ORDER RE REIMBURSEMENT

Re: Dkt. Nos. 76, 81

JAMES DONATO, District Judge.

This is a declaratory judgment action brought by an insurer, Atain Specialty Insurance Company, against two insureds, Armory Studios, LLC and Peter Acworth. The action relates to three actions in California state court in which Atain accepted the defense of Armory and Acworth, subject to a reservation of rights. The three cases are: John Doe v. Kink.com et al., San Francisco County Superior Court Case No. CGC-15-545540; Adams v. Kink.com et al., San Francisco County Superior Court Case No. CGC-15-547035; and Rodgers v. Kink.com et al., San Francisco County Superior Court Case No. CGC-15-547036.

In this case, Atain sued for a declaration that it has no duty to defend or indemnify Armory or Acworth in any of the three actions. Dkt. No. 1. Atain also sought reimbursement of the defense fees and costs it incurred, and for the money it paid in settlements to resolve the state actions. Id. The Court previously granted summary judgment for Atain because the claims in the state cases were excluded from coverage under a Physical-Sexual Abuse Exclusion in the pertinent policy. Dkt. No. 63.

The last task was to determine the amount due to Atain in reimbursement. Id. at 5-6. The parties agree that Atain should receive $350,000 for the attorneys' fees and costs it covered in the Doe, Adams, and Rodgers actions, Dkt. No. 75, and the Court will enter that amount in the judgment. They disagree about Atain's claim for a $150,000 payment made to settle the Adams case. Dkt. Nos. 76, 81.

This order resolves the dispute. To start, neither side may rely on communications that were made during the October 2, 2017 mediation of the Adams action. That evidence is inadmissible under California Evidence Code Section 1119(a), which expresses a strong policy to exclude the use of mediation communications in subsequent litigation and other proceedings. The California Supreme Court has held that the confidentiality of mediation communications is "clear and absolute," Cassel v. Superior Court, 51 Cal.4th 113, 118 (2011), and there is no evidence here of a waiver that meets the statutory requirements in Section 1122(a). The Court has no discretion to craft its own "exceptions or limitations, even where competing public policies may be affected." Cassel, 51 Cal. 4th at 118. Consequently, the Court sustains defendants' objections to Atain's many references in its briefs to communications that took place during the Adams mediation, Dkt. No. 82 at 2-3, including paragraphs 20 and 21 of the Stargardter declaration, Dkt. No. 81-1. The exclusion must be bilateral, as Section 1119(a) mandates. Defendants' own references to communications made that day, see Dkt. No. 78 (Tynan declaration) ¶¶ 5-6, will also not be considered.

With the record corrected to expunge the mediation statements, Atain has failed to establish either that defendants consented to the $150,000 settlement of the Adams action, or that Atain satisfied the requirements of Blue Ridge Insurance Company v. Jacobsen, 25 Cal.4th 489 (2001), for that settlement amount. In Blue Ridge, the California Supreme Court considered when an insurer may "recover settlement payments made over the objection of the insured when it is later determined that the underlying claims are not covered under the policy." Id. at 492. The Court held that an insurer may do so if it has met these three prerequisites: "(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." Id. at 502.

The Court has some skepticism that Atain has met the first Blue Ridge requirement of a timely and express reservation of rights. Atain did send a letter to defendants dated August 25, 2015, stating that it "expressly reserves the right to resolve any coverage issues between it and Armory by a suit for declaratory or other relief," and that "[i]f it is determined that some or all of the claims in the Adams Litigation are not covered under the Atain policy, Atain hereby expressly reserves its right to allocate between covered and non-covered claims any payments of settlements. . . and to seek reimbursement from you for any such payments . . . ." Dkt. No. 78, Ex. 1 at 19. However, Atain undercut that statement by adding:

Id. This language is far more contingent than the reservation of rights language found to be sufficient in Blue Ridge. 25 Cal. 4th at 493 (reservation of rights provided that the insurer "hereby reserves its rights to . . . [r]equest your participation in any settlement of the above-titled action with the understanding that any contribution made by us is subject to the reservation of our right to dispute coverage, unless we expressly waive in writing all such reservations.").

But even assuming Atain's reservation of rights was sufficient for the settlement amount paid on behalf of defendants, it is clear that Atain has failed to meet either the second or third requirements of Blue Ridge. Atain relies heavily on defendants' supposed consent to the Adams settlement in an effort to get around those requirements. See Dkt. No. 83 at 7 ("Under Blue Ridge, Atain is permitted to seek reimbursement of a settlement paid by it if it secures the insured's specific authority to make that settlement or has notified the insured of a reasonable offer by the claimant and given the insured an opportunity to assume the defense.") (emphasis in original). But there are several problems. Atain's only evidence of defendants' consent consists of mediation communications that are inadmissible. Dkt. No. 81-1 ¶¶ 20-21. Atain does not proffer any evidence outside of the mediation communications to show that it notified defendants of the settlement offer for the Adams case. With respect to the last Blue Ridge requirement calling for Atain to advise defendants that they could assume their own defense, Atain has no evidence at all to establish the requisite notice.

In sum, Atain has not established a basis for reimbursement of the $150,000 it paid on behalf of defendants to settle the Adams action. Our circuit reached the same conclusion in similar circumstances in an unpublished decision. See Allstate Ins. Co. v. Baglioni, 551 Fed. Appx. 351, 352 (9th Cir. 2014) ("We are bound by Blue Ridge, and [an insurer] cannot state a claim for reimbursement against [an insured] without alleging compliance with each of Blue Ridge's prerequisites.").

Reimbursement for the $150,000 is denied. Judgment will be entered for Atain in the amount of $350,000.

IT IS SO ORDERED.