FILED
NOT FOR PUBLICATION DEC 21 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
CALIFORNIA DAIRIES, INC., a No. 10-16684
California corporation,
D.C. No. 1:08-cv-00790-OWW-
Plaintiff - Appellant, GSA
v.
MEMORANDUM *
RSUI INDEMNITY COMPANY,
Defendant - Appellee.
CALIFORNIA DAIRIES, INC., a No. 10-16730
California corporation,
D.C. No. 1:08-cv-00790-OWW-
Plaintiff - Appellee, GSA
v.
RSUI INDEMNITY COMPANY,
Defendant - Appellant.
Appeal from the United States District Court
for the Eastern District of California
Oliver W. Wanger, Senior District Judge, Presiding
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Argued and Submitted November 14, 2011
San Francisco, California
Before: THOMAS, GOULD, and BYBEE, Circuit Judges.
Appellant California Dairies, Inc. (“CDI”) appeals from the district court’s
decisions granting motions to dismiss and for summary judgment, and the resulting
final judgment that rejected its insurance coverage claims against Appellee RSUI
Indemnity Co. (“RSUI”). These claims arose out of a class action lawsuit by
current and former employees alleging that CDI violated the California Labor
Code (the “Underlying Action”). RSUI asserts that two policy exclusions bar
CDI’s claims: Exclusion 4, which bars claims arising out of the Fair Labor
Standards Act and similar provisions of state laws; and Exclusion 7, which bars
claims arising out of lawsuits between “insured parties,” in this case CDI, and its
current and former employees.
The district court held that Exclusion 4 bars coverage for some but not all
claims asserted against CDI in the Underlying Action, and that Exclusion 7
independently bars all claims. We have jurisdiction under 28 U.S.C. § 1291 and
review the district court’s grant of summary judgment and of motions to dismiss de
novo. Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F. 3d 1132, 1137 (9th
Cir. 2009); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030
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(9th Cir. 2008). We affirm the district court’s holding that Exclusion 7 bars all
claims in the Underlying Action.1
CDI contends that Exclusion 7 does not apply because the claims in the
Underlying Action are Employment Practices Wrongful Acts (“EPWAs”) that are
excepted from Exclusion 7. CDI argues that the Underlying Action arises out of an
“[e]mployment-related misrepresentation to an Employee” on the theory that the
complaint in the Underlying Action alleges that CDI implicitly or explicitly
represented that it would follow applicable California laws. Alternatively, CDI
contends that the Underlying Action arises out of a “[f]ailure to provide or enforce
adequate or consistent organization policies or procedures relating to employment”
because if CDI did not pay its employees in compliance with California law, that
would “necessarily result” from a failure to provide or enforce policies and
procedures to comply with California law.
Ambiguities in a policy are construed in favor of the insured, but words in
the policy “must be read in their ordinary sense” and an ambiguity “cannot be
based on a strained interpretation of the policy language.” Producers Dairy
Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 912 (1986). In our view accepting
1
Accordingly, we need not and do not reach any issue concerning Exclusion
4.
-3-
CDI’s interpretation would strain the policy language by rendering superfluous the
EPWA provisions that give coverage for actions arising out of claims such as
“[w]rongful dismissal,” “discrimination,” “harassment,” and “[f]ailure to grant
tenure or practice privileges.” CDI acknowledges that the interpretation it urges
for the EPWA provisions provides “a blanket exception to Exclusion 7 for claims
brought by employees against [CDI],” but argues that in the absence of a blanket
exception, “the employment practices coverage provided by the policy would be
completely illusory.” We disagree. EPWA coverage is not illusory, but it is
limited to specific claims not asserted here. The Underlying Action does not allege
a failure to enforce organizational policies, and misrepresentation is not an element
of any of the claims it alleges. We conclude that Exclusion 7 applies and that the
Underlying Action does not arise out of an EPWA exception as defined by the
policy read in its ordinary sense.
CDI also contends that RSUI waived Exclusion 7 because it did not rely on
Exclusion 7 in its pre-litigation denial of coverage letters. But California rejects an
automatic waiver rule. An insurer does not waive policy provisions merely by
failing to rely on them in denial of coverage letters. Waller v. Truck Ins.
Exchange, Inc., 11 Cal. 4th 1, 33 (1995). Instead, there must be an “intention on
the part of the insurer to relinquish additional reasons for denial,” as evidenced by
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“‘acts [that] are so inconsistent with an intent to enforce the right as to induce a
reasonable belief that such right has been relinquished.’” Id. at 33–34 (quoting
Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1559 (9th Cir.
1991)).
CDI argues that RSUI waived Exclusion 7 by violating the California Fair
Claim Practice Regulations (“CFCPR”)—specifically 10 C.C.R. § 2695.7(b)(1),
which requires insurers to give all bases for denials of coverage when denying a
first party claim.2 It argues that “[s]uch disregard of the [CFCPR] is evidence a
jury could consider in determining that RSUI breached the implied covenant of
good faith and fair dealing.” But CDI presents no evidence showing a “disregard”
for the CFCPR. We have before us only that RSUI did not cite Exclusion 7 in its
2
Both parties agree that CDI is a first party claimant as defined by 10 C.C.R.
§ 2695.2(f). While “first party claim” is not explicitly defined by the regulations,
we agree with the district court’s holding that first party claims are those brought
by first party claimants.
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pre-litigation denial of coverage letters.3 If we accepted CDI’s reasoning, 10
C.C.R. § 2695.7(b)(1) would reinstate the automatic waiver rule rejected by
Waller, 11 Cal. 4th at 33. CDI has not shown a genuine issue of material fact as to
whether RSUI waived Exclusion 7.4
AFFIRMED.
3
The claims adjuster who issued the denial letter testified that the failure to
cite Exclusion 7 was an unintentional oversight. CDI does not offer evidence to
rebut the claims adjuster’s testimony. Instead, CDI argues that RSUI must have
either acted with “complete disregard of the obligations it owed to California
policyholders” by failing to train its employees on 10 C.C.R. § 2695.7(b)(1) or that
its employees knew of this provision and understood that by failing to assert
Exclusion 7 in its denial letter that it was knowingly waiving that exclusion. The
record does not support these assertions.
4
We decline to reach RSUI’s argument that Exclusion 7 cannot be waived.
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