California adopted a statute, insurance code § 533.5 (b) to prevent insurers from providing a defense or compensation to a party sued by the state for unfair competition or false advertising. Adir International challenged the Charter of the Ninth Circuit Court of Appeal after California's Attorney General filed a lawsuit against Adir International, LLC for violating state consumer protection laws.
Adir's insurer, after initially agreeing to provide coverage, Starr Indemnity, refused to continue paying for Adir's defense under California Insurance Code § 533.5 (b), which prohibits the insurer's coverage in certain consumer protection matters brought by the state. In ADIR International, LLC, DBA Curacao, FKA La Curacao, a Delaware corporation; Ron Azarkman, an individual against Starr Indemnity And Liability Company, a Texas Corporation, No. 19-56320, United States Court of Appeals for the Ninth Circuit (April 15, 2021) The Ninth Circuit settled the dispute after the District Court agreed with Starr.
California's Attorney General sued Adir International for violating state consumer protection laws. In order to defend itself, Adir asked its insurance company to pay its legal fees. The insurer agreed, but the Attorney General warned that California Insurance Code § 533.5 (b) prohibits it from providing coverage in certain cases of consumer protection brought by the state. The insurer turned around and said that it would no longer pay for Adir's legal defense. Adir questioned the constitutionality of the law and claimed that the state unreasonably abolished it from insurance coverage based on unproven accusations in the complaint.
Adir operates a retail chain called Curacao with stores in California, Nevada and Arizona. In 2017, California Attorney General Adir and its CEO Ron Azarkman sued for unfair and misleading business tactics that allegedly exploit Curacao's primarily low-income, Spanish-speaking customer base. The lawsuit alleges violations of California's Unfair Competition Act (UCL) and the False Advertising Act (FAL), and sought reimbursement, civil penalties, costs and other equitable exemptions. Relevant to this appeal, the complaint requested an injunction that Adir would permanently make any false or misleading statements in violation of FAL and engage in unfair competition in violation of UCL.
Meanwhile, Adir had purchased insurance from Starr Indemnity. The policy provided that Starr would defend and indemnify Adir and its executives for losses resulting from certain allegations of wrongdoing. When the California Attorney General sued, Starr agreed to defend the action subject to rights.
All of this was stopped in March 2019 when Starr received a written warning from the California Attorney General & # 39 ;s Office. In the letter, the Attorney General's Office stated that Starr violates California Insurance Code § 533.5. (Adir also apparently received a copy of the same letter.) Section 533.5 provides that "All provisions of an insurance policy which are contrary to Subsection (a) or (b) are contrary to public policy and invalid." [Cal. Ins. Code § 533.5.] A few weeks after receiving the letter from the legal secretariat, Starr Adir announced that it would "stop paying for defense costs" and reserves the "right to claim compensation for all amounts paid so far."
On appeal, Adir challenged both the damages and defense provisions of California Insurance Code § 533.5.
As Adir points out, California has piled the tire against the defendants in the face of these lawsuits filed by the state: Although the Attorney General has not yet proven any of the allegations in his lawsuit, he has invoked the state's power to deny insurance coverage paid by Adir to defend .
The Ninth Circle has argued that there is "no constitutional right to consult in a civil case." United States v. . 30 . 64 acres of land More or less Located in Klickitat Cty ., Washington 795 F.2d 796, 801 (9 Cir. 1986).
The clause on fair trial, as well as its ancestor in Magna Carta , was intended to protect the individual from the arbitrary exercise of government powers, and as a practical matter it means that litigation prevents the government from actively preventing a party from obtaining advice or communicating with its lawyer in civil cases.
The limited right retaining a lawyer does not include the indirect right to finance and retain a lawyer through insurance.
Although Adir complains that California Insurance Code § 533.5 (b) is unfair, the charter does not actively prevent Adir from obtaining advice or communicating with ed their lawyers.
California law only makes it more difficult, but not necessarily impossible, for a civil dispute to maintain the advice they have chosen. Adir has not claimed that the government actively prevented it from getting advice or that the law prevented it from communicating with lawyers. In fact, Adir appears to have obtained a skilled and competent adviser – without using insurance proceeds – for this appeal. The ninth district concluded that section 533.5 (b) of the Insurance Code does not affect the right to retain a lawyer.
The text of the Starr policy defines "claim" to include a "written claim for monetary, non-monetary, or injunction." But "claim" is not the same as "coverage." The word "Loss" is defined in its to include "damages" but to exclude "any amounts paid or incurred in pursuance of a judgment or settlement for non-monetary or injunction, but only in relation to the company."
In any event, given (1) the premise of California law that the obligation to defend is always broader than the liability for damages and (2) because there is no obligation to defend any criminal or civil proceedings under UCL or FAL (including this action) there would be no reason to propose a liability for damages in this act under subsection (a) of the Charter.
When the law requires a perpetrator to deter money or property acquired through a breach of the law, to allow perpetrators to transfer the costs for eviction to an insurance company would eliminate the incentive to comply with the law, otherwise the perpetrator would retain the proceeds of his illegal acts and simply transfer his loss to an insurance company.The simple meaning of the statutory text of California Insurance Code § 533.5 (b) abolishes defense coverage for all claims in a UCL or FAL river action where the state seeks monetary relief. Here, the state seeks (among other things) monetary relief against Adir under UCL and FAL. The charter thus blocks Adir's defense coverage.
The text of the insurance policy explicitly gives the right to compensation for defense costs.
The ninth district confirmed the district court's decision that Starr is entitled to compensation for defense costs.
Cal. Ins. Code § 533.5 (b) does not responsibly violate the right of insurance holders to finance and retain the adviser they choose in the civil context. The panel also rejected Adir's statutory argument that section 533.5 applied to measures involving monetary relief only. The panel further claimed that according to the clear text of the statutes, it was applied to measures seeking injunctions and monetary exemption.
California Insurance Code § 533.5 (b) – which repeals the insurance company's obligation to defend – does not violate a party's right to custody. In civil cases, courts have recognized a denial of due process only if the government actively prevents a party from obtaining a lawyer or prevents it from communicating with lawyers. Adir has not made any such claim. Adir has not succeeded in utilizing its insurance cover but has succeeded in obtaining and communicating with advisers. According to the clear text of the statutes, the documents seeking an injunction together with monetary relief apply.
Insurance is an indemnity agreement that provides defense or damages for any or unknown events. It is also subject to state statutes that govern the use of insurance for the public. In this case, § 533.5 Starr prohibited the provision of a defense or compensation to Curacao and was entitled to a refund of the money he spent under a reservation on the right to defend Curacao until it withdrew its defense after being warned by the State of California that it action is contrary to the Charter. Basically, the state wrote about the terms and conditions of the policy and added an exception to the defense and damages that was not in the insurance contract.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE now limits his practice to working as an insurance consultant specializing in insurance coverage, insurance management, insurance claims and insurance fraud almost
and for insurance companies. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims handling and more than 52 years in the insurance industry. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.
For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to fight insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insured.
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