Court Opinion

ID: 9379427
Source: CourtListenerOpinion
Date Created: 2023-03-15 17:01:22.368058+00
Date Added: 2024-06-11T17:16:01.237641
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                              MAR 15 2023
                    UNITED STATES COURT OF APPEALS                         MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

ASPEN SPECIALTY INSURANCE                        No.   22-55032
COMPANY,
                                                 DC No. 2:21-cv-04208-AB
              Plaintiff-Appellant,

 v.                                              MEMORANDUM*

MILLER BARONDESS, LLP; LOUIS R.
MILLER; JAMES GOLDMAN;
ALEXANDER FRID; JASON TOKORO,

              Defendants-Appellees.

                    Appeal from the United States District Court
                       for the Central District of California
                    Andre Birotte, Jr., District Judge, Presiding

                     Argued and Submitted February 13, 2023
                              Pasadena, California

Before:      TASHIMA, HURWITZ, and BADE, Circuit Judges.

      Aspen Specialty Insurance Company appeals from the district court order

dismissing under Federal Rule of Civil Procedure 12(b)(6) its complaint against

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Miller Barondess, LLP, and several of its partners (collectively “MB”).1 We have

jurisdiction under 28 U.S.C. § 1291, and we reverse and remand.

      Under California law, “[a]n insurer is not liable for a loss caused by the

wilful act of the insured.” Cal. Ins. Code § 533. “The public policy underlying

section 533 is to prevent encouragement of wilful torts. Section 533 is ‘a

codification of the jurisprudential maxim that no man shall profit from his own

wrong.’” Am. States Ins. Co. v. Borbor, 826 F.2d 888, 894 (9th Cir. 1987)

(quoting Don Burton, Inc. v. Aetna Life & Cas. Co., 575 F.2d 702, 705 (9th Cir.

1978)). “It is an implied exclusionary clause which, by statute, must be read into

all insurance policies. As a result, the parties to an insurance policy cannot

contract for such coverage.” Downey Venture v. LMI Ins. Co., 78 Cal. Rptr. 2d

142, 154 (Ct. App. 1998).

      The district court erred in concluding that § 533 did not apply because there

was no final adjudication that the insureds engaged in malicious prosecution.2 In

Downey, the California Court of Appeal concluded that § 533 precluded

indemnification for the underlying malicious prosecution action, even though, like

      1
             The named partners are Louis R. Miller, James Goldman, Alexander
Frid, and Jason Tokoro.
      2
             Because the parties are familiar with the factual and procedural
background, we do not set it forth except as necessary to understand this
disposition.
                                           2
here, the matter had been settled without a final adjudication. Id. at 159. Downey

relied solely on the allegation of malicious prosecution in the underlying complaint

and did not consider whether there had been an adjudication of that alleged claim.

Other California precedent confirms that courts examine the allegations of the

underlying complaint, not whether there has been an adjudication of the

allegations, in determining whether § 533 bars coverage. See also, e.g., Marie Y. v.

Gen. Star Indem. Co., 2 Cal. Rptr. 3d 135, 153–54 (Ct. App. 2003) (because

“sexually molesting a dental patient after rendering her unable to resist by giving

her nitrous oxide is a ‘wilful act’ under section 533,” and “this is the precise

conduct originally alleged against [the insured], the original complaint on its face

demonstrates that section 533 bars coverage for his conduct”); Cal. Amplifier, Inc.

v. RLI Ins. Co., 113 Cal. Rptr. 2d 915, 919–20 (Ct. App. 2001) (where insureds

settled lawsuit alleging that they engaged in stock manipulation in violation of

California Corporations Code § 25500, holding that insurance “coverage is

precluded by Insurance Code § 533 as a matter of law” because “a defendant must

knowingly and intentionally make a false or misleading statement to be liable

under [Corporations Code] section 25500”); Coit Drapery Cleaners, Inc. v.

Sequoia Ins. Co., 18 Cal. Rptr. 2d 692, 695, 697 (Ct. App. 1993) (where

underlying action for sexual harassment and wrongful termination was settled, the

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court reviewed the allegations of the complaint and held that coverage for the costs

of defending and settling the claim was barred by the policy and § 533 because

there was “no credible argument that this alleged wrongful conduct could be

anything other than intentional and willful”); B & E Convalescent Ctr. v. State

Comp. Ins. Fund, 9 Cal. Rptr. 2d 894, 897 (Ct. App. 1992) (where underlying

action for wrongful termination was settled, examining the allegations of the

underlying action and holding that, “[a]s the employee’s claims in the underlying

action against the insured employer consist solely of willful misconduct involving

the intentional termination of the employee in violation of fundamental and

substantial public policies, . . . there is no potential for coverage under the

employer’s liability policy because Insurance Code section 533 precludes any duty

to indemnify”).

      Contrary to the district court’s conclusion, Downey did not require a finding

of liability for malicious prosecution. Downey specifically stated that the question

of whether the insureds had acted with malice remained to be litigated when the

insureds demanded that the insurer settle the matter. 78 Cal. Rptr. 2d at 147. We

also reject the district court’s reasoning that the Downey court “ruled on the

presumption that the insureds had committed a wilful act” because the insureds

insisted on the settlement after some adverse rulings. First, Downey did not rely on

                                            4
any such presumption, instead considering only whether the elements of a

malicious prosecution cause of action established that the tort is a willful act for

purposes of § 533. Id. at 150–59. Second, like the insureds in Downey, MB

insisted that Aspen settle the matter after an adverse trial court ruling.

      The underlying complaint against MB alleged malicious prosecution, which

Downey categorically finds to be a willful act within the meaning of § 533.3 See

State Farm Fire & Cas. Co. v. Drasin, 199 Cal. Rptr. 749, 750, 751 (Ct. App.

1984) (affirming summary judgment in favor of insurer where underlying

malicious prosecution action was still “pending,” because malicious prosecution

requires a wilful act). Section 533 therefore precludes coverage here.

      MB’s argument that § 533 does not apply where the insured is vicariously,

rather than personally, liable is also unavailing.4 The malicious prosecution action

was not based on an innocent party’s vicarious liability for the wrongdoing of

another. Cf. Borbor, 826 F.2d at 892–94 (where husband was convicted of

molesting children who attended a school run by him and his wife, and wife was

      3
             The district court also erred in concluding that § 533 does not apply
because the act of settling the malicious prosecution claim is not wrongful or
harmful for purposes of § 533. The wrongful act here is not the settlement, but the
malicious prosecution.
      4
            The statute provides that an insurer “is not exonerated by the
negligence of the insured, or of the insured’s agents or others.” Cal. Ins. Code §
533.
                                            5
found vicariously liable for his acts, her vicarious liability did not preclude

coverage under § 533). The complaint alleged that the insureds themselves, not an

agent or third party, engaged in the acts of malicious prosecution. For example,

the complaint alleged that MB and the other defendants “made numerous false

statements to the trial court about the forgeries and NMS’ misconduct, hid

evidence of NMS’ misconduct from AEW and the trial court, even though the trial

court had ordered that evidence be produced, . . . knowingly submitted NMS’

perjured testimony to the trial court, and actively and knowingly assisted NMS in

its fraudulent and malicious scheme.”

      Contrary to MB’s argument, PCO, Inc. v. Christensen, Miller, Fink, Jacobs,

Glaser, Weil & Shapiro, LLP, 58 Cal. Rptr. 3d 516 (Ct. App. 2007), has no

application here. In PCO, the trial court granted the defendant law firm’s summary

judgment motion on the ground that a non-equity partner in the firm “acted outside

the scope of his authority as a partner” when he engaged in fraudulent activities.

Id. at 521. On appeal, the court held that there was a triable issue of fact regarding

whether the partner was acting in his capacity and within his authority as a partner.

Id. The law firm thus could have been vicariously liable for the partner’s conduct.

There is no question here that the MB partners were acting in their capacity and

                                           6
within their authority when they litigated the action that became the subject of the

malicious prosecution allegations.

      The district court order dismissing Aspen’s complaint is reversed and the

matter remanded for further proceedings.5 Aspen is awarded its costs on appeal.

Fed. R. App. P. 39(a)(3).

      REVERSED and REMANDED.

      5
               The motion of Complex Insurance Claims Litigation Association for
leave to file an amicus brief in support of Aspen [Dkt. 15] is granted.
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