DIRECTV , Corp. v. Factory Mut. Ins. Co.

160 F.Supp.3d 1193

Directv, a Delaware corporation, Plaintiff,

v.Factory Mutual Insurance Company, a Rhode Island corporation, Defendants.

Case No. CV 14-08673 DDP (x)

United States District Court, C.D. California.

Signed February 1, 2016

Kirk A. Pasich, Michael S. Gehrt, Iman Grace Wilson, Liner LLP, Los Angeles, CA, for Plaintiff.

Amy M. Churan, Scott G. Johnson, Robins Kaplan LLP, Los Angeles, CA, Audrey Elizabeth Burnett, Robins Kaplan LLP, Minneapolis, MN, for Defendants.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

DEAN D. PREGERSON, United States District Judge

Presently before the court is Defendant Factory Mutual Insurance Company (“Factory Mutual”)'s Motion to Dismiss. Having considered the submissions of the parties and heard oral argument, the court grants the motion and adopts the following Order.

I. Background

Plaintiff DIRECTV distributes digital entertainment programming, primarily via satellite, to residential and commercial subscribers. DIRECTV satellite dishes pick up signals from satellites and transmit those signals to a DIRECTV Receiver (also known as a “set-top box” or “STB”), which in turn transmits the signals to the subscriber's television.

As of October 2011, DIRECTV contracted with four companies to manufacture and supply its STBs: (1) Technicolor Connected Home USA, LLC; (2) Pace Americas Inc.; (3) Samsung Electronics America, Inc.; and (4) Humax USA, Inc. These four STB manufacturers purchased the component parts and incorporated them into the finished STBs, placing the “DIRECTV” logo and trademark on the STBs they manufactured. The four STB manufacturers then sold the finished STBs to DIRECTV.

Some STBs include, as a component part, hard disk drives (“HDDs” or “hard drives”). In October 2011, all four of the STB manufacturers used HDDs made by one of two companies, Western Digital Technologies, Inc. (“Western Digital”) and Seagate Technology LLC (“Seagate”). Western Digital also sold hard drives to Jabil Global Services, a third-party repair service provider that would fix defective STBs for DIRECTV.

DIRECTV categorizes the STB manufacturers as its “Tier 1” suppliers and Western Digital and Seagate as its “Tier 2” suppliers. Although DIRECTV shared pricing and technical specification requirements with Seagate and Western Digital and instructed its STB manufacturers to use only certain Seagate and Western Digital products, DIRECTV did not, during the relevant time periods, purchase any hard drives from Seagate or Western Digital or otherwise contract with either HDD manufacturer.

During the relevant time period, DIRECTV had a property insurance policy provided by Factory Mutual. The policy provided coverage for both property damage and time element, or business interruption, losses. A “contingent time element” provision of the policy extended coverage, including business interruption and extra expense coverage, beyond DIRECTV's own property to certain “contingent time element locations.” The policy's definition of such locations included any location “of a direct supplier, contract manufacturer or contract service provider to [DIRECTV].”

In October 2011, monsoonal flooding in northern Thailand damaged two of Western Digital's hard drive manufacturing facilities located there. Although the flooding did not affect any of the four STB manufacturers' facilities, DIRECTV alleges that the damage to the Western Digital facilities reduced the supply of hard drives available for incorporation into DIRECTV's STBs. DIRECTV further claims that the resulting price increase in Western Digital HDDs, as well as the expense of obtaining substitute HDDs from Seagate, caused DIRECTV approximately $22 million in losses and extra expenses.

DIRECTV made a claim under the Factory Mutual policy for contingent time element losses. In December 2013, after a series of communications between the parties regarding DIRECTV's supply chain and relationship with Western Digital, Factory Mutual denied the claim on the basis that Western Digital is not DIRECTV's “direct supplier,” and therefore does not fall within the ambit of the contingent time element location provision. DIRECTV's position is that, despite the lack of any contractual relationship between DIRECTV and Western Digital, the latter is nevertheless a “direct supplier” by dint of the direct working relationship between the two. DIRECTV's Complaint, first filed in state court, alleges breach of contract and seeks declaratory relief. Factory Mutual removed to this court and now moves for summary judgment.

II. Legal Standard

Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All reasonable inferences from the evidence must be drawn in favor of the nonmoving party. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the moving party does not bear the burden of proof at trial, it is entitled to summary judgment if it can demonstrate that “there is an absence of evidence to support the nonmoving party's case.” Celotex , 477 U.S. at 323, 106 S.Ct. 2548.

Once the moving party meets its burden, the burden shifts to the nonmoving party opposing the motion, who must “set forth specific facts showing that there is a genuine issue for trial.” Anderson , 477 U.S. at 256, 106 S.Ct. 2505. Summary judgment is warranted if a party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex , 477 U.S. at 322, 106 S.Ct. 2548. A genuine issue exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party,” and material facts are those “that might affect the outcome of the suit under the governing law.” Anderson , 477 U.S. at 248, 106 S.Ct. 2505. There is no genuine issue of fact “[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp ., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

It is not the court's task “to scour the record in search of a genuine issue of triable fact.” Keenan v. Allan , 91 F.3d 1275, 1278 (9th Cir.1996). Counsel has an obligation to lay out their support clearly. Carmen v. San Francisco Sch. Dist ., 237 F.3d 1026, 1031 (9th Cir.2001). The court “need not examine the entire file for evidence establishing a genuine issue of fact, where the evidence is not set forth in the opposition papers with adequate references so that it could conveniently be found.” Id.

III. Discussion

The only question before the court is whether the terms “direct supplier, contract manufacturer or contract service provider” are applicable to the relationship between Western Digital and DIRECTV. Such policy interpretations are matters of law, amendable, in the absence of disputed material facts, to summary judgment. See , e.g. Grange Ins. Assoc. v. Linott , 77 F.Supp.3d 926, 933 (N.D.Cal.2015). Under California law, insurance policies are governed by the same general rules that apply to any contract interpretation. Bank of the W. v. Superior Court , 2 Cal.4th 1254, 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992) ; MacKinnon v. Truck Ins. Exch. , 31 Cal.4th 635, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (2003).

Under these rules, “the mutual intention of the parties at the time the contract is formed governs interpretation,” and this intent “is to be inferred, if possible, solely from the written provisions of the contract.” Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co. , 5 Cal.4th 854, 867, 21 Cal.Rptr.2d 691, 855 P.2d 1263 (1993) (citing Cal. Civ. Code §§ 1636, 1639 ); Grange , 77 F.Supp.3d at 934. “The clear and explicit meaning of these provisions, interpreted in their ordinary and popular sense” governs judicial interpretation of the contract unless the terms are “used by the parties in a technical sense or a special meaning is given to them by usage.” Bay Cities , 5 Cal.4th at 867, 21 Cal.Rptr.2d 691, 855 P.2d 1263 (quotations omitted); see also Cal. Civ. Code §§ 1639, 1644, 1638. Within these limits, however, an insurance contract's language must be construed “in the context of that instrument as a whole, and in the circumstances of that case ....” Id. Moreover, “[i]n an insurance policy, coverage provisions are interpreted broadly so as to afford the greatest possible protection to the insured, whereas exclusionary clauses are interpreted narrowly.” Amerigraphics, Inc. v. Mercury Cas. Co. , 182 Cal.App.4th 1538, 1551, 107 Cal.Rptr.3d 307 (2010).

DIRECTV argues first that the phrase “direct supplier” should be defined according to its usage in the “electronics supply chain industry” based on the context of the Policy and the parties' usage of the phrase. DIRECTV points to no evidence, however, that the parties intended “direct supplier” to have some technical or industry-specific definition, nor any usage of that phrase either within or outside the policy...