DIRECTV v. Factory Mutual Insurance Co.
692 F. App'x 494
| 9th Cir. | 2017Background
- DIRECTV held a business-interruption insurance policy from Factory Mutual covering losses caused by events at "contingent time element locations," defined to include locations "of a direct supplier, contract manufacturer or contract service provider to [DIRECTV]."
- In 2011 monsoonal flooding damaged two Western Digital hard-drive manufacturing facilities in Thailand; DIRECTV claims resulting supply disruption caused insured losses.
- Western Digital manufactures hard drives used in DIRECTV set-top boxes but has no contract with DIRECTV and ships drives to third-party set-top-box manufacturers, not DIRECTV directly.
- Factory Mutual denied coverage, arguing Western Digital is not a "direct supplier," "contract manufacturer," or "contract service provider" to DIRECTV.
- The district court granted summary judgment for Factory Mutual; DIRECTV appealed to the Ninth Circuit.
- The Ninth Circuit reviewed de novo, rejected the district court’s interpretation on trade-usage grounds, reversed, and remanded for factual determination by a jury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Western Digital is a "direct supplier" to DIRECTV under the policy | "Direct supplier" includes upstream manufacturers whose products enter the insured’s supply chain even if routed through intermediaries | "Direct supplier" means a supplier that sends goods straight to the insured without intervening processing | Plain meaning excludes Western Digital; but term is reasonably susceptible to Plaintiff's trade-usage interpretation, so question of trade usage is for the jury |
| Whether Western Digital is a "contract manufacturer" or "contract service provider" to DIRECTV | Term can encompass suppliers integrated into production chain even without a direct contract | Requires a contractual relationship with DIRECTV; Western Digital has no such contract | Not a contract manufacturer or service provider because no contract exists |
| Whether extrinsic evidence (trade usage) can alter the meaning of "direct supplier" | Trade usage in the industry may define "direct supplier" to include upstream firms like Western Digital | Policy language is unambiguous on its face and should control | Term is reasonably susceptible to Plaintiff’s trade-usage meaning; insurer is charged with knowledge of insured’s trade usages; factual inquiry for jury on whether usage applies |
| Whether contra proferentem (construe ambiguity against insurer) applies | If ambiguous, interpret against insurer to afford coverage | Insurer argues no ambiguity after proper interpretation | Court did not apply contra proferentem; it must be applied only after investigating parties’ intent and if meaning remains uncertain |
Key Cases Cited
- Orr v. Bank of Am., N.T. & S.A., 285 F.3d 764 (9th Cir.) (standard of de novo review for summary judgment)
- Waller v. Truck Ins. Exch., Inc., 900 P.2d 619 (Cal. 1995) (contract terms given "meaning a layperson would ordinarily attach")
- Wolf v. Superior Court, 8 Cal. Rptr. 3d 649 (Ct. App. 2004) (parol evidence and reasonable susceptibility principles)
- Geddes v. Tri-State Ins. Co., 70 Cal. Rptr. 183 (Ct. App. 1968) (insurer charged with knowledge of insured’s trade usages)
- City of Hope Nat’l Med. Ctr. v. Genentech, Inc., 181 P.3d 142 (Cal. 2008) (factual questions for jury on trade usage)
- Bd. of Trade of S.F. v. Swiss Credit Bank, 597 F.2d 146 (9th Cir.) (contra proferentem is secondary and applied after intent inquiry)
- Globe & Rutgers Fire Ins. Co. v. Ind. Reduction Co., 113 N.E. 425 (Ind. App. 1916) (insurance law principle that insurers are charged with knowledge of industry usages)