Republic Bag, Inc. v. Beazley Ins. Co. ( 2020 )

FILED
NOT FOR PUBLICATION
FEB 7 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
REPUBLIC BAG, INC., a California No. 18-56467
Corporation; ALPHA INDUSTRIES
MANAGEMENT, INC., a Florida D.C. No.
Corporation, 2:18-cv-06745-R-PJW
Plaintiffs-Appellants,
MEMORANDUM*
v.
BEAZLEY INSURANCE COMPANY, a
Connecticut Corporation; DOES, 1
through 10,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Submitted February 5, 2020**
Pasadena, California
Before: THOMAS, Chief Judge, and WARDLAW and NGUYEN, Circuit Judges.
*
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).
Republic Bag, Inc. and Alpha Industries Management, Inc. (collectively,
“Appellants”) appeal the district court’s order denying their motion to remand and
granting Defendant Beazley Insurance Company’s (“Beazley”) motion to dismiss.
Because the parties are familiar with the facts, we need not recount them here. We
have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm in part and reverse in
part.
We review de novo a district court’s order denying a motion to remand for
lack of federal subject matter jurisdiction, Chapman v. Deutsche Bank Nat’l Trust
Co., 651 F.3d 1039, 1043 (9th Cir. 2011), and a district court’s order granting a
motion to dismiss, Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). All
factual allegations in the complaint are taken as true and construed in the light most
favorable to Appellants. Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir.
2001).
I
The district court did not err in denying Appellants’ motion to remand and
exercising jurisdiction over the case. 28 U.S.C. § 1332(a) allows a district court to
exercise jurisdiction in a civil case where, among other things, the amount in
controversy exceeds $75,000. In a case such as this one, where the issue is “the
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applicability of [a party’s] liability coverage to a particular occurrence . . . , the
amount in controversy is the value of the underlying potential tort action.” Budget
Rent-A-Car, Inc. v. Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997). Because
Beazley removed the action to federal court on the basis of diversity jurisdiction, it
must show by a preponderance of the evidence that the value of the underlying
action (“the Cervantes lawsuit”) exceeds the jurisdictional minimum. See
Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102,
1106-07 (9th Cir. 2010). As the Cervantes complaint does not allege a specific
dollar amount, Beazley can satisfy this burden using evidence outside of the
complaint. Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004).
The district court did not err in holding that Beazley showed by a
preponderance of the evidence that the value of the Cervantes lawsuit exceeds the
jurisdictional minimum. First, Beazley produced evidence of jury verdicts far
above the jurisdictional minimum in cases filed in California superior court with
similar causes of action, including a $2.3 million verdict in a case against the same
defendants alleging some of the same causes of action. The court could properly
consider those verdicts. See Kroske v. U.S. Bank Corp., 432 F.3d 976, 980 (9th
Cir. 2005). Second, the Cervantes complaint alleged, inter alia, unlawful salary
cuts beginning in 2011; denial of benefits, wages, and overtime; emotional and
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psychological distress requiring treatment; and malice entitling the plaintiff to
punitive damages. Together, these support the conclusion that the amount in
controversy exceeds $75,000, even accounting for the insurance policy’s self-
insured retention provision. See Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d
373, 377 (9th Cir. 1997) (finding exercise of jurisdiction “supported” by complaint
allegations).
II
The district court erred in granting Beazley’s motion to dismiss on the
ground that the insurance policy’s Pending and Prior Litigation Exclusion (“the
Exclusion”) barred coverage for the Cervantes lawsuit. At the motion to dismiss
stage, all factual allegations are construed in the light most favorable to plaintiffs.
Lee, 250 F.3d at 679. Moreover, exclusionary clauses in California insurance
contracts are interpreted narrowly and against the insurer. See Cont’l Cas. Co. v.
City of Richmond, 763 F.2d 1076, 1079 (9th Cir. 1985). “An insurer may rely on
an exclusion to deny coverage only if it provides conclusive evidence
demonstrating that the exclusion applies.” Atl. Mut. Ins. Co. v. J. Lamb, Inc., 123
Cal. Rptr. 2d 256, 272 (Ct. App. 2002) (emphasis in original).
First, the Exclusion does not conclusively bar coverage for the Cervantes
lawsuit based on that suit’s connection to the Garcia action. Although some of the
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allegations in the Cervantes complaint “aris[e] out of” or “involv[e]” the Garcia
suit, others, such as the allegations of age discrimination and failure to prevent age-
based discrimination, are unrelated. The insurance policy contains an express
allocation provision, providing for situations like this where a claim may contain
both covered and excluded matters. Interpreting the insurance policy to give effect
to the allocation provision, see ML Direct, Inc. v. TIG Specialty Ins. Co., 93 Cal.
Rptr. 2d 846, 850 (Ct. App. 2000), we conclude that while some claims in the
Cervantes lawsuit involve the Garcia action, that does not mean that coverage for
the entire lawsuit is precluded.
Second, the Exclusion does not conclusively bar coverage for the Cervantes
lawsuit based on that suit’s connection to the complaint filed with California’s
Department of Fair Employment and Housing (“DFEH”). The term “proceeding”
contained in the Exclusion is an ambiguous and “malleable” word, susceptible to
more than one reasonable interpretation. Recorder v. Comm’n on Judicial
Performance, 85 Cal. Rptr. 2d 56, 65 (Ct. App. 1999). Ambiguous words are
construed against Beazley, the insurer, to protect the insured’s reasonable
expectations of coverage. See ML Direct, 93 Cal. Rptr. 2d at 850. Thus, at this
stage, Beazley cannot conclusively show that the DFEH complaint constitutes a
“proceeding” within the meaning of the Exclusion.
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The parties shall bear their own costs.
AFFIRMED IN PART, REVERSED IN PART.
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