Marvin Durment v. the Burlington Ins. Co.

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 22, 2020
• Docket: 19-55353
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 22 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

MARVIN W. DURMENT; et al., No. 19-55353

Plaintiffs-Appellants, D.C. Nos. 2:13-cv-05349-JAK-E v. 2:14-cv-01231-JAK-E

THE BURLINGTON INSURANCE COMPANY, a North Carolina corporation, MEMORANDUM*

Defendant-Appellee,

v.

ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY, a Delaware corporation,

Third-party-defendant- Appellee.

Appeal from the United States District Court for the Central District of California John A. Kronstadt, District Judge, Presiding

Argued and Submitted July 6, 2020 Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.

COA Before: PAEZ and BADE, Circuit Judges, and MELGREN,** District Judge.

Marvin Durment appeals the district court’s grant of summary judgment in

favor of Burlington Insurance Company and Endurance American Specialty

Insurance Company. We have jurisdiction under 28 U.S.C. § 1291. We review de

novo the district court’s grant of summary judgment, Nigro v. Sears, Roebuck &

Co., 784 F.3d 495, 497 (9th Cir. 2015), and we affirm.

Underlying this insurance dispute is a lawsuit between Durment and several

policyholders of Burlington and Endurance over alleged breaches of a joint venture

agreement and an intellectual property agreement. The insurers failed to defend

the policyholders against an amended complaint tendered to the insurers on the eve

of trial. The policyholders then settled with Durment, assigning their claims

against the insurers to him in exchange for a covenant not to execute against the

policyholders.

Durment sued Burlington and Endurance, seeking reimbursement of the

settlement costs and alleging a breach of the implied covenant of good faith and

fair dealing. The district court granted summary judgment to both insurers on the

reimbursement claim and to Endurance on the bad faith claim. Soon after, on a

motion for reconsideration, the district court also granted summary judgment to

** The Honorable Eric F. Melgren, United States District Judge for the District of Kansas, sitting by designation.

COA 2 Burlington on the bad faith claim.

1. Durment argues that the district court erred by concluding that an

insurer that breaches the duty to defend is not liable for settlement costs outside the

scope of the insurer’s indemnification duty.1 Although the California Supreme

Court has not squarely decided this question, well-settled law establishes that a

breaching insurer is generally liable for a post-breach judgment only to the extent

of coverage. See, e.g., Hogan v. Midland Nat’l Ins. Co., 476 P.2d 825, 832 (Cal.

1970) (rejecting the argument that “as the consequence of [the] wrongful refusal to

defend . . . [an insurer] is liable for the entire judgment . . . and may not now deny

coverage as to certain items of damage”).

California authority suggests that the same principle applies to post-breach

settlements.2 See Tradewinds Escrow, Inc. v. Truck Ins. Exch., 118 Cal. Rptr. 2d

1 We reject Endurance’s law-of-the-case argument that this issue was decided in a previous appeal. Although our previous disposition suggested in dicta that an insurer will only “have to pay the amount that cannot be attributed to uncovered claims,” Burlington Ins. Co. v. Minadora Holdings, LLC, 690 F. App’x 918, 923 (9th Cir. 2017), law of the case applies only when “the issue in question [was] decided explicitly or by necessary implication in [the] previous disposition,” Rebel Oil Co., Inc. v. Atl. Richfield Co., 146 F.3d 1088, 1093 (9th Cir. 1998) (second alteration in original) (quoting Milgard Tempering, Inc. v. Selas Corp. of Am., 902 F.2d 703, 715 (9th Cir. 1990)). Dicta have no preclusive effect. Rebel Oil Co., 146 F.3d at 1093. 2 “As a general matter, ‘[t]he task of a federal court in a diversity action is to approximate state law as closely as possible . . . .’” Murray v. BEJ Minerals, LLC, 924 F.3d 1070, 1071 (9th Cir. 2019) (en banc) (brackets in original) (quoting Ticknor v. Choice Hotels Int’l, Inc., 265 F.3d 931, 939 (9th Cir. 2001)). “If the

COA 3 561, 567 (Ct. App. 2002) (“Where the insured settles the underlying claim, we

must also consider the issue of the duty to indemnify, because if it turns out the

policy covered the claim, the amount of reasonable, good faith settlement

payments made by the insured are recoverable.”); Pruyn v. Agric. Ins. Co., 42 Cal.

Rptr. 2d 295, 302 (Ct. App. 1995) (acknowledging that the “plaintiff’s ultimate

recovery” against breaching insurers after settling the underlying claim “will

depend upon it being established that there was coverage and that the

insurers . . . were obligated to indemnify [the insured]”).

Durment argues that these cases are distinguishable because the duty to

indemnify applies only to judgments, not to settlements. But this argument fails

under California law. See Buss v. Superior Court, 939 P.2d 766, 773 (Cal. 1997)

(“By definition, [the duty to indemnify] entails the payment of money in order to

resolve liability.”); see also Aerojet-Gen. Corp. v. Transp. Indem. Co., 948 P.2d

909, 926 (Cal. 1997) (“Settlement costs cannot be defense costs because, instead,

they resolve liability.”). Therefore, we conclude that the district court correctly

applied California law to reject Durment’s argument that he could recover for

settlement amounts from the insurers without establishing coverage.

2. Durment also argues that the district court erred in concluding that he

state’s highest appellate court has not decided the question presented, then we must predict how the state’s highest court would decide the question.” Id.

COA 4 failed to demonstrate economic loss, an essential element of a bad faith action.

However, the two bases Durment relies upon to establish economic loss—the

insureds’ settlement costs that they assigned to him and his attorney’s fees in this

action—are unconvincing. Although an assignee can show economic loss based

on costs incurred by an assignor, this presupposes that the assignor has incurred

actual costs. See Essex Ins. Co. v. Five Star Dye House, Inc., 137 P.3d 192, 198–

99 (Cal. 2006). Because Durment’s covenant not to execute against the insureds

insulated the insureds from actual losses, the settlement did not involve the sort of

concrete “interference with property rights” that California courts consider a

“threshold requirement of economic loss.” See Gourley v. State Farm Mut. Auto.

Ins. Co., 822 P.2d 374, 378 (Cal. 1991). Likewise, the attorney’s fees Durment has

incurred in this litigation cannot satisfy the economic loss requirement because

California law entitles a plaintiff in an insurance coverage dispute to recover

attorney’s fees only to the extent those fees “were incurred to obtain the policy

benefits.” Brandt v. Superior Court, 693 P.2d 796, 800 (Cal. 1985) (quotation

marks omitted). Because Durment failed to recover policy benefits, he is not

entitled to attorney’s fees under Brandt, and he cannot use his fees to show

economic loss.

AFFIRMED.

COA 5