Houston Casualty Company v. Cibus US LLC

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 24, 2025
• Docket: 24-876
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 24 2025 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

HOUSTON CASUALTY COMPANY, a No. 24-718 Texas corporation, D.C. No. 3:19-cv-00828-JO-DDL Plaintiff - Appellant,

v. MEMORANDUM*

CIBUS US LLC, a California Limited Liability Company,

Defendant - Appellee.

HOUSTON CASUALTY COMPANY, No. 24-876 Plaintiff - Appellee, D.C. No. 3:19-cv-00828-JO-DDL v.

CIBUS US LLC,

Defendant - Appellant.

Appeal from the United States District Court for the Southern District of California Jinsook Ohta, District Judge, Presiding

Argued and Submitted March 31, 2025 Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: M. SMITH and VANDYKE, Circuit Judges, and MAGNUS-STINSON, District Judge.**

Houston Casualty Company (HCC) and Cibus US LLC (Cibus) cross-appeal

a final judgment in an insurance dispute under California law. The parties dispute

(1) the extent of liability owed under an insurance policy (Policy), (2) whether the

district court appropriately awarded attorneys’ fees to Cibus, and (3) the calculation

of those fees. We have jurisdiction under 28 U.S.C. § 1291, and we reverse and

remand. Because the parties are familiar with the facts of the case, the court does

not recite them here.

This court reviews de novo a district court’s grant or denial of summary

judgment and its interpretation of state law. Westport Ins. Corp. v. Cal. Cas. Mgmt.

Co., 916 F.3d 769, 773 (9th Cir. 2019). A district court’s factual findings are

reviewed for clear error. Fed. R. Civ. P. 52(a)(6). A finding is clearly erroneous

where the reviewing court “is left with the definite and firm conviction that a mistake

has been committed.” Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers

Pension Tr. for S. Cal., 508 U.S. 602, 622 (1993) (quoting United States v. United

States Gypsum Co., 333 U.S. 364, 395 (1948)). When a mixed question of law and

** The Honorable Jane Magnus-Stinson, United States District Judge for the Southern District of Indiana, sitting by designation.

2 24-718 fact is presented, the standard of review turns on whether factual or legal matters

predominate. Tolbert v. Page, 182 F.3d 677, 681–82 (9th Cir. 1999).

1. The plain language of the Policy’s property damage sublimit

unambiguously applies to the canola claims. Under California law, courts first look

to the text of a contract to determine its “plain meaning or the meaning a layperson

would ordinarily attach to it.” Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 627

(Cal. 1995), as modified on denial of reh’g (Oct. 26, 1995) (citing Cal. Civ. Code

§ 1638). Only where a provision is capable of two or more reasonable constructions

will California courts look to extratextual canons of construction. Id. But the

California Supreme Court has emphasized that courts should “not strain to create an

ambiguity where none exists.” Id. (citing Reserve Ins. Co. v. Pisciotta, 640 P.2d

764, 767–68 (Cal. 1982)).

The language of the Policy and its property damage sublimit are not

ambiguous. The Policy defines “property damage” as “physical injury to, or

destruction of, tangible property including loss of use resulting therefrom; or loss of

use of tangible property that has not been physically injured or destroyed.” The plain

meaning of “tangible property” is broad and encompasses any “property having

physical substance apparent to the senses.” Tangible Property, Webster’s Third New

International Dictionary of the English Language (1961) (hereinafter “Webster’s”).

“Damage” includes any “loss due to injury.” Damage, Webster’s. California courts

3 24-718 interpret the phrase “arising out of” broadly in insurance policies as “connot[ing]

only a minimal causal connection or incidental relationship.” Acceptance Ins. Co.

v. Syufy Enters., 69 Cal. App. 4th 321, 328 (1999). Combining those definitions, the

Policy’s sublimit clearly applies broadly to any damages that are incidental to an

injury of physical property and encompasses subsequent losses from that injury.

The Duo canola farmers’ claims, alleging that their crops were stunted and

chemically damaged by the application of Draft herbicide, plainly fit the definition

of “property damage” under both the plain meaning of the Policy’s terms and case

law interpreting similar provisions. The claims made by the Duo canola farmers

described physical damage to tangible property, including the “cupping” and

“purpling” of new canola leaves, poor branching, and weak stems. Such physical

damage only occurred after the farmers applied Draft herbicide, which chemically

damaged the plants.

This reading of the property damage sublimit accords with similar decisions

concluding that crop injuries constitute “property damage” under insurance policies.

See, e.g., Ferrell v. W. Bend Mut. Ins. Co., 393 F.3d 786, 795 (8th Cir. 2005) (holding

that an insurance policy’s “property damage” definition included injuries resulting

in “stunted, undersized, sunburned, or waterlogged” plants); Scottsdale Ins. Co. v.

TL Spreader, LLC, No. 15-CV-2664, 2017 WL 4779575, at *4–5 (W.D. La. Oct. 20,

2017) (finding damage presenting in “stunting, lesions, yellowing, and death” after

4 24-718 misapplication of herbicide constituted “physical injury to tangible property”).

The district court erred by finding the property damage sublimit did not apply to the

Duo canola farmers’ claims.

2. The district court also clearly erred by awarding Brandt fees to Cibus

because HCC’s litigation positions were reasonable. In Brandt v. Superior Court,

the California Supreme Court held that attorneys’ fees are recoverable where an

insurer withholds policy benefits from the insured in bad faith. 693 P.2d 796, 800

(Cal. 1985). But the court emphasized that an insurer’s erroneous interpretation of

a policy does not, in itself, constitute bad faith. Id. Rather, for an insured to recover

attorneys’ fees under Brandt, the insurer’s conduct must be so unreasonable as to

violate the covenant of good faith and fair dealing. Id.

HCC’s interpretation of the contract was not only reasonable but also correct

in concluding that the property damage sublimit applied to Cibus’s claims.

And HCC also made other arguments at summary judgment that, at worst, amount

to a mere erroneous interpretation of the contract, including its summary judgment

argument that it owed no coverage under the policy because Cibus asserted a

warranty claim that the Policy precluded. The district court, therefore, clearly erred

in finding that HCC litigated in bad faith.

The judgment of the district court is REVERSED and REMANDED with

instructions to enter a judgment in favor of HCC that (1) coverage for Cibus’s claims

5 24-718 is limited to $100,000 by operation of the property damage sublimit, (2) Cibus is not

entitled to attorneys’ fees, and (3) HCC is entitled to recoup payments made to settle

claims against the Policy beyond its applicable $100,000 property damage sublimit.

6 24-718