Plaintiff insurer declined to provide a defense for defendant, an insured doctor who was indicted on federal charges arising from an alleged conspiracy to transplant a liver into the wrong patient. The Superior Court of Los Angeles County, California, granted summary judgment on the insurer’s claim for declaratory judgment, held that the insurer had no duty to defend the insured, and overruled the insured’s demurrer. The insured appealed.
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Overview
In finding no duty to defend, the trial court applied Ins. Code, § 533.5, subd. (b), which precluded insurers from providing a defense for certain kinds of claims. The court of appeal held that § 533.5, subd. (b), did not preclude an insurer from agreeing to provide a defense for criminal actions against its insured brought by federal prosecutors. Finding that there was more than one reasonable interpretation of the statute, the court examined the legislative history and determined that the Legislature never intended § 533.5, subd. (b), to apply to criminal actions brought by public entities other than the enumerated state and local agencies. Therefore, the insurer in the current case could not avoid its contractual duty to defend the insured against the federal criminal charges by relying on § 533.5, subd. (b). It had agreed to provide its insureds with a defense in a criminal proceeding commenced by the return of an indictment even if the allegations were groundless, false, or fraudulent.
Outcome
The court reversed the order granting the insurer’s motion for summary judgment and reversed the judgment. The court affirmed the order overruling the insured’s demurrer.