Forest Meadows Owners Ass'n v. State Farm General Insurance

FILED
NOT FOR PUBLICATION APR 15 2014

MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

FOREST MEADOWS OWNERS No. 12-16073
ASSOCIATION,
D.C. No. 1:11-cv-01642-AWI-
Plaintiff - Appellant, SKO

v.
MEMORANDUM*
STATE FARM GENERAL INSURANCE
COMPANY,

Defendant - Appellee.

Appeal from the United States District Court
for the Eastern District of California
Anthony W. Ishii, Senior District Judge, Presiding

Submitted April 11, 2014**
San Francisco, California

Before: SILVERMAN, W. FLETCHER, and BYBEE, Circuit Judges.

Appellant Forest Meadows Owners Association (“FMOA”) appeals the

district court’s grant of Appellee State Farm General Insurance Company’s (“State

*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Farm”) motion for summary judgment, and the court’s denial of FMOA’s motion

for summary judgment, in FMOA’s breach of contract and breach of the covenant

of good faith and fair dealing action against State Farm. We have jurisdiction under

28 U.S.C. § 1291. We review a district court’s decision on cross-motions for

summary judgment de novo. Guatay Christian Fellowship v. Cnty. of San Diego,

670 F.3d 957, 970 (9th Cir. 2011). We affirm.

In this insurance action based upon diversity jurisdiction, “California law

controls.” St. Paul Mercury Ins. Co. v. Ralee Eng’g Co., 804 F.2d 520, 522 (9th

Cir. 1986). An “insurer has a duty to defend an insured if it becomes aware of, or if

the third party lawsuit pleads, facts giving rise to the potential for coverage under

the insuring agreement.” Aroa Mktg., Inc. v. Hartford Ins. Co. of Midwest, 198 Cal.

App. 4th 781, 786 (2011) (internal citation and quotation marks omitted). The

district court did not err in concluding that State Farm’s duty to defend FMOA in

the underlying suit was never implicated because the alleged misconduct—the

firing of an employee in violation of California Military & Veterans Code § 394

and the Uniformed Services Employment and Reemployment Rights Act, 38

U.S.C. § 4301, et seq.—did not fall within the scope of FMOA’s Directors and

Officers (“DO”) liability policy. The DO policy covered “those sums that the

insured becomes legally obligated to pay as damages because of ‘wrongful acts’

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committed by an insured solely in the conduct of their management responsibilities

for the Condominium/Association.” The policy defined “wrongful acts” to mean

“any negligent acts, errors, omissions or breach of duty directly related to the

operations of the Condominium/Association.” Established California law holds

that this policy languages reaches only negligent conduct—“negligent act[s],

negligent error[s], or negligent omission[s].” Oak Park Calabasas Condo. Ass’n v.

State Farm Fire & Cas. Co., 137 Cal. App. 4th 557, 564 (2006). Since the firing of

an employee is an intentional act, it cannot qualify as negligence and does not fall

within the policy. See Coit Drapery Cleaners, Inc. v. Sequoia Ins. Co., 14 Cal.

App. 4th 1595, 1603 (1993). Accordingly, FMOA has not shown there was a

potential for coverage.

FMOA’s alternative argument that, even if the firing were intentional, the

supposedly ultra vires act of the board president in terminating the employee

cannot be relied upon to deny coverage to FMOA under the policy’s “separation of

insureds” clause is of no moment. FMOA was the only entity sued, and it was not

sued on a theory of vicarious liability, but directly, as any corporation can be. Cal.

Corp. Code § 105; see also Heiman v. Workers’ Comp. Appeals Bd., 149 Cal. App.

4th 724, 739 (2007).

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 Finally, because State Farm’s duty to defend FMOA was never implicated,

State Farm was not contractually liable for refusing to accept FMOA’s tender of

defense. Since it was not contractually liable for the tender, there was no breach of

contract. And because there was no breach of contract, FMOA’s claim for breach

of the implied covenant of good faith and fair dealing also fails. See Waller v.

Truck Ins. Exch., Inc., 900 P.2d 619, 639 (Cal. 1995).

Since no duty to defend arose, we need not address the applicability of the

civil rights exclusion in the policy.

AFFIRMED.

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