(Article from Insurance Law Alert, May 2025)
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Holding
Affirming a California district court decision, the Ninth Circuit ruled that an insurer had no duty to defend a suit alleging that the insured engaged in willful conduct in violation of state statutory law. United Talent Agency, LLC v. Markel American Insurance Co., 2025 U.S. App. LEXIS 6510 (9th Cir. Mar. 20, 2025).
Background
United Talent Agency (“UTA”) was sued by a competitor for allegedly stealing its clients and employees. Markel American, UTA’s insurer, denied coverage based in part on California Insurance Code § 533, which states that an insurer “is not liable for a loss caused by the willful act of the insured.” After UTA settled the underlying suit, it sued Markel American for breach of contract and bad faith based on the insurer’s refusal to advance defense costs in the underlying action.
A California district court granted Markel American’s summary judgment motion and the Ninth Circuit affirmed.
Decision
Markel American’s policy required it to advance “[c]laim [e]xpenses on a current basis” and defined claim expenses to include “the defense or appeal of…[a]ny claim for which coverage is afforded” under the policy. Thus, the central issue in dispute was whether the underlying suit against UTA gave rise to “a claim for which coverage is afforded.” The court held that it did not.
Under § 533, an act is “willful” if it is “(1) deliberately done for the express purpose of causing damage, (2) intentionally performed with knowledge that damage is highly probable or substantially certain to result, or (3) an intentional and wrongful act in which the harm is inherent in the act itself.”
The court concluded that the claims against UTA—including intentional interference and conspiracy to breach a fiduciary duty—required proof of willful conduct. Further, to the extent that some claims alleged “less culpable acts,” the court held that such conduct was “part and parcel” of the willful scheme. The court stated: “Any allegedly non-willful acts were so closely related to UTA’s conspiracy to harm CAA as to constitute the same course of conduct for purposes of § 533.”
Comments
The Ninth Circuit’s decision reaffirms the principle that California Insurance Code § 533 is implied in all insurance policies subject to California law and coverage is precluded where the alleged conduct by the policyholder involves intentional and willful wrongdoing or negligent conduct so intertwined with the intentional and willful wrongdoing as to be inseparable from it.