FILED
NOT FOR PUBLICATION
MAY 19 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
AMERICAN FAMILY MUTUAL No. 16-15687
INSURANCE COMPANY,
D.C. No. 4:14-cv-02585-CKJ
Plaintiff-Appellee,
v. MEMORANDUM*
CARLOS F. VERDUGO, M.D., husband
and GLORIA VERDUGO, wife,
Defendants-Appellants,
and
SILVIA VERDUGO MARTINEZ and
MANUEL MORENO,
Defendants.
AMERICAN FAMILY MUTUAL No. 16-15717
INSURANCE COMPANY,
D.C. No. 4:14-cv-02585-CKJ
Plaintiff-Appellee,
v.
CARLOS F. VERDUGO, M.D., husband;
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
et al.,
Defendants,
and
MANUEL MORENO,
Defendant-Appellant.
Appeals from the United States District Court
for the District of Arizona
Cindy K. Jorgenson, District Judge, Presiding
Submitted May 10, 2017**
Pasadena, California
Before: O’SCANNLAIN and OWENS, Circuit Judges, and WILKEN,*** Senior
District Judge.
Defendants-appellants Manuel Moreno (Moreno), Carlos F. Verdugo, M.D.,
and Gloria Verdugo (the Verdugos) (collectively, defendants) appeal from the
district court’s grant of summary judgment to plaintiff-appellee American Family
Mutual Insurance Company (American Family) and denial of summary judgment
to defendants. The Verdugos’s daughter Sylvia Martinez is the mother of
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Claudia Wilken, United States Senior District Judge
for the Northern District of California, sitting by designation.
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Moreno’s son, who died as a result of abuse inflicted by Martinez’s boyfriend,
Karlo Osuna Medina (Medina). After Moreno obtained a jury verdict against the
Verdugos based on their negligence in not reporting or preventing Medina’s abuse,
the Verdugos sought personal liability coverage under their homeowners insurance
policy issued by American Family.
American Family brought the underlying action for declaratory relief
establishing that coverage was barred by the policy’s “abuse exclusion,” which
states that coverage is excluded for “bodily injury . . . arising out of or resulting
from any actual or alleged: a. sexual molestation or contact; b. corporal
punishment; or c. physical or mental abuse of a person.” Defendants contend that
the district court erred by holding that this exclusion barred coverage and that this
interpretation was not contrary to the Verdugos’s reasonable expectations of
coverage. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.1
1. The Arizona Supreme Court has not addressed the application of such an
“abuse exclusion;” therefore, we must predict how that court would decide the
issue, using “intermediate appellate court decisions” and other sources. Trishan
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We decline to award attorneys’ fees pursuant to A.R.S. § 12-341.01 to
American Family. See Associated Indem. Corp. v. Warner, 694 P.2d 1181, 1184
(Ariz. 1985) (granting “broad discretion” to the court on whether to award
attorneys’ fees).
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Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011) (citation omitted); see
also Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir.
2001) (applying state substantive law in a diversity action). Here, decisions of the
Arizona Court of Appeals indicate that the Arizona Supreme Court would conclude
that the abuse exclusion bars coverage.
The Arizona Court of Appeals has addressed the application of similar
exclusions to negligence claims based on excluded conduct, and has rejected
defendants’ and other jurisdictions’ view of such negligence claims as “separate
and distinct tort[s]” not barred by the exclusions. Lumbermens Mut. Cas. Co. v.
Kosies, 602 P.2d 517, 518-19 (Ariz. Ct. App. 1979). Instead, the Arizona Court of
Appeals views claims for negligent entrustment or supervision as claims that
“cannot exist apart from the excluded [conduct].” Behrens v. Aetna Life & Cas.,
736 P.2d 385, 386 (Ariz. Ct. App. 1987); see also Am. Fam. Mut. Ins. Co. v. White,
65 P.3d 449, 457 (Ariz. Ct. App. 2003) (holding that a negligent supervision claim
against parents was “excluded because it derive[d] from the claim against [their
son], which [was] excluded”).
These decisions indicate that the Arizona Supreme Court would reach the
same conclusion as the district court, and are not countered by “persuasive data”
demonstrating otherwise. Martinez v. Asarco Inc., 918 F.2d 1467, 1471 n.4 (9th
4
Cir. 1990) (emphasis omitted); see also Vestar, 249 F.3d at 960 (“[W]here there is
no convincing evidence that the state supreme court would decide differently, a
federal court is obligated to follow the decisions of the state’s intermediate
appellate courts.” (citation omitted)). Accordingly, the district court correctly held
that the abuse exclusion barred coverage here, because Moreno’s claims against the
Verdugos were for bodily injury arising from physical abuse. Moreno’s claims
“necessarily include[]” Medina’s abuse, and “cannot exist apart from” that
excluded physical abuse. Behrens, 736 P.2d at 386.
The district court also correctly held that the abuse exclusion is not
ambiguous, as it plainly and unambiguously bars coverage for bodily injury arising
out of physical abuse.
2. This interpretation of the abuse exclusion, and its application to Moreno’s
claims against the Verdugos, are not contrary to the Verdugos’s reasonable
expectations of coverage. Arizona’s reasonable expectations doctrine can apply
even where a term is unambiguous, but only “in a limited variety of situations.”
Gordinier v. Aetna Cas. & Sur. Co., 742 P.2d 277, 283 (Ariz. 1987) (emphasis
omitted). Defendants fail to show that any of these limited circumstances exist
here: (1) the contract terms would be understood by a reasonably intelligent
customer, (2) the Verdugos received notice of the term, (3) no activity by
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American Family would create an objective impression of coverage, and (4) no
activity by American Family induced the Verdugos in particular to believe that
they had coverage. See id. at 283-84. Accordingly, the district court correctly held
that application of the exclusion was not contrary to the Verdugos’s reasonable
expectations of coverage.
AFFIRMED.
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