Massachusetts Bay Insurance Company v. Neuropathy Solutions, Inc. ( 2023 )

UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT MAY 5 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
MASSACHUSETTS BAY INSURANCE No. 22-55272
COMPANY,
D.C. No.
Plaintiff-Appellant, 8:21-cv-00607-DOC-JDE
Central District of California,
v. Santa Ana
NEUROPATHY SOLUTIONS, INC., DBA ORDER
Superior Health Centers,
Defendant-Appellee,
and
RIGOBERTO BERNAL, an individual; et
al.,
Defendants.
Before: LEE, BRESS, and MENDOZA, Circuit Judges.
The decision in this case has been amended to state that “The district court
shall enter judgment for MBIC.” Appellee’s petition for panel rehearing, Dkt. 47, is
otherwise DENIED. No further petitions for rehearing will be accepted. This order
shall constitute the mandate of this Court.
NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAY 5 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MASSACHUSETTS BAY INSURANCE No. 22-55272
COMPANY,
D.C. No.
Plaintiff-Appellant, 8:21-cv-00607-DOC-JDE
v.
AMENDED MEMORANDUM*
NEUROPATHY SOLUTIONS, INC., DBA
Superior Health Centers,
Defendant-Appellee,
and
RIGOBERTO BERNAL, an individual; et
al.,
Defendants.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted March 17, 2023
Pasadena, California
Before: LEE, BRESS, and MENDOZA, Circuit Judges.
In this diversity action under California law, Massachusetts Bay Insurance
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Company (MBIC) seeks reimbursement of $2 million that it paid under a reservation
of rights to settle litigation brought against its insured, Neuropathy Solutions, Inc.
(Neuropathy). On cross-motions for judgment on the pleadings, the district court
held that MBIC had a duty to defend and indemnify Neuropathy in the underlying
case (the Bernal action), and that MBIC was thus not entitled to any reimbursement.
We have jurisdiction under 28 U.S.C. § 1291. We review the district court’s ruling
de novo. Webb v. Trader Joe’s Co., 999 F.3d 1196, 1201 (9th Cir. 2021). We
reverse.1
1. MBIC satisfied the prerequisites for seeking reimbursement of the amount
it paid to settle the Bernal action on Neuropathy’s behalf. To seek reimbursement
under California law, an insurer must provide (1) a timely and express reservation
of rights; (2) an express notification to the insured of the insurer’s intent to accept a
proposed settlement offer; and (3) an express offer to the insured that it may assume
its own defense in the event that the insured does not wish to accept the proposed
settlement. Blue Ridge Ins. Co. v. Jacobsen, 22 P.3d 313, 320–21 (Cal. 2001).
MBIC provided a timely and express reservation of rights in its letter of
February 25, 2021. In its letter of May 13, 2021, MBIC informed Neuropathy of its
intention to settle the claims for the $2 million policy limit, subject to Neuropathy’s
approval and MBIC’s reservation of rights. This letter also informed Neuropathy of
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MBIC appeals only the district court’s ruling on the duty to indemnify.
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its “right to assume the further handling of this matter going forward” if Neuropathy
did not wish to settle the claims for $2 million. Neuropathy signed the settlement
agreement on May 28, 2021. Contrary to Neuropathy’s argument, MBIC gave
Neuropathy sufficient time to consider the proposed settlement. See id. at 315(indicating that insurer provided notice on June 4 and requested a response by June
10, where the settlement offer was to expire on June 12).
2. Under California law, “[t]he insurer’s duty to indemnify runs to claims that
are actually covered, in light of the facts proved.” Buss v. Superior Ct., 939 P.2d
766, 773 (Cal. 1997). “By contrast, the insurer’s duty to defend runs to claims that
are merely potentially covered, in light of facts alleged or otherwise disclosed.” Id.Thus, “the insurer’s duty to defend is broader than its duty to indemnify.” Id. The
district court erred by invoking the broader duty-to-defend standard (potentiality of
coverage) to require MBIC to cover not just the cost of defending the underlying
Bernal suit but also the $2 million paid to settle it. We thus proceed to evaluate
whether the Bernal action actually fell within the MBIC policy as written.
3. To the extent that the underlying Bernal action falls within the coverage
provisions of the insurance policy (i.e., to the extent Neuropathy’s liability arose out
of an accidental “occurrence”), coverage is excluded under the policy’s
“Professional Services” exclusion. That provision excludes:
“Bodily injury”, “property damage”, [and] “personal and advertising
injury” caused by the rendering of or failure to render any professional
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service, advice or instruction:
(1) By [the insured]; or
(2) On [the insured’s] behalf; or
(3) From whom [the insured] assumed liability by reason of a contract
or agreement,
regardless of whether any such service, advice or instruction is ordinary
to any insured’s profession.
Additionally, the insurance policy provides that professional services include,
among other things, “[l]egal, accounting or advertising services,” “[m]edical . . . or
nursing services treatment, advice or instruction,” and “[a]ny health or therapeutic
service treatment, advice or instruction.”2
In addition, under California law governing commercial general liability
policies, “[p]rofessional services are defined as those arising out of a vocation,
calling, occupation, or employment involving specialized knowledge, labor, or skill,
and the labor or skill involved is predominantly mental or intellectual, rather than
physical or manual.” Tradewinds Escrow, Inc. v. Truck Ins. Exch., 118 Cal. Rptr.
2d 561, 568 (Ct. App. 2002) (quotation omitted). This “is a broader definition than
‘profession,’ and encompasses services performed for remuneration.” Id. (quotation
2
The policy extended this exclusion to wrongdoing by agents:
This [professional services] exclusion applies even if a claim alleges
negligence or other wrongdoing in the supervision, hiring,
employment, training or monitoring of others by an insured, if the
“occurrence” which caused the “bodily injury” or “property damage”,
or the offense which caused the “personal and advertising injury”,
involved the rendering of or failure to render any professional service.
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omitted). The “unifying factor” is “whether the injury occurred during the
performance of the professional services, not the instrumentality of injury.” Id.Based on California case law, the insurance policy’s text, and the operative
complaint in the Bernal action, Neuropathy’s liability in Bernal fell within the
“Professional Services” exclusion. Starting from the very first sentence of the
Bernal complaint, it is evident that Neuropathy incurred liability as a result of the
professional services it provided: “This complaint arises from a series of falsely
advertised, recklessly administered, non-FDA approved ‘stem cell’ injections Mr.
Bernal received that nearly killed him and left him a permanent paraplegic from the
waist down.” The entire gravamen of the Bernal complaint was that Neuropathy
engaged in deceptive and illegal advertising and business practices in connection
with the provision of medical services. Neuropathy was thus liable for providing
“advertising services,” “[m]edical . . . or nursing services treatment, advice or
instruction,” or “[a]ny health or therapeutic service treatment, advice or instruction,”
all of which are excluded under the “Professional Services” exclusion.
It does not matter that Elite Medical Group (EMG), not Neuropathy, allegedly
employed the medical professionals who performed the injection, nor does it matter
that Neuropathy’s contract with EMG purported to assign to Neuropathy only
administrative duties. As we noted, the “Professional Services” exclusion extends
to wrongdoing in the supervision and monitoring of others in the provision of
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professional services, and Neuropathy incurred liability because of its provision of
professional advertising and medical services, not inadequate recordkeeping or poor
customer service. Finally, the complaint’s allegation that Neuropathy engaged in
discriminatory “marketing techniques and high-pressure sales tactics” falls within
the “Professional Services” exclusion for advertising services and health advice or
instruction.
Neuropathy’s liability in the Bernal action was thus excluded from coverage,
and MBIC is entitled to reimbursement of the $2 million it paid to settle that lawsuit.
The district court shall enter judgment for MBIC.
REVERSED.
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