DIRECTV v. Factory Mutual Insurance Co.

MEMORANDUM ** Defendant Factory Mutual Insurance Company promised to insure Plaintiff DIRECTV against business interruptions *495 stemming from certain events at “contingent time element locations.” The insurance policy’s definition of such locations included any location “of a direct supplier, contract manufacturer or contract service provider to [DIRECTV].” The question in this case is whether Western Digital, which manufactures hard drives that are used in DIRECTV’S set-top boxes—but which does not have a contractual relationship with DIRECTV and does not send its hard drives directly to DIRECTV to be integrated into the set-top boxes—fits within the policy’s definition of a “direct supplier, contract manufacturer or contract service provider to [DIRECTV].” If so, then the policy might cover Plaintiffs losses caused by monsoonal flooding in northern Thailand that damaged two of Western Digital’s hard drive manufacturing facilities in 2011. The district court granted summary judgment to Defendant; Plaintiff timely appeals. Reviewing de novo, Orr v. Bank of Am., NT & SA, 285 F.3d 764, 772 (9th Cir. 2002), we reverse the district court’s judgment and remand for further proceedings. 1. The plain and ordinary meaning of the phrase “direct supplier” does not include Western Digital. The “meaning a layperson would ordinarily attach” to the phrase “direct supplier,” Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 44 Cal.Rptr.2d 370, 900 P.2d 619, 627 (1995), is a supplier that sends its goods or materials straight to the insured without intervening processing. Because Western Digital’s hard drives are sent to third-party set-top box manufacturers, which then assemble the set-top boxes and send them on to Plaintiff, Western Digital is not Plaintiffs “direct supplier” under the plain and ordinary meaning of that phrase. 2. Western Digital is not Plaintiffs “contract manufacturer” or “contract service provider” because it does not have a contract with Plaintiff. 3. In light of the extrinsic evidence of trade usage introduced by Plaintiff, the phrase “direct supplier” is “reasonably susceptible” to the meaning urged by Plaintiff. Wolf v. Superior Court, 114 Cal.App.4th 1343, 8 Cal.Rptr.3d 649, 655 (2004). In reaching that conclusion, we rely on a prediction that the Supreme Court of California would hold that “[t]he law charges insurance companies with the duty of informing themselves as to the usages of the particular business insured, and a knowledge of such usage on the part of such company will be presumed.” Globe & Rutgers Fire Ins. Co. v. Ind. Reduction Co., 62 Ind.App. 528, 113 N.E. 425, 429 (1916). We base that prediction on the law of other jurisdictions, a leading insurance law treatise, see 2 Couch on Insurance § 22:52 (3d ed. 2015), and the California Court of Appeal’s decision in Geddes v. Tri-State Insurance Co., 264 Cal.App.2d 181, 70 Cal.Rptr. 183 (1968). See Astaire v. Best Film & Video Corp., 116 F.3d 1297, 1300 (9th Cir. 1997) (“In the absence of a California Supreme Court decision, we must predict how the California Supreme Court would decide [an] issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises and restatements as guidance.”). Whether the phrase “direct supplier” was intended in a trade usage sense and, if so, whether Western Digital falls within the trade usage definition are questions of fact to bé resolved by a jury. City of Hope Nat’l Med. Ctr. v. Genentech, Inc., 43 Cal.4th 375, 75 Cal.Rptr.3d 333, 181 P.3d 142, 156-57 (2008). 4. We do not reach Plaintiffs argument concerning the ambiguity of the phrase “direct supplier.” “A rule for construing contracts against the author is not an alternative to construing the contract as the *496 parties intended. It is to be applied after the court has inquired into the intent of the parties, and then only if its meaning remains uncertain.” Bd. of Trade of S.F. v. Swiss Credit Bank, 597 F.2d 146, 149 (9th Cir. 1979) (emphasis added). REVERSED and REMANDED. Footnotes [**] This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.