Sentynl Therapeutics, Inc. v. U.S. Specialty Insurance Co

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 9, 2022
• Docket: 21-55370
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAR 9 2022 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

SENTYNL THERAPEUTICS, INC., a No. 21-55370 California corporation, D.C. No. Plaintiff-Appellant, 3:19-cv-01667-LAB-AHG

v. MEMORANDUM* U.S. SPECIALTY INSURANCE COMPANY, a Texas corporation,

Defendant-Appellee.

Appeal from the United States District Court for the Southern District of California Larry A. Burns, District Judge, Presiding

Argued and Submitted January 11, 2022 Pasadena, California

Before: RAWLINSON and CALLAHAN, Circuit Judges, and BLOCK,** District Judge.

Sentynl Therapeutics, Inc. (“Sentynl”), appeals the district court’s summary

judgment holding that certain costs were not covered by a directors, officers and

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Frederic Block, United States District Judge for the Eastern District of New York, sitting by designation. organization policy issued to Sentynl by U.S. Specialty Insurance Company (“U.S.

Specialty”). We have jurisdiction, see 28 U.S.C. § 1291, and affirm.

Sentynl markets two prescription opioid pain relievers. In 2018 and 2019, it

received subpoenas from the United States Attorney’s Office for the District of

New Jersey in conjunction with an investigation of potential violations of federal

law by anyone illegally profiting from opioids. After U.S. Specialty denied

Sentynl’s claim under the policy for reimbursement of the costs of complying with

the subpoenas, Sentynl sued for breach of contract and of the implied covenant of

good faith.

Reviewing de novo, see Trishan Air, Inc. v. Federal Ins. Co., 635 F.3d 422,

426-27 (9th Cir. 2011), we agree with the district court that the costs were not

covered. The policy excludes coverage for, among other things, “Loss in

connection with a Claim arising out of, based upon or attributable to any goods or

products manufactured, produced, processed, packaged, sold, marketed,

distributed, advertised or developed by [Sentynl].” As both parties acknowledge,

the interpretation of the exclusion is an issue of California law. Since there is no

case directly on point, our task is to “predict how the state high court would

resolve [the issue].” Giles v. General Motors Acceptance Corp., 494 F.3d 865, 872

(9th Cir. 2007). Having reviewed analogous cases, we are satisfied that the district

court’s analysis was correct.

2 First, the district court correctly defined “arising out of” broadly. In

Continental Casualty Co. v. City of Richmond, 763 F.2d 1076 (9th Cir. 1985), we

held that “‘[a]rising out of’ are words of much broader significance than ‘caused

by.’ They are ordinarily understood to mean ‘originating from,’ ‘having its origin

in,’ ‘growing out of’ or ‘flowing from’ or in short, ‘incident to, or having

connection with.’” Id. at 1080. Similarly, in Southgate Recreation & Park Dist. v.

California Assn. for Park & Recreation Ins., 106 Cal. App. 4th 293 (3d Dist.

2003), California’s Third District described the phrase as “a broad concept

requiring only a slight connection or an incidental relationship between the injury

and the excluded risk”; it “generally equated ‘arising out of’ with origination,

growth or flow from the event.” Id. at 301 (internal quotation marks omitted).

It does not matter that the “arising out of” language appears in an exclusion.

Both Continental Casualty and Southgate Recreation & Park District also

involved exclusions. See 763 F.2d at 1080; 106 Cal. App. 4th at 301. We find no

support for Sentynl’s claim that State Farm Mutual Automobile Ins. Co. v.

Partridge, 514 P.2d 123 (Cal. 1973)—which predates both cases—requires a

different result. Partridge confirms that exclusions in an insurance policy are to be

narrowly construed against the insurer when they are ambiguous. See 514 P.2d at

129. But this rule of construction must be reconciled with the rule that we must

“giv[e] effect to the intent of the parties in light of a clause that broadly excludes

3 coverage.” Los Angeles Lakers, Inc. v. Federal Ins. Co., 869 F.3d 795, 805 (9th

Cir. 2017). “Arising out of” is broad but not ambiguous. See Continental Casualty

Co., 763 F.2d at 1080 (holding that “arising out of” is “susceptible to only one

reasonable meaning”).

Second, the district court correctly held that the costs of complying with the

subpoenas “ar[ose] out of . . . goods or products manufactured, produced,

processed, packaged, sold, marketed, distributed, advertised or developed by

[Sentynl].” The subpoenas were issued as part of an investigation directed at

anyone illegally profiting from opioids. We agree with the district court that

Sentynl’s involvement in the investigation “orginat[es] from, ha[s] its origin in,

grow[s] out of or flow[s] from” its opioid products. Continental Cas. Co., 763

F.2d at 1080.

Nothing in the language of the exclusion limits it, as Sentynl argues, to

claims based on a defect in, or characteristic of, the products. “It is settled that

[‘arising out of’] does not import any particular standard of causation or theory of

liability into an insurance policy.” Travelers Prop. Cas. Co. of Am. v. Actavis,

Inc., 16 Cal. App. 5th 1026, 1045 (4th Dist. 2017) (internal quotation marks

omitted). Moreover, Actavis supports the district court’s conclusion that a goods

and products exclusion embraces claims about what a seller “said and did not say

about the products.” Id. at 1044 (internal quotation marks omitted).

4 We also disagree with Sentynl that the district court’s interpretation of the

exclusion renders coverage illusory. An exclusion does not render coverage

illusory unless it entirely eliminates coverage See, e.g., Safeco Ins. Co. of Am. v.

Robert S., 28 P.3d 889, 894 (Cal. 2001). The exclusion would not apply to several

types of claims even under a very broad definition of “arising out of.” For

example, a claim for sexual harassment would have no conceivable connection to

the products Sentynl sells; such a claim could be brought against any company

regardless of the type of business it does. The subpoenas, by contrast, are clearly

connected to companies in the opioid market.

Finally, we note that the goods or products exclusion applies only to claims

against Sentynl itself, while several subpoenas were issued to current and former

employees of Sentynl. The district court did not address that point because Sentynl

did not raise it. “Absent exceptional circumstances, we generally will not consider

arguments raised for the first time on appeal.” AMA Multimedia, LLC v. Wanat,

970 F.3d 1201, 1213 (9th Cir. 2020) (internal quotation marks omitted). In any

event, the policy covered only claims for “Wrongful Acts.” Nothing in the record

suggests that any current or former employee has been accused of any such acts.

In light of our disposition, we need not address U.S. Specialty’s alternative

argument that coverage was barred under the separate exclusion for prior acts.

AFFIRMED.