                           NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                       AUG 13 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

ATAIN SPECIALTY INSURANCE                       No.    19-15745
COMPANY, a Michigan corporation,
                                                D.C. No. 3:15-cv-05124-JD
                Plaintiff-Appellee,

 v.                                             MEMORANDUM*

ARMORY STUDIOS, LLC, a California
limited liability company; PETER
ACWORTH, an individual,

                Defendants-Appellants.


ATAIN SPECIALTY INSURANCE                       No.    19-15820
COMPANY, a Michigan corporation,
                                                D.C. No. 3:15-cv-05124-JD
                Plaintiff-Appellant,

 v.

ARMORY STUDIOS, LLC, a California
limited liability company; PETER
ACWORTH, an individual,

                Defendants-Appellees.

                   Appeal from the United States District Court
                     for the Northern District of California
                    James Donato, District Judge, Presiding

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                        Argued and Submitted July 15, 2020
                            San Francisco, California

Before: SILER,** TALLMAN, and LEE, Circuit Judges.

      The district court held that Atain Specialty Insurance Company (Atain) did

not have a duty to defend Armory Studios, LLC (Armory) and Armory’s principal,

Peter Acworth, in underlying state court lawsuits and that Atain is not entitled to

reimbursement of a settlement paid in one of those underlying lawsuits, Adams v.

Kink.com, et al., No. CGC–15–547035 (San Francisco Super. Ct.). We affirm.

      First, we conclude that the district court did not err when it determined that

Atain had no duty to defend Armory or Acworth in the underlying lawsuits. Under

California law, an insurer must defend its insured against a third-party lawsuit if

there is a “bare possibility of coverage.” Belmonte v. Emp’rs Ins. Co., 99 Cal. Rptr.

2d 661, 663 (Cal. Ct. App. 2000). Therefore, we compare “the allegations of the

complaint with the terms of the policy” and determine whether the facts alleged

together with the facts known to the insurer at the inception of a lawsuit or tender of

defense reveal a possibility that the claim is covered. Montrose Chemical Corp. v.

Superior Court, 861 P.2d 1153, 1157 (Cal. 1993) (en banc).

      Atain argues that the “Physical-Sexual Abuse Exclusion” precludes coverage.



      **
            The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.

                                          2                                    19-15745
The exclusion precludes coverage of “any ‘occurrence,’ suit, . . . or causes of action

arising out of or resulting from the physical abuse, sexual abuse or licentious,

immoral or sexual behavior intended to lead to, or culminating in any sexual act,

whether caused by, or at the instigation of, or at the direction of, or omission by: The

insured or the insured’s employees . . . .” Here, the exclusion applies because the

state court complaints asserted that Armory and Acworth were liable for the

plaintiffs’ contraction of HIV while plaintiffs were engaging in sexual acts at the

direction of Armory and Acworth, among others. And the omissions clause

precludes causes of action arising out of any sexual act that resulted from the

omission of the insured, which covers the complaint allegations that Armory and

Acworth failed to discover dangerous conditions caused by their tenants and failed

to ensure their tenants were following required procedures. Thus, Atain had no duty

to defend against any causes of action.

      Second, we conclude that Atain is not entitled to reimbursement of the Adams

action settlement. To be entitled to reimbursement Atain must show that it satisfied

each of the following requirements: “(1) a timely and express reservation of rights;

(2) an express notification to the insureds of the insurer’s intent to accept a proposed

settlement offer; and (3) an express offer to the insureds that they may assume their

own defense when the insurer and insureds disagree whether to accept the proposed

settlement.” Blue Ridge Ins. Co. v. Jacobsen, 22 P.3d 313, 320–21 (Cal. 2001). Atain


                                           3                                    19-15745
did not satisfy the third requirement because it never made an express offer to

Armory that it could assume its own defense. Therefore, Atain is not entitled to

reimbursement of the Adams action settlement.

      Each party to bear its own costs.

      AFFIRMED.




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