UNITY COURIER SERVICE, INC., a California corporation; ALI SHARIFI v. Hudson Insurance Company

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITY COURIER SERVICE, INC., a
California corporation; ALI SHARIFI,

Plaintiffs-Appellants,

v.

HUDSON INSURANCE COMPANY,

Defendant-Appellee.

No. 19-56168

D.C. No.
2:18-cv-08143-RGK-GJS

MEMORANDUM
*

Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding

Submitted October 7, 2020
**

Pasadena, California

Before: M. SMITH and OWENS, Circuit Judges, and CARDONE,
***
District
Judge.

Unity Courier Service, Inc., and Ali Sharifi (collectively, “Unity”) appeal

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.

**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).

***
The Honorable Kathleen Cardone, United States District Judge for the
Western District of Texas, sitting by designation.
FILED

OCT 9 2020

MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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from the district court’s summary judgment in favor of Hudson Insurance
Company (“Hudson”) in a diversity insurance coverage action arising out of
Hudson’s refusal to defend Unity in an underlying state court class action
(“underlying action”). “We review de novo a district court’s decision to grant
summary judgment.” Weber v. Allergan, Inc., 940 F.3d 1106, 1110 (9th Cir.
2019). As the parties are familiar with the facts, we do not recount them here. We
affirm.
“Under California law, an insurer must defend its insured ‘if the underlying
complaint alleges the insured’s liability for damages potentially covered under the
policy, or if the complaint might be amended to give rise to a liability that would
be covered under the policy.’” Manzarek v. St. Paul Fire & Marine Ins. Co., 519
F.3d 1025, 1031 (9th Cir. 2008) (quoting Montrose Chem. Corp. v. Superior Court,
861 P.2d 1153, 1160 (Cal. 1993)). “The determination whether the insurer owes a
duty to defend usually is made in the first instance by comparing the allegations of
the complaint with the terms of the policy.” Id. (quoting Montrose Chem. Corp.,
861 P.2d at 1157).
Here, the district court properly determined that Hudson’s duty to defend
was not triggered because Unity failed to raise a genuine dispute of material fact
that the underlying action was potentially covered, or might be amended to be
covered, under the insurance policy. See id. Contrary to Unity’s contention, the

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underlying action was not potentially covered by a provision of the insurance
policy stating that an “Employment Practices Wrongful Act” includes an alleged
“breach of any oral, written, or implied employment contract, including, without
limitation, any obligation arising from a personnel manual, employee handbook, or
policy statement.”
The underlying action’s allegation that Unity had a policy and practice that
failed to properly reimburse its delivery drivers for employment-related expenses
in violation of California labor law was not potentially covered by this provision
because the underlying action did not allege the “breach” of an obligation arising
from an employee handbook or policy statement. Rather, the underlying action
alleged that Unity followed its own expense reimbursement policy. Under the
plain language of the insurance policy, it is insufficient that the allegation merely
arose from an employee handbook or policy statement.
Likewise, the underlying action’s allegation that Unity misrepresented that
its policies complied with all applicable laws also did not allege a potentially
covered Employment Practices Wrongful Act. Following Unity’s suggested
interpretation would strain the insurance policy language by rendering superfluous
the other Employment Practices Wrongful Act provisions which limit coverage to
specific claims. See Producers Dairy Delivery Co. v. Sentry Ins. Co., 718 P.2d
920, 925 (Cal. 1986) (stating that words in a policy “must be read in their ordinary

4
sense” and an “ambiguity cannot be based on a strained interpretation of the policy
language”).
Finally, the district court properly determined that Unity failed to raise a
genuine dispute of material fact that Hudson did not undertake a reasonable
investigation before denying a duty to defend the underlying action. See Am. Int’l
Bank v. Fidelity & Deposit Co., 57 Cal. Rptr. 2d 567, 574-75 (Ct. App. 1996)
(holding that the insurer conducted a reasonable investigation by reviewing the
complaint and the insurance policy). Unity contends that if Hudson had conducted
a reasonable investigation, it would have discovered that Unity had an employee
handbook which contained a policy statement regarding expense reimbursement.
However, as discussed above, even if Hudson had discovered the existence of an
employee handbook with such a policy statement, it would not have altered the
coverage determination because the underlying action did not allege a “breach” of
that policy statement.
AFFIRMED.