Bodell v. Walbrook Ins. Co., 94-56708

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Citation: 119 F.3d 1411
• Docket Number: No. 94-56708,94-56708
• Parties: 97 Cal. Daily Op. Serv. 5689, 97 Daily Journal D.A.R. 9182 Gregory S. BODELL, Plaintiff-Counter-Defendant-Appellant, v. WALBROOK INSURANCE COMPANY, et al., Defendants-Counter-Claimants-Appellees.
• Decision Date: 17 July 1997

Page 1411

119 F.3d 1411 97 Cal. Daily Op. Serv. 5689, 97 Daily Journal
D.A.R. 9182 Gregory S. BODELL, Plaintiff-Counter-Defendant-Appellant,
v.
WALBROOK INSURANCE COMPANY, et al.,
Defendants-Counter-Claimants-Appellees. No. 94-56708. United States Court of Appeals,
Ninth Circuit. Argued and Submitted May 9, 1996.
Decided July 17, 1997.

Page 1412

Henry D. Gradstein, Gradstein, Luskin & Van Dalsem, Los Angeles, CA, for Plaintiff-Counter-Defendant-Appellant.

Charles A. Bird, Luce, Forward, Hamilton & Scripps, San Diego, CA; Andrew J. Waxler, Luce, Forward, Hamilton & Scripps, Los Angeles, CA; Sara A. Culp, Adams, Duque & Hazeltine, Los Angeles, CA, for Defendants-Counter-Claimants-Appellees.

Appeal from the United States District Court for the Central District of California; James M. Ideman, District Judge, Presiding. D.C. No. CV-90-01513-JMI.

Before: REINHARDT, KOZINSKI, and HAWKINS, Circuit Judges.

MICHAEL DALY HAWKINS, Circuit Judge.

We consider here a question of first impression in this Circuit: whether an insurance policy promising to provide representation in "any proceeding or suit brought by any governmental regulatory agency seeking non-pecuniary relief" obligates the insurer to provide representation during an investigation by agents of the United States Postal Inspection Service ("the Postal Inspection Service") into allegations of mail fraud on the insured's part. Under the particular wording of the policies at issue, we hold that the insurers here made a promise they are obligated to keep.

Plaintiff Gregory S. Bodell ("Bodell"), an attorney, was an insured under two claims-made professional liability insurance policies issued by defendants, Walbrook Insurance Company, et al. ("the carriers"). Bodell brought this action seeking to compel the carriers to pay attorneys fees and costs incurred as the result of a federal investigation into events arising out of his actions and activities as a practicing lawyer. The investigation ultimately matured into a criminal charge to which he pled guilty.

The district court granted summary judgment in the carriers' favor. We have jurisdiction pursuant to 28 U.S.C. § 1291. Reviewing the district court's grant of summary judgment de novo, Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), we reverse and remand to the district court for entry of judgment in Bodell's favor.

BACKGROUND

In late 1988, agents of the Postal Inspection Service began an investigation focusing on a network of Southern California lawyers who, it was alleged, had used the U.S. mails to engage in a scheme to defraud insurance companies by needlessly and intentionally expanding

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and prolonging personal-injury litigation in order to collect higher fees.

Bodell was notified that he was a target of this investigation and he promptly requested that the carriers provide him with representation. The carriers refused and Bodell brought this action seeking a declaration that the carriers were obligated to defend him.

Shortly after Bodell moved for summary judgment, a federal grand jury handed up a criminal indictment against him, his direct supervisor, and others. Bodell subsequently cooperated with the federal government and entered a plea of guilty to a single count of aiding and abetting mail fraud. ¹

The carriers then counterclaimed against Bodell in the civil action, seeking rescission of the policies. The district court denied Bodell's motion for summary judgment and sua sponte granted summary judgment in favor of the carriers. Bodell appealed. Another panel of this court dismissed the appeal for lack of jurisdiction, explaining that the order was not a final decision within the meaning of 28 U.S.C. § 1291 because it did not dispose of the counterclaims and the district court did not enter judgment as to all the parties.

On remand, additional counterclaims and several cross-claims were filed and new parties were added to the suit. The district court thereafter granted summary judgment on the carriers' counterclaims on grounds identical to those supporting its earlier grant of summary judgment against Bodell. Final judgment was entered on November 9, 1994, and Bodell timely appealed.

ANALYSIS

We are guided in our approach by California law, which teaches that insurance policies are to be broadly construed to afford the greatest possible protection to the insured. State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 816, 514 P.2d 123, 128 (1973). "The policy should be read as a layman would read it and not as it might be analyzed by an attorney or an insurance expert." Crane v. State Farm Fire & Cas. Co., 5 Cal.3d 112, 95 Cal.Rptr. 513, 514, 485 P.2d 1129, 1130 (1971). If any reasonable interpretation of the policy would result in coverage, a court must find coverage even if other reasonable interpretations would preclude coverage. State Farm Mut. Auto. Ins. Co. v. Jacober, 10 Cal.3d 193, 110 Cal.Rptr. 1, 2, 514 P.2d 953, 954 (1973).

The two policies at issue contain identical relevant provisions. The carriers agree to pay "all Claim expenses and all sums that the Insured shall become legally obligated to pay as Damages as a result of Claims first made against the Insured ... by reason of any act, error or omission in Professional Services rendered or which should have been rendered by the Insured." "Claim" is defined in the policies as "a demand received by the Insured for money or services," and "Damages" is defined as "a monetary judgment, award or settlement and includes punitive damages where deemed insurable by law." It is conceded that the proceedings at issue did not involve a demand for money or services and that Bodell did not become legally obligated to pay a monetary judgment, award or settlement within the meaning of the policies. See Jaffe v. Cranford Ins. Co., 168 Cal.App.3d 930, 214 Cal.Rptr. 567, 570 (1985) ("[N]either imprisonment nor a fine constitutes 'damages' for insurance purposes.").

This does not end our inquiry. Both policies also provide:

With respect to the insurance afforded by this policy, the Company shall defend any Claim against the Insured seeking damages to which this insurance applies even if any of the allegations of the Claim are groundless, false or fraudulent. The Company shall also defend any proceeding or suit brought by any governmental regulatory agency seeking non-pecuniary relief and any proceeding or suit seeking declaratory or injunctive relief except when brought by the Company.

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(emphasis added). Thus, it is clear that the policies provide a defense even when the insured could not possibly be held liable for damages within the meaning of the policy. ² Consequently, the resolution of this appeal depends on whether the Postal Inspection Service investigation and subsequent grand jury proceedings can reasonably be considered a "proceeding or suit brought by any governmental regulatory agency seeking non-pecuniary relief."

1. Governmental Regulatory Agency

Is it reasonable for an insured to believe the proceedings in this case were brought by a "governmental regulatory agency"? The United States Postal Service ("the Postal Service") is charged with the responsibility of providing for "the collection, handling, transportation, delivery, forwarding, returning, and holding of mail, and for the disposition of undeliverable mail." 39 U.S.C. § 404(a)(1). To carry out that responsibility, the Postal Service is entrusted with the authority to "adopt, amend, and repeal such rules and regulations as it deems necessary to accomplish the objectives of this title." 39 U.S.C. § 401(2).

Under the Private Express Statutes ("PES"), the Postal Service exercises a monopoly over the carriage of letters in and from the United States. Air Courier Conference v. American Postal Workers Union, 498 U.S. 517, 519, 111 S.Ct. 913, 915, 112 L.Ed.2d 1125 (1991) (citing 18 U.S.C. §§ 1693-1699 and 39 U.S.C. §§ 601-606). Accordingly, the regulations promulgated by the Postal Service establish standards for and govern the general public's use of the nation's mail delivery service. In addition, under 39 U.S.C. § 601(b), the Postal Service is authorized to suspend its monopoly "where the public interest requires." Pursuant to that authority and its general enumerated powers, the Postal Service has promulgated regulations governing mail delivery by private carriers. See 39 C.F.R. §§ 310-320. Because it regulates both the delivery of mail by private carriers and the general public's use of the mail delivery system, we conclude that it is not unreasonable to believe that the Postal Service is a regulatory agency.

Nor is our conclusion altered because the action was actually initiated by the Postal Inspection Service. The Postal Inspection Service is merely a branch of the Postal Service, charged generally with inspection and enforcement duties, with respect to laws "related to the Postal Service, the mails, other postal offenses and other laws of the United States." 39 C.F.R. § 224.3(b)(2). Hence, it is not unreasonable to believe that a proceeding initiated by the Postal Inspection Service is a proceeding brought by a "governmental regulatory agency."

The carriers contend that, in actuality, the proceedings here were not "brought" by the Postal Service or the Postal Inspection Service but by the United States Attorney. There is no question but that the United States Attorney is the gatekeeper of the federal grand jury. But a definition of "brought" that does not account for the work done by federal agents before a formal grand jury proceeding is undertaken is far too rigid for purposes of interpreting the policies in this case. In the civil context, that a complaint is drafted and filed by an attorney does not mean the action was not "brought" by the plaintiff as that term is commonly understood.

Our interpretation of "brought" is supported by the Fourth Circuit's decision in Joseph P. Bornstein, Ltd. v....