HS Services, Inc. v. Nationwide Mut. Ins. Co.
| Decision Date | 31 March 1997 |
| Docket Number | No. 95-55489,95-55489 |
| Citation | 109 F.3d 642 |
| Parties | 12 IER Cases 1167, 97 Cal. Daily Op. Serv. 2363, 97 Daily Journal D.A.R. 4253 HS SERVICES, INC., a California corporation, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Watson B. Tucker, Mayer, Brown & Platt, Chicago, Illinois, for plaintiff-appellant.
Kelley K. Beck, Hawkins, Schnabel, Lindhal & Beck, Los Angeles, California, for defendant-appellee.
Appeal from the United States District Court for the Southern District of California, Irma E. Gonzalez, District Judge, Presiding. D.C. No. CV-94-0293 IEG.
Before: FERGUSON, BEEZER and TASHIMA, Circuit Judges.
Opinion by Judge TASHIMA; Dissent by Judge BEEZER.
This is an insurance coverage dispute. Plaintiff HS Services, Inc., formerly known as Cade-Grayson Company (and referred to herein as Cade-Grayson) seeks indemnification for a judgment against it and legal costs incurred in defending against a defamation action which it contends was covered under its commercial general liability (CGL) policy, issued by defendant Nationwide Mutual Insurance Company (Nationwide). The district court granted summary judgment to Nationwide on the basis of an exclusion in the policy. We reverse.
In December, 1991, Steven Cade (Cade) was fired as president of Cade-Grayson for altering inspection certificates and substituting asparagus powder for shrimp in dried About the same time, in March, Cade-Grayson learned that Cade (who had formed Seawind, a competing company in the dehydrated food business) had told its (Cade-Grayson's) vendors that Cade-Grayson was experiencing financial difficulty and was a candidate for bankruptcy. To counteract Cade's statements in the marketplace, a Cade-Grayson manager circulated a memo informing its sales representatives on how to respond to inquiries regarding the company's financial status:
food. In March, 1992, Cade sued Cade-Grayson for wrongful termination.
I would recommend the following response concerning Cade-Grayson and Steve Cade's status.
1. Cade-Grayson is financially sound and values your business.
2. Steve Cade was terminated by Cade-Grayson Company for acts involving dishonesty.
3. We cannot provide further details because the company is in litigation with Mr. Cade and our lawyers advise us not to go into specifics at this time.
A letter repeating the substance of the memo was also sent to food brokers who acted as manufacturer's representative for Cade-Grayson.
Approximately one year later, in March, 1993, Cade amended his wrongful termination complaint to include a claim for defamation based on the above statements. Cade-Grayson tendered defense of the defamation claim to Nationwide under its CGL policy. Nationwide refused to defend and denied coverage. Cade-Grayson asked Nationwide to reconsider its refusal to defend and provide coverage in light of the following additional information:
The alleged defamation took place on March 20, 1992, a full three months after Steven Cade was terminated from employment. In March of 1992, Cade-Grayson was advised that Steven Cade had been making disparaging statements about Cade-Grayson to at least one of Cade-Grayson's suppliers. In order to respond, Cade-Grayson found it necessary to issue a statement to its brokers to the effect that Steven Cade was terminated for acts involving dishonesty.
Nationwide maintained its refusal. On May 20, 1993, a jury returned a verdict against Cade-Grayson on Cade's defamation claim for $1 million.
This action followed. Cade-Grayson seeks indemnification for the entire amount of the verdict and its costs of defense. The parties made cross-motions for summary judgment. Nationwide argued that the policy's employment-related practices exclusion excluded Cade's post-termination defamation claim from coverage because it arose out of the employment relationship. The district court denied Cade-Grayson's motion and granted Nationwide's motion. This timely appeal followed. The district court had jurisdiction under 28 U.S.C. § 1332. 1 We have jurisdiction under 28 U.S.C. § 1291.
We review de novo a district court's grant of summary judgment. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). The meaning and interpretation of an insurance contract is a question of law reviewed de novo. Aetna Cas. and Sur. Co. v. Pintlar Corp., 948 F.2d 1507, 1511 (9th Cir.1991). In a diversity case, we decide issues of state law as we believe the state's highest court would decide them. Jones-Hamilton Co. v. Beazer Materials & Serv., Inc., 973 F.2d 688, 692 (9th Cir.1992).
In this case, whether or not there is coverage depends on the interpretation of an exclusion. Because this diversity case arose in California, we apply California law. The insurer bears the burden of bringing itself within a policy's exclusionary clauses. Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 880, 151 Cal.Rptr. 285, 587 P.2d 1098 (1978). Exclusionary clauses are strictly construed. Loyola Marymount Univ. v. Hartford Accident and Indem. Co., 219 Cal.App.3d 1217, 1223, 271 Cal.Rptr. 528 (1990). See also State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal.3d 94, 101, 109 Cal.Rptr. 811, 514 P.2d 123 (1973) () (citations omitted).
The CGL policy provided coverage, inter alia, for the following:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury".... We will have the right and duty to defend against any "suit" seeking those damages.... This insurance applies to "personal injury" caused by an offense arising out of your business.... Personal injury means injury ... arising out of one ... of the following offenses ...
(d) Oral or written publication of material that slanders or libels a person....
The policy's "Employment-Related Practices Exclusion" provided that coverage does not apply to:
c. "Personal injury" arising out of any:
(1) Refusal to employ;
(2) Termination of employment;
(3) Coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, or other employment-related practices, policies, acts or omissions; or
(4) Consequential "personal injury" as a result of (1) through (3) above.
Read literally and broadly, the terms "arising out of" and "employment-related ... acts or omissions" would include any claim or injury connected in any way with employment termination, no matter how attenuated that connection. 2 We do not think the parties mutually intended the exclusion to be read so expansively. Our "fundamental goal" in interpreting this exclusion must be "to give effect to the mutual intention of the parties." Bank of the West v. Superior Court, 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992) (citation omitted).
It is a basic principle of insurance contract interpretation that doubts, uncertainties and ambiguities arising out of policy language ordinarily should be resolved in favor of the insured in order to protect his reasonable expectation of coverage.
Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal.3d 903, 912, 226 Cal.Rptr. 558, 718 P.2d 920 (1986) (citations omitted) (emphasis in original).
Here Cade-Grayson relies on the temporal element-the three-month interval between termination and defamation-to take this claim out of the exclusion. It cites Davaris v. Cubaleski, 12 Cal.App.4th 1583, 16 Cal.Rptr.2d 330 (1993), in support. Davaris held that a former employee's claim for a defamatory statement made by the employer after termination was not barred by the exclusivity provision of the workers' compensation law. However, neither the passage of time alone nor the pre- and post-termination distinction is a satisfactory basis upon which to make the exclusion determination. It is entirely possible that post-termination, injury-causing acts or omissions, even months after termination, could arise directly and proximately from the termination or be so related.
Nationwide, on the other hand, relies on Frank and Freedus v. Allstate Ins. Co., 45 Cal.App.4th 461, 52 Cal.Rptr.2d 678 (1996), which involved an "employment-related practices" exclusion almost identical to the one involved in this case. There, a former employee of Frank and Freedus sued that law firm for defamation based on statements made by a partner after he had been fired. Responding to the office manager's concerned comments about the firing, the partner said that the ex-employee was "likely gay and probably has AIDS." He also instructed the office administrator to inform the law firm's staff that the "real reason" the employee was fired stemmed from his "failure to perform and develop as an associate." Id. at 465, 52 Cal.Rptr.2d 678 (emphasis in original).
Allstate refused to defend, finding that coverage was excluded for personal injuries due to termination of employment or employment-related practices. As stated, the "employment-related" exclusion was virtually identical to the exclusion involved here. See id. at 470, 52 Cal.Rptr.2d 678. In upholding summary judgment for Allstate, the court held, in the context of that case, that the term "employment-related" was unambiguous. Id. at 471, 52 Cal.Rptr.2d 678. Its holding is illuminated, and limited, by the following statement:
The defamation here was clearly employment-related. The statement was made in the context of Caprow's employment and its content is directed to Caprow's performance during employment.
Id. at 471-72, 52 Cal.Rptr.2d 678.
In the case at bench the defamation is not "clearly employment-related" because, although its content is directed to...
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