NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 8 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ERICKSON-HALL CONSTRUCTION No. 19-55319
COMPANY, a California Corporation,
D.C. No.
Plaintiff-Appellant, 3:18-cv-02462-GPC-MSB
v.
MEMORANDUM*
HARTFORD FIRE INSURANCE
COMPANY, a Connecticut Corporation;
SCOTTSDALE INSURANCE COMPANY,
a Ohio Corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of California
Gonzalo P. Curiel, District Judge, Presiding
Submitted April 3, 2020**
Pasadena, California
Before: BEA and BADE, Circuit Judges, and DRAIN,*** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Gershwin A. Drain, United States District Judge for
the Eastern District of Michigan, sitting by designation.
Erickson-Hall Construction Co. appeals the district court’s grant of the
motions to dismiss filed by Defendant-Appellees Scottsdale Insurance Company
and Hartford Fire Insurance Company. Erickson-Hall provided its employees with
life and disability insurance benefits by purchasing and administering policies
issued by third-party insurers to its employees (“Employee Benefits Plans”). To
cover risks of loss arising from potential mistakes in administering the Employee
Benefits Plans, Erickson-Hall obtained “fiduciary liability” insurance coverage
from Scottsdale and Hartford. The district court held that because Erickson-Hall
incurred its claimed losses as a result of its contractual obligation to employees to
provide the Employee Benefits Plans, any claim for indemnification and coverage
would fall outside the scope of the insurance policies issued by Hartford or
Scottsdale. For the reasons discussed below, both elements of this holding are
erroneous. We therefore reverse the district court’s decision and remand for
further proceedings.
First, it is not correct that Erickson-Hall’s claimed losses were amounts it
owed under a preexisting contractual obligation. Erickson-Hall contracted with its
employees to administer the Employee Benefits Plans (which were issued by third-
party insurers), not to make benefit payments under the Employee Benefits Plans
when coverage is owed. Thus, Erickson-Hall’s claimed losses were not “amounts
[Erickson-Hall was] obligated to pay [its employees] by contract, independent of
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any Wrongful Act.” Health Net, Inc. v. RLI Ins. Co., 141 Cal. Rptr. 3d 649, 665
(2012), as modified on denial of reh’g (June 12, 2012). To the contrary, but for the
allegedly negligent acts of Erickson-Hall’s Controller, the premiums would have
been paid, the Employee Benefits Plans would have been in effect, and the
employees’ benefits would have been paid by third-party insurers. In the absence
of such alleged negligence, Erickson-Hall would never have been liable for the
claimed loss amounts.
Second, under California law, an insured’s losses for breach of contract are
not uninsurable as a matter of law. Vandenberg v. Superior Court, 982 P.2d 229,
244 (Cal. 1999) (rejecting “the ex contractu/ex delicto distinction.”). Rather, “[t]he
nature of the damage and the risk involved, in light of particular policy provisions,
control coverage.” Id. Here, both insurance policies provide coverage for an error
or omission in Erickson-Hall’s “[a]dministration” of its employee benefits,
including “[g]iving counsel” to (or “counseling”) employees as to their
participation in such benefits and “[h]andling records in connection” with such
benefits.
The complaint alleges facts sufficient to show that the Controller utterly
failed to counsel employees that their Employee Benefits Plans had lapsed on
account of nonpayment of premiums. This constitutes an “omission” in the
Employee Benefits Plans’ “administration” that resulted in an “employee benefits
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injury” or a “Loss,” as defined by each policy. The complaint also alleges that the
Controller mishandled documentation—by failing to receive and process premium
invoices, deduct premium amounts from employees’ paychecks, and paying
premiums on behalf of Erickson-Hall and its employees—with respect to the plans.
This constitutes another “error” or “omission” in the Employee Benefits Plans’
“administration.” Thus, the “nature of the damage and the risk” that Erickson-Hall
sought to cover, id., was exactly that which did in fact transpire: The Employee
Benefit Plans were negligently administered, resulting in a loss to Erickson-Hall.
Accepting these factual allegations as true for the purposes of deciding the
insurers’ motions, see Fed. R. Civ. P. 12(b)(6); Garmon v. County of Los Angeles,
828 F.3d 837, 842 (9th Cir. 2016), Erickson-Hall has carried its burden that the
loss falls within the basic scope of coverage. However, the district court did not
consider Hartford’s or Scottsdale’s arguments that certain policy exclusions bar
coverage. See Royal Globe Ins. Co. v. Whitaker, 226 Cal. Rptr. 435, 437 (1986).
We therefore reverse the district court’s dismissal and remand for reconsideration
of the insurers’ arguments as to exclusions that were raised in support of their
respective motions to dismiss.
REVERSED AND REMANDED.
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