Scottsdale Insurance Company v. Csc Agility Platform, Inc., 19-55249

CSC (Computer Sciences Corporation and CSC Agility Platform, Inc.) appealed a summary-judgment ruling for Scottsdale Insurance in an insurance-coverage dispute arising from ServiceMesh’s insurance renewal application.
Question 8 on the application asked whether the insured contemplated transacting any mergers or acquisitions; ServiceMesh answered in the negative, though it entered merger discussions in October 2013 and was acquired in November 2013 (application submitted in June 2013).
CSC presented expert testimony that in the technology start-up trade usage, “contemplating being acquired” means actively considering a concrete offer or term sheet, i.e., not mere later merger discussions.
The district court gave Question 8 its ordinary meaning and rejected the trade-usage evidence as arguably irrelevant under California law, granted summary judgment for Scottsdale, and found the answer to Question 8 was material as a matter of law; it also rejected CSC’s waiver and estoppel defenses.
The Ninth Circuit vacated and remanded, holding that the district court erred by dismissing trade-usage evidence and directing the district court to consider CSC’s trade-usage argument under California contract interpretation rules; it affirmed the district court’s rulings on materiality, waiver, and estoppel.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Relevance of trade-usage evidence to interpreting Question 8	Trade usage in tech start-ups narrows “contemplating being acquired” to active consideration of a concrete offer; expert testimony should be admitted	The district court treated the phrase by ordinary meaning and excluded trade-usage evidence as arguably irrelevant	Court held excluding trade-usage evidence was error; remanded to apply California law on trade usage and consider further briefing
Materiality of the answer to Question 8	CSC contended the negative answer was not immaterial	Scottsdale argued the insurer’s specific inquiry establishes materiality and a “yes” would have affected underwriting	Court held the answer was material as a matter of law; insurer’s specific questions typically establish materiality
Waiver defense	CSC argued Scottsdale waived reliance by failing to inquire despite knowledge of later merger activity	Scottsdale argued known facts (Oct discussions, Nov acquisition) did not distinctly imply June discussions	Court rejected waiver: revealed facts did not distinctly imply the omitted material fact at application time
Estoppel defense	CSC argued Scottsdale had knowledge of falsity and should be estopped from denying coverage	Scottsdale argued it lacked actual knowledge that the application answers were false	Court rejected estoppel: insurer did not have actual knowledge of falsity

Padfield v. AIG Life Ins. Co., 290 F.3d 1121 (9th Cir. 2002) (standard of review for summary judgment)
Ermolieff v. R.K.O. Radio Pictures, 122 P.2d 3 (Cal. 1942) (trade usage can control contract meanings if parties in that trade)
Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, 88 Cal. Rptr. 2d 777 (Ct. App. 1999) (trade usage may supply special meaning to contract terms)
Wolf v. Superior Court, 8 Cal. Rptr. 3d 649 (Ct. App. 2004) (discussing intent and specialized meanings in contract interpretation)
LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co., 67 Cal. Rptr. 3d 917 (Ct. App. 2007) (insurer’s specific application questions ordinarily establish materiality)
Thompson v. Occidental Life Ins. Co., 513 P.2d 353 (Cal. 1973) (same: insurer’s question supports materiality)
Colony Ins. Co. v. Crusader Ins. Co., 115 Cal. Rptr. 3d 611 (Ct. App. 2010) (waiver and estoppel standards where insurer fails to inquire or has knowledge)
United States v. Mancuso, 718 F.3d 780 (9th Cir. 2013) (discussion of preserving appellate rulings for remand)