NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS FILED

FOR THE NINTH CIRCUIT OCT 20 2010

MOLLY C. DWYER, CLERK

U .S . CO UR T OF AP PE A LS

FREDERICK (RICK) GOERNER, an No. 09-55385 individual, D.C. No. 8:07-cv-00166-GW- Plaintiff - Appellant, MLG

v.

MEMORANDUM *

AÈIS REINSURANCE CO, a New Yorµ corporation, FKA Royal & Sun Alliance Personal Insurance Company,

Defendant - Appellee.

Appeal from the United States District Court for the Central District of California George H. Wu, District Judge, Presiding

Argued and Submitted October 5, 2010 Pasadena, California

Before: PREGERSON, D.W. NELSON and IKUTA, Circuit Judges.

Plaintiff-Appellant Fredericµ Goerner ('Goerner') appeals the district

court's grant of summary judgment in favor of Defendant-Appellee Axis

Reinsurance Co. ('Axis'). The district court found that Axis had no duty to defend

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. Goerner under a Directors & Officers ('D&O') liability policy purchased by

Goerner's former employer, TransDimension, Inc., against a suit brought by

Manuchehr Neshat ('Neshat'). The court concluded that, because the underlying

complaint did not specifically allege that Goerner acted in his capacity as Chief

Executive Officer ('CEO') of TransDimension, but rather asserted that he acted on

behalf of two other companies in the same industry, coverage under the policy was

not triggered. We have jurisdiction under 28 U.S.C. y 1291 and, for the reasons

which follow, we now reverse and remand.

Axis's Duty to Defend

Axis Reinsurance issued a D&O policy requiring it to both defend and

indemnify claims against TransDimension officers for 'any actual or alleged error'

committed by an insured individual 'in [his] capacity as such.' Goerner contends

that the actions alleged in the underlying complaint were taµen in his capacity as

CEO of TransDimension, and he is entitled to a defense. Axis argues that, because

the complaint does not specifically allege that Neshat's losses resulted from actions

Goerner tooµ in his capacity as TransDimension CEO, the policy is not triggered

and Axis is relieved of the duty to defend.

'The determination whether the insurer owes a duty to defend is usually

made in the first instance by comparing the allegations of the complaint with the

2 terms of the policy.' Anthem Electronics v. Pacific Employers Ins. Co., 302 F.3d

1049, 1054 (9th Cir. 2002). The guiding consideration is whether 'the insured

would reasonably expect a defense by the insurer.' Gray v. Zurich Ins. Co., 419

P.2d 168, 178 (Cal. 1966). 'The courts will not sanction a construction of the

insurer's language that will defeat the very purpose or object of the insurance.' Id.

Under Axis's interpretation of its policy, Goerner would not be owed a

defense even for actions he was directly ordered by his superiors to undertaµe if the

third-party plaintiff failed to allege in the complaint that those actions were

undertaµen in his capacity as CEO. This interpretation defeats the purpose of the

insurance coverage. Moreover, an insured would reasonably expect coverage for

actions taµen in the capacity of director or officer of an insured company, whether

or not that capacity was alleged by the third-party plaintiff.

The question remains whether the actions at issue in Neshat's amended

complaint could have been taµen by Goerner in his capacity as CEO of

TransDimension. To establish a duty to defend, 'the insured must prove the

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

of any such potential.' Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153,

1161 (Cal. 1993) (emphasis in original). '[T]he existence of a disputed fact

determinative of coverage establishes the duty to defend.' Amato v. Mercury Cas.

3 Co., 18 Cal. App. 4th 1784, 1790 (Cal. Ct. App. 1993) (citing Horace Mann Ins.

Co. v. Barbara B., 846 P.2d 792 (Cal. 1993)) (emphasis in original). '[S]ummary

judgment for [the insured] is required unless the insurers are able, at summary

judgment stage, conclusively to negate coverage as a matter of law.' Anthem

Electronics, 302 F.3d at 1060.

Goerner has shown that TransDimension had business dealings, or potential

dealings, with all of the individuals and companies at issue in the underlying

complaint. Moreover, the complaint alleges that TransDimension's Board of

Directors authorized and paid for Goerner's travels to meet with two of those

companies in Asia, which was a µey factual component of at least one cause of

action. These facts give rise to the possibility of coverage. Axis, therefore, had a

duty to defend Goerner under the D&O policy.

Admission of the Mediation Brief

Goerner also alleges that the district court erred in admitting into evidence a

mediation brief from the underlying lawsuit. To reverse on the basis of an

erroneous evidentiary ruling, this court must conclude not only that the district

court abused its discretion, but also that the error was prejudicial. Harper v. City of

Los Angeles, 533 F.3d 1010, 1030 (9th Cir. 2008).

4 'In California, certain documents and communications pertaining to

mediation are generally inadmissible in civil litigation.' Babasa v. LensCrafters,

Inc., 498 F.3d 972, 974 (9th Cir. 2007) (citing Cal. Evid. Code y 1119 (2006))

(holding that no writing prepared for the purpose of mediation is admissible in a

civil action in which testimony can be compelled). Thus, admission of the brief

was error. However, the record does not suggest, and Goerner has not shown, that

the error was prejudicial. Therefore, reversal on this ground is not warranted.

For the foregoing reasons, we REVERSE the district court's grant of

summary judgment in favor of Axis and REMAND with instructions to grant

summary judgment in Goerner's favor on the issue of Axis's duty to defend.

Goerner's request for reassignment of his remaining claims is DENIED.

5

FILED

Goerner v. Axis Reinsurance Co., No. 09-55385: OCT 20 2010

MOLLY C. DWYER, CLERK

IKUTA, Circuit Judge, concurring: U .S . CO UR T OF AP PE A LS

I concur in the result on the ground that nothing in the Second Amended

Complaint or the settlement agreement between Neshat and TransDimension

eliminated the possibility that Goerner would face liability based on actions he

tooµ in his capacity as the chief executive officer of TransDimension. Cf. Bowie v.

Home Ins. Co., 923 F.2d 705, 706 (9th Cir. 1990). Because there is a genuine issue

of material fact as to whether Goerner engaged in any of the wrongful acts alleged

in the Second Amended Complaint in his insured capacity, there was a potential for

coverage and Axis had a duty to defend. See Amato v. Mercury Cas. Co., 18 Cal.

App. 4th 1784, 1790 (Cal. Ct. App. 1993).