United Talent Agency, LLC v. Markel American Insurance Co ( 2023 )

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NOT FOR PUBLICATION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
UNITED TALENT AGENCY, LLC, a No. 22-55205
Delaware limited liability company,
DC No. 2:21-cv-00369-MCS
Plaintiff-Appellant,
v. MEMORANDUM*
MARKEL AMERICAN INSURANCE
COMPANY, a Virginia company,
Defendant-Appellee,
and
DOES, 1 through 10,
Defendant.
UNITED TALENT AGENCY, LLC, a No. 22-55357
Delaware limited liability company,
DC No. 2:21-cv-00369-MCS
Plaintiff-Appellee,
v.
MARKEL AMERICAN INSURANCE
COMPANY, a Virginia company,
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Defendant-Appellant,
and
DOES, 1 through 10,
Defendant.
Appeals from the United States District Court
for the Central District of California
Mark C. Scarsi, District Judge, Presiding
Argued and Submitted February 13, 2023
Pasadena, California
Before: TASHIMA, HURWITZ, and BADE, Circuit Judges.
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 allegedly stealing its clients 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 a loss caused by the wilful act of the insured.” UTA sued Markel
for breach of contract and bad faith. The district court held that § 533 did not
apply, but concluded that coverage was precluded by the policy’s professional
liability exclusion, and entered judgment in favor of Markel. We have jurisdiction
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under 28 U.S.C. § 1291 and conclude that the professional liability exclusion does
not apply, but that § 533 does. We therefore reverse and remand.
1. We disagree with the district court’s conclusion that CAA’s
allegations that UTA illegally stole clients and agents from CAA come within the
purview of the policy’s professional liability exclusion.1 The exclusion disclaims
liability for any loss “based upon, arising out of, or in any way involving any
actual or alleged error, misstatement, misleading statement, act, omission, neglect,
or breach of duty in connection with the rendering or failure to render any
professional services to others for a fee, commission or other compensation.” The
allegations by CAA that UTA stole clients and agents from CAA do not involve
conduct in connection with the rendering of professional services to others for a
fee. Rather, UTA represents clients in the negotiation of contracts for fees. Even
if UTA’s only possible motive could have been to increase profits, as the district
court found, this does not bring the conduct within the meaning of rendering
professional services. Everything that UTA does can be described as motivated by
increasing profits.
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Because the parties are familiar with the factual and procedural
background, we do not set it forth except as necessary to understand this
disposition.
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2. The district court erred in relying on an exclusion in the policy for a
claim “involving any deliberately fraudulent act or omission or any willful
violation of any statute or regulation,” to conclude that § 533 did not apply.The
court reasoned that because the exclusion required “a final and non-appealable
adjudication” to establish such an act and Markel had not provided “any final and
non-appealable judgment demonstrating a willful act,” Markel could invoke neither
the exclusion nor § 533. However, application of § 533 is a matter of statutory
construction, not of contract interpretation.
Section 533 “reflects a fundamental public policy of denying coverage for
willful wrongs and discouraging willful torts.” Certain Underwriters at Lloyd’s
London v. ConAgra Grocery Prods. Co., 292 Cal. Rptr. 3d 712, 719–20 (Ct. App.
2022); see also Cal. Amplifier, Inc. v. RLI Ins. Co., 113 Cal. Rptr. 2d 915, 926 (Ct.
App. 2001) (“Liability arising from intentional and inherently or predictably
harmful conduct cannot be covered by liability insurance.”). “Because the
exclusion embodied in section 533 is a statute, the normal rules of contract
interpretation do not apply. Rather, the rules of statutory construction control.”
Downey Venture v. LMI Ins. Co., 78 Cal. Rptr. 2d 142, 154 n.32 (Ct. App. 1998).
Thus, any ambiguities are not construed against the insurer. Instead, the statutory
language is construed “so as to effectuate the legislative purpose and intent. . . .
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[T]hat legislative purpose is both clear and unequivocal. It is to deny insurance
coverage for wilful wrongs.” Id.Section 533’s application therefore does not depend on the policy’s
exclusion for a “deliberately fraudulent act or omission or any willful violation of
any statute or regulation.” Rather, “[s]ection 533 creates a statutory exclusion
which is read into every insurance policy.” Marie Y. v. Gen. Star Indem. Co., 2
Cal. Rptr. 3d 135, 153 (Ct. App. 2003). The policy’s requirement of a judgment
establishing a wilful act for the exclusion to apply is not pertinent to the § 533
analysis.
A wilful act for purposes of § 533 means “either ‘an act deliberately done
for the express purpose of causing damage or intentionally performed with
knowledge that damage is highly probable or substantially certain to result.’”
Downey, 78 Cal. Rptr. 2d at 155 (quoting Shell Oil Co. v. Winterthur Swiss Ins.
Co., 15 Cal. Rptr. 2d 815, 832 (Ct. App. 1993)). A wilful act also “includes an
intentional and wrongful act in which ‘the harm is inherent in the act itself.’” Id.(quoting J.C. Penney Cas. Ins. Co. v. M.K., 804 P.2d 689, 698 (Cal. 1991)).
California courts have found that § 533 precludes coverage of litigation
when the allegations of the underlying complaint can be established only by
showing wilful misconduct. See, e.g., Marie Y., 2 Cal. Rptr. 3d at 153–54 (because
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“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”); Downey, 78 Cal.
Rptr. 2d at 157–59 (where underlying action for malicious prosecution against the
insured was settled, examining elements of malicious prosecution and holding that
§ 533 precluded indemnification because “the commission of this tort constitutes a
wilful act within the meaning of section 533”); 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
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 by section 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
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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”).
Thus the court’s task is to examine the allegations in the underlying
complaint to determine whether those allegations necessarily involve a wilful act
within the meaning of § 533. The district court did not do so here. We therefore
remand for the district court to make this determination in the first instance.
In light of our remand, we decline to consider the parties’ other contentions
on appeal. We reverse the grant of Markel’s summary judgment motion on the
professional liability exclusion, reverse the denial of Markel’s summary judgment
motion as to § 533, and remand for the district court to make the appropriate
determination on Markel’s summary judgment motion as to the application of §
533. Markel is awarded its costs on appeal.
REVERSED and REMANDED.
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