Sparks v. Transamerica Ins. Co.

• Decision Date: 06 April 1998
• Docket Number: No. 96-36110,No. CV93-0487-S-JLQ,96-36110,CV93-0487-S-JLQ
• Citation: 141 F.3d 1179
• Parties: NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. Leslie SPARKS, an individual, and Crazy Bob's Cut Rate, an Idaho corporation, Plaintiffs-Appellants, v. TRANSAMERICA INSURANCE COMPANY, a California corporation, Defendant-Appellee. D.C.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1179

141 F.3d 1179

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

Leslie SPARKS, an individual, and Crazy Bob's Cut Rate, an Idaho corporation, Plaintiffs-Appellants, v. TRANSAMERICA INSURANCE COMPANY, a California corporation Defendant-Appellee.

No. 96-36110.

D.C. No. CV93-0487-S-JLQ.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 4, 1998.

Decided April 6, 1998.

Appeal from the United States Court for the District of Idaho Justin L. Quackenbush, District Judge, Presiding.

Before ALARCN and HAWKINS, Circuit Judges, and BREWSTER ^**, District Judge.

MEMORANDUM ^*

Leslie Sparks ("Sparks"), doing business as Crazy Bob's Cut Rate ("Crazy Bob's"), appeals from a grant of summary judgment in favor of Transamerica Insurance Company ("Transamerica"). Sparks contends that the district court erred in finding that under Idaho law: 1) Transamerica did not waive its right to rely on Sparks' untimely notice as a bar to coverage; 2) an insurer is not required to demonstrate prejudice before relying on an insured's untimely notice to avoid liability; 3) Sparks did not substantially comply with the notice requirement in his liability policy; and 4) insurers do not have an affirmative duty to seek a declaration of rights and liabilities if coverage is disputed.

We review a grant of summary judgment de novo. See Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9th Cir.1997). The district court's interpretation of Idaho law is also reviewed de novo. See Angoon v. Hodel, 836 F.2d 1245, 1246 (9th Cir.1988). We affirm because we conclude the district court correctly applied Idaho law.

I

From 1981 through 1985, Crazy Bob's, owned and operated by Sparks, transported used oil. During this period, Sparks maintained annual comprehensive general liability policies with Transamerica. On September 26, 1989, Sparks received a notice letter from the United States Environmental Protection Agency ("EPA"). This letter named Crazy Bob's as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9657 (1980), and sought information related to Crazy Bob's oil transportation business. Sparks furnished the requested information to EPA but did not notify Transamerica of the letter.

On December 5, 1991, Sparks notified his insurance agent of his receipt of the 1989 PRP letter. Transamerica declined to defend on February 19, 1992, stating that the PRP letter did not constitute a "claim" or "suit" under the policy. While Transamerica did not directly object to the timeliness of Sparks' notice, it expressly reserved its rights regarding failure to provide timely notice of the EPA action.

Sparks filed a declaratory judgment action in district court on December 13, 1993, seeking to hold Transamerica responsible for defense and indemnity in the underlying EPA action. The court concluded that Sparks had materially breached a condition of the insurance contract by failing to provide timely notice and granted summary judgment in favor of Transamerica on December 11, 1996.

II

As a threshold matter, we must determine whether the issue of waiver is properly before us for review. Transamerica contends Sparks failed to argue before the district court that Transamerica waived reliance on the notice requirement.

Generally, appellate courts will not consider arguments not properly raised before the district court. See O'Rourke v. Seaboard Surety Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957 (9th Cir.1989). An argument must have been raised sufficiently for the district court to rule on it. See id. We hold that the issue of waiver was sufficiently raised.

Sparks articulated the waiver issue before the district court in his memorandum in support of summary judgment. He asserted that courts retaining the "no prejudice" rule have held that an insurer waives its right to assert a notice defense if it fails to invoke that provision from the outset. See A-1 Ambulance Serv., Inc., v. County of Monterey, 90 F.3d 333, 338 (9th Cir.1996) (holding an argument was not raised where the trial record lacked a precise articulation of appellant's argument as stated on appeal).

Transamerica's response to Sparks' arguments to the district court demonstrates that it had notice of the waiver issue. See General Signal Corp. v. MCI Telecomm. Corp., 66 F.3d 1500, 1511 (9th Cir.1995) (determining that appellee's argument on appeal had been raised sufficiently at trial where appellant's actions indicated it was on notice of the argument). Transamerica addressed the issue of waiver in its supplemental brief in support of summary judgment when it asserted that Sparks misconstrued a case relied upon in support of its waiver argument. Accordingly, we conclude that the waiver issue was sufficiently raised before the district court.

III

Before determining whether Transamerica waived its right to rely on Sparks' untimely notice as a defense, we must first determine when Sparks was required by the policy to notify Transamerica. Section VIII, Paragraph 4(b) of the insurance policy required Sparks to notify Transamerica "immediately" of a "claim ... or suit." Section VIII, Paragraph 5 makes notice a condition precedent to coverage under the policy.

Sparks maintained at the district court that "Transamerica's duty to defend Plaintiffs [Sparks] was triggered by the EPA's issuance of the PRP letter in 1989." (Mem. in Support of Mot. for Partial Summ.J. at 11.) The district court agreed with this assertion, finding that the September 1989 letter "was the effective commencement of a 'suit' and, therefore, triggered Transamerica's duty to defend." (Order Denying Pls., Mot. for Summ.J. at 5-6.) At oral argument, Counsel for Sparks acknowledged that he could not adopt a position contrary to the one presented to the district court. He conceded before this court that the September 1989 letter requesting information from Sparks and indicating that he was under investigation by the EPA constituted a "suit" under the terms of the policy. ¹ Thus, the September 1989 letter required Sparks to notify Transamerica "immediately." A two-year delay in notifying Transamerica of the initial EPA letter failed to satisfy the notice condition.

Having determined that Sparks was required to notify Transamerica immediately of the September 26, 1989 letter from the EPA, we must now consider whether Transamerica waived its right to assert a defense based on Sparks' failure to give timely notice. Transamerica referred to the notice requirement in its initial response to Sparks' tender of defense by stating, "Transamerica expressly reserves its rights for any prejudice we may have incurred as a result of our insured's late notice." Sparks contends the language "for any prejudice" limited Transamerica's ability to raise the failure to give timely notice to a showing of actual prejudice caused by the delay. We disagree.

To preserve the insurer's subsequent right to assert a coverage defense, a reservation of rights letter need merely inform the insured of the potential defenses to coverage developed by the insurer's preliminary analysis of the claim or suit. See Associated Indem. Corp. v. Wachsmith, 2 Wash.2d 679, 99 P.2d 420, 425-26 (Wash.1940); United Nat'l Ins. Co. v. Waterfront N.Y. Realty, Corp. ., 948 F.Supp. 263, 268 (S.D.N.Y.1996). Transamerica's initial letter specifically referred to Sparks' untimely notice as the basis for its reservation of rights. Thus, while Transamerica denied coverage stating that a PRP letter is not a claim or suit, Sparks was sufficiently informed that Transamerica might later assert its notice defense.

Sparks has not cited any authority holding that Transamerica's reference to prejudice in its reservation of rights letter constitutes a waiver of applicable Idaho law. As we discuss below, Idaho does not require a showing of prejudice by an insurer that relies on a failure of notice defense. Thus, there is no basis on which to conclude that Transamerica's reservation of rights specifically requires it to demonstrate prejudice. Accordingly, we hold that Transamerica has reserved its right to assert the defense that Sparks failed to give timely notice.

IV

Sparks argues that under Idaho law, Transamerica is required to demonstrate that it was prejudiced by Sparks' failure to give timely notice. In Viani v. Aetna Ins. Co., 95 Idaho 22, 501 P.2d 706 (Idaho 1972), overruled on other grounds, Sloviaczek v. Estate of Puckett, 98 Idaho 371, 565 P.2d 564 (Idaho 1977), the Idaho Supreme Court held that a showing of prejudice is not required where an insured breaches a notice provision of the policy. See id. at 713. The Supreme Court of Idaho has never repudiated its decision in Viani. We must follow the decisions of the state's highest court in a diversity action. See Mangold v. California Pub. Utils. Comm'n, 67 F.3d 1470, 1478 (9th Cir.1995).

Sparks relies on the court's decisions in Bantz v. Bongard, 124 Idaho 780, 864 P.2d 618 (Idaho 1993), and Union Warehouse and Supply Co., Inc. v. Illinois R.B. Jones, Inc., 128 Idaho 660, 917 P.2d 1300 (Idaho 1996), for the proposition that today the Idaho Supreme Court would adopt a prejudice requirement in notice cases. These decisions do not discuss Viani. They do not support the conclusion that the court would rule that an insurer must show prejudice to rely on a defense of lack of timely notice. In Bantz, the court held that an insured must demonstrate prejudice to avoid liability for an insured's violation of a consent to settle provision. See Bantz, 864 P.2d at 622. The court did not address in Bantz the discrete question whether a showing of prejudice is required where the insured violates the...