Unpublished Disposition, 877 F.2d 64 (9th Cir. 1988)

No. 88-6080.

United States Court of Appeals, Ninth Circuit.

W. Matthew Byrne, District Judge, Presiding.

Before FLETCHER and KOZINSKI, Circuit Judges, and CHARLES A. LEGGE,^*  District Judge.

MEMORANDUM^** 

Fremont Indemnity Co. brought this action to determine whether it is liable under a real estate broker's liability policy that it issued to defendant John Brennan. The case was tried to the district court on stipulated facts. The district court filed its findings of facts, conclusions of law, and judgment on March 25, 1988, finding for Fremont. Defendants appeal.

Fremont issued the policy to Brennan for the period July 1, 1983 to October 1, 1984. It is a "claims-made" policy, covering claims made against Brennan during the policy period. The critical portion of the policy reads:

This policy applies to acts, errors or omissions which occur anywhere in the world provided that claim is made and suit is brought against the Insured in the United States of America, its territories or possessions or Canada:

A) during the Policy period and then only if claim is first made during the Policy period, or

B) prior to the effective date of the Policy, provided that:

1) no insured had knowledge of any circumstance which might result in a claim at the effective date of the first Policy issued to the insured and continuously renewed thereafter; and

2) there is no other valid and collectible insurance available to the insured for any such prior act, error or omission; and

3) claim is first made against the insured during the Policy period. (Emphasis added).

The issue on appeal is whether Brennan (and his contractor Stanton) are entitled to insurance coverage for suits brought against them alleging that real estate appraisals they performed for mortgage loans were fraudulent. All of the suits against them were filed after the policy period expired. Brennan admits that he did not have actual knowledge of any claims against him during the policy period, and that he did not notify Fremont of the possibility of claims during the policy period.

Appellants claim coverage based on the following events which occurred during the policy period: 1) Government investigators told the lender (but not Brennan) that certain appraisals were inflated. The names of the appraisers were not specified, although the borrowers were named. 2) An article appeared in the Los Angeles Times stating that the lender used "deficient" appraisals in making property loans. Brennan did not see the article. 3) Brennan's deposition was taken in connection with suits against the lender. Brennan did not inform Fremont that his deposition had been taken. Before the policy expired, no one told Brennan that his appraisals were inflated, nor did anyone demand compensation or corrective action from him.

Subject matter jurisdiction was appropriate under 12 U.S.C. § 1730(k) (1) (B) and 28 U.S.C. § 2201. Final judgment was entered on March 28, 1988, and appellate jurisdiction is proper under 28 U.S.C. § 1291. This court reviews the district court's factual findings concerning the interpretation of a contract for clear error; principles of contract interpretation are legal issues to be reviewed de novo. Penthouse Int'l, Ltd. v. Barnes, 792 F.2d 943, 948 (9th Cir. 1986).

Appellants make several arguments concerning the interpretation of the "claims made" language of the policy. The first is that the policy is generally ambiguous, and therefore should be construed against the insurer. However, appellants' construction of the language would render the policy subject to several inconsistencies and redundancies. The district court's interpretation makes a consistent whole out of the language. Appellants' argument about general ambiguity also does not compel reversal unless appellants can suggest a correct interpretation which would support coverage on the facts here. VTN Consolidated, Inc. v. Northbrook Insurance Co., 92 Cal. App. 3d 888, 892, 155 Cal. Rptr. 172, 174 (1979); Blumberg v. Guarantee Insurance Co., 192 Cal. App. 3d 1286, 1296, 238 Cal. Rptr. 36, 41 (1987). Appellants have not done so.

The core issue here is whether allegations of wrongdoing made to third parties can constitute a claim made against appellants. Appellants contend that the policy term "claim" covers the facts here. According to appellants, the word "claim" does not require that it be directed to the purported wrongdoer. Therefore, appellants contend, the federal investigator's assertion that the appraisals were inflated constituted a claim, since it was an accusation of wrongdoing, even though it was directed to the lender and not to Brennan.

California courts have interpreted "claims made" provisions in several cases. The word does not require further definition within the policy. Williamson & Vollmer Eng'g, Inc. v. Sequoia Ins. Co., 64 Cal. App. 3d 261, 269, 134 Cal. Rptr. 427, 431 (1976), defined "claim" as "an assertion of a legal right, as distinguished from a recognition of that right." Phoenix Insurance Co. v. Sukut Construction Co., Inc., 136 Cal. App. 3d 673, 677-78, 186 Cal. Rptr. 513, 514-15 (1982), defined a claim as a demand for action, holding that a request for corrective performance was a "claim," even though it was not pursued. Likewise, the court in Hoyt v. St. Paul Fire & Marine Ins. Co., 607 F.2d 864, 866 (9th Cir. 1979), held that a letter to an insured attorney during the policy period did not constitute a claim, because it asked for an explanation, not corrective action. Finally, Employers Reinsurance Corp. v. Phoenix Ins. Co., 186 Cal. App. 3d 545, 555, 230 Cal.Rtpr. 792, 797 (1986), stated that a claim, in contrast to a suit, involves some kind of notice by its very nature.

While a claim can be made against an insured without actually filing a lawsuit, the claim must be a demand for some kind of corrective action directed or addressed to the insured. The very meaning of the word, as defined by customary usage and case law, includes the idea that the assertion of wrongdoing be directed toward a person who has an obligation to respond to it. In this case, no assertion of wrongdoing and no demand for corrective action was directed to Brennan during the policy period.

Appellants may be correct that notice is different from the requirement that a "claim" be "made." A claim may go astray (lost in the mail), or a claim may be directed to an unknown person ("the person who arrested me"). In such situations, a claim may have been made even though the insured received no notice. However, there are no such facts in this case.

Appellants' final argument is that the federal investigator's statements to the lender constituted a claim to Brennan's agent, and Brennan is therefore presumed to have had notice of the claim. Cal.Civ.Code Sec. 2332 provides:

As against a principal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other.

Appellants point to general allegations in the underlying complaints that all defendants were agents and principals of each other. However, according to the stipulated facts presented to the district court, Brennan was not hired by the lender but by the borrower. There are no facts in the record under which the lender could be Brennan's agent.

We conclude that the district court correctly found that no claim had been made against Brennan during the policy period. We need not reach the issue of whether the appraisals were acts covered by the insuring agreements of the policy.

The decision of the district court is affirmed.