SUNRISE SPECIALTY COMPANY, INC. and ROBERT WEINSTEIN v. Scottsdale Insurance Company

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SUNRISE SPECIALTY COMPANY, INC.
and ROBERT WEINSTEIN,
Plaintiffs-Appellants,
v.
SCOTTSDALE INSURANCE COMPANY,
Defendant-Appellee.
No. 16-16856
D.C. No. 4:16-cv-01461-HSG
MEMORANDUM*
Appeal from the United States District Court
for the Northern District of California
Haywood S. Gilliam, Jr., District Judge, Presiding
Submitted December 7, 2017**
San Francisco, California
Before: M. SMITH and IKUTA, Circuit Judges, and MCAULIFFE,*** District
Judge.
* 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 Steven J. McAuliffe, United States District Judge for
the District of New Hampshire, sitting by designation.
FILED
DEC 27 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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This is an insurance coverage dispute. The insureds, Sunrise Specialty
Company, Inc. (“Sunrise”) and its CEO, Robert Weinstein, appeal from the district
court’s entry of summary judgment in favor of the insurer, Scottsdale Insurance
Company (“Scottsdale Insurance”). We have jurisdiction under 28 U.S.C. § 1291,
and review the district court’s entry of summary judgment de novo. Campidoglio
LLC v. Wells Fargo & Co., 870 F.3d 963, 973 (9th Cir. 2017).
In October of 2014, three of Sunrise’s minority shareholders (and former
members of its board of directors) filed suit against Sunrise and Weinstein alleging,
among other things, that Weinstein had breached his fiduciary obligations to the
corporation. Sunrise promptly notified Scottsdale Insurance of the suit and
demanded a defense and indemnification under the policy. Scottsdale denied
coverage, invoking the policy’s “insured vs. insured exclusion,” noting that
because each of the plaintiffs had previously served on Sunrise’s board of directors,
each was an “Insured” as defined in the policy.
Sunrise and Weinstein sued Scottsdale Insurance in federal court, asserting
claims for breach of the insurance policy and breach of the duty to defend, as well
as breach of the covenant of good faith and fair dealing. The district court granted
Scottsdale’s motion for summary judgment, concluding that the pertinent policy
language was unambiguous, there were no genuinely disputed issues of material
fact, and the policy’s “insured vs. insured” exclusion applied. Accordingly, the

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court ruled that Scottsdale had, as a matter of law, properly denied coverage. This
appeal followed.
All parties agree that the plaintiffs in the underlying state suit are “Insureds”
as defined in the policy and, therefore, the policy’s “insured vs. insured” coverage
exclusion does apply. But Sunrise and Weinstein contend that an exception to that
exclusion, known as the “derivative claim exception,” also applies, thereby
triggering coverage. The district court found that it did not, and we agree.
The “derivative claim exception” applies only if the underlying suit was
“brought derivatively by a securities holder” and was “instigated and continued
totally independent of, and totally without the solicitation, assistance, active
participation of, or intervention of, any Insured.” Sunrise argues that the
underlying plaintiffs were merely “nominal parties” who did not instigate, assist, or
actively participate in the underlying lawsuit. That suggestion is speculative and
unsupported by the record. Moreover, because a lawsuit cannot be instigated and
continued totally independent of its named plaintiffs, the derivative exception
would still apply even if the named plaintiffs had a minimal role in conducting the
litigation. But, in any event, Scottsdale refuted the argument that the plaintiffs
were merely nominal. The record reveals that the underlying complaint includes
statements taken directly from personal emails that Weinstein sent to the
underlying plaintiffs. Plainly, then, those underlying plaintiffs (all of whom are

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“Insureds”) at least “assisted” and/or “actively participated” in drafting the
complaint by providing counsel with copies of those emails.
The record discloses no genuine dispute with respect to any material fact.
The district court correctly concluded that, as a matter of law, the “derivative claim
exception” does not apply, and Scottsdale properly denied coverage under the
policy pursuant to the “insured vs. insured” coverage exclusion.
AFFIRMED.

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