Unpublished Disposition, 930 F.2d 27 (9th Cir. 1989)

MEMORANDUM^* 

Gerald Fick appeals the district court's grant of Foremost Insurance Company and American Bankers Insurance Company's motion for summary judgment and the court's denial of his motion to amend his cross-complaint. This court has jurisdiction pursuant to 28 U.S.C. § 1332 (1988). We affirm in part and reverse in part.

BACKGROUND

In December, 1985, residents of a mobile home park owned by the appellant, Gerald Fick, brought suit against Fick in California Superior Court. The suit, entitled Ball v. Fick, alleged defects in the mobile home park's sewer, electrical, water and gas systems, a lack of park maintenance, breaches of the Mobile Home Park Residency Laws, and a pattern of oppressive and retaliatory conduct. The plaintiffs prayed for compensatory and punitive damages.

Fick held liability insurance contracts with both Foremost Insurance Company ("Foremost") and American Bankers Insurance Company ("American"). Fick tendered defense of Ball to Foremost and American, and the insurers accepted defense of the action under a full reservation of rights. Fick's personal counsel, Michael Walters, was retained to conduct Fick's defense.

In May 4, 1987, Foremost brought a declaratory relief action in United States District Court seeking a determination of its rights, duties and obligations in connection with the Ball suit. The complaint named both Fick and American as defendants. It was Foremost's position that many of the claims made by the plaintiffs in Ball were not covered under its insurance policy with Fick.

On May 13, 1987, the parties in Ball convened at a judicially supervised settlement conference. A settlement of $600,000 was reached with Fick, Foremost and American each contributing $200,000. The terms of the settlement agreement were entered into the record as follows:

MR. McFALL [attorney for American Bankers]: It's stipulated between Mr. Fick, Foremost Insurance Company and American Bankers that the stipulation for judgment is non-binding on and without effect on Mr. Fick and the carriers, Foremost Insurance Company and American Bankers in any dispute that may arise as a result of this litigation; and is further stipulated that the insurance carriers, Foremost Insurance Company and American Bankers, agree not to pursue declaratory relief action against their insured, Mr. Fick, so long as Mr. Fick does not bring any action based on statute, contract or common law against one or both of these carriers as a result of this litigation.

MR. WALTERS: That is the stipulation as we understand it, your honor. That is, that the judgment as recited is without prejudice to either side and that if Mr. Fick does not sue the insurance companies, they will not ask that he make any further contribution on the matter.

THE COURT: I believe that correctly sums it up. Mr. Fick, do you understand the stipulation?

MR. FICK: Yes.

MR. WALTERS: Are you willing to be bound by it?

MR. FICK: Yes.

MR. PIKE [attorney for Foremost Insurance Company]: So agreed by Foremost Insurance Company.

MR. MC FALL: So agreed by American Bankers.

THE COURT: I find the stipulation is fair, just and equitable, I approve it. It will be a court order.

Shortly after the settlement, Fick filed a counterclaim in the district court declaratory relief action, seeking the court's declaration that all claims in Ball, excluding the punitive damages, were covered by the terms of the insurance policies. The cross-complaint named both Foremost and American Bankers as defendants. Fick sought reimbursement of his $200,000 settlement contribution. In April, 1989, Foremost and American brought a motion for summary judgment against Fick's counterclaim, contending that Fick had knowingly participated in an informed settlement and that he failed to reserve his right to seek reimbursement of his $200,000 contribution. The district court, analyzing the settlement terms quoted above, held that Fick had not reserved his rights and therefore granted Foremost and American's motion for summary judgment.

At the summary judgment hearing, Fick made a motion to amend his cross-complaint to include a cause of action for breach of the covenant of good faith and fair dealing. Fick contends that Foremost and American improperly coerced him into contributing to the Ball settlement. The district court denied Fick's motion, and this appeal followed.

DISCUSSION

Fick contends that the district court improperly denied his motion to amend his cross-complaint to include bad faith claims.¹  This court reviews the denial of leave to amend for an abuse of discretion. Thomas-Lazear v. FBI, 851 F.2d 1202, 1206 (9th Cir. 1988). "Unless we have a definite and firm conviction that the district court committed a clear error of judgment, we will not disturb the district court's decision." McGlinchy v. Shell Chemical Co., 845 F.2d 802, 809 (9th Cir. 1988).

Fed. R. Civ. P. 15(a), governing amended pleadings, states in pertinent part, " [A] party may amend the party's pleading only by leave of court ... and leave shall be freely given when justice so requires." This circuit has emphasized that the "Supreme Court has instructed the lower federal courts to heed carefully the command of Rule 15(a), F.R.Civ.P., by freely granting leave to amend when justice so requires." Howey v. United States, 481 F.2d 1187, 1190 (9th Cir. 1973) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).

In this circuit, a court may deny a motion to amend for the following reasons: (1) undue delay, (2) bad faith, (3) prejudice to adverse party, and (4) futility of amendment. Gabrielson v. Montogomery Ward & Co., 785 F.2d 762, 766 (9th Cir. 1986). It is not clear from the transcript which ground the district court used in denying Fick's motion to amend. However, as an appellate court, we are free to affirm the district court based on any one of the four grounds for denial where the record supports such an affirmance. See Swensen v. U.S. Postal Service, 890 F.2d 1075, 1077 n. 1 (9th Cir. 1989) ("It is a well-settled principle of federal law that a court of appeals reviewing a district court's judgment may consider any ground supported by the record even where that ground was not the basis for the district court's opinion.")

It is on "undue delay" grounds that we rest our decision. The alleged bad faith occurred in connection with the settlement conference which took place on May 13, 1987. Fick filed his cross-complaint on May 22, 1987. However, Fick's motion to amend was not presented to the district court until the summary judgment hearing on April 19, 1989, almost two years later. This delay was undue. Further, Fick admits that he became aware of the insufficiency of his pleadings as of January 11, 1989, and yet the motion to amend was not made until after summary judgment was granted on April 19, 1989. See McGlinchy, 845 F.2d at 809 (where party should have known of additional causes of action when filing original complaint, and admits learning of insufficiency six months before motion amend, delay is undue).

Because the district court did not abuse its discretion, we affirm its denial of Fick's motion to amend.

Fick contends that the district court erred in granting Foremost and American's motion for summary judgment. The district court concluded that California law requires a reservation of rights by an insured to bring an action for reimbursement, and that Fick failed, in the Ball settlement, to reserve his rights to pursue Foremost and American. This court reviews a grant of summary judgment de novo. Kruso v. Int. Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, 110 S. Ct. 3217 (1990).

Whether an insured, when voluntarily contributing to a settlement agreement, must reserve its right subsequently to seek reimbursement from its insurer is an issue of first impression in California. If this issue was determinative in the instant case, we would have to anticipate the path of California law. However, it is unnecessary for us directly to reach the issue. Whether or not California requires a reservation, we find that Fick's action is not barred.

If no reservation is required, then obviously there is no bar to Fick's suit. Further, if a reservation is required, we would find that Fick adequately reserved his rights. Under the terms of the settlement agreement, Fick, Foremost, and American agreed that the settlement was "non-binding on and without effect on [Fick]." Foremost and American agreed not to pursue legal action against Fick "so long as Mr. Fick does not bring any action based on statute, contract or common law against ... [Foremost and American]." Although the settlement never specifically states that Fick will seek reimbursement from his insurers, its terms clearly contemplate subsequent action by Fick based on the insurance policies. The insurers were placed on notice that Fick was entitled to pursue legal action. In fact, Foremost and American specifically reserved their right to seek reimbursement from Fick in the event Fick sought to enforce his rights.

Foremost and American contend that even if this court determines that Fick is entitled to bring his action for reimbursement, that summary judgment is appropriate. That can only be correct if no issues of material fact exist concerning Fick's right to reimbursement of his settlement contribution. Fed. R. Civ. P. 56(c).

Foremost and American have a duty to indemnify Fick for only those damages covered by the insurance policy. Therefore, to recover his settlement contribution, Fick must prove that the insurers had a duty to indemnify him for some or all of the $200,000 he contributed to the Ball settlement.

If Foremost and American have a duty to indemnify Fick for any portion of the Ball settlement, then the exact extent of coverage is a material question of fact. Neither Foremost nor American dispute that Ball involved claims which were both covered by and not covered by Fick's insurance policies with the carriers. It is clear to us that the exact level of coverage is a material question of fact to be litigated by the parties. Therefore, we must reverse the district court's grant of summary judgment and remand the case for Fick, Foremost, and American to determine the appropriate levels of contribution to the Ball settlement.

We note that on remand, Foremost and American will be entitled to pursue their rights and obligations against Fick, and presumably seek reimbursement for their settlement contributions.

CONCLUSION

We affirm in part and reverse in part. The district court's denial of Fick's motion to amend his cross-complaint is affirmed. The district court's grant of summary judgment in favor of Foremost and American is reversed, and the case is remanded for further proceedings. Costs of appeal are awarded to Fick.