Millennium Laboratories, Inc. v. Darwin Select Insurance Co.

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JAN 27 2017
MOLLY C. DWYER, CLERK
FOR THE NINTH CIRCUIT U.S. COURT OF APPEALS
MILLENNIUM LABORATORIES, INC., No. 15-55227
Plaintiff-Appellee, D.C. No.
3:12-cv-02742-BAS-KSC
v.
DARWIN SELECT INSURANCE MEMORANDUM*
COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of California
Cynthia A. Bashant, District Judge, Presiding
Argued and Submitted January 11, 2017
Pasadena, California
Before: TALLMAN and FRIEDLAND, Circuit Judges, and FABER,** Senior
District Judge.
In this insurance coverage dispute, Millennium Laboratories, Inc. alleged
that its liability insurer, Darwin Select Insurance Company, had a duty to defend it
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable David A. Faber, Senior United States District Judge
for the Southern District of West Virginia, sitting by designation.
against two third-party lawsuits (which we refer to as Ameritox and Calloway1) and
that Darwin denied coverage in bad faith. The district court denied Darwin’s
cross-motion for summary judgment on its duty to defend, and it denied both
parties’ motions for summary judgment on Millennium’s claim that Darwin
breached its implied duty of good faith and fair dealing by denying coverage
unreasonably. The case went to trial, and the jury found in favor of Millennium.
Darwin appealed. We affirm in all but one respect.
Darwin’s Duty to Defend
We affirm the district court’s order granting partial summary judgment to
Millennium on Darwin’s duty to defend, which we review de novo. See Stanford
Ranch, Inc. v. Md. Cas. Co., 89 F.3d 618, 624 (9th Cir. 1996). Darwin was
obligated to defend Millennium if it was at least possible that the policy covered
claims in Ameritox and Calloway. See, e.g., Delgado v. Interinsurance Exch. of
Auto. Club of S. Cal., 211 P.3d 1083, 1086 (Cal. 2009).
The claims against Millennium potentially fell within the policy’s coverage
for personal and advertising injury, which included coverage for claims of
disparagement. Darwin knew that Millennium had been involved in several
1
See Ameritox, Ltd. v. Millennium Labs., Inc., No. 11-775 (M.D. Fla. filed Apr. 8,
2011); Millennium Labs., Inc. v. Calloway Labs., LLC, No. 1084CV3496 (Mass.
Super. Ct. filed Sept. 2, 2010).
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similar legal disputes and that its sales team had allegedly told customers that
competitors’ businesses were illegal, among other things. Darwin indeed knew
that such allegations against Millennium had been made in Calloway itself, at least
with respect to events prior to Darwin’s policy. When Darwin learned that
Millennium’s general counsel had allegedly made aggressive and insulting
statements about competitors in a presentation to sales employees during the
Darwin coverage period, it should have realized that Millennium faced potential
disparagement claims. See, e.g., Eigner v. Worthington, 66 Cal. Rptr. 2d 808, 815
(Ct. App. 1997).2
The policy’s prior noticed claims exclusion did not bar coverage, despite the
fact that Millennium had reported other claims in the Ameritox and Calloway cases
to its previous insurer. Millennium could not have reported the events underlying
the potential disparagement claims to a previous insurer because those events
occurred during the Darwin policy period. In addition, Darwin points to no
precedent for applying a prior noticed claims exclusion in the context of
occurrence-based coverage. Because exclusions must be interpreted narrowly,
Minkler v. Safeco Ins. Co. of Am., 232 P.3d 612, 617 (Cal. 2010), the exclusion
2
At oral argument, Darwin suggested for the first time that Ameritox intentionally
made no disparagement claim. We do not consider that new argument now. See,
e.g., In re Pac. Pictures Corp., 679 F.3d 1121, 1130 (9th Cir. 2012).
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here did not relieve Darwin of its duty to defend.
Breach of the Implied Covenant of
Good Faith and Fair Dealing; Jury Instructions
Darwin appeals the order denying its motion for summary judgment of
Millennium’s claims for breach of the implied covenant of good faith and fair
dealing. We have no jurisdiction to review that order. See Ortiz v. Jordan, 562
U.S. 180, 183–84 (2011). We therefore dismiss this aspect of Darwin’s appeal.
Darwin’s good or bad faith was, however, the subject of the district court’s
order denying Darwin’s motion for judgment as a matter of law. We review de
novo, see Lakeside-Scott v. Multnomah Cty., 556 F.3d 797, 802 (9th Cir. 2009),
and we affirm. Millennium’s evidence, when considered in a favorable light, see
id., showed that Darwin anticipated denying the claims from the outset: it assigned
the claims to an inexperienced employee who at first recommended further
investigation, but Darwin conducted no real investigation and instead hired outside
counsel in anticipation of a lawsuit. This evidence supported the verdict.
We also affirm the district court’s jury instructions and statements in voir
dire, which we review for an abuse of discretion. Mockler v. Multnomah Cty., 140
F.3d 808, 812 (9th Cir. 1998); Paine v. City of Lompoc, 160 F.3d 562, 564 (9th
Cir. 1998). Although the district court told the jury that it had already “been
determined” that Darwin wrongly denied coverage, jurors heard repeatedly from
the parties and the district court that their job was to decide whether Darwin had
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acted unreasonably or in bad faith, not whether Darwin should have defended
Millennium.
Termination of Darwin’s Duty to Defend in Ameritox
We review de novo the district court’s denial of Darwin’s request to
terminate its duty to defend Millennium in Ameritox because it is an interpretation
of the policy’s coverage requirements. See Stanford Ranch, 89 F.3d at 624.
An insurer’s duty to defend may extend to an appeal on reasonable grounds,
if a potentially covered claim remains. Ins. Co. of N. Am. v. Nat’l Am. Ins. Co., 43
Cal. Rptr. 2d 518, 525 (Ct. App. 1995). Similarly, an insurer may have a duty to
pay for post-trial motions. Prichard v. Liberty Mut. Ins. Co., 101 Cal. Rptr. 2d
298, 306–07 (Ct. App. 2000). Here, however, by the time Millennium appealed
and moved for a new trial, it was plain that the case contained no potentially
covered claims. Ameritox did not press a disparagement claim, the jury never
awarded damages for disparagement, and Ameritox did not appeal or move for a
new trial. There was no evidence that an amendment to add a disparagement claim
was likely. If the Ameritox litigation is ever reinitiated and Millennium again faces
a potentially covered claim, it could then request a defense. See Low v. Golden
Eagle Ins. Co., 120 Cal. Rptr. 2d 827, 831 n.5 (Ct. App. 2002). Darwin’s duty to
defend therefore terminated with the June 16, 2014 judgment in Ameritox. We
reverse this one aspect of the district court’s decisions.
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Summary
The district court’s order granting partial summary judgment is affirmed, as
are its orders denying judgment as a matter of law, jury instructions, and
statements in voir dire. Darwin’s appeal of the order denying summary judgment
is dismissed. The order denying Darwin’s motion to terminate its duty to defend in
Ameritox is reversed, and the case is remanded with instructions that Darwin’s duty
to defend be terminated as of June 16, 2014, and for all other proceedings
consistent with our holdings here.
DISMISSED in part, AFFIRMED in part, REVERSED in part, and
REMANDED.
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