FILED

NOT FOR PUBLICATION MAR 09 2010

MOLLY C. DWYER, CLERK

UNITED STATES COURT OF APPEALS U.S . CO U RT OF AP PE A LS

FOR THE NINTH CIRCUIT

GEORGE V. DEMARCO; JAMES P. No. 08-56511

DEMARCO,

D.C. No. 8:07-cv-00022-DOC- Plaintiffs - Appellants, RNB

v.

MEMORANDUM *

EVEREST INDEMNITY INSURANCE

COMPANY, a Delaware company,

Defendant - Appellee.

Appeal from the United States District Court for the Central District of California David O. Carter, District Judge, Presiding

Argued and Submitted February 5, 2010 Pasadena, California

Before: WARDLAW and CALLAHAN, Circuit Judges, and SEDWICK, ** District Judge.

George DeMarco and James DeMarco (the 'DeMarcos') appeal the district

court's grant of summary judgment in favor of Everest Indemnity Insurance

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. ** The Honorable John W. Sedwicµ, United States District Judge for the District of Alasµa, sitting by designation. Company ('Everest') on the DeMarcos's claim that Everest had a duty to defend

them in an arbitration with Interface Security Systems Holdings, Inc. ('Interface').

Interface bought most of the DeMarcos's stocµ in Greater Alarm, a business

engaged in alarm installation, service and repair pursuant to a Stocµ Purchase

Agreement ('SPA'), and later sued for breach of the Stocµ Purchase Agreement.

Every allegation in the arbitration demand concerned the DeMarcos's alleged

misrepresentations in the SPA.

We review a grant of summary judgment de novo. State Farm Mut. Auto.

Ins. Co. v. Davis, 937 F.2d 1415, 1417 (9th Cir. 1991). The 'first step in

determining whether the duty to defend is triggered is to compare the allegations of

the complaint . . . with the policy terms to see if they 'reveal a possibility that the

claim may be covered by the policy.'' Pension Trust Fund for Operating Eng'rs v.

Fed. Ins. Co., 307 F.3d 944, 949 (9th Cir. 2002) (quoting Horace Mann Ins. Co. v.

Barbara B., 846 P.2d 792, 795 (Cal. 1993)). 'Once the insured maµes a showing

of potential coverage, the insurer may be relieved of its duty only when the facts

alleged in the underlying suit 'can by no conceivable theory raise a single issue

[that] could bring it within the policy coverage.'' Id. (quoting Montrose Chem.

Corp. v. Super. Ct., 861 P.2d 1153, 1159 (Cal. 1993)) (alteration in original).

Although an 'insurer owes a broad duty to defend its insured against claims that

2 create a potential for indemnity,' Horace Mann, 846 P.2d at 795, courts 'may not

impose coverage by adopting a strained or absurd interpretation [of the complaint]

. . . .' Cunningham v. Universal Underwriters, 120 Cal. Rptr. 2d 162, 173 (Ct.

App. 2002) (citations omitted); see also Waller v. Trucµ Ins. Exch., Inc., 900 P.2d

619, 630 (Cal. 1995).

Here, the relevant policy provides that Everest has a duty to defend against

any suit seeµing damages for an act, error or omission that 'occurs in the conduct

of the Named Insured's operations.' Greater Alarm's 'operations' are defined in

the policy as residential and commercial burglar and fire alarm installation and

monitoring, medical emergency systems installation and monitoring, 'C.C.T.V.

installation/service/repair,' and access control.

Although some of the alleged misrepresentations were about Great Alarm's

operations, negotiating the stocµ purchase was not 'in the conduct of' those

operations. See Waller, 900 P.2d at 627. Accordingly, we conclude that the

arbitration demand does not 'reveal a possibility' of coverage under the policy,

and thus, Everest had no duty to defend.

AFFIRMED.

3

FILED

08-56511 DeMarco v. Everest Indemnity Insurance Co. MAR 09 2010

MOLLY C. DWYER, CLERK

SEDWICK, District Judge, dissenting: U.S . CO U RT OF AP PE A LS

On the facts before us, I believe the majority's decision is contrary to

California law, Montrose Chemical Corp. v. Superior Court of Los Angeles

County, 6 Cal.4th 287 (1993); Gray v. Zurich Ins. Co., 65 Cal.2d 263 (1966), and

misapprehends this court's own discussion of relevant California law in Pension

Trust Fund for Operating Engineers v. Federal Ins. Co., 307 F.3d 944 (9th Cir.

2002), so I respectfully dissent.