MedeAnalytics, Inc. v. Federal Insurance Company

Filing 31

ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANTS MOTION FOR PARTIAL SUMMARY JUDGMENT by Judge Jon S. Tigar denying 21 Motion for Partial Summary Judgment; granting 22 Motion for Partial Summary Judgment. (wsn, COURT STAFF) (Filed on 2/19/2016)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6
7

MEDEANALYTICS, INC.,

Case No. 15-cv-04101-JST

Plaintiff,
8
v.
9
10

FEDERAL INSURANCE COMPANY,
Defendant.

United States District Court
Northern District of California

11

ORDER GRANTING PLAINTIFF’S
MOTION FOR PARTIAL SUMMARY
JUDGMENT AND DENYING
DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT
Re: ECF Nos. 21, 22

12

Plaintiff MedeAnalytics, Inc. (“Mede”) filed this insurance coverage action against Federal

13

Insurance Company (“Federal”), alleging breach of contract and breach of the implied covenant of

14

good faith and fair dealing. According to Mede, Federal breached the parties’ insurance policy by

15

denying its duty to defend Mede in a lawsuit filed by third party Stella Systems, LLC (“Stella”).

16

Before the Court are the parties’ cross-motions for partial summary judgment regarding Federal’s

17

duty to defend. ECF Nos. 21, 22. For the reasons set forth below, Plaintiff’s motion for partial

18

summary judgment is granted, and Defendant’s motion for partial summary judgment is denied.

19

I.

BACKGROUND

20

A.

21

Mede provides financial performance analytics software to the healthcare industry. ECF

Undisputed Facts

22

No. 1 ¶ 5. Federal insured Mede under two commercial liability insurance policies for the periods

23

of December 31, 2012 through December 31, 2013 and December 31, 2013 through December 31,

24

2014. ECF Nos. 22-5, 22-6. Because the relevant provisions in both policies contain the same

25

language, the Court refers to both policies collectively as the “Policy.” Id.

26

The Policy provides: “Subject to all of the terms and conditions of this insurance, [Federal]

27

will pay damages that the insured becomes legally obligated to pay by reason of liability . . .

28

imposed by law . . . for . . . personal injury to which this coverage applies.” ECF No. 22-5 at 6;

1

ECF No. 22-6 at 6 (emphasis in original). “Personal injury” is defined to include “injury, other

2

than bodily injury, property damage or advertising injury, caused by an offense of . . .

3

electronic, oral, written or other publication of material that libels or slanders a person or

4

organization (which does not include disparagement of goods, products, property or services).”

5

ECF No. 22-5 at 37; ECF No. 22-6 at 36 (emphasis in original). The Policy also contains the

6

following exclusion: “[t]his insurance does not apply to advertising injury or personal injury

7

arising out of breach of contract.” ECF No. 22-5 at 18; ECF No. 22-6 at 17 (emphasis in original).

8
9

On February 26, 2014, two Ukrainian corporations, Stella Systems, LLC (“Stella”) and
Zlagoda Tekhnologii (“Zlagoda”), sued Mede in the United States District Court for the Northern
District of California (the “underlying action”). ECF No. 1 ¶ 15; Stella Systems, LLC v.

11
United States District Court
Northern District of California

10

MedeAnalytics, Inc., No. 14-cv-00880-LB (N.D. Cal. Feb. 26, 2014) (“Stella”). Stella and

12

Zlagoda filed a First Amended Complaint (“the underlying complaint”) on April 28, 2014,

13

alleging five claims: breach of contract, breach of the covenant of good faith and fair dealing,

14

intentional interference with contract, intentional interference with prospective economic

15

advantage, and negligent interference with prospective economic advantage. ECF No. 1 ¶ 15;

16

Stella, No. 14-cv-00880-LB, ECF No. 18 (N.D. Cal. April 28, 2014).

17

According to the underlying complaint, Stella and Zlagoda “provided information

18

technology services in the areas of business intelligence and financial analytics to [Mede] pursuant

19

to an Agency Agreement between Zlagoda and Mede . . . .” Stella, ECF No. 18 at 2. The

20

underlying complaint alleged that “[b]eginning in 2013, Mede . . . solicited Stella’s employees to

21

work directly for Mede in an attempt to drive [Stella and Zlagoda] out of business, and in breach

22

of a Non-Solicitation Clause in the [Agency] Agreement.” Id. The complaint further alleged that

23

Mede “ma[d]e disparaging comments about Stella and its directors and officers.” Id. ¶ 20.

24

On April 29, 2014, Mede tendered the underlying complaint to Federal for a defense. ECF

25

No. 22-8. On May 28, 2014, Federal informed Mede that Federal had concluded that it no duty to

26

defend or indemnify Mede in the underlying action. ECF No. 22-9.

27

B.

28

Mede filed this action against Federal on September 9, 2015, alleging breach of contract

Procedural History

2

1

and breach of the implied covenant of good faith and fair dealing. ECF No. 1. On January 14,

2

2016, Mede and Federal filed cross-motions for partial summary judgment regarding Federal’s

3

duty to defend Mede in the underlying action, ECF Nos. 21, 22, which motions the Court now

4

considers.

5

C.

6

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a) because the

Jurisdiction

7

parties are diverse and the amount in controversy exceeds $75,000. ECF No. 1 ¶¶ 1–2.

8

II.

LEGAL STANDARD
Summary judgment is proper when a “movant shows that there is no genuine dispute as to

9

any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

11
United States District Court
Northern District of California

10

“A party asserting that a fact cannot be or is genuinely disputed must support the assertion by”

12

citing to depositions, documents, affidavits, or other materials. Fed. R. Civ. P. 56(c)(1)(A). A

13

party also may show that such materials “do not establish the absence or presence of a genuine

14

dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed. R.

15

Civ. P. 56(c)(1)(B). An issue is “genuine” only if there is sufficient evidence for a reasonable

16

fact-finder to find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248–

17

49 (1986). A fact is “material” if the fact may affect the outcome of the case. Id. at 248. “In

18

considering a motion for summary judgment, the court may not weigh the evidence or make

19

credibility determinations, and is required to draw all inferences in a light most favorable to the

20

non-moving party.” Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997).

21

III.

22

ANALYSIS
The parties’ cross-motions for partial summary judgment ask the Court to determine

23

whether Federal had a duty to defend Mede against the underlying action. To answer this

24

question, the Court must first determine whether the underlying action contained a potentially

25

covered claim for personal injury arising from libel or slander, the only potentially covered claim

26

asserted by Mede. If the Court determines that a duty to defend arose based on the potential for a

27

libel or slander claim, the Court must then determine whether the Policy’s breach of contract

28

exclusion negated the duty to defend.
3

1

A.

Duty to Defend

2

In California, “[a]n insurer owes a broad duty to defend against claims that create a

3

potential for indemnity under the insurance policy.” Hartford Cas. Ins. Co. v. Swift Distribution,

4

Inc., 59 Cal. 4th 277, 287 (2014). “Determination of the duty to defend depends, in the first

5

instance, on a comparison between the allegations of the [underlying] complaint and the terms of

6

the policy.” Id. (quoting Scottsdale Ins. Co. v. MC Transportation, 36 Cal. 4th 643, 654 (2005)).

7

“[T]hat the precise causes of action pled by the third party complaint may fall outside policy

8

coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable,

9

or otherwise known, the complaint could fairly be amended to state a covered liability.” Id.
(quoting Scottsdale, 36 Cal. 4th at 654). “[I]f any facts stated or fairly inferable in the

11
United States District Court
Northern District of California

10

[underlying] complaint, or otherwise known or discovered by the insurer, suggest a claim

12

potentially covered by the policy, the insurer’s duty to defend arises and is not extinguished until

13

the insurer negates all facts suggesting potential coverage.” Id. (quoting Scottsdale, 36 Cal. 4th at

14

655). Any “doubt as to whether an insurer owes a duty to defend ‘must be resolved in favor of the

15

insured.’” Id. (quoting Ringler Assocs. Inc. v. Maryland Cas. Co., 80 Cal. App. 4th 1165, 1186

16

(2000)).

17

To prevail on a motion for summary judgment regarding the duty to defend, “the insured

18

must prove the existence of a potential for coverage, while the insurer must establish the absence

19

of any such potential.” Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287, 300 (1993)

20

(emphasis in original). “In other words, the insured need only show that the underlying

21

claim may fall within policy coverage; the insurer must prove it cannot.” Id. (emphasis in

22

original). “Thus, an insurer may be excused from a duty to defend only when ‘the third party

23

complaint can by no conceivable theory raise a single issue which could bring it within the policy

24

coverage.’” Swift, 59 Cal. 4th at 288 (quoting Montrose, 6 Cal. 4th at 300).

25

Here, Mede argues that allegations made in the underlying complaint were sufficient to

26

suggest a potential for libel or slander liability covered by the Policy. ECF No. 22 at 15. The

27

Policy covers personal injury liability, including “injury, other than bodily injury, property

28

damage or advertising injury, caused by an offense of . . . electronic, oral, written or other
4

1

publication of material that libels or slanders a person or organization (which does not include

2

disparagement of goods, products, property or services).” ECF No. 22-5 at 37; ECF No. 22-6 at

3

36 (emphasis omitted). In support of its position, Mede focuses on allegations in the underlying

4

complaint that Mede “disparaged” Stella and Zlagoda, as well as their officers and directors. In

5

particular, Mede argues that the following allegations in the underlying complaint show a potential

6

for personal injury liability:

7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22

Mede, its officers, directors, agents, and employees, began to make
disparaging comments about Stella and its directors and officers in
order to create employee dissatisfaction. Stella, No. 14-cv-00880LB, ECF No. 18 ¶ 20 (emphasis added).
After Stella employees were laid off in order to implement Mede’s
requested cuts, Mede began to express “deep concerns” about
“people leaving,” as well as the “attrition” Stella was experiencing.
In addition, Mede began to complain to Stella that its service level
had diminished even though Mede had demanded that fewer
employees perform the same workload as before. Id. ¶ 21.
Mede intentionally solicited Stella’s employees, knowing that
Stella’s employees were essential to Stella in providing information
technology services in the areas of business intelligence and
financial analytics. Mede acted unreasonably and in bad faith
towards [Stella and Zlagoda] through the following acts meant to
harm [Stella’s and Zlagoda’s] businesses: (i) Mede disparaged
[Stella and Zlagoda] and their officers and directors to [Stella’s and
Zlagoda’s] employees . . . . Id. ¶ 43 (emphasis added).
Mede solicited Stella’s employees to work for Mede by disparaging
Stella and its managers and directors and by offering higher pay
which was made possible by Mede’s classification of former Stella
employees as independent contractors in violation of Ukrainian law.
Id. ¶ 59 (emphasis added).
The Court concludes that these allegations “trigger at least a potential for coverage under
the personal injury coverage for [libel and slander] provided by” the Policy. Barnett v. Fireman’s
Fund Ins. Co., 90 Cal. App. 4th 500, 510 (2001). “Libel is a false and unprivileged publication by

23
writing . . ., which exposes any person to hatred, contempt, ridicule, or obloquy, or which causes
24
25

him to be shunned or avoided, or which has a tendency to injure him in his occupation.” Cal. Civ.
Code § 45. Slander includes “a false and unprivileged publication, orally uttered . . . which . . .

26
[t]ends directly to injure [a person] in respect to his office, profession, trade or business, either by
27
imputing to him general disqualification in those respects which the office or other occupation
28
5

1

peculiarly requires, or by imputing something with reference to his office, profession, trade, or

2

business that has a natural tendency to lessen its profits . . . .” Cal. Civ. Code § 46. While the

3

allegations in the underlying complaint did not provide factual support for each element of a libel

4

or slander claim, because “the underlying complaint alleged publication to third persons, and the

5

content of the statements were allegedly disparaging[,] [t]hese allegations sufficed to give rise to a

6

potentially covered claim” for libel or slander. Barnett, 90 Cal. App. 4th 510 n.5.

7

This California Court of Appeal reached the same conclusion in Barnett v. Fireman’s Fund

8

Ins. Co., 90 Cal. App. 4th 500 (2001). In that case, a third party alleged that Barnett “engaged in a

9

variety of misconduct, including making disparaging remarks about” the third party. Id. at 504.
Barnett tendered the underlying complaint to its insurer, the insurer rejected the tender, and

11
United States District Court
Northern District of California

10

Barnett sued the insurer, alleging that the insurer’s refusal to defend and indemnify the underlying

12

action constituted a breach of the underlying insurance policy. The insurance policy included

13

coverage for “injury . . . arising out of one or more of the following offenses: ... Oral or written

14

publication of material that slanders or libels a person or organization or disparages a person’s or

15

organization’s goods, products or services. ” Id. at 509. Barnett argued that “the underlying

16

action raised a potentially covered claim for defamation because the complainants alleged that

17

appellants told numerous persons that [the third party’s] methods of doing business were flawed

18

and would result in [the third party’s] failure, and made other representations that disparaged and

19

damaged [the third party].” The California Court of Appeal held that these allegations triggered

20

the potential for defamation coverage under the policy. Id. at 510. In so holding, the court noted

21

that “[t]he underlying complaint alleged publication to third persons, and the content of the

22

statements were allegedly disparaging. These allegations sufficed to give rise to a potentially

23

covered claim.” Id. at 510 n.5.

24

Each of Federal’s arguments to the contrary is unpersuasive. First, Federal argues that

25

there is nothing in the underlying complaint to suggest that any statements made by Mede were

26

false. ECF No. 24 at 5. However, in California, a plaintiff pleading a claim of libel or slander

27

“need not specially allege the statements were false.” Barnett, 90 Cal. App. 4th 510 n.5. Thus,

28

even absent a specific allegation of falsity in the underlying complaint, the allegations of
6

1

publications to third persons, which were allegedly disparaging “suffice[] to give rise to a

2

potentially covered claim.” Id.; KM Strategic Management, LLC v. Am. Cas. Co. of Reading PA,

3

-- F. Supp. 3d --, No. 15-cv-1869-CAS, 2015 WL 9455562, at *6 (C.D. Cal. Dec. 21, 2015)

4

(“Contrary to defendant’s contention, however, California law plainly does not establish that ‘a

5

duty to defend will be found only if all essential elements of the covered claim are alleged in the

6

[tendered] complaint.”)1
Second, the Court rejects Federal’s argument that “the alleged statements of Mede’s own

7
8

concerns about attrition and complaints about the level of service can only be construed as

9

opinion,” which cannot form the basis of a libel or slander claim. ECF No. 24 at 6–7. This
argument ignores paragraphs 20, 43, and 59 of the underlying complaint, which do not suggest

11
United States District Court
Northern District of California

10

that the allegedly disparaging statements made by Mede were merely statements of opinion.

12

Stella, No. 14-cv-00880-LB, ECF No. 18 ¶¶ 20, 43, 59.
Third, Federal argues that the cases cited by Mede to show a potential for a defamation

13
14

claim based on similar facts, including the Barnett case, “all contained factual allegations lacking

15

here.” ECF No. 24 at 7. In particular, Federal argues that the underlying complaint in Barnett

16

included more detail regarding the content of the allegedly disparaging statements than the

17

underlying complaint here. Id. at 8. While the underlying complaint discussed by the Barnett

18

court does appear to have included more detail regarding the allegedly disparaging statements in

19

that case, the Barnett court did not suggest that such detail was necessary. Rather, the Barnett

20

court stated that the allegations in the underlying complaint “sufficed to give rise to a potentially

21

covered claim” because “[t]he underlying complaint alleged publication to third persons, and the

22

content of the statements were allegedly disparaging.” Barnett, 90 Cal. App. 4th at 510 n.5. The

23

underlying complaint here alleged these same facts. Moreover, even if more detail were necessary

24

under Barnett, because the Court concludes that the underlying complaint “could fairly be

25
26
27
28

1

Federal notes that “the content of [the allegedly disparaging] remarks is not directly alleged in
the [underlying complaint].” ECF No. 24 at 4. However, Federal cites no authority, and the Court
is aware of no such authority, for the proposition that an underlying complaint must specifically
allege the content of allegedly disparaging statements to trigger the potential for libel or slander
liability.
7

1

amended to state a covered liability” claim for libel or slander by Stella’s and Zlagoda’s simply

2

adding in more detail regarding the content of the allegedly disparaging statements, Swift, 59 Cal.

3

4th at 287, the Court rejects Federal’s argument.

4

Accordingly, the Court concludes that, absent some exception, Federal owed a duty to

5

defend Mede in the Underlying Action because the underlying complaint showed that a potential

6

for personal injury coverage existed under the Policy. See Swift, 59 Cal. 4th at 287; Barnett, 90

7

Cal. App. 4th at 510.

8

B.

The Breach of Contract Exclusion

9

Federal argues that any potential for coverage based on libel or slander is “eliminated by
the express exclusion for ‘personal injury’ arising out of breach of contract.” ECF No. 24 at 8–11.

11
United States District Court
Northern District of California

10

Under California law, “[t]he insurer bears the burden of bringing itself within a policy’s

12

exclusionary clauses.” HS Services, Inc. v. Nationwide Mut. Ins. Co., 109 F.3d 642, 644–45 (9th

13

Cir. 1997). “Exclusionary clauses are strictly construed.” Id. “An insurer may rely on an

14

exclusion to deny coverage only if it provides conclusive evidence demonstrating that the

15

exclusion applies.” Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1038–39 (2002)

16

(Croskey, J.) (emphasis in original). “Thus, an insurer that wishes to rely on an exclusion has the

17

burden of proving, through conclusive evidence, that the exclusion applies in all possible worlds.”

18

Id. at 1039.

19

Here, the Policy here provides: “This insurance does not apply to . . . personal injury

20

arising out of breach of contract.” ECF No. 22-5 at 18; ECF No. 22-6 at 17 (emphasis omitted).

21

Federal contends that even “[a]ssuming that a defamation claim could be conjured up from the

22

allegations of the [underlying complaint], . . . any such claim necessarily arises from a breach of

23

contract.” ECF No. 24 at 9. Indeed, the underlying complaint “alleges that Mede’s purpose in

24

making the disparaging remarks was to solicit Stella’s employees in breach of a written and

25

implied contract. Thus, according to the [underlying complaint], the alleged disparaging words

26

were part and parcel of the breach of contract.” Id.

27
28

Mede responds by arguing that Federal has not met its burden of showing by “conclusive
evidence” that the breach of contract exclusion applies because Federal has not shown that a
8

1

breach of contract occurred in the first place. ECF No. 28 at 11–12; see also ECF No. 22 at 12–

2

15. According to Mede, the breach of contract exclusion only applies to actual breaches of

3

contract, not alleged breaches of contract. Id. Thus, Mede contends that until Federal can show

4

that an actual breach of contract occurred, and the defamation claim arose out of that breach, the

5

Court cannot conclude that the exclusion applies.

6

The Court agrees with Mede’s second argument and will therefore not address the first

7

argument. The breach of contract exclusion here presents the Court with essentially the same

8

question presented to the district court in KM Strategic Management, LLC v. American Cas. Co.

9

of Reading PA, -- F. Supp. 3d --, No. 15-cv-1869-CAS, 2015 WL 9455562, at *11 (C.D. Cal. Dec.
21, 2015). Like the exclusion at issue here, the exclusion at issue in KM Strategic was a “breach

11
United States District Court
Northern District of California

10

of contract” exclusion, not simply a “contract” exclusion. Id. (emphasis in original). And just as

12

in KM Strategic, “the exclusion could have been written more broadly so as to cover all claims for

13

injury arising out of any ‘alleged’ breach of contract” in addition to all claims arising out of actual

14

breaches of contract. Id. Indeed, other exclusions in the Policy here incorporate such “actual or

15

alleged” language. ECF No. 28 at 16.2 As Mede notes, “[i]f Federal had intended its Breach of

16

Contract exclusion to apply to an ‘alleged’ breach of contract, then it certainly knew how to say so

17

. . . .” Id. at 16. The fact that Mede did not include the “actual or alleged” language in the breach

18

of contract exclusion therefore “implies a manifested intent not to do so.” Pardee Const. Co. v.

19

Ins. Co. of the West, 77 Cal. App. 4th 1340, 1359 (2000), as modified on denial of reh’g (Feb. 23,

20

2000) (“[T]he insurers’ failure to use available language expressly excluding completed operations

21

coverage implies a manifested intent not to do so.”).
Federal counters Mede’s argument by noting that in Medill v. Westport Ins. Corp., 143

22
23
24
25
26
27
28

2

For instance, the Policy provides: “This insurance does not apply to any actual or alleged bodily
injury, property damage, advertising injury or personal injury arising out of, giving rise to or in
any way related to any actual or alleged: assertion; or infringement or violation; by any person or
organization . . . of any intellectual property law or right . . . .” ECF No. 22-5 at 21; ECF No. 22-6
at 20 (emphasis omitted) (underlining in original). The Policy also provided: “[t]his insurance
does not apply to bodily injury, property damage, advertising injury or personal injury arising out
of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of
pollutants . . . .” ECF No. 22-5 at 22; ECF No. 22-6 at 21 (emphasis omitted) (underlining in
original).
9

1

Cal. App. 4th 819, 829–832 (2006), a California Court of Appeal did not require conclusive

2

evidence of an actual breach of contract where the breach of contract exclusion did not include the

3

phrase “actual or alleged.” In that case, plaintiffs were the officers and directors of a non-profit

4

that had issued bonds in connection with the acquisition and renovation of several former

5

hospitals. Id. at 823–24. When the hospitals failed and went into receivership, the bondholders

6

sued the plaintiffs and their non-profit, alleging that the facilities’ failures were due to plaintiffs’

7

“wrongful disbursements, diversions of bond proceeds and improper co-mingling of funds.” Id. at

8

824. Plaintiffs tendered the lawsuit to their insurer, which denied coverage on the ground that the

9

alleged conduct fell within the breach of contract exclusion in plaintiffs’ policy. When plaintiffs
filed suit, the trial court entered summary judgment, and the Court of Appeal affirmed.

11
United States District Court
Northern District of California

10

Defendants here cite Medill as authority for the proposition that even an “alleged” breach of

12

contract is sufficient to place the allegations of a complaint within a policy’s breach of contract

13

exclusion.
Medill provides little support for Federal’s position. First, the Medill court simply did not

14
15

confront the question of whether all “breach of contract” exclusions encompass actual or alleged

16

breaches of contract. Rather, the Medill court was focused exclusively on whether certain

17

allegedly covered tort claims “arose out of” the alleged breach of contract. 143 Cal. App. 4th at

18

831 (“Here, the tort claims against the directors and officers are not independent of the breach of

19

contract claims.”). While the Medill court appears to have assumed that a “breach of contract”

20

exclusion lacking the “actual or alleged” phrase nonetheless encompassed alleged breaches of

21

contract, the Court does not find this unstated assumption particularly compelling, especially in

22

light of the KM Strategic court’s reasoning directly on point holding otherwise. Second, there is

23

no indication that the Medill court was confronted with an insurance policy, which, as here,

24

included other exclusions that used the “actual or alleged” language absent from the breach of

25

contract exclusion.3

26
3

27
28

Federal also contends that “[i]f Mede’s argument were adopted, the ‘breach of contract’
exclusion would never apply to the duty to defend, where potential coverage based on alleged
liability is the issue, and the insured could defeat the exclusion simply by denying the allegations
of the third party complaint.” ECF No. 24 at 10. While Federal may be correct that “the insured
10

Because the Court must strictly construe the breach of contract exclusion, the Court holds

1
2

that “to avoid its duty to defend, [Federal] must point to ‘conclusive evidence’ establishing that

3

any potential liability that the insured faced for allegedly defaming [Stella and Zlagoda]

4

necessarily arose out of an actual breach—not an alleged breach—of the aforementioned [Agency

5

Agreement] or some other contract.” KM Strategic, 2015 WL 9455562, at *11 (citing Atl. Mut.

6

Ins. Co., 100 Cal. App. 4th at 1038–39). Federal does not argue that it has “conclusive evidence”

7

of an actual breach of contract. Accordingly, the Court concludes that the breach of contract

8

exclusion does not apply, and that Federal had a duty to defend Mede against the underlying

9

action.4
CONCLUSION

10

For the foregoing reasons, the Court concludes that Federal had a duty to defend Mede in

United States District Court
Northern District of California

11
12

the underlying action. The Court therefore grants Mede’s motion for partial summary judgment

13

and denies Federal’s motion for partial summary judgment.
IT IS SO ORDERED.

14
15

Dated: February 19, 2016

16
______________________________________
JON S. TIGAR
United States District Judge

17
18
19
20
21
22
23
24

could defeat [the breach of contract] exclusion simply by denying the allegations of the third party
complaint,” the Court notes that an insurer in Federal’s position could invoke the breach of
contract exclusion if, and once, the insurer obtains “conclusive evidence demonstrating that the
exclusion applies,” Atl. Mut. Ins. Co., 100 Cal. App. 4th at 1038–39, i.e. if, and once, the insurer
obtains conclusive evidence that a breach of contract actually occurred and that the potentially
covered claim “arose out of” the breach of contract.
4

25
26
27
28

Mede also argues that the potential defamation claim did not “arise out of” a breach of contract
because “[a] successful defense of the contract claim would not . . . have necessarily eliminated
Mede’s potential liability for defaming Stella and Zlagoda. The allegations that Mede disparaged
Stella and Zlagoda, as well as their officers, directors and managers, were independently
actionable as defamation regardless of whether any breach of contract was proven.” ECF No. 28
at 10. Because the Court agrees that the breach of contract allegations in the underlying complaint
are insufficient by themselves to bring Mede’s alleged conduct within the policy’s breach of
contract exclusion, it does not reach this additional argument.
11