Hilb Rogal & Hobbs Insurance S v. Indian Harbor Insurance Compan

FILED
NOT FOR PUBLICATION MAY 17 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
HILB ROGAL & HOBBS INSURANCE No. 08-56968
SERVICES OF CALIFORNIA, INC.,
D.C. No. 2:07-cv-07104-JFW-JC
Plaintiff-counter-defendant -
Appellant,
MEMORANDUM*
and
HILB ROGAL & HOBBS COMPANY,
Third-party-defendant -
Appellant,
v.
INDIAN HARBOR INSURANCE
COMPANY,
Defendant-third-party-plaintiff
-counter-claimant - Appellee.
Appeal from the United States District Court
for the Central District of California
John F. Walter, District Judge, Presiding
Argued and Submitted May 4, 2010
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: O’SCANNLAIN and TALLMAN, Circuit Judges, and LEFKOW, District
Judge.**
Indian Harbor Insurance Company (“Indian Harbor”) denied coverage of an
insurance claim that Hilb Rogal & Hobbs Insurance Services of California, Inc.
(“HRH”) filed under its professional liability policy with Indian Harbor. HRH
brought suit for, inter alia, declaratory relief regarding the policy’s coverage. The
district court awarded summary judgment to Indian Harbor. HRH timely appealed.
I
The professional liability insurance policy sold by Indian Harbor to HRH
excludes coverage for “claims based on, arising out of, directly or indirectly
resulting from, in consequence of, or in any way involving . . . any claim, cause of
action, demand, arbitration, litigation or other legal or quasi-legal proceeding”
pending on or resolved prior to the date of inception of the policy or “any actual or
alleged act, error, misleading statement, omission, misstatement or breach of duty
underlying or alleged in any such [litigation].”
Such “pending and prior litigation” exclusion bars coverage of the claim in
this case. The failure of HRH to obtain workers’ compensation coverage for its
client Rhino Linings is an “act . . . underlying or alleged in” prior litigation. Under
**
The Honorable Joan Humphrey Lefkow, United States District Judge
for the Northern District of Illinois, sitting by designation.
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California law, the tort lawsuit brought against Rhino Linings by its employee
before the inception of the policy could not have proceeded to judgment if Rhino
Linings had had workers’ compensation coverage. Graphic Arts Mut. Ins. Co. v.
Time Travel Int’l, Inc., 23 Cal. Rptr. 3d 864, 870 (Cal. Ct. App. 2005). The failure
to obtain coverage was, therefore, an “act” that underlay that lawsuit. Moreover,
HRH’s claim in this case “arises out of” that “act.” Both New York and California
have interpreted the “arising out of” phrase to mean merely “having a connection
with.” See New Hampshire Ins. Co. v. Jefferson Ins. Co., 624 N.Y.S.2d 392, 396
(N.Y. App. Div. 1995); Century Transit Sys., Inc. v. Am. Empire Surplus Lines,
Inc., 49 Cal. Rptr. 2d 567, 571 n.4 (Cal. Ct. App. 1996). There is such a
connection in this case because both the prior litigation and the current claim
feature the same failure to obtain workers’ compensation coverage.
A
HRH argues that the policy provides coverage when interpreted in light of
HRH’s reasonable expectations. We disagree. The language of the policy is the
best indicator of a party’s reasonable expectations, see Maurice Goldman & Sons,
Inc. v. Hanover Ins. Co., 607 N.E.2d 792, 793 (N.Y. 1992); AIU Ins. Co. v.
Superior Court, 799 P.2d 1253, 1264 (Cal. 1990) (internal citations omitted),
especially when both parties are sophisticated insurance entities that negotiated the
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terms of the policy, e.g., Int’l Flavors & Fragrances, Inc. v. Royal Ins. Co., 844
N.Y.S.2d 257, 260 (N.Y. App. Div. 2007); Garcia v. Truck Ins. Exchange, 682
P.2d 1100, 1105-06 (Cal. 1984). HRH has not provided evidence of a reasonable
expectation of coverage for the type of claim in this case. General statements that
HRH sought a claims-made policy do not establish a reasonable expectation of
coverage for a particular situation in which a claims-made policy interacts with
California workers’ compensation law.
B
HRH also argues that the policy is ambiguous. We disagree. ML Direct,
Inc. v. TIG Specialty Ins. Co., 93 Cal. Rptr. 2d 846, 852-53 (Cal. Ct. App. 2000)
(holding that “arising out of” prefatory clause is not ambiguous); Mount Vernon
Fire Ins. Co. v. Creative Hous. Ltd., 668 N.E.2d 404, 405 (N.Y. 1996) (same). It is
true, as HRH argues, that the language is broad. But broad language is not
necessarily ambiguous language. ML Direct, 93 Cal. Rptr. 2d at 853; Mount
Vernon Fire Ins. Co., 668 N.E.2d at 405.
C
HRH maintains that the interpretation we adopt improperly institutes a “but
for” test regarding the connection between a claim and prior litigation, instead of a
“significant factual nexus” test. ML Direct, 93 Cal. Rptr. 2d at 853 (adopting
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factual nexus test). That is incorrect. We do not hold that the claim is excluded by
the policy solely because it would not have arisen “but for” the lawsuit between the
employee and Rhino Linings. Rather, we hold, as did the district court, that the
claim is not covered because it “arises out of” an “act . . . underlying or alleged in”
prior litigation, namely the failure to obtain workers’ compensation coverage that
allowed the employee suit to proceed to judgment. The importance of that same
failure in both the employee suit and the claim at issue constitutes the required
“factual nexus” between them.
II
The order of the district court awarding summary judgment to Indian Harbor
is AFFIRMED.
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