NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS JUL 9 2024

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

EVANSTON INSURANCE COMPANY, an No. 23-55706 Illinois Corporation, D.C. No. Plaintiff-counter- 8:20-cv-00682-JVS-KES defendant-Appellee,

v. MEMORANDUM*

FOOTPRINTS BEHAVIORAL

INTERVENTIONS, INC., a California corporation,

Defendant-counter-claimant- Appellant.

Appeal from the United States District Court for the Central District of California James V. Selna, District Judge, Presiding

Argued and Submitted June 14, 2024 Pasadena, California

Before: W. FLETCHER, CHRISTEN, and VANDYKE, Circuit Judges. Dissent by Judge VANDYKE.

Appellant Footprints Behavioral Interventions, Inc., appeals from a district

court order granting Appellee Evanston Insurance Company’s motion for summary

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. judgment. We assume the parties’ familiarity with the facts and recite them only

as necessary. We review de novo the district court’s order granting summary

judgment. Desire, LLC v. Manna Textiles, Inc., 986 F.3d 1253, 1259 (9th

Cir. 2021). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

1. The district court properly granted summary judgment on Evanston’s

breach of contract claim because Footprints made a material misrepresentation in

its renewal application. In June 2019, Footprints answered “no” to Question 7(e)

on its insurance renewal application: “Are you aware of any circumstances which

may result in a malpractice claim or suit being made or brought against you or any

of your employees?” It is undisputed that, at the time Footprints filled out this

renewal application, Footprints’ former employee Abigail Kim had been criminally

convicted of charges arising from her sexual abuse of a Footprints client, a minor

with autism. It is also undisputed that Footprints knew about Kim’s conviction.

Question 7(e) did not ask whether Footprints would be liable—the question was

whether a suit was likely. Footprints’ arguments regarding the merits of such a

claim are inapposite. Based on the undisputed facts, no reasonable jury could

conclude that Footprints was unaware of circumstances that might result in a

malpractice claim being brought against it.

To the extent that Footprints argues that the term “malpractice” narrows the

scope of Question 7(e), we are unpersuaded. First, this argument was not raised in

2 Footprints’ briefing below. Separately, a former employee’s criminal conviction

for sexually abusing a minor client could indicate negligent hiring or failure to

supervise, for which her employer might be susceptible to a malpractice claim

under Oregon law. See Vaughn v. First Transit, Inc., 206 P.3d 181, 187 n.7

(Or. 2009) (recognizing that a principal may be directly liable for negligence “in

hiring, instructing, or supervising the agent”); Eads v. Borman, 277 P.3d 503, 510

n.6 (Or. 2012) (citing Vaughn to acknowledge direct liability “for physical torts

committed by an agent” in malpractice claims against medical providers).

2. The district court properly granted summary judgment to Evanston on the

basis that prior knowledge clauses in the claims-made policy precluded coverage.1

Footprints contends that because it knew of no facts that could establish its

liability, a reasonable insured in its position would not have anticipated suit.

Footprints again equates liability with likeliness of a claim. California’s strong

construction preference requires that “[a]ny ambiguities in the policy are construed

in favor of the insured.” Nat’l Union Fire Ins. Co. v. Lynette C., 279 Cal.

1 The Prior Knowledge Clause provides that Evanston would not cover damages where Footprints knew, prior to the effective policy date, “of such act, error or omission or any fact, circumstance, situation or incident which may lead a reasonable person in the Insured’s position to conclude that a Claim was likely.” Similarly, the Sexual Acts Liability Endorsement makes coverage contingent on the Insured having “no knowledge of such Sexual Act or any fact, circumstance, situation or incident involving such Sexual Act which may lead a reasonable person in the Insured’s position to conclude that a Claim was likely.” We refer to these clauses together as the prior knowledge clauses.

3 Rptr. 394, 396 (Ct. App. 1991). As such, an insured’s predictive liability analysis

may avoid summary judgment in different circumstances. But under the egregious

facts of this case, any reasonable employer could expect to be sued—regardless of

whether that claim would succeed. The district court properly concluded that no

reasonable jury could find that Footprints had no prior knowledge of a likely claim.

3. We reject Footprints’ contention that Evanston nevertheless owed a duty

to defend. The insurer has a duty to defend if the policy is ambiguous and the

insured would reasonably expect coverage. Gray v. Zurich Ins. Co., 419 P.2d 168,

174–75 (Cal. 1966). The Representations Clause2 unambiguously serves as a

condition precedent to coverage. If a condition precedent is not satisfied, there is

no basis for coverage and no duty to defend. See Scottsdale Ins. Co. v. MV

Transp., 115 P.3d 460, 468 (Cal. 2005).

Pursuant to the Representations Clause, Footprints agreed that Evanston’s

assumption of risk or hazard relied “upon the truth of [Footprints’]

2 The Representations Clause provides: By acceptance of this policy, the Insureds agree as follows: 1. That the information and statements contained in the application(s) are the basis of this policy and are to be considered as incorporated into and constituting a part of this policy; and 2. That the information and statements contained in the application(s) are their representations, that they shall be deemed material to the acceptance of the risk or hazard assumed by the Company under this policy, and that this policy is issued in reliance upon the truth of such representations.

4 representations.” Because we have concluded that Footprints’ renewal application

misrepresented the risk of such claims, Evanston established that it did not have a

duty to indemnify or defend.

4. Footprints is incorrect that Evanston’s failure to claim damages in its

initial disclosure bars its breach of contract claim. Footprints relies on Federal

Rule of Civil Procedure 37(c)(1), which bars a party from using evidence in a

motion if they failed to produce it under Rule 26(a) or (e), “unless the failure was

substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1). Here, however,

after its initial disclosures but before its motion for summary judgment, Evanston

provided several discovery responses indicating that it had incurred damages.

Footprints thus had notice of Evanston’s damages and the initial failure to disclose

was rendered harmless. See Fed. R. Civ. P. 26(e)(1)(A) (requiring supplemental

disclosure only “if the additional or corrective information has not otherwise been

made known to the other parties during the discovery process or in writing”).

AFFIRMED.

5

FILED

JUL 9 2024

Evanston Insurance Co. v. Footprints Behavioral Interventions, Inc., No. 23-55706

MOLLY C. DWYER, CLERK

VANDYKE, Circuit Judge, dissenting: U.S. COURT OF APPEALS

The key assumption driving both the majority and the district court in this case

is that, given the egregious nature of Kim’s conduction, Footprints obviously had to

be aware that it could be sued. But that intuition should not resolve this case.

Regarding Footprints’s representation in Question 7(e) of its renewal application,

factual disputes preclude the conclusion at summary judgment that Footprints

misrepresented its knowledge as to the likelihood of a malpractice claim being

brought. And even if the Prior Knowledge Clause disclaimed Evanston’s duty to

indemnify, California’s broad view of the duty to defend and preference for

construing insurance policies in favor of the insured suggests that Evanston still had

the duty to defend Footprints. I therefore respectfully dissent.

The district court erred in concluding that there is no dispute of fact regarding

whether Footprints’s application contained a material misrepresentation. Question

7(e) in the application asks whether Footprints was aware of circumstances which

might “result in a malpractice claim or suit” being brought against it. As Footprints

repeatedly emphasizes in its briefing, this question only refers to claims or suits

involving malpractice.

Evanston first argues that Footprints was aware of circumstances under which

it could have been liable under a respondeat superior theory for Kim’s intentional

torts. It relies primarily on Fearing v. Bucher, a case in which a Catholic archdiocese was held liable for a sexual assault perpetrated by a priest. 977 P.2d 1163 (Or. 1999).

But whether Footprints could be held liable for any intentional torts committed by

Kim is a different question than whether her conduct might give rise to Footprints’s

own liability for malpractice.

Evanston next argues that there was a possibility that a claim would be brought

against Footprints for negligent hiring, training, and supervision. But Footprints has

highlighted a number of facts it disputes that relate to its knowledge, including

whether the Special Incident Report (SIR) reported wrongdoing against K.B. or

against Kim, whether Footprints’s report to the police alleged child abuse, whether

Footprints’s general counsel advised Evanston that Footprints knew it would be sued

since 2017, and whether the Footprints employee who completed the Renewal

Application knew anything about Kim’s criminal trial. Since the district court

resolved this issue at the summary judgment stage, the existence of—viewing the

evidence in the light most favorable to the non-movant—a factual dispute regarding

the falsity of Footprints’s answer warrants reversal on this issue. See Soc. Techs.

LLC v. Apple Inc., 4 F.4th 811, 816 (9th Cir. 2021).

And even assuming that Footprints had knowledge of a situation that might

lead a reasonable person to conclude that a Claim was likely—thereby triggering the

Prior Knowledge Clause—Evanston’s duty to defend was not disclaimed. California

law views the insurer’s duty to defend, “which applies even to claims that are

2 ‘groundless, false, or fraudulent,’ [as] separate from and broader than the insurer’s

duty to indemnify.” Cunningham v. Universal Underwriters, 120 Cal. Rptr. 2d 162,

167 (Ct. App. 2002); see also Howard v. Am. Nat’l Fire Ins. Co., 115 Cal. Rptr. 3d

42, 61–62 (Ct. App. 2010). To evade coverage, “[a]n exclusionary clause must be

conspicuous, plain and clear.” De May v. Interinsurance Exch., 38 Cal. Rptr. 2d

581, 583 (Ct. App. 1995) (quotation omitted).

The Prior Knowledge Clause does not clearly apply to the duty to defend. The

policy discusses Evanston’s duties to indemnify and defend in two separate sections.

And the Prior Knowledge Clause, by its terms, only applies to Evanston’s duty to

pay the monetary portion of any judgment, award, or settlement as a result of a

Claim. Given California law’s general preference for construing policies in favor of

the insured, see Nat’l Union Fire Ins. Co. v. Lynette C., 279 Cal. Rptr. 394, 396 (Ct.

App. 1991), the Prior Knowledge Clause should be construed as only disclaiming

Evanston’s duty to indemnify—not its duty to defend.

The majority concludes that the Representations Clause—through Footprints’s

answer to Question 7(e)—precludes Evanston’s duty to defend. But as discussed

above, there is a dispute of fact as to whether Footprints mispresented its knowledge

in its answer to Question 7(e). The district court therefore erred in granting summary

judgment as to that issue, and it would be improper to conclude that the duty to

defend was disclaimed at this stage.

3 Given California’s construction preferences and the factual disputes at issue

here, the district court erred in granting summary judgment on both the basis of

Footprints’s representations in its application and the Prior Knowledge Clause. I

therefore would reverse and remand to the district court for further proceedings.

4