The United States Court of Appeals for the Ninth Circuit, applying California law, has affirmed a district court's determination that California Insurance Code § 533 barred indemnity and defense costs coverage for a lawsuit alleging the insured conspired to steal (and allegedly stole) clients and employees of a rival talent management agency. United Talent Agency, LLC v. Markel Am. Ins. Co., 2025 WL 869213 (9th Cir. Mar. 20, 2025) (unpublished). Section 533 provides that "[a]n insurer is not liable for a loss caused by the wilful [sic] act of the insured."
In its lawsuit, the rival agency alleged that the insured had intentionally interfered with contractual relations, induced breach of contract, intentionally interfered with prospective economic advantage, conspired to breach its fiduciary duty and duty of loyalty, aided and abetted breaches of fiduciary duty and duty of loyalty, breached its fiduciary duty, breached its duty of loyalty, and engaged in unfair competition under California law. After resolving the lawsuit by settlement, the insured sought and was denied coverage from its insurer.
In the ensuing coverage litigation, the district court initially determined that the policy's professional services exclusion precluded coverage but that Section 533 required final adjudication of intentional acts before it would apply to bar coverage. Reversing on both grounds, the Ninth Circuit instructed the lower court to redo its Section 533 analysis. On remand, the district court determined that all but one of the asserted causes of action against the insured required proof of willful conduct, so Section 533 barred coverage for those claims. For the remaining cause of action, the district court determined that, because it was "inseparably intertwined" with the other causes of action, it likewise was barred from coverage under Section 533.
The insured then initiated a second appeal. On review, the Ninth Circuit affirmed, explaining that "most of [the underlying] claims required proof of [] 'wilful' conduct," and "to the extent [the insured] allegedly engaged in less culpable acts, such conduct was 'part and parcel' of [the insured's] wrongful scheme." Addressing the insured's argument that defense costs coverage is separate from indemnity, the Ninth Circuit determined that because the policy required repayment of defense costs by the insured where there was no coverage and Section 533 barred coverage, the insured "cannot now recover its defense costs."
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