Watch the full video at https://rumble.com/v2f0w4e-intentional-and-inherently-or-predictably-harmful-conduct-cannot-be-covered.html and at https://youtu.be/bJgXcnZCUAM
Markel American Insurance Company (“Markel”) issued a management liability policy to United Talent Agency (“UTA”). UTA was sued by a competitor, Creative Artists Agency (“CAA”) for stealing its customers and employees. Markel declined coverage for the action, based on the policy’s professional liability exclusion and California Insurance Code § 533, which provides that “[a]n insurer is not liable for damage caused by the insured’s willful act.” UTA sued Markel for breach of contract and bad faith. The district court held that § 533 did not apply but concluded that coverage was excluded by the insurance’s professional liability prohibition and entered judgment in favor of Markel.
United Talent Agency, LLC, a Delaware corporation v. Markel American Insurance Company, a Virginia corporationno. 22-55205, 22-55357, United States Court of Appeals, Ninth Circuit (March 15, 2023)
The Ninth Circuit disagreed with the district court’s conclusion that CAA’s allegations that UTA illegally stole clients and agents from CAA fell within the policy’s professional liability exception.
CAA’s allegations that UTA stole clients and agents from CAA do not constitute conduct in the sense of providing professional services.
Application of § 533 is a matter of statutory construction, not contract interpretation. Section 533 reflects a fundamental public policy of denying coverage for intentional wrongs and deterring intentional torts. Liability arising from intentional and inherent or foreseeable harmful conduct cannot be covered by liability insurance. The Ninth Circuit concluded that the legislative intent is both clear and unambiguous. It is denying insurance coverage for willful errors.
Section 533 creates a statutory exception that is read into every policy. The policy’s requirement of a verdict establishing an intentional act for the exclusion to apply is not relevant to the § 533 analysis. An intentional act according to § 533 means either an act done intentionally with the express purpose of causing damage or intentionally performed with knowledge that damage is highly likely or substantially certain to occur. An intentional act also includes an intentional and illegal act where the damage is inherent in the act itself.
Section 533 excludes coverage of litigation when the allegations of the underlying complaint can only be established by a showing of willful misconduct. The court must review the allegations in the underlying complaint to determine whether those allegations necessarily constitute an intentional act within the meaning of § 533. The trial court did not. The Ninth Circuit therefore remanded the case for the district court to determine that § 533 is applicable to the allegations of willful misconduct.
In light of the remand, the Ninth Circuit declined to consider the parties’ other claims on appeal and reversed the grant of Markel’s motion for summary judgment on exclusion of professional liability, reversed the denial of Markel’s motion for summary judgment regarding § 533, and remanded In order for the district court to make an appropriate decision on Markel’s motion for summary judgment on the application of § 533, because the allegations of the underlying complaint could only be proven if CAA proves that UTA’s actions were willful.
Liability insurance protects the insured from lawsuits seeking damages for their liability due to the insured’s negligent actions. Most liability insurance policies exclude intentional acts such as assault or battery. California mandates by law the existence of an exclusion not written into the policy which states that there is no coverage for a: “loss caused by the willful act of the insured.” That section applies and cannot be changed by the wording of the policy even if the insured and the insurer want to insure against such willful acts, they cannot do so in California even though other states that do not have a similar statute may require coverage.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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