Wilfulact Exluded by California Statute

Satisfaction of Mortgage Eliminates Right of Mortgagee to Recover from Homeowners Policy

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 based on California Insurance Code § 533, which provides that “[a]n insurer is not liable for a loss caused by the wilful act of the insured.”

In Markel.United Talent Agency, LLC, a Delaware limited liability company v. Markel American Insurance Company, a Virginia company, Nos. 22-55205, 22-55357, United States Court of Appeals, Ninth Circuit (March 15, 2023) Application of § 533 is a matter of statutory construction, not of contract interpretation. Section 533 creates a statutory exclusion which is read into every insurance policy.

Section 533 precludes coverage of litigation when the allegations of the underlying complaint can be established only by showing wilful misconduct. The Ninth Circuit reversed the denial of Markel’s summary judgment motion as to § 533 because the allegations of the underlying complaint could only be proved if CAA proves the conduct of UTA was wilful.

ZALMA OPINION

Liability insurance protects the insured from suits seeking damages for its liability due to the insured’s negligent acts. Most liability insurance policies exclude intentional acts like assault or battery. California, by statute, compels the existence of an exclusion not written in the policy that states there is no coverage for a: “loss caused by the wilful act of the insured.” That section applies and cannot be changed by the wording of the policy.