Liberty Insurance Underwriters, Inc. v. Davies Lemmis Raphaely Law Corp.
708 F. App'x 374
| 9th Cir. | 2017Background
- Liberty Insurance Underwriters sued in federal court for a declaratory judgment to limit its obligation while defending seven state-court suits against its insureds, Davies Lemmis Raphaely Law Corporation (DLR).
- The district court denied DLR’s motion to stay the declaratory action and granted summary judgment to Liberty, ending Liberty’s duty to continue defending the underlying suits.
- The insurance policy contained a provision treating "claims...arising out of or attributable to the same or related wrongful acts" as a single claim subject to one limit.
- The seven underlying state actions each alleged DLR had conflicts of interest (representing both buyers and promoters) and drafted offering documents that misrepresented that sellers would pay commissions (hiding commissions in the price).
- Liberty argued the suits arose from a common plan and thus were "related wrongful acts" subject to a single claim limit; DLR argued the district court should have stayed the federal action and that the suits were separate claims.
- The Ninth Circuit affirmed: the district court did not abuse its discretion in denying the stay and correctly held the seven suits were "related" under the policy, so a single-claim limit applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court should have stayed/abstained from the declaratory judgment action | Liberty: federal declaratory suit appropriate; no need to abstain | DLR: district court should have stayed/abstained in favor of ongoing state proceedings | Court: No abuse of discretion; stay/abstention denied; federal action permissible |
| Whether seven underlying suits constitute a single "related wrongful acts" claim under the policy | Liberty: suits are logically related by a common plan to hide commissions and induce investment, so single-claim limit applies | DLR: suits are separate, not causally the same, so multiple limits should apply | Court: Held related; common purpose/plan satisfies policy; single claim limit applies |
Key Cases Cited
- United States v. Peninsula Commc’ns, Inc., 287 F.3d 832 (9th Cir. 2002) (standard for reviewing abstention/stay decisions: abuse of discretion)
- Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (factors and guidance on federal declaratory actions and abstention)
- Aetna Cas. & Sur. Co. v. Merritt, 974 F.2d 1196 (9th Cir. 1992) (insurer may invoke diversity jurisdiction for coverage declaratory judgments)
- Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 5 Cal.4th 854 (Cal. 1993) (definition of "related" wrongful acts includes logical connections)
- Safeco Ins. Co. of Am. v. Fireman’s Fund Ins. Co., 148 Cal. App. 4th 620 (Cal. Ct. App. 2007) (look to cause/common plan rather than number of injurious effects)