Lewis v. Liberty Mut. Ins. Co.

• Decision Date: 30 March 2020
• Docket Number: No. 18-16140,18-16140
• Citation: 953 F.3d 1160
• Parties: Nicolette LEWIS; Alexis Lewis ; Margrett Lewis; Jeffrey Lewis, Plaintiffs-Appellants, v. LIBERTY MUTUAL INSURANCE COMPANY; Liberty International Underwriters, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

953 F.3d 1160

Nicolette LEWIS; Alexis Lewis ; Margrett Lewis; Jeffrey Lewis, Plaintiffs-Appellants,

v.LIBERTY MUTUAL INSURANCE COMPANY; Liberty International Underwriters, Defendants-Appellees.

No. 18-16140

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 5, 2019 San Francisco, California

Filed March 30, 2020

Leslie R. Perry (argued) and Deborah S. Bull, Perry Johnson Anderson Miller & Moskowitz LLP, Santa Rosa, California, for Plaintiffs-Appellants.

Jack DiCanio (argued), Skadden Arps Slate Meagher & Flom LLP, Palo Alto, California; James R. Carroll, Skadden Arps Slate Meagher & Flom LLP, Boston, Massachusetts; for Defendants-Appellees.

Before: Eugene E. Siler,^* Richard R. Clifton, and Jay S. Bybee, Circuit Judges.

OPINION

BYBEE, Circuit Judge:

Plaintiffs Nicolette Lewis and her family (the Lewis family or the Lewises) were awarded more than $45 million in a products liability suit brought against EcoSmart, Inc. ("EcoSmart"). When EcoSmart declared bankruptcy, the Lewises brought a direct action against EcoSmart’s insurer, Liberty Mutual Insurance Company ("LMIC"), for payment on the judgment. LMIC argued that its insurance policy with EcoSmart had a forum-selection clause designating Australian courts as the exclusive forum, so the suit must be dismissed on the grounds of forum non conveniens . The district court granted LMIC’s motion to dismiss.

We conclude that, because the Lewises stand in the shoes of EcoSmart, their third-party creditors’ rights are derivative of the rights and limitations held by the bankrupt insured, and thus the forum-selection clause applies. We further conclude that the Lewises have not shown that the clause violates California public policy or that Australia is an inadequate forum for suit. Thus, we affirm the judgment of the district court.

I. BACKGROUND

The facts of this case are truly tragic. Nicolette Lewis was severely burned after lighter fluid in a container caught fire and spewed over her. Nicolette’s twin sister, Alexis, and parents, Jeffrey and Margrett, also sustained burns and emotional trauma. The family brought tort claims against EcoSmart, and its corporate parent, The Fire Company, Pty, Ltd. ("TFC"), in California state court. TFC, an Australian company, did not file an answer. The Superior Court of California for Sonoma County found EcoSmart liable and awarded damages exceeding $45 million.

While the Lewises’ products-liability action was ongoing, EcoSmart sought indemnification and the provision of a defense from LMIC, its insurer. LMIC had provided insurance policies to EcoSmart and TFC. The insurance policy in place from April 30, 2013 to April 30, 2014 likely would have covered the Lewises’ claims (the 2013–14 Policy). But the fire occurred on June 8, 2014. By that point, a new policy had been issued (the 2014–15 Policy). The 2014–15 Policy, however, significantly reduced the policy limits and excluded coverage of claims for any product holding fuel unless it was fitted with a "flame arrester." The Lewises’ products-liability claim was based on EcoSmart’s failure to supply a flame arrester on the product sold to the Lewis family. Both insurance policies had forum-selection and choice-of-law clauses designating Australian courts as the exclusive forum and Australian law as governing. Citing the 2014–15 Policy, LMIC declined to defend EcoSmart or provide indemnification. EcoSmart then declared bankruptcy.

The Lewis family sought recovery from LMIC in California state court, alleging that the 2013–14 Policy remained in effect for an additional sixty days—which would have covered the accident—because LMIC had failed to give EcoSmart adequate notice of the change in the policy, as required by California insurance law. LMIC removed the case to federal court and promptly filed a motion to dismiss the claim on the basis of the forum-selection clause and forum non conveniens , asserting that under the forum-selection clause Australia was the exclusive forum for the suit. The plaintiffs countered that they were not bound by provisions in a contract to which they were not parties. But LMIC responded that the Lewis family stood in EcoSmart’s shoes and, hence, assumed any terms and conditions that would bind EcoSmart in making a claim under the policy.

The district court found the facts and posture of this case troubling. Nevertheless, the court concluded that "plaintiffs’ claims for damages are derivative of EcoSmart’s," meaning that they "have to stand in EcoSmart’s shoes to recover." Thus, the court felt compelled to honor the forum-selection clause. The court also determined that the clause was neither unreasonable nor unjust. Following dismissal on forum non conveniens grounds, the Lewis family brought this appeal.

II. STANDARD OF REVIEW

We review the district court’s dismissal "on the basis of forum non conveniens for an abuse of discretion." Carijano v. Occidental Petroleum Corp. , 643 F.3d 1216, 1224 (9th Cir. 2011). The district court abuses its discretion if it identifies an incorrect legal standard, applies the correct standard "illogically, implausibly, or in a manner without support in inferences that may be drawn from facts in the record." Id. In the context of forum non conveniens , the district court abuses its discretion if it " ‘strike[es] an unreasonable balance of relevant factors.’ " Id. (quoting Ravelo Monegro v. Rosa , 211 F.3d 509, 511 (9th Cir. 2000) ). The validity of a forum-selection clause is governed by federal law. Petersen v. Boeing Co. , 715 F.3d 276, 280 (9th Cir. 2013).

III. DISCUSSION

The Lewis family raises three arguments. First, they contend that, as non-signatories to the insurance policy, they are not bound by the forum-selection clause. Second, they argue that, even if the forum-selection clause applies to them, enforcement of the forum-selection clause would violate California’s strongly held public policy, as codified in §§ 678.1 and 11580 of the California Insurance Code. And, third, the Lewises argue that Australia is an inadequate forum in which to pursue their claims, and it was an abuse of discretion for the district court to grant LMIC’s motion to dismiss.

A. The Forum-Selection Clause Is Binding on the Plaintiffs

At first glance, the Lewises’ claim that they are not bound by the terms of the insurance policy appears entirely sensible. They never had the opportunity to negotiate or assent to the terms of LMIC’s policy. They are merely tort creditors looking to recover a judgment. But the Lewises’ argument collides with a basic premise of California law governing insurance contracts.

Although the Lewises are not insured under the LMIC policy, they are, as they concede, third-party judgment creditors of EcoSmart, which was insured under the LMIC policy. "[I]t is well-settled contract law that the scope of a" third-party’s rights can be "defined by the contract." TAAG Linhas Aereas de Angl. v. Transamerica Airlines, Inc. , 915 F.2d 1351, 1354 (9th Cir. 1990). Under California law, "the injured third person [bringing a tort claim against an insurance company] stands in the shoes of the insured tort feasor" and "gets no greater rights than the tort feasor" would have if the tort feasor sought indemnification from the insurance company. Olds v. Gen. Accident Fire & Life Assurance Corp. , 67 Cal.App.2d 812, 155 P.2d 676, 681 (1945), disapproved on other grounds by Barrera v. State Farm Mut. Auto Ins. Co. , 71 Cal.2d 659, 79 Cal.Rptr. 106, 456 P.2d 674 (1969). In other words, "if the tort feasor could not recover, neither can the injured third person." Id. ; accord Home Indem. Co. of N.Y. v. Standard Accident Ins. Co. of Detroit , 167 F.2d 919, 930 (9th Cir. 1948) (explaining that any limitations that would preclude the insured from receiving indemnification "will likewise bar the injured person from recovering against the insurer should the judgment in his favor and against the [in]sured remain unsatisfied" (quoting Valladao v. Fireman’s Fund Indem. Co. , 13 Cal.2d 322, 89 P.2d 643, 646 (1939) )).

More pertinent to this case, California courts have explained that "a judgment creditor who has prevailed in a lawsuit against an insured party may bring a direct action against the insurer subject to the terms and limitations of the policy ." W. Heritage Ins. Co. v. Superior Court , 199 Cal.App.4th 1196, 132 Cal. Rptr. 3d 209, 216 (2011) (emphasis added). And "in a suit by an injured third person against the tortfeasor’s insurer, the insurer may raise any defense against the injured person that it could have raised against the insured." Shapiro v. Republic Indem. Co. of Am. , 52 Cal.2d 437, 341 P.2d 289, 290 (1959) (emphasis added).

Nevertheless, the Lewis family asserts that California law precludes application of any contractual provisions against third parties that are not intended to benefit the specific third party. They reason that, as plaintiffs, they may choose their own venue unless LMIC can show that the forum-selection clause was adopted for their benefit. This turns California law on its head. In Murphy v. Allstate Insurance Co. , the California Supreme Court explained that a third party creditor can only enforce the rights of a contract that were specifically created for the third party. 17 Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584, 588 (1976). The principle prevents, for example, a judgment creditor from bringing a direct action against an insurance company for satisfaction of the judgment against the insured and for violation of the duty to defend the insured. California courts have held that the latter claim is for the benefit of the insured alone and can only be brought by a judgment creditor if it was received through assignment of the claim. Id. , 132 Cal.Rptr. 424, 553 P.2d at 589–90 ; see Clark v. Cal. Ins. Guar. Ass’n , 200 Cal.App.4th 391, 133 Cal. Rptr. 3d 1, 6–7 (2011) ; San Diego Hous. Comm’n v. Indus. Indem. Co. , 95 Cal.App.4th 669, 116 Cal. Rptr. 2d 103, 121–22 (2002). That principle...