the Burlington Insurance Company v. CHWC, INC., DBA Crazy Horse Restaurant and Nightclub

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
THE BURLINGTON INSURANCE
COMPANY,
Plaintiff-counter-defendant -
Appellee,
v.
CHWC, INC., DBA Crazy Horse
Restaurant and Nightclub,
Defendant,
and
RUDY MARTINEZ, Jr.,
Defendant-counter-claimant -
Appellant.
No. 12-55285
D.C. No. 2:11-cv-02926-R-FFM
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted January 8, 2014
Pasadena, California
FILED
MAR 03 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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Before: W. FLETCHER, M. SMITH, and WATFORD, Circuit Judges.
1. The district court erred by granting summary judgment for Burlington on
the ground that it had no duty to defend (and thus, a fortiori, no duty to
indemnify).
Burlington received both Martinez’s complaint and the police report (which
included multiple witness statements) before it denied coverage. Martinez’s
complaint alleged that he had been injured as a result of an assault by Crazy Horse
security guards, allegations that appeared to bring Martinez’s injuries within the
policy’s assault-or-battery exclusion. (The exclusion precludes coverage for
injuries “[a]rising out of assault or battery, or out of any act or omission in
connection with the prevention or suppression of an assault or battery.”) But the
police report and attached witness statements also contained facts indicating that
Martinez’s injuries might have been caused by events that would not fall within the
assault-or-battery exclusion. Those extrinsic facts, which Burlington was obligated
to consider in making its coverage decision, triggered a duty to defend because
they “reveal[ed] a possibility that the claim may be covered by the policy.”
Montrose Chem. Corp. of Cal. v. Superior Court, 861 P.2d 1153, 1157 (Cal. 1993).
Specifically, some of the witness statements provided to Burlington stated
that Martinez was injured when he tried to sit down on a stool, lost his footing, and

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Page 3 of 5
hit his head on the wall. That version of events would not fall within the exclusion
unless Martinez’s fall “ar[ose] out of assault or battery, or out of any act or
omission in connection with the prevention or suppression of an assault or battery.”
Some of the witness statements indicated that, before being escorted out of the
club, Martinez may have assaulted a female patron on the dance floor. If true, this
incident could render the exclusion applicable even if Martinez had been injured by
the fall from the stool. But other witness statements contain no indications of any
such assault. If it proved true that no assault or battery occurred, and Martinez’s
injuries were in fact caused by the fall from the stool, the assault-or-battery
exclusion would not apply. Thus, the extrinsic facts available to Burlington
indicated the potential for coverage, which is all that was necessary to trigger its
duty to defend. Gray v. Zurich Ins. Co., 419 P.2d 168, 176 (Cal. 1966).
We recognize that extrinsic facts cannot trigger a duty to defend when they
relate only to claims that have not been pleaded in the third-party claimant’s
complaint. That was true in all of the cases on which Burlington relies. See, e.g.,
Microtec Research, Inc. v. Nationwide Mut. Ins. Co., 40 F.3d 968, 970–71 (9th Cir.
1994); Storek v. Fid. & Guar. Ins. Underwriters, Inc., 504 F. Supp. 2d 803, 808,
811 (N.D. Cal. 2007); Ulta Salon, Cosmetics & Fragrance, Inc. v. Travelers Prop.
Cas. Co. of Am., 127 Cal. Rptr. 3d 444, 449 (Ct. App. 2011); Gunderson v. Fire

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Page 4 of 5
Ins. Exch., 44 Cal. Rptr. 2d 272, 277–78 (Ct. App. 1995). But here the extrinsic
facts at issue do relate to a claim pleaded in Martinez’s complaint—namely, his
negligence claim. Although as originally pleaded Martinez’s negligence claim was
predicated on the theory that he had been assaulted, the extrinsic facts available to
Burlington revealed the possibility that Martinez could amend his negligence claim
to allege theories of liability that would fall outside the assault-or-battery
exclusion. Under well-settled California law, that possibility was enough to trigger
Burlington’s duty to defend. See Montrose, 861 P.2d at 1160; Gray, 419 P.2d at
176–77.
2. Even if, as we hold, Burlington had a duty to defend, it may still prevail if
it can establish that it owes no duty to indemnify. Burlington has a duty to
indemnify only if the state court judgment entered against Crazy Horse rests on a
liability within the policy’s coverage. See Hogan v. Midland Nat’l Ins. Co., 476
P.2d 825, 832–33 (Cal. 1970). The state court judgment is predicated on Crazy
Horse’s negligence in preventing Martinez’s fall from the stool, not on the theory
that Martinez was assaulted or battered by Crazy Horse’s security guards. Thus,
the state court judgment on its face precludes any finding that Martinez’s injuries
“ar[ose] out of assault or battery” within the meaning of the first clause of the
exclusion. Burlington nonetheless argues that the state court judgment is covered

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by the second clause of the assault-or-battery exclusion, thereby relieving it of any
duty to indemnify.
Material factual disputes preclude granting summary judgment to Burlington
on this ground. The state court judgment did not resolve whether Martinez’s fall
from the stool “ar[ose] . . . out of any act or omission in connection with the
prevention or suppression of an assault or battery” within the meaning of the
second clause of the exclusion. As noted above, resolution of that issue turns on
whether Martinez did or did not assault a female patron on the dance floor before
being escorted out of the club—an issue the state court judgment does not address
at all, since it was irrelevant to determining whether Crazy Horse was negligent in
preventing Martinez’s fall from the stool. Accordingly, the state court judgment
has not expressly or impliedly resolved a material factual dispute related to
coverage, rendering summary judgment for Burlington improper. See id. at 833.
REVERSED and REMANDED.

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Burlington Ins. Co., v. Martinez, 12-55285
M. SMITH, Circuit Judge, dissenting:
The majority holds that, under California law, an insurer carries a duty to
defend, based on hypothetical theories of liability that are found in evidence
extrinsic to the complaint, even where no such theories of liability are actually
pleaded. In my view, this holding is contrary to clearly established California law. I
respectfully dissent.
Under California law, the duty to defend “is not unlimited.” Buss v. Superior
Court, 939 P.2d 766, 773 (Cal. 1997). A determination regarding “whether the
insurer owes a duty to defend usually is made . . . by comparing the allegations of
the complaint with the terms of the policy.” Horace Mann Ins. Co. v. Barbara B.,
846 P.2d 792, 795 (Cal. 1993). In assessing the allegations in the complaint,
“coverage turns not on the technical legal cause of action pleaded by the third party
but on the facts [actually] alleged.” Swain v. Cal. Cas. Ins. Co., 99 Cal. App. 4th 1,
8–9 (2002) (emphasis added).
“Facts extrinsic to the complaint [may] also give rise to a duty to defend.”
Id. at 8. But extrinsic facts will only create a duty to defend where they reveal a
possibility that the claims actually alleged may be covered by the policy. Horace
Mann, 846 P.2d at 795 (explaining that extrinsic facts “give rise to a duty to defend
FILED
MAR 03 2014
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
1

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when they reveal a possibility that the claim may be covered by the policy”
(emphasis added)). A duty to defend does not arise merely because extrinsic facts
establish that claims within the policy’s purview could have been asserted, where
no such claims were actually brought. Id. Accordingly, in determining whether a
duty to defend exists, courts decline to look to extrinsic evidence where the
plaintiff does not “allege the type of damages covered by the policy.” The Upper
Deck Co. v. Federal Ins. Co., 358 F.3d 608, 615–16 (9th Cir. 2004). “An insured
may not trigger the duty to defend by speculating about extraneous ‘facts’
regarding potential liability or ways in which the third party claimant might amend
its complaint at some future date.” Gunderson v. Fire Ins. Exch., 44 Cal. App. 4th
1106, 1114 (1995).
Crazy Horse’s insurance policy contains an “assault or battery exclusion,”
which provides that the policy does not cover any bodily injury “[a]rising out of
assault or battery, or out of any act or omission in connection with the prevention
or suppression of an assault or battery.” It is also undisputed that Martinez’s
Complaint and Amended Complaint (Complaints) solely alleged that his injuries
arose from Crazy Horse’s employees’ wrongful acts of physical violence.
Although the factual allegations that Martinez actually asserted do not establish
any legal claim creating a possibility of coverage, the majority concludes that
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Burlington was obligated to defend Crazy Horse, because facts extrinsic to the
Complaints indicated that Martinez may have suffered additional injuries as a
result of falling from a stool. I disagree.
Under California law, an insurer’s duty to defend is not triggered where the
underlying claims raise no potential for liability covered by the policy. Horace
Mann, 846 P.2d at 795. “[And] [t]he possibility of an amendment does not require
the insurer to speculate about any conceivable claim that a plaintiff might bring
against the insured . . .” Upper Deck, 358 F.3d at 615–16. For whatever reason,
Martinez’ Complaints did not include any allegations indicating that he fell from a
stool, and they solely alleged facts and theories of liability that the policy did not
cover. Under such circumstances, California law does not require an insurer to
provide coverage based on potential theories of liability that were not pleaded.
And, as “a determination that there is no duty to defend automatically means that
there is no duty to indemnify,” I would affirm the district court’s order, holding
that Burlington is not now liable to Martinez as a judgment creditor. Certain
Underwriters at Lloyd’s of London v. Superior Court, 16 P.3d 94, 104 (Cal. 2001)
(internal quotations and citations omitted).
I respectfully dissent.
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