Connolly Ex Rel. SONICblue v. Admiral Insurance

MEMORANDUM

Admiral Insurance Company (“Admiral”) appeals the grant of summary judgment to David Connolly, Plan Administrator for SONICblue (“Connolly”). Because the parties are familiar with the history of this case, we need not recount it here. We affirm in part and reverse in part.

I

The district court erred, in part, in determining that Admiral was entitled only to be reimbursed for the amount it expended to defend the underlying action up to the date of rescission.

Connolly’s interpretation of Admiral’s obligation is inconsistent with Gon v. First State Insurance Co., 871 F.2d 863, 868 (9th Cir.1989), which required the insurance company to “pay all legal expenses of all insureds as they are incurred,” even after the insurer had filed a complaint for rescission. 871 F.2d at 865 . Upon rescission of the policy, “[t]he policy would be ‘extinguished’ ab initio, as though it had never existed. In other words, [SONIC-blue and the directors], in law, never were insureds under a policy of insurance.” Imperial Cas. & Indem. Co. v. Sogomonian, 198 Cal.App.3d 169 , 243 Cal.Rptr. 639, 646-47 (1988).

After rescinding the policy, Admiral paid to defend the underlying action only after…