                                                                           FILED
                           NOT FOR PUBLICATION                             MAR 31 2015

                                                                       MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U.S. COURT OF APPEALS



                            FOR THE NINTH CIRCUIT


MARION BENJAMIN CARLSON and                      No. 12-15964
RON CARLSON,
                                                 D.C. No. 3:11-cv-00356-SI
              Plaintiffs - Appellants,

  v.                                             MEMORANDUM*

CENTURY SURETY COMPANY,

              Defendant - Appellee.



MARION BENJAMIN CARLSON and                      No. 12-16153
RON CARLSON,
                                                 D.C. No. 3:11-cv-00356-SI
              Plaintiffs - Appellees,

  v.

CENTURY SURETY COMPANY,

              Defendant - Appellant.


                   Appeal from the United States District Court
                      for the Northern District of California
                   Susan Illston, Senior District Judge, Presiding


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                       Argued and Submitted March 10, 2015
                            San Francisco, California

Before: W. FLETCHER, DAVIS**, and CHRISTEN, Circuit Judges.

      Marion and Ron Carlson sued Century Surety Company’s insured, Gold

Mountain Investments dba Prudential California Realty, in state court, alleging

claims based on a failed real estate transaction in which Gold Mountain

represented the Carlsons. Century Surety declined to defend Gold Mountain on the

ground that Gold Mountain first received notice of the Carlsons’ claim before the

insurance policy incepted. The Carlsons and Gold Mountain ultimately settled the

underlying lawsuit. Part of the settlement was Gold Mountain’s agreement to

allow a default judgment to be entered against it and to assign any rights it might

have against Century Surety to the Carlsons. The Carlsons agreed not to execute

the default judgment against Gold Mountain. After settling the underlying case,

the Carlsons sued Century Surety in federal court for its failure to defend and

indemnify Gold Mountain in the state court lawsuit.1




          **
            The Honorable Andre M. Davis, Senior Circuit Judge for the U.S.
Court of Appeals for the Fourth Circuit, sitting by designation.
      1
             Because the parties are familiar with the facts, we recount only an
abbreviated version of them here.

                                          2
      The district court made several rulings in a series of summary judgment

orders. The parties cross appeal, challenging each of these rulings. We conclude

that the district court erred in its first ruling by granting summary judgment to the

Carlsons on whether Century Surety had a duty to defend Gold Mountain in the

underlying lawsuit. Because we also conclude that the district court correctly ruled

that the Carlsons may not recover, we do not reach the parties’ arguments

concerning the court’s other summary judgment rulings.

1.    The district court erred by granting summary judgment to the Carlsons on

whether Century Surety had a duty to defend Gold Mountain in the underlying

lawsuit. Under California law, whether an insurer owes a duty to defend is decided

based on the facts known to the insurer at the inception of the lawsuit against the

insured. Nat’l Steel Corp. v. Golden Eagle Ins. Co., 121 F.3d 496, 499 (9th Cir.

1997) (citing Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153, 1157 (Cal.

1993) (en banc)). To establish a duty to defend, an insured need only show there is

a possibility the claim against it is covered. Montrose, 861 P.2d at 1161.

      When it denied coverage here, Century Surety had in its possession Gold

Mountain’s file for the Carlsons. Among other things, the file contained a demand

letter from the Carlsons and a proof of service attesting that the letter was mailed

over five months before the policy inception date. The Carlsons speculate it is


                                           3
possible the letter was received after the policy inception date, but “[a]n insured is

not entitled to a defense just because one can imagine some additional facts which

would create the potential for coverage.” Friedman Prof’l Mgmt. Co. v. Norcal

Mut. Ins. Co., 15 Cal. Rptr. 3d 359, 372 (Ct. App. 2004). The Carlsons have not

pointed to any affirmative evidence indicating that the letter was received by Gold

Mountain more than five months after it was mailed. The insurance policy

application and accompanying declaration, as well as the email from Gold

Mountain’s owner to Century Surety, at most demonstrate that the owner was

unaware of the letter prior to the policy inception date; they are not evidence that

the insured did not in fact receive the letter before the policy inception date.

Because an insured “cannot manufacture a dispute on summary judgment, ipse

dixit, by refusing to concede the truth of a fact without adducing some evidentiary

support for its position,” Montrose, 861 P.2d at 1161, the district court erred by

granting summary judgment to the Carlsons on the duty to defend.

      Century Surety did not cross move for summary judgment on the duty to

defend. Therefore, remand for further proceedings would be required if the panel

were to grant relief to Century Surety solely on this basis. Accordingly, we

address whether the Carlsons would be entitled to recover from Century Surety if

Century Surety had a duty to defend the underlying action.


                                           4
2.    The district court did not err by concluding the Carlsons would not be

entitled to recover, even if Century Surety had a duty to defend. Reasonable jurors

could only conclude that the settlement agreement between the Carlsons and Gold

Mountain was fraudulent, and the resulting default judgment was unreasonable.

See Pruyn v. Agric. Ins. Co., 42 Cal. Rptr. 2d 295, 303 (Ct. App. 1995) (insurer

that breached its duty to defend may be bound by settlement agreement between

insured and third party claimant if settlement “is not unreasonable and is free from

fraud or collusion”). The Carlsons argue that the rule set forth in Pruyn is

inapplicable to this case because the settlement agreement here was followed by a

default hearing. We disagree. See id. at 304 & n.16; see also Amato v. Mercury

Cas. Co., 61 Cal. Rptr. 2d 909, 918–19 (Ct. App. 1997); Andrade v. Jennings, 62

Cal. Rptr. 2d 787, 796–97 (Ct. App. 1997).2 The state court transcript has

apparently been lost, and the Carlsons made no showing in this action that the

damages it claimed were reasonable.

      In reaching this result, we are mindful of the uncontested and unique facts of

this case. The underlying claim arose out of a 2006 failed residential real estate

sale, in which the Carlsons were not paid a $1,000 earnest money deposit. After

      2
             We also disagree that an insurer may challenge a default judgment
only on the grounds of lack of jurisdiction or extrinsic fraud. See Zander v. Cas.
Ins. Co. of Cal., 66 Cal. Rptr. 561, 569–70 (Ct. App. 1968).

                                          5
the Carlsons sued and Gold Mountain’s owner agreed to enter into settlement

discussions, the Carlsons filed a second amended complaint that dramatically

increased the damages sought, from approximately $65,000 to nearly $3,000,000.

The settlement agreement was contingent on Gold Mountain’s owner and agent

providing declarations deemed satisfactory by the Carlsons. Among other things,

the declarations denied that the owner and agent received notice of the Carlsons’

claim before the insurance policy incepted, despite compelling evidence to the

contrary contained in Gold Mountain’s own file. We agree with the district court

that, under the facts of this case, no reasonable juror could reach any conclusion

other than that the $3,334,834.61 default judgment was unreasonable, and the

product of a fraudulent settlement agreement. Because California law does not

provide for recovery when a plaintiff sues an insurance company based on an

assignment of rights in a settlement agreement that is fraudulent, see Bachman v.

Independence Indem. Co., 297 P. 110, 116 (Cal. Dist. Ct. App. 1931), summary

judgment in favor of Century Surety was proper.

      Appeal No. 12-15964 is AFFIRMED. Appeal No. 12-16153 is

DISMISSED.




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