{"id":36409,"date":"2016-03-31T19:23:51","date_gmt":"2016-04-01T00:23:51","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/california-public-policy-precludes-indemnification-for-most.html"},"modified":"2016-07-12T08:09:44","modified_gmt":"2016-07-12T13:09:44","slug":"california-public-policy-precludes-indemnification-for-most","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/litigation-disputes\/california-public-policy-precludes-indemnification-for-most.html","title":{"rendered":"California Public Policy Precludes Indemnification for Most Claims of Malicious Prosecution"},"content":{"rendered":"
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This article was edited and reviewed by FindLaw Attorney Writers<\/a><\/em><\/p>\n\n | Last updated\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n\n

Downey Venture v. LMI<\/i>, 98 C.D.O.S. 6919 (Sept. 3, 1998)<\/p>\n

In a potentially far-reaching decision, a California Court of Appeal ruled this month that the state statute that for-bids insurance coverage for "willful acts" prohibits indemnity for malicious prosecution. Thus, even if a policy-holder purchased personal injury<\/a> coverage, which expressly insures malicious prosecution, California law prohibits the carrier from indemnifying, with certain exceptions. The duty to defend, however, is another story: Downey<\/i> holds that an insurer must pay to defend a "covered" malicious prosecution claim.<\/p>\n

Downey<\/i> arose after Downey Venture sued two individuals over a lease. After the defendants obtained summary judgment in their favor, they sued Downey for abuse of process and malicious prosecution. Downey tendered defense of this action to its insurer, and LMI accepted, offering a defense subject to a full reservation of rights to dispute coverage and seek reimbursement of any defense costs LMI incurred. The case settled P after pretrial rulings established that Downey had filed the original suit without probable cause P with LMI contributing $450,000 toward settlement. Then came the third generation of the dispute, as Downey sued LMI for breach of contract<\/a>, bad faith, and fraud, and LMI cross-complained for reimbursement of its contribution to the settlement and the defense costs it had paid.<\/p>\n

No Duty to Indemnify<\/b><\/p>\n

The trial court concluded that Insurance Code Section 533 barred LMI from indemnifying Downey for damages caused by the act of malicious prosecution, but the court of appeal examined both the elements of the malicious prosecution tort<\/a> and the meaning of the term "willful act" in Section 533. The court noted that the tort requires proof of malice, which is intentional, wrongful and inherently harmful conduct. Because a "willful act," in the context of Section 533, is one done deliberately for the purpose of causing harm, or an act that is inherently harmful, the court of appeal concluded that malicious prosecution is a willful act within the meaning of Section 533. To Downey’s argument that such a ruling rendered the policy provision empty and illusory, the court replied that the provision created an enforceable commitment to provide:<\/p>\n

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  1. a defense to a malicious prosecution claim,<\/li>\n
  2. indemnity for vicarious liability for malicious prosecution, and<\/li>\n
  3. unrestricted coverage for claims arising in jurisdictions that do not have a public policy like California’s.<\/li>\n<\/ol>\n

    Downey’s claim of estoppel, based on its reliance on the insurance contract, was also rejected. Since malicious prosecution is never justified, no insured could legitimately maintain that it perpetrated acts of malicious prosecution in justifiable reliance on an insurer’s promise to save it from the consequences of such an act.<\/p>\n

    Duty to Defend<\/b><\/p>\n

    In finding the existence of a duty to defend, the Court of Appeal cited both the broad scope of an insurer’s duty to defend<\/a> and the policy language, which contained a "specific and distinct" promise to defend. The court reasoned that the express promise made it objectively reasonable for the insured to expect a defense.<\/p>\n

    Analysis<\/b><\/p>\n

    Downey Venture may seek further review of this issue in the California Supreme Court. In the meantime, this decision provides significant guidance to insurers issuing Comprehensive General Liability or Umbrella policies. In light of this holding, claims professionals should examine open and recently closed files involving personal injury coverage in California, particularly coverage for malicious prosecution, and assess the appropriateness of reserves, settlement authority, and, for closed files, reimbursement rights. Risk managers should examine any malicious prosecution reserves in light of the anticipated reaction of CGL and Umbrella carriers to the Downey<\/i> holding. The brokerage community will need to sensitize its policyholder clients to the risk they will bear for judgments or settlements in malicious prosecution cases, including ongoing personal injury litigation.<\/p>\n","protected":false},"excerpt":{"rendered":"

        In a potentially far-reaching decision, a California Court of Appeal ruled this month that the state statute that for-bids insurance coverage for “willful acts” prohibits indemnity for malicious prosecution. Thus, even if a policy-holder …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6523,6522,6520],"class_list":["post-36409","corporate","type-corporate","status-publish","hentry","corporate_categories-litigation-disputes__civil-litigation__business-torts","corporate_categories-litigation-disputes__civil-litigation","corporate_categories-litigation-disputes"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/36409","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=36409"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=36409"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}