Bliss Sequoia Ins. & Risk Advisors, Inc. v. Allied Prop. & Cas. Ins. Co.

• Docket Number: 20-35890
• Decision Date: 27 October 2022
• Citation: 52 F.4th 417
• Parties: BLISS SEQUOIA INSURANCE & RISK ADVISORS, INC. ; Huggins Insurance Services, Inc., Plaintiffs-Appellants, v. ALLIED PROPERTY & CASUALTY INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

52 F.4th 417

BLISS SEQUOIA INSURANCE & RISK ADVISORS, INC. ; Huggins Insurance Services, Inc., Plaintiffs-Appellants,

v.ALLIED PROPERTY & CASUALTY INSURANCE COMPANY, Defendant-Appellee.

No. 20-35890

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 18, 2022 Honolulu, Hawaii

FILED OCTOBER 27, 2022

Syed S. Ahmad (argued), Hunton Andrews Kurth LLP, Washington, D.C.; David Parker, Hunton Andrews Kurth LLP, Richmond, Virginia; Rachel E. Hudgins, Hunton Andrews Kurth LLP, Atlanta, Georgia; Cody B. Hoesly, Larkins Vacura Kayser LLP, Portland, Oregon; Michael L. Huggins, Hunton Andrews Kurth LLP, San Francisco, California; for Plaintiffs-Appellants.

Owen R. Mooney (argued), Bullivant Houser Bailey PC, Seattle, Washington; R. Daniel Lindahl, Michael A. Guadagno, and Richard Williams, Bullivant Houser Bailey PC, Portland, Oregon; for Defendant-Appellee.

Before: Diarmuid F. O'Scannlain, Eric D. Miller, and Kenneth K. Lee, Circuit Judges.

Opinion by Judge Miller ;

Dissent by Judge O'Scannlain

OPINION

MILLER, Circuit Judge:

Bliss Sequoia Insurance and Risk Advisors held an insurance policy from Allied Property and Casualty Insurance covering any liability that Bliss Sequoia might incur for "damages because of ‘bodily injury.’ " One of Bliss Sequoia's clients was a water park, and after a park guest was injured, the park sued Bliss Sequoia for professional negligence, alleging that the coverage limits on the park's liability insurance were too low. This appeal presents the question whether that negligence claim arose "because of" the guest's "bodily injury" and is therefore covered by Bliss Sequoia's policy. We agree with the district court that the answer is no.

This case begins with Cowabunga Bay Water Park in Henderson, Nevada, and the first of two insurance policies. In 2014, the operator of the park sought professional risk-management advice from Bliss Sequoia Insurance and Risk Advisors, Inc. and Huggins Insurance Services, Inc. (collectively, Bliss Sequoia) regarding the nature and amount of insurance that would be sufficient to insure the water park. Bliss Sequoia procured coverage on behalf of the water park with an overall limit of $5 million.

Just one year later, six-year-old Leland Gardner was seriously injured in a near-drowning incident at the water park, allegedly due to the park's insufficient staffing of lifeguards. The boy's family sued the park, which ultimately settled for $49 million. Its liability coverage, however, was $44 million shy.

Facing liability well in excess of its insurance coverage, the water park sued Bliss Sequoia for professional negligence. (It also asserted a claim of negligent misrepresentation, but the distinction between the two claims is irrelevant to this appeal.)

As part of a settlement agreement with the Gardners, the water park assigned its claims against Bliss Sequoia to the family. Shortly after that settlement, the Gardners brought their own third-party complaint asserting the assigned claims and alleging harms "[a]s a result of the insufficient and substandard risk management and insurance brokerage advice and recommendations given by [Bliss Sequoia]."

In response, Bliss Sequoia turned to its general liability insurer, Allied Property and Casualty Insurance, to defend and indemnify it against the professional-negligence claims. According to Bliss Sequoia, Allied was obligated to do so based on the following provision in Bliss Sequoia's insurance contract with Allied:

[Allied] will pay those sums up to the applicable Limit of Insurance that [Bliss Sequoia] becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. [Allied] will have the right and duty to defend [Bliss Sequoia] against any "suit" seeking those damages for which there is coverage under this policy.

The policy further specified that "bodily injury" must be "caused by an ‘occurrence,’ " including an "accident," and that "[d]amages because of ‘bodily injury’ include damages claimed by any person or organization for care, loss of services or death resulting at any time from the ‘bodily injury.’ "

After Allied denied coverage, Bliss Sequoia filed this action in the District of Oregon. Invoking the district court's diversity jurisdiction, see 28 U.S.C. § 1332, Bliss Sequoia sought a declaratory judgment that Allied has a duty to defend and indemnify it. The district court granted summary judgment to Allied, concluding that the claims against Bliss Sequoia do not arise "because of bodily injury."

Bliss Sequoia appeals. We review the district court's grant of summary judgment de novo. See Stephens v. Union Pac. R.R. Co. , 935 F.3d 852, 854 (9th Cir. 2019). The parties agree that the insurance policy is governed by Oregon law, so we must construe it as the Oregon Supreme Court would. See Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78–80, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ; Norcia v. Samsung Telecomms. Am., LLC , 845 F.3d 1279, 1284 (9th Cir. 2017). In so doing, we are "obligated to follow the decisions of the state's intermediate appellate courts" unless there is "convincing evidence that the state supreme court would decide differently." Ryman v. Sears, Roebuck & Co. , 505 F.3d 993, 995 (9th Cir. 2007) (quoting Vestar Dev. II, LLC v. Gen. Dynamics Corp. , 249 F.3d 958, 960 (9th Cir. 2001) ).

The critical language in the policy provides that it covers any sums Bliss Sequoia is "legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage.’ " Bliss Sequoia asserts that the claims against it for professional negligence arose "because of" Gardner's bodily injury. And if "because of" is understood in its broadest possible sense, Bliss Sequoia has a point. Gardner's bodily injury caused his family to sue the water park, which in turn caused the park to sue Bliss Sequoia for professional negligence. No bodily injury, no professional-negligence claims. To put it in the more technical language often used in tort law, Gardner's bodily injury was a "but-for" cause of Bliss Sequoia's professional-negligence liability. See United States v. George , 949 F.3d 1181, 1187 (9th Cir. 2020) (explaining that "a but-for cause of a harm can be anything without which the harm would not have happened").

But the broadest possible understanding of "because of" is hardly a reasonable one, and "a but-for cause is not always (in fact not often) a cause relevant to legal liability." United States v. Hatfield , 591 F.3d 945, 948 (7th Cir. 2010). Taken literally, but-for causation is an extraordinarily expansive concept. As the Supreme Court has explained, "[i]n a philosophical sense, the consequences of an act go forward to eternity, and the causes of an event go back to the dawn of human events, and beyond." Holmes v. Securities Inv. Prot. Corp. , 503 U.S. 258, 266 n.10, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) (quoting W. Keeton et al., Prosser and Keeton on the Law of Torts § 41, at 264 (5th ed. 1984)). For example, while Bliss Sequoia's liability would not have been incurred but for Gardner's injury at the water park in Henderson, Nevada, it is equally true that it would not have been incurred but for the construction of that water park years before; or but for the ingenuity of Herbert Sellner, who in 1923 obtained the first patent for a water slide in the United States; or, indeed, but for the late-Miocene rise of the Sierra Nevada Mountains,^* which gave Henderson a hot, dry climate that is well suited to water parks.

To take another example, imagine that a law firm held an insurance policy with the same language as that held by Bliss Sequoia, and suppose that the firm was sued for malpractice for its handling of a corporate bankruptcy case. No one would suggest that such a malpractice claim would reflect "damages because of bodily injury." But what if the reason the corporation went bankrupt was that it had made defective products that injured consumers? Asked that question at oral argument, Bliss Sequoia embraced the reductio ad absurdum and admitted that, in its view, the hypothetical malpractice claims would indeed be "because of bodily injury."

That strikes us as a highly improbable understanding of the scope of the coverage that Bliss Sequoia bargained for. If "because of" were understood to refer to literal but-for causation, that is, "to mean just a condition that had to exist for the event in question to occur," then "liability insurance companies would have no way of setting premiums equal to expected cost; they would be insuring against a range of possible claims so vast that an estimate of the probability that a claim within that range would actually be filed would be arbitrary." James River Ins. Co. v. Kemper Cas. Ins. Co. , 585 F.3d 382, 387 (7th Cir. 2009).

Because pure but-for causation "would result in infinite liability for all wrongful acts," the law almost never employs that standard without limiting it in some way. Holmes , 503 U.S. at 266 n.10, 112 S.Ct. 1311 (quoting W. Keeton et al., Prosser and Keeton on the Law of Torts § 41, at 264). Instead, the law cuts off remote chains of causation by applying "common-law principles of proximate causation." Id. at 267, 112 S.Ct. 1311 ; see Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters , 459 U.S. 519, 531–33, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). "Generally, proximate causation exists only when a harm was a foreseeable result of the wrongful act." George , 949 F.3d at 1187.

Courts use different labels—such as "proximate," "foreseeable," or "direct"—to refer to the required causal connection, but neither the label nor the precise contours of the standard need detain us because in this case, there seems to be no dispute that under any standard more restrictive than pure but-for causation, Bliss Sequoia's professional-negligence claims do not involve damages "because of bodily injury." So the question before us boils down to this: Would Oregon courts co...