California Insurance Code Section 553.5(b) prohibits insurers from providing a defense for certain types of claims, including criminal claims. Does statute preclude a defense for all criminal claims or just some? In Mt. Hawley Ins. Co. v. Lopez, 215 Cal. App. 4th 1385 (2013), the Court of Appeal considered the question at some length. After finding that the statute was susceptible to not two, but three, plausible interpretations, the Court concluded that Section 553.5(b) does not preclude an insurer from agreeing to provide a defense for criminal actions against its insured brought by federal prosecutors.
The opinion, written by Judge John Segal of the Los Angeles Superior Court, includes a lengthy exegesis that finds support in the indemnification provisions of the Corporations Code:
Corporations Code section 317 applies to criminal proceedings against the agent as long as “that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful.”
If you’re wondering why the opinion was written by a judge and not a justice, Judge Segal was sitting by assignment of the Chief Justice pursuant to Article VI, Section 6 of the California Constitution (“The Chief Justice shall seek to expedite judicial business and to equalize the work of judges. The Chief Justice may provide for the assignment of any judge to another court but only with the judge’s consent if the court is of lower jurisdiction. A retired judge who consents may be assigned to any court.”)