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Anthem Elecs., Inc. v. Pac. Emplrs. Ins. Co.

Anthem Elecs., Inc. v. Pac. Emplrs. Ins. Co.

United States Court of Appeals for the Ninth Circuit

June 12, 2002, Argued and Submitted, San Francisco, California ; September 5, 2002, Filed

No. 01-16402

Opinion

 [*1052]  D.W. NELSON, Circuit Judge:

We are asked to decide whether, under California law, the plaintiff's general liability insurance policies required the defendants, two insurance companies, to defend their insured against a negligence and breach of contract suit brought by a third party. The district court granted summary judgment to the insurers. Because the complaint at issue clearly raised the possibility that the claims against the insured would be covered under the insurance policies, we reverse, grant [**2]  partial summary judgment to the plaintiff, and remand.

I. Background

In April 1991, plaintiff and appellant Anthem Electronics agreed to supply circuit boards to KLA Instruments Corp., a manufacturer, to be incorporated into scanners that KLA then sold. 1 KLA took delivery of Anthem circuit boards from about August 1991 through November 1992.

Both the circuit boards supplied by Anthem and KLA's final scanner products were quality tested before they were shipped to customers. Despite this, the circuit boards had latent defects that caused some of the scanners to fail once in use. The circuit boards supplied by Anthem, it turns out, were physically defective such that heat, physical vibration or electrical current over time could cause the electrical connections on the circuit boards to crack or [**3]  lift apart, causing electrical "opens" that prevented the scanners from working. Anthem admits that these defects were due to manufacturing flaws (though it blames its own subcontractor for these flaws).

Because some of the scanners in use by KLA's customers failed, KLA was forced to replace them and to incur other unexpected costs due to the loss of use of the scanners into which Anthem's circuit boards had been installed. To recoup these costs, KLA sued Anthem in state court. The complaint, filed in November 1994, states causes of action against Anthem for breach of contract, negligence, breach of express warranty, breach of implied warranty of fitness, breach of implied warranty of merchantability, negligent misrepresentation, indebitatus assumpsit, and constructive trust. It alleges that the circuit boards supplied by Anthem were defective; that KLA installed these boards into KLA products; that the boards intermittently failed; and that, as a result of the defective boards, KLA suffered damages exceeding $ 4.5 million.

In answer to interrogatories, KLA categorized its damages claim as including, among other expenses, the following:

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302 F.3d 1049 *; 2002 U.S. App. LEXIS 18282 **; 2002 Cal. Daily Op. Service 8106; 2002 Daily Journal DAR 10237

ANTHEM ELECTRONICS, INC., Plaintiff-Appellant, v. PACIFIC EMPLOYERS INSURANCE COMPANY, a California corporation; FEDERAL INSURANCE COMPANY, an Indiana corporation, Defendants-Appellees.

Prior History:  [**1]  Appeal from the United States District Court for the Northern District of California. D.C. No. CV-97-20296-JW(PVT). James Ware, District Judge, Presiding.

Disposition: Reversed and remanded. Partial summary judgment was granted to Plaintiff.

CORE TERMS

insurers, coverage, policies, circuit board, scanners, property damage, duty to defend, occurrence, summary judgment, loss of use, damages, products, boards, plant, tangible property, physical injury, replacement, unexpected, installed, defects, losses, insurance policy, supplied, repair, partial summary judgment, sudden and accidental, extrinsic evidence, policy coverage, impaired, costs

Insurance Law, Liability & Performance Standards, Good Faith & Fair Dealing, Duty to Defend, Business Insurance, Commercial General Liability Insurance, Civil Procedure, Appeals, Standards of Review, De Novo Review, Summary Judgment Review, General Overview, Standards of Review, Appellate Jurisdiction, Final Judgment Rule, Property Insurance, Coverage, Persons Insured, Claim, Contract & Practice Issues, Fortuity Doctrine, Torts, Elements, Causation, Responses, Defenses, Demurrers & Objections, Denial of Allegations, Accidental Injuries, Property Claims, Occurrences, Third Parties, Products & Workmanship, Summary Judgment, Burdens of Proof, Entitlement as Matter of Law, Contracts Law, Breach, Exclusions, Economic Loss Exclusions, Real Property Law, Torts, Construction Defects, Types of Damages, Property Damages, Loss of Use, Opposing Materials, Judgments