NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS MAR 30 2022

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

AMERICAN CLAIMS MANAGEMENT, No. 20-56055

INC.,

D.C. No. Plaintiff-counter- 3:18-cv-00925-JLS-MSB defendant-Appellant,

v. MEMORANDUM*

ALLIED WORLD SURPLUS LINES

INSURANCE COMPANY, FKA Darwin Select Insurance Company,

Defendant-counter-claimant- Appellee.

Appeal from the United States District Court for the Southern District of California Janis L. Sammartino, District Judge, Presiding

Argued and Submitted October 18, 2021 San Francisco, California

Before: WALLACE, GOULD, and BEA, Circuit Judges.

American Claims Management, Inc. (ACM) appeals from the district court’s

summary judgment in favor of Allied World Surplus Lines Insurance Co. (Allied

World). Because the facts are known to the parties, we repeat them only as necessary

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. to explain our decision. We review de novo a district court’s summary judgment.

Baker v. Liberty Mut. Ins. Co., 143 F.3d 1260, 1263 (9th Cir. 1998). We review de

novo a district court’s interpretation of contract provisions, Flores v. Lynch, 828

F.3d 898, 905 (9th Cir. 2016), and determination of state law, Teleflex Med. Inc. v.

Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 851 F.3d 976, 983 (9th Cir. 2017). We

have jurisdiction under 28 U.S.C. § 1291, and we affirm in part and reverse in part.

1. The district court correctly concluded that the Claims Services Exclusion

precluded the claimed coverage under the insurance policy issued by Allied World

(the Policy). The Claims Services Exclusion provides, in relevant part, that “no

coverage will be available” under the Policy for any claim “based upon, arising out

of, directly or indirectly resulting from, in consequence of, or in any way involving

any actual or alleged . . . lack of good faith or fair dealing in the handling of any

claim or obligation arising under an insurance contract or policy . . . .” The Claims

Services Exclusion further states that its applicability “may be determined by an

admission, final adjudication or a finding in the proceeding constituting the Claim

or in a proceeding separate from or collateral to the Claim.”

Although there are neither “admissions” nor “final adjudications” of bad faith

in the record, the discovery order issued in Cardona v. QBE Insurance Corp., No.

MC025599 (Cal. Super. Ct. Feb. 4, 2016) (the Discovery Order), constitutes a

“finding” of an allegation of bad faith against ACM. In the Discovery Order, the

2 Los Angeles County Superior Court found, from the pleadings, that “there is a

colorable claim that Cortes could pursue a bad faith claim against QBE to indemnify

him and hold him harmless from any verdict obtained against him, and for other

damages, with a potential dollar value in the millions of dollars”––in other words, a

bad faith claim based on ACM’s handling of the underlying claim as QBE’s claims

handler. The court further found that “Cortes . . . had a claim for bad faith refusal to

settle against QBE in an amount in excess of the multi-million dollar claim made

against him.” Thus, the court’s finding that there was a valid allegation of bad faith

against QBE, through ACM’s actions as QBE’s claims handler, was sufficient to

trigger the Claims Services Exclusion.

We therefore affirm the district court’s holding that the Claims Services

Exclusion barred the claimed coverage. Accordingly, Allied World is entitled to

reimbursement in the amount of $4,390,341 that Allied World paid ACM under a

reservation of rights towards covering ACM’s adverse arbitration judgment against

QBE.

2. The district court erred in holding that the Dishonest Act Exclusion

precluded the claimed coverage under the Policy. In contrast to the Claims Services

Exclusion, which can be satisfied by a mere allegation, the Dishonest Act Exclusion

by its plain terms applies if there was “an admission, final adjudication or a finding”

that ACM “in fact engaged” in “any dishonest or fraudulent act or omission” in the

3 handling of the underlying claim. There is no such evidence in the record, and the

district court erred in reading the final arbitration award as having made a finding of

a “dishonest or fraudulent act or omission” sufficient to trigger the Dishonest Act

Exclusion.

We therefore reverse the district court’s holding that the Dishonest Act

Exclusion barred the claimed coverage. Accordingly, Allied World is not entitled

to reimbursement for the $605,569 provided in the form of defense expenses.

3. Finally, the district court properly held that Allied World did not breach its

duty to defend ACM against QBE. The district court correctly concluded that Allied

World had satisfied its duty to hire competent counsel. “[T]he insurer has a duty to

hire competent defense counsel . . . .” Assurance Co. of Am. v. Haven, 38 Cal. Rptr.

2d 25, 33 (Cal. Ct. App. 1995) (emphasis in original). Allied World satisfied this

duty because attorney Alan Jampol possessed the adequate competency to defend

ACM given his relevant experience in defending bad faith insurance claims and

specialization in legal malpractice law and insurance-related matters. In determining

whether Jampol was competent counsel at the time of his hiring by Allied World,

we do not look to Jampol’s subsequent representation. See Merritt v. Reserve Ins.

Co, 110 Cal. Rptr. 511, 527 (Cal. Ct. App. 1973) (“Having chosen competent

independent counsel to represent the insured in litigation, . . . the carrier does not

become liable for trial counsel’s legal malpractice. If trial counsel negligently

4 conducts the litigation, the remedy for this negligence is found in an action against

counsel for malpractice and not in a suit against counsel’s employer to impose

vicarious liability.”). The district court also correctly concluded that ACM failed to

present sufficient evidence to raise a genuine issue of material fact as to whether

Allied World controlled Jampol during the representation. Even in the light most

favorable to ACM, the record does not support a genuine issue of material fact that

Jampol was “subject to the control and direction of [Allied World] over the details

and manner of [his] performance.” Id. at 526.

We therefore affirm the district court’s holding that Allied World did not

breach its duty to defend ACM.

ACM’s motion to vacate the district court’s summary judgment and discovery

orders pursuant to 28 U.S.C. § 455 is denied.

AFFIRMED IN PART, REVERSED IN PART, and REMANDED.

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