FILED
NOT FOR PUBLICATION AUG 14 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
WANDA A. SELL, individually and as No. 11-15492
Trustee of the Nancy A. Muhs Trust,
DC No. 2:09 cv-1584 GEB
Plaintiff - Appellant,
v. MEMORANDUM *
NATIONWIDE MUTUAL INSURANCE
COMPANY,
Defendant - Appellee.
Appeal from the United States District Court
for the Eastern District of California
Garland E. Burrell, District Judge, Presiding
Argued and Submitted July 19, 2012
San Francisco, California
Before: TASHIMA, CLIFTON, and MURGUIA, Circuit Judges.
Plaintiff Wanda Sell is a trustee and senior beneficiary of a trust that
includes a ranch. Rigoberto Ocegueda is a residual beneficiary of the trust.
Ocegueda filed a petition in state court seeking an order removing Sell as trustee
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
and directing the trustee to provide him with possession and control of the ranch.
In the petition, Ocegueda alleged that Sell failed to meet the trust’s conditions to
receive the ranch. There is no evidence that Ocegueda had been physically present
on or physically possessed the ranch since the trust was established. The trust held
liability coverage on the ranch (as part of a Farmowner’s Policy) with Defendant
Nationwide Insurance Company (“Nationwide”). The policy provides
endorsements for both personal and advertising injury liability and property
damage.
Sell tendered defense of Ocegueda’s suit to Nationwide. Nationwide refused
to defend the suit. Sell then sued Nationwide in California state court in her
personal capacity and in her capacity as trustee. Nationwide removed the case to
federal court under 28 U.S.C. § 1441(b).1 Sell alleges breach of contract and
breach of the implied covenant of good faith and fair dealing; she seeks damages
and declaratory relief. The district court granted summary judgment to
Nationwide. Sell timely appealed.
1
The parties are diverse and the amount in controversy requirement for
diversity jurisdiction is met.
2
We review the district court’s grant of summary judgment de novo and
apply the substantive law of California. Conestoga Servs. Corp. v. Exec. Risk
Indem., Inc., 312 F.3d 976, 980-81 (9th Cir. 2002). We reverse in part.
1. The trust’s policy includes coverage for claims of personal injury
resulting from “[t]he wrongful eviction from, wrongful entry into, or invasion of
the right of private occupation of a room, dwelling or premises that a person
occupies, committed by or on behalf of its owner, landlord or lessor.” This
language is part of a standard form comprehensive general liability policy.
Nationwide argues that Ocegueda’s claim is not covered because he did not
physically possess the ranch. We hold that it is at least ambiguous that the policy
covers Ocegueda’s claim. See Bank of the W. v. Super. Ct., 833 P.2d 545, 552
(Cal. 1992).
Nationwide does not dispute that if the policy did not include the limitation
“that a person occupies,” that under California law the policy could implicate
invasions of more than just the right of possessory occupancy. Indeed, many cases
interpreting the “right of private occupation” without the “occupies” limitation
have held that the right of private occupation provides liability protection for
claims alleging a broad range of interferences. See, e.g., Martin Marietta Corp. v.
3
Ins. Co. of N. Am., 47 Cal. Rptr. 2d 670, 683 (Ct. App. 1995) (requiring coverage
of actions against insured to remediate groundwater and other environmental
contamination); State Farm Fire & Cas. Co. v. Westchester Inv. Co., 721 F. Supp.
1165, 1168 (C.D. Cal. 1989) (requiring coverage of actions based on racial
discrimination claim brought by prospective tenants against insured).
Nationwide argues that the addition of the phrase “that the person occupies”
to the policy is sufficient under California law to unambiguously require actual
physical possession by the third-party claimant. A North Carolina court has
rejected this argument. See Hobbs Realty & Constr. Co. v. Scottsdale Ins. Co., 593
S.E.2d 103, 108 (N.C. Ct. App. 2004). In that case, the third-party claimants had
acquired a right to occupy the premises by acquiring a lease, but never actually
occupied the premises because the insured refused to provide them with a key to
gain entry into the premises, allegedly for racially discriminatory reasons. Id. at
105. The court held that “the proper inquiry is not whether a party has physically
assumed control of the property, but whether he has obtained a legally enforceable
right to do so.” Id. at 108. Similarly, a California Court of Appeal has explained
that the “occupies” limitation “clarif[ies] that the wrongfulness of the ejection must
consist in, or attach to, an invasion of the right of occupation.” Zelda, Inc. v.
Northland Ins. Co., 66 Cal. Rptr. 2d 356, 364 (Ct. App. 1997) (emphasis added);
4
Hon H. Walter Croskey et al., Rutter Grp., California Practice Guide: Insurance
Litigation ¶ 7:1073.3 (2011) (defining “occupies” in the limitation as “the person
had the right to occupy real property, as owner or tenant”). We conclude that it is
at least arguable that the “occupies” limitation does not require the third-party to
physically possess the property.
Although this policy defines “unoccupancy” or “unoccupied,” this definition
is insufficient to establish that “occupies” or “occupancy” requires a third party’s
physical possession.
Nationwide also argues that the “occupies” limitation is rendered redundant
if it is interpreted to not require physical possession. We disagree because other
courts have identified several possible meanings of this clause. One possible
explanation is that the “occupies” phrase is included to unambiguously exclude
suits brought by prospective residents asserting racial discrimination in housing.
See Powell v. Alemaz, Inc., 760 A.2d 1141, 1147 (N.J. Super. Ct. App. Div. 2000);
Kings Pointe Apts. v. State Farm Fire & Cas. Co., 145 F.3d 1331, 1998 WL
279371, at *2 n.1 (6th Cir. 1998) (unpublished table decision). Another rational
explanation is that the phrase clarifies “that the offense would only apply to
landlord-tenant disputes” and not to “suits by neighboring landowners for nuisance
and trespass claims.” Matthew Bender, California Insurance Law & Practice §
5
49.60 (2012). The Seventh Circuit has commented that the “occupies” phrase
attempts “to refine the nature of the prerequisite ‘right’ of private occupancy” to
“exclude[] at least unapproved sub-lessees.” United States v. Sec. Mgmt. Co., Inc.,
96 F.3d 260, 265 (7th Cir. 1996). We need not decide which of these meanings, if
any, is correct; we provide these illustrations to demonstrate that Nationwide’s
reading is not the only reasonable interpretation to avoid making “occupies”
surplusage.
2. Because Nationwide had a duty to indemnify under the policy’s
personal liability coverage, Nationwide had a duty to defend. Horace Mann Ins.
Co. v. Barbara B., 846 P.2d 792, 795 (Cal. 1993) (“[T]he duty to defend is broader
than the duty to indemnify.”).
3. The property damage section of the insurance policy explicitly
protects only property damage which is caused by an “accident.” “Under
California law, the word ‘accident’ in the coverage clause of a liability policy
refers to the conduct of the insured for which liability is sought to be imposed on
the insured.” Delgado v. Interins. Exch. of the Auto. Club of S. Cal., 211 P.3d
1083, 1088 (Cal. 2009). To determine whether an act was an accident, the relevant
question is whether the insured intended to “commit the act giving rise to liability,”
not whether the insured intended “to cause the consequences of that act.” Collin v.
6
Am. Empire Ins. Co., 26 Cal. Rptr. 2d 391, 403-04 (Ct. App. 1994). Sell does not
identify any accidental conduct on her part. Therefore, the property damage
section of the policy does not provide liability coverage for Ocegueda’s claim.
4. Sell alleges breach of the implied covenant of good faith and fair
dealing and seeks punitive damages. An insurer does not act in bad faith if it
withholds benefits based on a legitimate dispute as to liability. Am. Cas. Co. of
Reading, Pa. v. Krieger, 181 F.3d 1113, 1123 (9th Cir. 1999) (applying California
law); Tomaselli v. Transamerica Ins. Co., 31 Cal. Rptr. 2d 433, 440 (Ct. App.
1994). Because we hold that it was ambiguous whether the policy covered
Ocegueda’s claim, we further hold that Nationwide’s refusal to cover the claim was
not in bad faith. Because Nationwide did not act in bad faith, “punitive damages
are unavailable.” Am. Cas. Co., 181 F.3d at 1123.
Accordingly, we reverse the district court’s grant of summary judgment to
Nationwide on the breach of contract claim and hold that Nationwide has a duty to
defend and to indemnify the trust under the policy’s coverage for personal and
advertising injury liability. We affirm the district court’s grant of summary
judgment to Nationwide on Sell’s bad faith claim and request for punitive
7
damages. Plaintiff-appellant shall recover her costs on appeal from defendant-
appellee.
AFFIRMED in part, REVERSED in part, and REMANDED.
8
FILED
Sell v. Nationwide Insurance Co., No. 11-15492 AUG 14 2012
MOLLY C. DWYER, CLERK
CLIFTON, Circuit Judge, dissenting in part: U .S. C O U R T OF APPE ALS
I respectfully dissent, in part. I conclude that Plaintiff Wanda Sell is not
entitled to coverage under the insurance policy in question, issued by Defendant
Nationwide Mutual Insurance Company, and thus I would affirm the judgment of
the district court in full.
Sell should not be entitled to coverage under the “personal injury” provision.
The relevant language provides coverage for claims of personal injury resulting
from “[t]he wrongful eviction from, wrongful entry into, or invasion of the right of
private occupation of a room, dwelling or premises that a person occupies,
committed by or on behalf of its owner, landlord or lessor.”
There was simply no “eviction,” “entry,” or “invasion” (wrongful or not)
into “the right of private occupation of a room, dwelling or premises that a person
occupies” here, or any claim that such an event occurred. The person whose space
was allegedly invaded was Rigoberto Ocegueda, and there was no evidence or
basis to infer that he ever physically occupied the ranch or any part of it, as the
majority acknowledges, at 2.
But, the majority reasons, the policy language might be sufficiently
ambiguous to provide coverage against a “right of occupation” even if that right
never involved actual occupancy. That strikes me as an excessively tortured
construction of the language, simply inconsistent with “eviction,” “entry,”
“invasion,” or “that a person occupies.” A claim that language is ambiguous does
not prove that it is.
The majority’s reading appears to rest entirely upon the decision in Hobbs
Realty & Constr. Co. v. Scottsdale Ins. Co., 593 S.E.2d 103, 107 (N.C. Ct. App.
2004) (“[T]he phrase ‘invasion of the right of private occupancy of a room,
dwelling or premises that a person occupies’ have generally distinguished between
plaintiffs who own or rent a property, and those who are merely prospective
tenants, but have not entered into a contract, signed a lease, or otherwise obtained
possessory rights to the subject property. We . . . conclude that the proper inquiry
is not whether a party has physically assumed control of the property, but whether
he has obtained a legally enforceable right to do so.”) I am not persuaded that a
California court would reach the same conclusion.
My doubt is especially strong in the circumstances here, for the facts of
Hobbs Realty were unlike the facts in our case. At issue in that case was a claim
by a tenant who had entered into a lease to possession of premises. The North
Carolina court emphasized that “[t]he parties cite no cases, and we have found
none, in which the underlying plaintiffs allege tortious behavior occurring after
obtaining a possessory right to the subject property, but before plaintiffs have
2
physically moved in.” Id. at 108. Hobbs Realty quoted United States v. Security
Mgmt. Co., 96 F.3d 260, 265 (7th Cir. 1996), that “a reasonable insured would read
the language as excluding cases where the aggrieved individual was not possessed
of an existing right of private occupancy.”
Ocegueda “was not possessed of an existing right of private occupancy,” so
the policy language should be read to exclude his claim. Ocegueda did not allege
he had an existing possessory right to the property that Sell had “invaded,” causing
him some personal injury. Rather, he contended that Sell herself was not entitled
to possession of the property because she had not satisfied the conditions
established under the trust. As stated in his petition to the state court, Ocegueda
sought an order from the court “to compel the Trustee to provide him with
possession and control of the ranch and allow him to occupy it,” as the successor
beneficiary. His claim of the right to occupy the property depended upon the court
concluding that Sell had not satisfied the conditions of the trust. It was the basis
for Sell’s entitlement to possession of the property, not his, that was put in dispute
by Ocegueda’s petition.. That is not a claim properly covered by the language of
the policy or by the distinction emphasized by the court in Hobbs Realty.
More broadly, in interpreting an insurance policy, the “fundamental goal is
to give effect to the mutual intention of the parties.” Martin Marietta v. Insurance
3
Co. of North America , 47 Cal. Rptr. 2d 670, 675 (Ct. App. 1995). The rule that we
construe ambiguity against the insurer as the drafter of the policy protects “the
objectively reasonable expectations of the insured.” Id. The insurance policy here
was not a title policy, and Sell did not insure herself against her own failure to
satisfy the conditions to her rights under the trust. I do not believe that either “the
mutual intention of the parties” or “the objectively reasonable expectations of the
insured” support coverage under a “farmowner’s” policy against a claim that the
insured did not, in fact, own the farm.
I would affirm.
4