Heide Kurtz, solely in her capacity as Chapter 7th Trustee for the Estate of Namco… v. Liberty Mutual Insurance Company, a Massachusetts Corporation;

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HEIDE KURTZ, solely in her capacity as
Chapter 7th Trustee for the Estate of
Namco Financial Exchange Corp.,
Plaintiff-Appellant,
v.
LIBERTY MUTUAL INSURANCE
COMPANY, a Massachusetts Corporation;
et al.,
Defendants-Appellees.
No. 14-55931
D.C. No.
2:11-cv-07010-DMG-JCG
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Dolly M. Gee, District Judge, Presiding
Submitted August 30, 2016**
Pasadena, California
Before: SILVERMAN, FISHER, and WATFORD, Circuit Judges.
Heide Kurtz, as Chapter 7 trustee for the estate of Namco Financial Exchange
FILED
SEP 01 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).

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Corp. (“NFE”), appeals the district court’s grant of summary judgment in favor of
Liberty Mutual Insurance Company, Zurich American Insurance Company, Axis
Insurance Company, and Twin City Fire Insurance Company (collectively
“Insurers”). NFE held itself as an Internal Revenue Code § 1031 “qualified
intermediary.”1 Rather than safeguarding customer funds, however, NFE’s high
ranking officials stole millions of dollars from its clients. In this diversity action,
Kurtz sought to recover on behalf of those clients under the commercial crime
insurance policies that Insurers issued to NFE in 2007. We have jurisdiction under
28 U.S.C. § 1291. We affirm.
We review the district court’s grant of summary judgment de novo, Fanucchi
& Limi Farms v. United Agri Prods., 414 F.3d 1075, 1080 (9th Cir. 2005), and we
apply California substantive law. Intri-Plex Techs., Inc. v. Crest Grp., Inc., 499
F.3d 1048, 1052 (9th Cir. 2007) (in a diversity action, the law of the forum state
applies).
The district court properly granted summary judgment for Insurers on Kurtz’s
breach of contract and declaratory relief claims because Insurers established as a
1 Section 1031 of the Internal Revenue Code allows entities that invest in real
estate to defer payment of capital gains taxes on the proceeds of the sale of a
property if the entity deposits the proceeds into an account with a “qualified
intermediary” and then uses those proceeds to purchase a “like-kind” property
within a specified period of time. See 26 U.S.C. § 1031; 26 C.F.R. § 1.1031(k)-1.
14-55931 2

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matter of law that NFE made a material misrepresentation on its insurance
application. See Douglas v. Fid. Nat’l Ins. Co., 177 Cal. Rptr. 3d 271, 283-84 (Cal.
Ct. App. 2014) (explaining that a material misrepresentation “in an application for
insurance entitle[s] an insurer to rescind an insurance policy” and “establishes a
complete defense in an action on the policy,” and setting forth test for materiality).
While an insurer may fail to establish its defense of misrepresentation if an
insurance application question is ambiguous, the district court properly concluded
that no such ambiguity existed here. See Am. Mut. Liab. Ins. Co. v. Goff, 281 F.2d
689, 691-93 (9th Cir. 1960) (“[W]e cannot say that the lower court erred in finding
that appellant had failed to establish its defense of misrepresentation,” where the
question on the insurance application was “far from clear[.]”). Question 3 on the
insurance application asked: “Are proceeds from 1031 transactions held in bank
accounts segregated from those of your operating funds?” The district court
properly concluded that Question 3 was not ambiguous because the question is not
“capable of two or more constructions, both of which are reasonable,” in looking at
the application as a whole, and “in the circumstances of the case.” MacKinnon v.
Truck Ins. Exch., 73 P.3d 1205, 1212-13 (Cal. 2003) (setting forth principles for
construing contracts). Namely, the only reasonable interpretation of Question 3 is
that it asks whether NFE holds “proceeds from 1031 transactions” in separate bank
14-55931 3

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accounts from NFE’s bank account holding its operating funds.
The district court properly concluded that Insurers did not waive their
misrepresentation defense because, although NFE changed its answer to Question 3,
whether NFE misrepresented facts in the revised application was not “distinctly
implied in other facts,” nor did NFE’s misrepresentation constitute an obvious red
flag. Old Line Life Ins. Co. v. Super. Ct., 281 Cal. Rptr. 15, 19 (Cal. Ct. App. 1991)
(an insurer may waive its right to disclosure of material facts by neglecting to
inquire as to material facts, “where they are distinctly implied in other facts of which
information is communicated,” Cal. Ins. Code § 336, or by failing “to follow up
obvious leads”).
Finally, the district court properly granted summary judgment on Kurtz’s
breach of the implied covenant of good faith and fair dealing claim because it
correctly concluded that Insurers were entitled to rescind the policies. See Brizuela
v. Calfarm Ins. Co., 10 Cal. Rptr. 3d 661, 673 (Cal. Ct. App. 2004) (“[A]bsent any
potential for coverage under an insurance policy, there can be no breach of the
implied covenant of good faith and fair dealing because the covenant is based on the
contractual relationship between the insured and the insurer.” (citation and internal
quotation marks omitted)).
AFFIRMED.
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