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Ninth Circuit Ends Violation of contract exclusion is enforceable



Courts dealing with insurance issues often give lengthy and cumbersome opinions before they get to the point. In Office Depot, Inc. v. AIG Specialty Insurance Company, FKA American International Specialty Lines Insurance Company, No. 19-55819, United States Court of Appeals For The Ninth Circuit (November 13, 2020) The Ninth Circuit Court Of Appeal changed the process by giving a clear, concise and easy-to-understand statement.

FACTS

The district court held that AIG had no obligation to defend or replace Office Depot in a 2011 False Claims Act in California trial. The Court reasoned that the claims alleged in the underlying lawsuit ( "Sherwin lawsuit") do not fall within the scope of the relevant insurance contract and, even if they did, exclude several policy exceptions coverage. [19659003] CONTRACT EXCLUSION

"The contractual exception" in the insurance contract excludes coverage of all claims "which assert, derive from or derive from, directly or indirectly, from any liability or obligation under any contract or agreement or of breach of contract." This exemption does not apply to debts or obligations "an insured would have in the absence of such an agreement or contract."

Under California law, the term "derived from" "requires only a minimal causal link or temporary relationship." Resande Prop . Cas . Co . v . Actavis Inc ., 225 Cal. Rptr. 3d 5, 21 (Cal. Ct. App. 2017) This broad interpretation of "emerged from" applies to both coverage provisions and exceptions. These clauses also exclude coverage of claims for damages that could not exist without relevant underlying contracts.

Here the accusations of the Sherwin lawsuit arose, directly and indirectly, from the Office Depot's contractual obligations under the Master Agreement. This color is primarily based on two contracts between Office Depot and Los Angeles County. In Office Depot's own words, "

Office Depot's in-house attorney testified that “the allegations are related to [Office Depot’s] performance or non-performance under [Office Depot’s] government contracts. . . This is a complaint for violation of the False Claims Act, but the allegations and accusations he made were related to our performance or failure to fulfill our government contracts.

The Ninth Circuit, in clear and easy-to-understand language, notes the inconvenient breadth of such exclusions of contracts, that the allegations in the Sherwin lawsuit are based directly or indirectly on Office Depot's contractual obligations and therefore the lawsuit is excluded from coverage under the exclusion of the contract.

Because an insurer's liability arises when there is a coverage of a claim determined in the light of factual analysis of a contract exclusion, Sherwin the lawsuit is not covered by Office Depot's policy with AIG. Therefore, AIG did not have an obligation to replace the Office Depot and Ninth Circuit confirmed the district court. As there was no obligation to defend or replace Office Depot, the Ninth Circuit found no reason to consider the other exceptions arising from the insurer. unknown event. Contractual damages are excluded, as part of the insurance contract and specific exceptions, as they do not cause property damage, bodily injury or personal injury, only contractual damages. Contractual damages, for breach, are a cost of doing business and simply – as the ninth circle found – can not and should never be insured.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE now limits his practice to working as an insurance consultant specializing in insurance coverage, handling insurance claims, cheating and insurance fraud almost equally for insurers and insurers. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

For the past 52 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims employees to become insurance claims personnel.

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