Wendel v. Travelers Casualty & Surety Co. of America

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT MAR 29 2012
MOLLY C. DWYER, CLERK
U .S. C O U R T OF APPE ALS
ROBERT G. WENDEL, DMD, No. 11-35340
Plaintiff - Appellant, D.C. No. 2:10-cv-00028-LRS
v.
MEMORANDUM *
TRAVELERS CASUALTY AND
SURETY COMPANY OF AMERICA,
Defendant - Appellee.
Appeal from the United States District Court
for the Eastern District of Washington
Lonny R. Suko, District Judge, Presiding
Argued and Submitted March 9, 2012
Seattle, Washington
Before: PAEZ and MURGUIA, Circuit Judges, and TUCKER, District Judge.**
Appellant Robert G. Wendel, DMD, appeals the district court’s grant of
summary judgment in favor Appellee Travelers Casualty and Surety Company of
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Josephine Staton Tucker, District Judge for the U.S.
District Court for Central California, sitting by designation.
America (“Travelers”) on Dr. Wendel’s claim for breach of contract. Dr. Wendel
also appeals the district court’s denial of his cross-motion for partial summary
judgment on his breach-of-contract claim and motion for summary judgment on his
bad-faith claim, and asks us to enter judgment in his favor. We review de novo
motions for summary judgment. Family Inc. v. U.S. Citizenship & Immigration
Servs., 469 F.3d 1313, 1315 (9th Cir. 2006). Because the history and facts of this
case are familiar to the parties, we recount them only to the extent necessary to
explain our decision. Applying Washington law, we reverse.
I. Discussion
In November 2009, Dr. Wendel filed the instant lawsuit, alleging that
Travelers breached their contract and acted in bad faith by refusing to defend him
in a 2007 lawsuit brought by the estate of his former employee, Christa Yount.
The Yount lawsuit accused Dr. Wendel of using his position of authority as Ms.
Yount’s boss to carry on a three-year sexual relationship with her, and alleged that
Ms. Yount committed suicide after Dr. Wendel fired her. Prior to the Yount
lawsuit, in 2005, another of Dr. Wendel’s former employees, Dorinda Wiseman,
sued Dr. Wendel. Ms. Wiseman alleged that Dr. Wendel fired her because she had
learned of his affair with Ms. Yount.
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The parties agree and the record shows that the Yount lawsuit made no
mention of the prior Wiseman lawsuit. Accordingly, in order to deny Dr. Wendel’s
claim pursuant to the prior-litigation exclusion, Travelers had to rely on extrinsic
evidence. The district court endorsed this practice, but we reverse, as Washington
law can reasonably be interpreted as prohibiting Travelers from so doing.
Under Washington law, the duty to defend is broader than the duty to
indemnify. Am. Best Food, Inc. v. Alea London, Ltd., 229 P.3d 693, 696 (Wash.
2010). Whereas the “duty to indemnify exists only if the policy actually covers the
insured's liability,” the “duty to defend is triggered if the insurance policy
conceivably covers allegations in the complaint.” Id. Therefore, while “[t]he
insurer is entitled to investigate the facts and dispute the insured’s interpretation of
the law,” it must defend the claim “if there is any reasonable interpretation of the
facts or the law that could result in coverage . . . .” Id. at 696 (emphasis added).
Travelers argues that it properly relied on the Wiseman lawsuit because the
Wiseman lawsuit did not bear upon the truth of the allegations in the Yount lawsuit
and it used the Wiseman lawsuit only to determine whether the duty to defend was
triggered. Travelers admits, however, that no Washington court has ever expressly
stated that extrinsic evidence may be used in this manner. The district court sided
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with Travelers, citing to out-of-circuit precedent and non-binding secondary
sources. This was error.
Travelers was bound to provide a defense unless the complaint made it
absolutely “clear” that the policy did not cover the claim alleged in the complaint
under Washington law. See Woo v. Fireman’s Fund Ins. Co., 164 P.3d 454, 459
(Wash. 2007). In making this determination, Travelers was not permitted to decide
unilaterally, as it has attempted to do here, that its interpretation of the law was
likely to be adopted by the Washington Supreme Court and deny coverage on that
basis. See id. at 463 (faulting an insurer for using its own “equivocal interpretation
of case law to give itself the benefit of the doubt rather than its insured”). To the
contrary, the lack of on-point Washington authority suggests a legal ambiguity that
Travelers was bound to resolve in Dr. Wendel’s favor. See Am. Best Food, Inc.,
229 P.3d at 699 (explaining that any ambiguity as to coverage must be resolved in
favor of the claimant); Woo, 164 P.3d at 463 (“[T]he duty to defend requires an
insurer to give the insured the benefit of the doubt when determining whether the
insurance policy covers the allegations in the complaint.”). Had Travelers wished
to seek an extension of Washington case law, it could have elected to defend Dr.
Wendel under a reservation of rights and sought declaratory relief. See Am. Best
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Food, Inc., 229 P.3d at 696, 700–01. Travelers, however, elected not to pursue this
course of action.
We conclude that there is a reasonable interpretation of Washington law that
could have resulted in a duty to defend. In Woo, the Washington Supreme Court
recently had occasion to summarize Washington duty-to-defend law. 164 P.3d at
459–60. As part of this discussion, the court noted that there are only “two
exceptions to the rule that the duty to defend must be determined only from the
complaint . . . .” Id. at 459 (quoting Truck Ins. Exch. v. VanPort Homes, Inc., 58
P.3d 276 (Wash. 2002)). It further explained that these exceptions benefit the
insured, not the insurer. Id. Accordingly, in Washington an “insurer may not rely
on facts extrinsic to the complaint to deny the duty to defend—it may do so only to
trigger the duty.” Id. (emphasis added).
The extrinsic evidence exception espoused by Travelers is not one of the two
exceptions listed by the Woo court. Even more importantly, Travelers proposes
that it be allowed to use extrinsic evidence to deny coverage, an action which
directly conflicts with Woo. Accordingly, we cannot accept Travelers’ argument
that no reasonable interpretation of case law supports the notion that Travelers
improperly relied on the Wiseman lawsuit. To the contrary, Woo suggests just the
opposite.
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Therefore, we reverse the district court’s grant of Travelers’ motion for
partial summary judgment.1 We also reverse the district court’s denial of Dr.
Wendel’s motions for partial summary judgment, which were denied summarily,
and remand so that the district court may give substantive consideration to those
motions in light of this disposition.
REVERSED AND REMANDED.
1
We decline to consider Travelers’ suggestion that we affirm based on the
prior-knowledge exclusion, as Travelers did not rely on the prior-knowledge
exclusion in its partial motion for summary judgment. Cf. Joseph Rosenbaum,
M.D., Inc. v. Hartford Fire Ins. Co., 104 F.3d 258, 261 (9th Cir. 1996).
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