeal from
the district court’s final judgment following a jury trial in Yahoo’s lawsuit alleging
that National Union breached a liability insurance contract and breached the
implied covenant of good faith and fair dealing. We have jurisdiction pursuant to
28 U.S.C. § 1291, and we affirm.
1. Yahoo argues that the district court erred in its order granting partial
summary judgment on Yahoo’s claim for breach of the duty to defend and
indemnify when it concluded that, under the 2011 insurance contract, Yahoo was
entitled only to thirty days’ interest on its defense and settlement costs. We
disagree. “Except as expressly provided by statute, no person can recover a greater
amount in damages for the breach of an obligation, than he could have gained by
the full performance thereof on both sides.” Cal. Civ. Code § 3358; see also Lewis
Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 102 P.3d 257, 261 (Cal.
2004) (“Damages awarded to an injured party for breach of contract seek to
approximate the agreed-upon performance.” (internal quotation marks and citation
**
The Honorable Alvin K. Hellerstein, United States District Judge for
the Southern District of New York, sitting by designation.
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omitted)). Here, had both parties fully performed their contractual obligations,
National Union would have initially paid all defense and settlement costs, and
Yahoo would have reimbursed those costs within thirty days of receiving an
invoice. Thus, “the benefit of [the] bargain,” Foster-Gardner, Inc. v. Nat’l Union
Fire Ins., 959 P.2d 265, 282 (Cal. 1998), for Yahoo was not the full value of its
defense and settlement costs, but rather, the short-term deferral of those costs. The
district court’s award of thirty days’ interest properly corresponds to that benefit,
and National Union “should be held liable for no more.” Id.Yahoo argues that National Union’s payment of defense costs was a
condition precedent to Yahoo’s reimbursement obligation. But the issue here is
whether the district court properly took the Deductible Coverage Endorsement’s
reimbursement provision into account in determining the appropriate damages for
National Union’s breach. Yahoo argues that under Kennedy v. American Fidelity
& Casualty Co., 217 P.2d 457, 458 (Cal. Ct. App. 1950), an insurer who breaches
the duty to defend may “not rely on the reimbursement provision in [an]
endorsement.” However, the court in Kennedy merely rejected an insurer’s attempt
to avoid all liability for breach of the duty to defend based on the argument that if
it “had defend[ed] the damage action it would have been entitled to recover the
cost thereof from the [insured].” Id.Yahoo asserts it lost “peace of mind” because of National Union’s failure to
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defend in the underlying action, but it does not ascribe a monetary value to this
benefit. And although Yahoo argues it might have had a “better chance of
vindication” if National Union had complied with its duty to defend, it likewise
does not point to any specific amount that could have been “vindicated” if National
Union had not breached. Thus, it has not shown it is entitled to special damages.
See Lewis Jorge, 102 P.3d at 261–62.
Yahoo suggests that the district court’s approach leads to “absurd and unfair
result[s]” by allowing an insurer to “breach its duty to defend without
consequence.” To be sure, Yahoo is entitled to lower damages under the policy at
issue here than it might have been under a conventional liability insurance policy.
And we recognize that under this approach, contract damages alone might be
insufficient to deter insurers from breaching in some cases. However, California
law achieves this deterrence not through contract damages, but rather through the
specter of tort liability for bad faith, including the possibility of Brandt fees and
punitive damages. See Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d
454, 459–60 (Cal. 1994) (“Contract and tort are different branches of
law. Contract law exists to enforce legally binding agreements between parties;
tort law is designed to vindicate social policy.”).1
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Because Yahoo is not entitled to the full value of the defense and
settlement costs, we similarly reject its argument that the district court should have
awarded prejudgment interest on that sum.
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2. National Union argues that the district court erred in awarding Yahoo
attorney’s fees under Brandt v. Superior Court, 693 P.2d 796 (Cal. 1985), because
Yahoo failed to adequately distinguish between recoverable and non-recoverable
fees. Brandt entitles a plaintiff only to fees “attributable to . . . efforts to obtain the
rejected payment due on the insurance contract,” and not “[f]ees attributable to
obtaining any portion of the plaintiff’s award which exceeds the amount due under
the policy,” such as fees attributable to a bad faith claim. Id. at 800.
National Union’s arguments for overturning the jury’s Brandt fee award are
unavailing. Unlike instances where a plaintiff makes “no effort to segregate its
litigation expenses as required by Brandt,” Slottow v. Am. Cas. Co. of Reading,
Penn., 10 F.3d 1355, 1362 (9th Cir. 1993), Yahoo presented detailed billing
records and made its associate general counsel, Daniel Tepstein, available to testify
on the nature of the legal work those records referenced. While Yahoo’s request
for virtually all of its fees through the summary judgment stage may have been
ambitious, Yahoo fulfilled its obligation to “demonstrate[] how the fees . . . should
be apportioned.” Cassim v. Allstate Ins., 94 P.3d 513, 533 (Cal. 2004). We will
not disturb the jury’s fee award based on arguments National Union raises for the
first time on appeal regarding the content of Yahoo’s billing records. See
Passantino v. Johnson & Johnson Consumer Prods., Inc., 212 F.3d 493, 511 n.16
(9th Cir. 2000).
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3. National Union argues that the district court abused its discretion by
allowing Yahoo to proceed with its Brandt claim and denying National Union’s
untimely request to offer expert testimony after Yahoo failed to timely produce its
billing records, and that Yahoo’s untimely production prevented National Union
from adequately preparing for trial on the Brandt issue. We disagree. National
Union has not identified what information the billing records could have contained
that would have affected its strategic choice whether to retain an expert for trial
and has not shown any other prejudice it suffered from Yahoo’s untimely
disclosure. National Union asserts that it was prejudiced by Yahoo’s use of
Tepstein as its sole witness on Brandt fees, rather than “coverage counsel who
prepared the invoices.” If National Union believed Tepstein’s testimony was
inadequate to support Yahoo’s Brandt fee request, it could have cross-examined
Tepstein at trial and made that argument to the jury. However, it did not, and we
will not disturb the jury’s verdict based on National Union’s assertions that Yahoo
prejudiced its trial preparations by failing to produce a stronger witness.
4. National Union argues that the district court erroneously instructed the
jury on how to evaluate Yahoo’s claim for Brandt fees when it omitted Brandt’s
cautionary language that the award “must not include attorney’s fees incurred to
recover any other portion of the verdict” besides recovery of policy benefits,
Brandt, 693 P.2d at 800–01. We disagree. While the instruction did not explicitly
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reiterate this limitation on Brandt fees, it accurately stated California law on what
fees were recoverable: namely, “[t]he cost of reasonable attorney fees incurred to
obtain policy benefits.” Moreover, given the potential for confusion in light of the
instructions’ references to “attorney fees” other than Brandt fees, the district court
did not abuse its discretion in refusing National Union’s proposed phrasing, which
stated that Yahoo “may recover attorney fees it incurred to obtain policy benefits
but not attorney fees it incurred for other purposes.”
AFFIRMED.
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