NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT JAN 15 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
CORKY MCMILLIN CONSTRUCTION No. 12-56787
SERVICES, INC., a California
corporation; et al., D.C. No. 3:11-cv-01686-DMS-
KSC
Plaintiffs - Appellees,
v. MEMORANDUM*
U.S. SPECIALTY INSURANCE
COMPANY, a Texas corporation,
Defendant - Appellant.
Appeal from the United States District Court
for the Southern District of California
Dana M. Sabraw, District Judge, Presiding
Submitted December 12, 2014**
Pasadena, California
Before: SILVERMAN, BEA, and CHRISTEN, Circuit Judges.
Defendant-Appellant U.S. Specialty Insurance Company appeals from the
district court’s partial summary judgment in favor of Plaintiffs-Appellees Corky
*
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).
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McMillin Construction Services, Inc., McMillin-NTC 129, LLC, McMillin-NTC
80, LLC, McMillin-NTC 138, LLC, and McMillin-NTC, LLC (collectively, the
Insureds). We have jurisdiction under 28 U.S.C. § 1291. Reviewing the district
court’s summary judgment and interpretation of the insurance policy de novo,
Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 426 (9th Cir. 2011), we affirm.
The policy issued by U.S. Specialty to the Insureds provides a general grant
of coverage for claims alleging that the Insureds engaged in “wrongful acts,”
which include any “actual or alleged act, error, misstatement, misleading
statement, omission or breach of duty.” However, the “Errors & Omissions
Exclusion” states that U.S. Specialty is not liable for any claim “arising out of,
based upon or attributable to the rendering of or failure to render services for
others, including without limitation services performed for or on behalf of
customers or clients.”
The ambiguity of this exclusion’s terms becomes apparent when read in
connection with the underlying complaint for which the Insureds sought coverage.
Because the term “services” is not defined in the policy, it is proper to look to
dictionary definitions for its “ordinary and popular” meaning. Bay Cities Paving &
Grading, Inc. v. Lawyers’ Mut. Ins. Co., 5 Cal. 4th 854, 867-68 (Cal. 1993). These
definitions, which boil down to “helping or doing work for someone,” are broad,
-3-
but breadth of meaning does not equal ambiguity. Id. at 868. The original
underlying complaint for which U.S. Specialty denied coverage alleged the kinds
of breaches of duty and misstatements that are generally covered by the policy, and
alleged only that these occurred in connection with “purchases” of homes, without
any allegations regarding actions that were clearly “services.” The subsequent
amended complaints’ allegations of misstatements in marketing materials, or that
Plaintiffs were “brokers” for the home sales, no more clearly alleged that they
provided “services.” Therefore, it is ambiguous whether the policy’s exclusion for
claims in connection with “services” applies. Construing the policy language
narrowly, in favor of coverage, and applying it to the circumstances of this case,
the Insureds had a reasonable expectation that the misstatements and breaches of
duty alleged in the underlying complaint were “wrongful acts” covered by the
policy. Clarendon Am. Ins. Co. v. N. Am. Capacity Ins. Co., 186 Cal. App. 4th
556, 567 (Cal. Ct. App. 2010).
The district court correctly found the proffered extrinsic evidence was not
relevant, because it only pertained to a different insurance transaction and policy,
or reflected comments by the Insureds’ insurance brokers after the filing of the
underlying complaint. It sheds no light on the Insureds’ own “reasonable
expectations” at the time of contracting regarding what types of acts the present
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policy would cover, and does not provide a “reasonable interpretation” of the E&O
Exclusion that would include the types of claims in the underlying complaint.
However, the district court erred in concluding that the Insureds tendered the
defense of their claim to Defendant, when in fact they merely provided notice of
the underlying action. Notice triggers coverage, but an explicit written tender of
the defense of the claim is required to exercise the right to tender. Absent a written
tender of defense, the policy requires the Insureds to defend themselves, no matter
that Defendant had notice of the claim. Therefore, the district court’s judgment is
reversed in part and this case will be remanded for proceedings not inconsistent
with the foregoing.
REVERSED IN PART AND REMANDED.
FILED
Corky McMillin v USSIC 12-56787 JAN 15 2015
MOLLY C. DWYER, CLERK
BEA, J., dissenting: U.S. COURT OF APPEALS
The majority misunderstands California law and thereby ignores the plain
meaning of the insurance contract to which it purports to give effect. I dissent.
I agree with the majority that the “services” exclusion covers a broad range
of acts and transactions. I also agree that “breadth of meaning does not equal
ambiguity.” Slip. Op. at 2–3. And, California recognizes that a broad term is often
used because a broad meaning is intended. Bay Cities Paving & Grading, Inc. v.
Lawyers’ Mut. Ins. Co., 5 Cal. 4th 854, 865 (Cal. 1993). I disagree with the
majority, however, on two points.
First, the majority construes the “services” exclusion narrowly because the
third-party complaint alleged “the kind of breaches of duty and misstatements that
are generally covered by the policy.” Mem. Dispo. at 3. But, defining the scope of
an insurance policy exclusion by determining what risks should be covered under
the grant of coverage is a nonsense. An exclusion of coverage cannot obtain unless
there is coverage of the risk. If a finding of coverage eliminates an exclusion, the
exclusion is illusory. For example, a baseball team might buy a special “Tommy
John” surgery medical insurance policy the coverage of which extends to “all
pitchers,” subject to an exclusion: “No lefthanded pitchers shall be covered.” The
1
majority’s reasoning would require that a southpaw pitcher be covered because all
pitchers are “generally covered by the policy.” In other words, the majority
interprets exclusions as unambiguous only if they are superfluous, which is hardly
the law of California.1 Further, textually, the majority’s interpretation to narrow
the “services” exclusion so not to cover “sales” is a mistake under California law.2
1
For example, in Jon Davler, Inc. v. Arch Insurance Company, 229
Cal.App.4th 1025 (Cal. Ct. App. 2014), Davler brought an insurance coverage
action against its insurer, Arch. Davler, a cosmetics company, employed a
manager, Yang. When Yang found a used sanitary napkin near the women’s toilet,
she forced every female employee to undergo inspection to determine if they were
on their menstrual period and the possible source of the napkin. Id. at 1029. Some
of the female employees brought a false imprisonment and sexual harrassment suit
against Davler and Yang. Id. Davler tendered defense to Arch under its
commercial general liability policy, which had a coverage provision extending to
injuries “arising out of” “false arrest, detention, or imprisonment.” Id. at 1030.
However, the policy included an employment related practices exclusion for claims
“arising out of” “employment-related practices, policies, acts or omissions.” Id.
Arch refused to defend the employee suit, citing the exclusion, and Davler filed a
breach of contract action in California court. The trial court sustained Arch’s
demurrer, stating that the claims in the employee suit fell within the exclusion. On
appeal, the California Court of Appeal affirmed, holding that the exclusion
unambiguously applied to the employee action. The California Court of Appeal
specifically rejected Davler’s argument that there was ambiguity in the “structure
of the policy as a whole” because of the broad grant of coverage, instead holding
that the unambiguous language of the exclusion should be given effect. Id. at
1036–39.
2
That goods are sold the customer does not mean that services necessary
and integral to the sale were not rendered. When a customer buys a cup of coffee,
the waiter’s services are part of the sale. The receipt lists the coffee (the asset sold)
and has a space for the tip (the service).
2
If a term has only one meaning, it should be given that meaning, not “construed” as
narrower than it is. MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1213 (Cal.
2003).
Second, the majority argues that the third-party complaint alleges breaches
of duty through misstatements in connection with“sales,” not “services,”; thus,
there is ambiguity as to whether the exclusion applies to the claims of
misrepresentations made by the buyer in the sale of McMillin’s property.
However, the record unambiguously establishes that McMillin was sued by Mann
for statements McMillin made (and disclosures it failed to make) in connection
with its rendering of broker services to Mann. ER 219–318. The third-party
complaint states that Corky McMillin was the “real estate broker” for McMillin in
the home sales at issue, and that Corky McMillin “marketed the 349 homes []
utilizing sales personnel, sales brochures, fliers, maps , models, and other forms of
advertising media.” ER 301–02. California law states that “a person acts as a
broker only if he or she is acting (1) for compensation and (2) on behalf of
someone else.” Horning v. Shilberg, 130 Cal.App.4th. 197, 204 (Cal. App. 4th.
2005) (internal citations omitted). Even if representations made in the sale of
homes, standing alone, would not constitute “services,” the specific allegation here
is of misrepresentation as part of the brokering services rendered by insured Corky
3
McMillin to the third party plaintiffs in the sale of homes. Thus, the E&O
exclusion for “services” unambiguously applies.
Moreover, the alleged breaches of duty and misstatements were not
irrelevant to or separable from the rendering of broker services. In California, an
essential part of a broker’s fiduciary duty to prospective purchasers of resident real
estate property is to “conduct a reasonably competent and diligent visual inspection
of the property offered for sale and to disclose to that prospective purchaser all
facts materially affecting the value or desirability of the property that an
investigation would reveal.” Cal. Civil § 2079. Thus, California courts have held
that the buyer of real estate is entitled to rely on the seller’s broker’s
representations, because the making of those representations is intrinsic to the
broker’s services. See, e.g., Furla v. Jon Douglas Co., 65 Cal.App.4th 1069 (Cal.
Ct. App. 1998)3.
3
Furla purchased a home from Krasinski. Furla had his own real estate
agent, and Krasinski employed Jon Douglas Co. as sellers’ brokers. Jon Douglas
Co. told Furla the home was approximately 5,500 feet. Furla did not have the
home measured. Upon purchase, Furla realized it was roughly 4,500 feet. Furla
sued Jon Douglas Co., alleging negligence and negligent misrepresentation in
overstating the square footage of the house. The trial court granted summary
judgment to defendant Douglas. On appeal, the California Court of Appeal
reversed. Noting that the buyer of real estate is entitled to rely on the seller’s
broker’s representations, and the broker has a duty to inspect the property before
making those representations, the court held that there was a genuine issue of
material fact as to whether the size of the house was so obvious that the buyer
4
Applying California law, therefore, and without relying on extrinsic
evidence, I would hold that because the third-party complaint stated allegations of
misrepresentations by McMillin in rendering of broker services to the third-party
plaintiffs, the E&O Exclusion unambiguously excludes this claim from coverage.
Because I would hold that U.S. Specialty had no duty to defend against this claim,
I would not reach the question whether McMillin correctly tendered defense of the
claim to U.S. Specialty. I respectfully dissent.
could be held to be aware of the true condition of the home.
5