Mt. Hawley Insurance v. Lopez

Filed 5/1/13

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

MT. HAWLEY INSURANCE B234082

COMPANY,

(Los Angeles County

Plaintiff and Respondent, Super. Ct. No. BC434879)

v.

RICHARD R. LOPEZ, JR.,

Defendant and Appellant.

APPEAL from a judgment of the Superior Court of Los Angeles County,

Robert L. Hess, Judge. Reversed.

Manatt, Phelps & Phillips, Amy B. Briggs, Kenneth B. Julian, Benjamin G. Shatz,

and Amanda M. Knudsen, for Defendant and Appellant.

Morison Holden & Prough, William C. Morison and Michael D. Prough, for

Plaintiff and Respondent.

______________________

INTRODUCTION

Insurance Code section 533.5, subdivision (b),1 precludes insurers from providing

a defense for certain kinds of claims. The statute provides: “No policy of insurance shall

provide, or be construed to provide, any duty to defend . . . any claim in any criminal

action or proceeding or in any action or proceeding brought pursuant to” California‟s

unfair competition law under Business and Professions Code sections 17200 and 17500

“in which the recovery of a fine, penalty, or restitution is sought by the Attorney General,

any district attorney, any city prosecutor, or any county counsel, notwithstanding whether

the exclusion or exception regarding the duty to defend this type of claim is expressly

stated in the policy.” In Bodell v. Walbrook Ins. Co. (9th Cir. 1997) 119 F.3d 1411

(Bodell), the Ninth Circuit held that section 533.5, subdivision (b), applies to criminal

actions brought by the four listed state and local agencies but does not apply to criminal

actions brought by federal prosecutors. The dissenting judge in Bodell and the trial court

in this case concluded that section 533.5, subdivision (b), applies to any criminal action,

including federal criminal actions. We agree with the Ninth Circuit and hold that section

533.5, subdivision (b), does not preclude an insurer from agreeing to provide a defense

for criminal actions against its insured brought by federal prosecutors. Therefore, the

insurer in this case, which had agreed to provide its insureds with a defense in “a criminal

proceeding . . . commenced by the return of an indictment” “even if the allegations are

groundless, false or fraudulent,” cannot avoid its contractual duty to defend an insured

against federal criminal charges by relying on section 533.5, subdivision (b).

FACTUAL AND PROCEDURAL BACKGROUND

1. The Indictment

On January 6, 2010 the United States Attorney for the Central District of

California filed a grand jury indictment charging Dr. Richard Lopez with criminal

conspiracy, false statements and concealment, and falsification of records. The

indictment alleged that Lopez, who was the medical director of the St. Vincent‟s Medical

1

Statutory references are to the Insurance Code unless otherwise indicated.

2

Center Comprehensive Liver Disease Center, conspired with another doctor and other

hospital employees in the liver transplant program to transplant a liver into the wrong

patient.2

According to the indictment, Lopez diverted a liver designated for one patient to a

different patient who was further down the list of patients waiting for a liver transplant, in

violation of regulations promulgated by the United States Department of Health and

Human Services under the National Organ Transplant Act, and then covered up his

diversion. The indictment alleges that Lopez initially notified the United Network for

Organ Sharing (UNOS) that the second patient had received the liver, but later falsely

told UNOS that the first patient had received the liver. The indictment further alleges

that as a result the first patient never received a liver, “was removed from the liver

transplant wait list,” was “thereafter deprived of the opportunity to have this life-saving

operation,” and subsequently died. The indictment alleges that Lopez engaged in a

cover-up by directing his co-conspirators to restore the second patient‟s name to the

transplant waiting list (even though the second patient had received the liver designated

for the first patient), create a false pathology report for the first patient based on data in

the second patient‟s pathology report, and alter medical reports to support a claim “that

the transplant program had made an honest mistake confusing the names.” The eight-

count indictment included alleged violations of title 18 United States Code sections

18 (conspiracy), 1001 (making false statements), and 1519 (destruction, alteration, or

falsification of evidence in federal investigations).

2. The Policy

Daughters of Charity Health Systems, Inc. (DCHS), which owns St.Vincent‟s,

purchased a “Not For Profit Organization and Executive Liability Policy” pursuant to

which Mt. Hawley agreed to “pay on behalf of the Insureds, Loss which the Insureds are

2

Lopez, using a relatively expansive concept of “success,” contends that

“[a]lthough the surgery was successful, the organ was transplanted into the wrong

patient.”

3

legally obligated to pay as a result of Claims . . . against the Insured for Wrongful

Acts . . . .” The policy defines “Loss” as “monetary damages, judgments, settlements,

including but not limited to punitive, exemplary, multiple or non-contractual liquidated

damages where insurable under applicable law, . . . and Defense Expenses which the

Insureds are legally obligated to pay as a result of a covered Claim.” The policy further

provides that Mt. Hawley “shall have the right and duty to defend any Claim covered by

this Policy, even if any of the allegations are groundless, false or fraudulent . . . .” An

endorsement defines “claim” to include “a criminal proceeding against any Insured

commenced by the return of an indictment” or “a formal civil, criminal, administrative or

regulatory investigation against any Insured . . . .” The policy‟s definition of “insured”

can include employees of St. Vincent‟s like Lopez.3

3. The Action

On March 3, 2010 Lopez tendered the defense to the charges to Mt. Hawley. On

April 1, 2010 Mt. Hawley, through its attorneys, sent a letter to Lopez declining to defend

or indemnify Lopez, and on the same date filed this action. Mt. Hawley‟s first amended

complaint alleged that a doctor at St. Vincent‟s, with Lopez‟s “knowledge and approval,”

transplanted a liver designated for one patient “who was second in line on the regional

waitlist” for a liver into another patient “who was fifty-second on the waiting list,”

without prior approval. Mt. Hawley alleged that Lopez “engaged in an elaborate cover-

up of the „switch,‟ which included falsification of documents and encouragement of

others to participate in the cover-up.” Mt. Hawley alleged that it had no duty to defend

3

Mt. Hawley does not really contend that Lopez is not an insured under the policy.

The closest Mt. Hawley comes to making such an argument is a statement in a footnote

that “Dr. Lopez was a stranger to the contract and at best an incidental third-party

beneficiary to the extent he qualifies as an „insured‟ for limited purposes,” and therefore

“Mt. Hawley made no representations to him, promising to defend him if he was charged

with a crime or otherwise.” We do not read this cryptic sentence as an argument by

Mt. Hawley that Lopez is not an insured under the policy. (See Sabi v. Sterling (2010)

183 Cal.App.4th 916, 947 [“[f]ootnotes are not the appropriate vehicle for stating

contentions on appeal”].)

4

Lopez because of section 533.5, a “remuneration exclusion” or “personal profit

exclusion,” and a “medical incident exclusion.”4 Mt. Hawley sought a declaration that it

did not owe Lopez a duty to defend or indemnify in connection with the indictment.

Lopez filed a cross-complaint against Mt. Hawley for breach of contract, breach of the

implied covenant of good faith and fair dealing, and declaratory relief.

4. The Demurrer and the Motion for Summary Judgment

Lopez filed a motion for judgment on the pleadings on Mt. Hawley‟s original

complaint and a demurrer to Mt. Hawley‟s first amended complaint. Lopez argued in

both motions that section 533.5 did not preclude an insurer from providing a defense to

federal criminal charges brought by U.S. Attorney‟s Office, that the

remuneration/personal profit exclusion did not apply because there was no judgment or

final adjudication against Lopez, and that the medical incident exclusion did not apply

because it was not part of the policy. The trial court rejected Lopez‟s argument that

section 533.5 did not apply, granted the motion for judgment on the pleadings on the

original complaint with leave to amend to allow Mt. Hawley to attach a copy of the

policy to the complaint, and then overruled Lopez‟s demurrer to the first amended

complaint.

Mt. Hawley subsequently filed a motion for summary judgment or in the

alternative for summary adjudication. Mt. Hawley argued that it had no duty to defend

Lopez against the grand jury indictment “because any defense obligation is excluded by

4

The remuneration exclusion, subdivision (c) of Exclusion 3, excluded coverage

where the insured gains “any profit, remuneration or advantage to which such Insured is

not legally entitled if a judgment or final adjudication adverse to such Insured establishes

that such Insured gained such profit, remuneration or advantage.” The medical incident

exclusion, subdivision (g) of Exclusion 3, excluded coverage for rendering or failing to

render certain professional services. Mt. Hawley conceded that because of “a clerical

error” the medical incident exclusion was not included in the policy, but alleged that

“upon realizing the clerical error” Mt. Hawley “immediately notified [Daughters of

Charity]” of the mistake and “corrected the clerical error by issuing endorsements which,

on their face, are effective as [of] the inception of the insurance contracts of which they

were made a part.”

5

California Insurance Code section 533.5 (b).” Mt. Hawley also argued that it was entitled

to summary judgment on its declaratory relief causes of action and on Lopez‟s cross-

complaint because under section 533.5 Mt. Hawley had no duty to defend or indemnify

Lopez. Although both Mt. Hawley and Lopez argued that section 533.5, subdivision (b),

was unambiguous and supported their respective proposed interpretations, both sides

submitted portions of the legislative history of the statute in support of their positions.

5. The Ruling

The trial court found that “section 533.5 unambiguously bars coverage for

criminal actions and proceedings” and that “the plain language of section 533.5 bars

Mt. Hawley‟s duty to defend or indemnify Dr. Lopez against the Indictment.” The trial

court acknowledged that “the legislative history seems to indicate that section 533.5 was

enacted in response to difficulties that the Attorney General had encountered in settling

actions under the unfair competition law due to the participation of insurance

companies,” but “perceive[d] nothing in the legislative history from which it could

clearly conclude that section 533.5 was intended to apply to state and local criminal

actions only as opposed to all criminal actions, including federal proceedings.” The trial

court concluded that “the correct interpretation of [section] 533.5 is that the enumeration

of state, county and local prosecutors ought to be read as referring only to civil actions

for unfair competition and false advertising. And that the prohibition against furnishing a

defense in a criminal action applies regardless of the entity that commenced the criminal

prosecution.” The trial court stated that the Ninth Circuit‟s decision in Bodell was not

binding and was unpersuasive, and concluded that the Bodell court‟s “analysis of

[section] 533.5, is in error.” The trial court therefore granted Mt. Hawley‟s motion for

summary judgment on Mt. Hawley‟s first amended complaint and on Lopez‟s cross-

complaint.

The trial court entered judgment in favor of Mt. Hawley and against Lopez on

June 23, 2011. Lopez filed a timely notice of appeal on June 29, 2011.

6

DISCUSSION

1. Standard of Review

We review a grant of summary judgment de novo. (Wiener v. Southcoast

Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142; see Culver Center Partners East

# 1, L.P. v. Baja Fresh Westlake Village, Inc. (2010) 185 Cal.App.4th 744, 749.) “On

appeal from the granting of a motion for summary judgment, we examine the record de

novo, liberally construing the evidence in support of the party opposing summary

judgment and resolving doubts concerning the evidence in favor of that party.” (Miller v.

Department of Corrections (2005) 36 Cal.4th 446, 460.) The de novo standard of review

applies to issues of statutory and insurance policy interpretation. (See Bruns v. E-

Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 724 (Bruns) [“[s]tatutory interpretation

is a question of law that we review de novo”]; County of San Diego v. Ace Property &

Casualty Ins. Co. (2005) 37 Cal.4th 406, 414 [“[w]e apply a de novo standard of review

to an order granting summary judgment when, on undisputed facts, the order is based on

the interpretation or application of the terms of an insurance policy”]; Sacks v. City of

Oakland (2010) 190 Cal.App.4th 1070, 1082 [where the pertinent facts are undisputed

and the issue is one of statutory interpretation, “the question is one of law and we engage

in a de novo review of the trial court‟s determination”].)

A “decision to sustain or overrule a demurrer is subject to de novo review on

appeal . . . .” (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th

784, 790.) “In reviewing an order overruling a demurrer, we accept as true all properly

pleaded facts in the complaint and exercise independent judgment to determine whether

the complaint states a cause of action as a matter of law.” (Caliber Bodyworks, Inc. v.

Superior Court (2005) 134 Cal.App.4th 365, 373; see Boy Scouts of America National

Foundation v. Superior Court (2012) 206 Cal.App.4th 428, 438 [“[t]he reviewing court

accepts as true all facts properly pleaded in the complaint in order to determine whether

the demurrer should be overruled”].)

7

2. The Trial Court Erred in Granting Mt. Hawley’s Motion for Summary

Judgment

a. Section 533.5

Section 533.5, subdivision (b), as originally enacted in 1988, provided: “No

policy of insurance shall provide, or be construed to provide, any duty to defend, as

defined in subdivision (c), any claim in any civil or criminal action or proceeding in

which the recovery of a fine, penalty, or restitution is sought by the Attorney General,

any district attorney, or any city prosecutor, notwithstanding whether the exclusion or

exception regarding the duty to defend this type of claim is expressly stated in the

policy.”5

In 1990 the Legislature amended section 533.5, subdivision (b), to read

substantially as it does now: “No policy of insurance shall provide, or be construed to

provide, any duty to defend, as defined in subdivision (c), any claim in any criminal

action or proceeding or in any action or proceeding brought pursuant to Chapter 5

(commencing with Section 17200) of Part 2 of, or Chapter 1 (commencing with Section

17500) of Part 3 of, Division 7 of the Business and Professions Code in which the

recovery of a fine, penalty, or restitution is sought by the Attorney General, any district

attorney, or any city prosecutor, notwithstanding whether the exclusion or exception

regarding the duty to defend this type of claim is expressly stated in the policy.” The

parties agree that the language “Chapter 5 (commencing with Section 17200) of Part 2 of,

or Chapter 1 (commencing with Section 17500) of Part 3 of, Division 7 of the Business

5

Section 533.5, subdivision (c), provides: “For the purpose of this section, „duty to

defend‟ means the insurer‟s right or obligation to investigate, contest, defend, control the

defense of, compromise, settle, negotiate the compromise or settlement of, or indemnify

for the cost of any aspect of defending any claim in any criminal action or proceeding or

in any action or proceeding brought pursuant to Chapter 5 (commencing with Section

17200) of Part 2 of, or Chapter 1 (commencing with Section 17500) of Part 3 of,

Division 7 of the Business and Professions Code in which the insured expects or contends

that (1) the insurer is liable or is potentially liable to make any payment on behalf of the

insured or (2) the insurer will provide a defense for a claim even though the insurer is

precluded by law from indemnifying that claim.”

8

and Professions Code” refers to California‟s unfair competition and false advertising

laws, commonly referred to as the UCL and the FAL. (See Hill v. Roll Internat. Corp.

(2011) 195 Cal.App.4th 1295, 1298.)

In 1991 the Legislature amended section 533.5, subdivision (b), a second time to

add county counsel to the list of prosecutors in the statute. Thus, the statute currently

reads: “No policy of insurance shall provide, or be construed to provide, any duty to

defend, as defined in subdivision (c), any claim in any criminal action or proceeding or in

any action or proceeding brought pursuant to” the UCL or the FAL “in which the

recovery of a fine, penalty, or restitution is sought by the Attorney General, any district

attorney, any city prosecutor, or any county counsel, notwithstanding whether the

exclusion or exception regarding the duty to defend this type of claim is expressly stated

in the policy.”

No California court has addressed the issue raised by this appeal of whether

section 533.5, subdivision (b), precludes an insurer from providing a defense in all

criminal actions, including federal criminal actions.6 In Bodell, supra, 119 F.3d 1411, the

Ninth Circuit held that “the phrase „sought by the Attorney General, any district attorney,

any city prosecutor, or any county counsel‟ modifies both „any criminal action or

proceeding‟ and „any action or proceeding brought pursuant to [the UCL and FAL],‟ and

that the statute therefore only precludes the tender of a defense in all criminal actions and

certain civil actions brought by state, county or city officials.” (Id. at p. 1416.) The

dissent in Bodell argued that the phrase “sought by the Attorney General, any district

6

In Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, the Supreme Court

stated that as originally enacted in 1988, section 533.5 “barred coverage in all civil and

criminal actions, whatever the theory of liability, brought by the Attorney General, a

district attorney, or a city prosecutor. [Citation.] In 1990, the Legislature limited the

statute‟s reach to criminal actions and actions under the Unfair Business Practices Act.”

(Id. at p. 1271.) This passage suggests that the “limited reach” of the statute as a result of

the 1990 amendment also applied only to actions “brought by the Attorney General, a

district attorney, or a city prosecutor,” but Bank of the West did not address that issue and

the court‟s brief discussion of section 533.5 and its history is not conclusive.

9

attorney, any city prosecutor, or any county counsel” modifies only civil actions or

proceedings brought under the UCL and FAL, not criminal actions. (Id. at p. 1421

(dis. opn. of Kozinski, J.).) The dissent noted that “the phrase „any criminal action or

proceeding‟ is separated by the disjunctive „or‟ from actions brought pursuant to” the

UCL and the FAL. (Ibid.) Neither the majority nor the dissent in Bodell discussed or

engaged in the three-step analysis for statutory interpretation under California law.

b. California law for interpreting statutes

“We begin with the fundamental rule that our primary task is to determine the

lawmakers‟ intent.” (Delaney v. Superior Court (1990) 50 Cal.3d 785, 798.) “In

construing statutes, we aim „to ascertain the intent of the enacting legislative body so that

we may adopt the construction that best effectuates the purpose of the law.‟” (Klein v.

United States of America (2010) 50 Cal.4th 68, 77 (Klein), quoting Hassan v. Mercy

American River Hospital (2003) 31 Cal.4th 709, 715.) California courts “have

established a process of statutory interpretation to determine legislative intent that may

involve up to three steps.” (Alejo v. Torlakson (2013) 212 Cal.App.4th 768, 786-787

(Alejo).) The “key to statutory interpretation is applying the rules of statutory

construction in their proper sequence . . . as follows: „we first look to the plain meaning

of the statutory language, then to its legislative history and finally to the reasonableness

of a proposed construction.‟” (MacIsaac v. Waste Management Collection &

Recycling, Inc. (2005) 134 Cal.App.4th 1076, 1082 (MacIsaac), quoting Riverview Fire

Protection Dist. v. Workers’ Comp. Appeals Bd. (1994) 23 Cal.App.4th 1120, 1126.)

“The first step in the interpretive process looks to the words of the statute

themselves.” (Alejo, supra, 212 Cal.App.4th at p. 787; see Klein, supra, 50 Cal.4th at

p. 77 [“[w]e look first to the words of the statute, „because the statutory language is

generally the most reliable indicator of legislative intent‟”].) “If the interpretive question

is not resolved in the first step, we proceed to the second step of the inquiry. [Citation.]

In this step, courts may „turn to secondary rules of interpretation, such as maxims of

construction, “which serve as aids in the sense that they express familiar insights about

conventional language usage.”‟ We may also look to the legislative history. [Citation.]

10

„Both the legislative history of the statute and the wider historical circumstances of its

enactment may be considered in ascertaining the legislative intent.‟ [Citation.] [¶] „If

ambiguity remains after resort to secondary rules of construction and to the statute‟s

legislative history, then we must cautiously take the third and final step in the interpretive

process. [Citation.] In this phase of the process, we apply “reason, practicality, and

common sense to the language at hand.” [Citation.] Where an uncertainty exists, we

must consider the consequences that will flow from a particular interpretation. [Citation.]

Thus, “[i]n determining what the Legislature intended we are bound to consider not only

the words used, but also other matters, „such as context, the object in view, the evils to be

remedied, the history of the times and of legislation upon the same subject, public policy

and contemporaneous construction.‟ [Citations.]” These “other matters” can serve as

important guides, because our search for the statute‟s meaning is not merely an abstract

exercise in semantics. To the contrary, courts seek to ascertain the intent of the

Legislature for a reason—“to effectuate the purpose of the law.”‟” (Alejo, at pp. 787-

788; see MacIsaac, supra, 134 Cal.App.4th at p. 1084.)

We do not necessarily engage in all three steps of the analysis. “It is only when

the meaning of the words is not clear that courts are required to take a second step and

refer to the legislative history.” (Soil v. Superior Court (1997) 55 Cal.App.4th 872, 875;

accord, Sisemore v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1411; see

MacIsaac, supra, 134 Cal.App.4th at 1084 [“[i]f ambiguity remains after resort to

secondary rules of construction and to the statute‟s legislative history, then we must

cautiously take the third and final step in the interpretative process”].)

c. Step one: Section 533.5 is not clear and unambiguous

Mt. Hawley argues that the “plain language of the statute . . . is susceptible to only

one, single, reasonable interpretation regarding the defense of criminal actions: that

California law bars an insurance contract from providing for the defense of „any criminal

action or proceeding.‟” According to Mt. Hawley, “the statutory language used and

enacted by the Legislature has plain meaning” and “[t]here is no need to refer to extrinsic

aids to interpretation, specialized rules of grammar, or legislative history.”

11

In order for us to agree with Mt. Hawley, its proposed interpretation of section

533.5 must be not merely more reasonable than any other interpretation, Mt. Hawley‟s

proposed interpretation must be the only reasonable interpretation of section 533.5. (See

Coalition of Concerned Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733,

737 [“[i]f the statutory language permits more than one reasonable interpretation, courts

may consider other aids, such as the statute‟s purpose, legislative history, and public

policy”]; accord, Bruns, supra, (2011) 51 Cal.4th at p. 724; see Jones v. Lodge at Torrey

Pines Partnership (2008) 42 Cal.4th 1158, 1162-1163 (Jones) [“statutory language is not

plain” where its “language does lend itself to plaintiff‟s interpretation, but . . . that is not

the only reasonable interpretation of the statutory language”]; Chosak v. Alameda County

Medical Center (2007) 153 Cal.App.4th 549, 561-562 [where both plaintiff‟s and

defendant‟s proposed interpretations of statute were reasonable and “the statutory

language can bear either meaning,” the court proceeded “to a more detailed consideration

of” the purpose and legislative history of the statute “to determine which of the proposed

definitions best fits the intent of the Legislature in enacting the statute,” even though one

side‟s interpretation was “the most obvious” interpretation]; Ailanto Properties, Inc. v.

City of Half Moon Bay (2006) 142 Cal.App.4th 572, 585-586 (Ailanto Properties)

[because plaintiff‟s proposed interpretation of the statute was not “wholly unreasonable,”

statute was ambiguous and court would “turn to the second step of our inquiry and look

to the statute‟s legislative history to clarify its meaning”].) Mt. Hawley‟s interpretation,

however, is not the only reasonable one.

There are at least three reasonable interpretations of the statute. One reasonable

interpretation, advocated by Mt. Hawley, is that section 533.5, subdivision (b), addresses

“two separate and distinct types of actions: any criminal action or proceeding

(unqualified), or any action or proceeding brought pursuant to certain specific statutes in

which the recovery of a fine, penalty or restitution is sought by certain state and local

attorneys (as distinct from such actions brought by private parties).” Under this

interpretation, “in which the recovery of a fine, penalty, or restitution is sought by the

Attorney General, any district attorney, any city prosecutor, or any county counsel”

12

modifies “any action or proceeding brought pursuant to” the UCL or FAL, but not “any

criminal action or proceeding.” This interpretation precludes insurers from providing a

defense in any criminal action, including a criminal action bought by federal prosecutors.

Another reasonable interpretation, advocated by Lopez and adopted by the

majority in Bodell, is that section 533.5, subdivision (b), applies to “any criminal action

or proceeding” “in which the recovery of a fine, penalty, or restitution is sought by” the

four California state and local public agencies listed in the statute, or to “any action or

proceeding brought pursuant to [the UCL or the FAL] in which the recovery of a fine,

penalty, or restitution is sought by” the four state and local public agencies. Under this

interpretation, “in which the recovery of a fine, penalty, or restitution is sought by the

Attorney General, any district attorney, any city prosecutor, or any county counsel”

modifies both “any criminal action or proceeding” and “any action or proceeding brought

pursuant to [the UCL and FAL].” This interpretation precludes insurers from providing a

defense in criminal or civil actions brought by the state and local agencies listed in the

statute, but not in criminal or civil actions brought by federal prosecuting agencies.

Yet another reasonable interpretation, urged by neither Mt. Hawley at all nor by

Lopez directly, is that section 533.5, subdivision (b), applies to “any claim” in either a

criminal action or proceeding or a UCL or FAL action or proceeding “in which the

recovery of a fine, penalty, or restitution is sought by the Attorney General, any district

attorney, any city prosecutor, or any county counsel.” Under this interpretation, “in

which the recovery of a fine, penalty, or restitution is sought by the Attorney General,

any district attorney, any city prosecutor, or any county counsel” modifies “any claim,”

whether the claim is part of a criminal, UCL, or FAL action or proceeding.

Thus, section 533.5, subdivision (b), is susceptible to at least these three

reasonable interpretations. Even the dissenting judge in Bodell did not argue that the

language of the statute is clear and unambiguous. (See Bodell, supra, 119 F.3d at

13

pp. 1421-1422 (dis. opn. of Kozinski, J.).)7 Therefore, we cannot conclude that the

language of the statute is clear and unambiguous, and we must proceed to the second step

of the interpretive analysis and consider the purpose of the statute, the legislative history,

and secondary rules of interpretation.

It may be that at first glance Mt. Hawley‟s proposed interpretation is more

grammatically natural. Under the first step of the statutory interpretation analysis,

however, that is not the test. The issue is whether Mt. Hawley‟s proposed interpretation

is the only reasonable interpretation. And because it is not, we proceed to step two. (See

County of San Diego v. Alcoholic Beverage Control Appeals Bd. (2010) 184 Cal.App.4th

396, 401 [“[w]hen the language is reasonably susceptible of more than one meaning, it is

proper to examine a variety of extrinsic aids in an effort to discern the intended

meaning,” including, “for example, the statutory scheme, the apparent purposes

underlying the statute and the presence (or absence) of instructive legislative history”].)

d. Step two: The statute’s legislative history, the circumstances of its

enactment, and maxims of construction

As have the few courts that have considered section 533.5,8 we now “proceed to

the second step of the inquiry,” looking to “the statute‟s legislative history,” which “can

be very instructive.” (People v. Nelson (2011) 200 Cal.App.4th 1083, 1101; see Ailanto

Properties, supra, 142 Cal.App.4th at p. 586 [“[i]n the second step of our interpretive

7

The dissenting judge in Bodell stated that he agreed with the insurers‟ argument

that the phrase “„any criminal conduct or proceeding‟ is separated by the disjunctive „or‟

from actions brought pursuant to California‟s unfair competition and false advertising

statutes,” which “makes perfect sense because such actions can be brought by both the

government and private parties.” (Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of

Kozinski, J.).) The dissent concluded that “[a]s applied to the specified civil actions,

therefore, the list serves a useful function: It limits the statute‟s scope to unfair

competition and false advertising actions brought by the government, not those by private

parties.” (Ibid.) We agree that this interpretation “makes sense” and is reasonable. But

Lopez‟s proposed interpretation also makes sense and is reasonable.

8

Bodell, supra, 113 F.3d at pages 1416 to 1417; Bank of the West, supra, 2 Cal.4th

at pages 1270 to 1271; AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 837,

footnote 15.

14

inquiry, we examine the entire history of the Legislature‟s enactment and amendment of

the statute”].) If a statute “is susceptible of multiple interpretations . . . we will divine the

statute‟s meaning by turning to a variety of extrinsic sources, including the legislative

history [citation], the nature of the overall statutory scheme [citation], and consideration

of the sorts of problems the Legislature was attempting to solve when it enacted the

statute [citation].” (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 770.) In addition, an

“examination of the original text of the statute and the evolution of the language” of a

statute that has been amended is “useful in ascertaining its current meaning.” (Ailanto

Properties, at p. 586.)

i. Legislative history

We look to the Legislative Counsel‟s digest and other summaries and reports

indicating the Legislature‟s intent. “Although the Legislative Counsel‟s summary digests

are not binding, they are entitled to great weight.” (Van Horn v. Watson (2008)

45 Cal.4th 322, 332, fn. 11; accord, Jones, supra, 42 Cal.4th at p. 1170; see People v.

Superior Court (Lavi) (1993) 4 Cal.4th 1164, 1178 [Legislative Counsel‟s digest is

indicative of legislative intent]; Martin v. PacifiCare of California (2011)

198 Cal.App.4th 1390, 1402.) The Legislative Counsel‟s digest “constitutes the official

summary of the legal effect of the bill and is relied upon by the Legislature throughout

the legislative process,” and thus “is recognized as a primary indication of legislative

intent.” (Souvannarath v. Hadden (2002) 95 Cal.App.4th 1115, 1126, fn. 9.) In addition,

“[c]ommittee reports are often useful in determining the Legislature‟s intent.”

(California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997)

14 Cal.4th 627, 646; see Tesco Controls, Inc. v. Monterey Mechanical Co. (2004)

124 Cal.App.4th 780, 793.) “In construing a statute, legislative committee reports, bill

reports, and other legislative records are appropriate sources from which legislative intent

may be ascertained.” (In re John S. (2001) 88 Cal.App.4th 1140, 1144, fn. 2; see Valley

Vista Services, Inc. v. City of Monterey Park (2004) 118 Cal.App.4th 881, 889 [“[w]hen

construing a statute, we may consider its legislative history, including committee and bill

reports, and other legislative records”].) “Relevant material includes: legislative

15

committee reports; Legislative Analyst‟s reports; and testimony or argument to either a

house of the Legislature or one of its committees,” but “[m]aterial showing the motive or

understanding of an individual legislator, including the bill‟s author, his or her staff, or

other interested persons, is generally not considered.” (Metropolitan Water Dist. v.

Imperial Irrigation Dist. (2000) 80 Cal.App.4th 1403, 1425-1426.)

A. The 1988 enactment of section 533.5

The legislative history of section 533.5 reveals two unmistakable and undisputed

facts about the 1988 statute. First, the Legislature intended the statute to apply equally to

civil and criminal actions brought by the three (at the time) listed state and local public

entities that seek to recover a fine, penalty or restitution, and not to actions brought by

federal agencies. As originally enacted in 1988, section 533.5, subdivision (b), applied to

“any claim in any civil or criminal action or proceeding in which the recovery of a fine,

penalty, or restitution is sought by” the Attorney General, a district attorney, and a city

prosecutor. The Legislative Counsel‟s digest states that Assembly Bill No. 3920

(AB 3920), the bill that would become section 533.5, “would prohibit insurance coverage

or indemnity for the payment of any fine, penalty, or restitution in any civil or criminal

action or proceeding brought by specified law enforcement entities . . . .” (Legis.

Counsel‟s Dig., AB 3920 (1987-1988 Reg. Sess.) at p. 1.)

Committee analyses and reports confirm the Legislative Counsel‟s understanding.

(See Ailanto Properties, supra, 142 Cal.App.4th at pp. 589-590.) An analysis for the

Assembly Committee on Finance and Insurance stated that AB 3920 would prohibit “any

policy of insurance providing, or being construed to provide, coverage or indemnity for

the payment of fine, penalty, or restitution in any civil or criminal action brought by the

Attorney General, district attorney, or city attorney regardless of what the policy says.”

(Assem. Com. on Finance and Ins., Analysis of AB 3920 (1987-1988 Reg. Sess.) Apr. 19,

1988, p. 1.) The bill also would prohibit “any insurance policy from providing, or being

construed to provide, any duty to defend any claim” “in any civil or criminal action

brought by” the three specified public entities. (Ibid.) Thus, as the Supreme Court noted

in 1990, the original version of section 533.5 “on its face . . . [did] not apply to relief

16

sought by the federal government . . . .” (AIU Ins. Co., supra, 51 Cal.3d at p. 837, fn. 15

[emphasis in original]; see Bank of the West, supra, 2 Cal.4th at p. 1271.)

Second, the Legislature enacted section 533.5 to address a problem the Attorney

General had encountered (only) in UCL and FAL actions and to address a specific

problem that public entities were experiencing when they brought unfair competition or

false advertising actions, whether civil or criminal, against individuals and businesses.

According to the Attorney General, the bill‟s sponsor and principal supporter, section

533.5 was intended to facilitate “the consumer protection activities of our office and local

district attorneys and city attorneys.” (See Catlin v. Superior Court (2011) 51 Cal.4th

300, 305-306 [considering a letter to Senate and Assembly Committees on Public Safety

expressing the Attorney General‟s concerns about proposed legislation as part of the

legislative history].)

The Attorney General argued to the Assembly Committee on Finance and

Insurance that the proposed new law would address “a problem which arises under

current law when the Attorney General or a district attorney seeks to enforce [the UCL

and FAL],” because “[i]n many instances” the defendants were claiming “that the

conduct involved is covered by their business insurance policy.” (Office of the Atty.

Gen., Stmt. AB 3920 before Assem. Com. on Finance and Ins. (1989-1990 Reg. Sess.)

Apr. 19, 1988.) The Attorney General complained that defendants “tendered the defense

of the action[s] to insurers whose policies provide general liability coverage which may

include coverage for advertising and unfair competition claims.” (Office of the Atty.

Gen., Bill Proposal Summary of AB 3920 (1989-1990 Reg. Sess.) (undated) at p. 1.) The

public entity then found itself litigating with an insurance company, “rather than the

individual whose conduct violated provisions of the Business & Professions Code,” a

practice that made “no public policy sense.” (Office of the Atty. Gen., Stmt. AB 3920

before Assem. Com. on Finance and Ins. (1989-1990 Reg. Sess.) Apr. 19, 1988.) These

cases became “impossible to settle because the defendants refuse[d] to make restitution of

unlawfully obtained property or to pay any civil penalty out of their own funds,” and law

enforcement agencies would not accept any settlement “paid by the insurer because such

17

a settlement does not impose any penalty for unlawful conduct directly on the defendant

and permits the defendant to retain the ill-gotten gains . . . . [¶] As a result, the cases

consume a large measure of prosecutorial resources during extensive litigation financed

without cost to the defendant by the insurer which should have no obligation to pay the

judgment ultimately awarded.” (Office of the Atty. Gen., Bill Proposal Summary of

AB 3920, supra, at p. 1.) For this reason, the Attorney General proposed and urged the

Legislature to enact section 533.5 “„to hold individuals personally accountable for

behavior [that] constitutes an unfair business practice or false and misleading

advertising,” in order to avoid “the litigation becom[ing] a contest between the public

entity and the insurance company in which the involvement of the person whose conduct

is at issue is almost negligible.‟” (Assem. Com. on Finance and Ins., Analysis of

AB 3920, supra, at p. 2.)

The Attorney General also argued to the Assembly Committee on Finance and

Insurance and the Senate Insurance Committee that “[m]ost businesses purchase

insurance to protect against losses arising from the operation of the business. Although

existing law expressly prohibits insurance for losses incurred as a result of an insured‟s

willful misconduct, the Attorney General‟s office frequently encounters problems

enforcing [the UCL and FAL] because business defendants claim that the conduct

involved is covered by their business insurance policies. If there is any ambiguity as to

the potential liability of the insurance company, and there often is because there is no

statute expressly dealing with this issue, the insurance company is obligated to defend the

business. [¶] . . . [¶] Instead of individual accountability, the litigation becomes a contest

between the public entity and the insurance company in which the involvement of the

person whose conduct is at issue is almost negligible.” (Office of the Atty. Gen., letters

to Assemblyman Patrick Johnston, Chair of the Assem. Com. on Finance and Ins., and

Senator Alan Robbins, Chair of The Senate Ins. Com. AB 3920, Apr. 12, 1988, pp. 1-2.)

The Attorney General explained that “[c]ases brought under [the UCL and FAL] do not

involve the private victim‟s right to compensation for losses. Rather, the public entities

are seeking civil and/or criminal penalties, fines, and perhaps restitution as well. No

18

legitimate public purpose is served by allowing such fines and penalties to be paid by

insurance companies; nor is there any valid purpose served by forcing insurance

companies to provide defenses in such cases solely because the insurance policy coverage

is ambiguous.” (Office of the Atty. Gen., letters to Assemblyman Patrick Johnston and

Senator Alan Robbins AB 3920, Apr. 12, 1988, at p. 2.)

B. The 1990 amendment

In 1990 the Legislature amended section 533.5, subdivision (b), by enacting what

was referred to as a “clean-up bill” from the Attorney General, Assembly Bill No. 3334

(AB 3334). The legislative history reveals two unmistakable and undisputed facts about

the 1990 amendment.

First, the legislative history makes clear that the Legislature did not intend the

1990 amendment to the statute to expand the reach of section 533.5, subdivision (b). The

Legislative Counsel‟s digest stated that the bill to amend section 533.5 was designed to

“restrict the civil actions to which those limitations apply . . . .” (Legis. Counsel‟s Dig.,

AB 3334 (1989-1990 Reg. Sess.) Stats. 1990, ch. 1512.) The Assembly Committee on

Finance and Insurance analysis stated that AB 3334, “like its 1988 predecessor, is

sponsored by the Attorney General, to reinforce the notion that person[s] violating our

unfair competition and unfair advertising law may not use their insurance coverage to

evade the personal consequences of wrongdoing. This proposition is not in controversy.”

(Assem. Com. on Finance and Ins., Analysis of AB 3334 (1989-1990 Reg. Sess.) Apr. 17,

1990, p. 1.) The committee analysis stated that the amendment “seeks to conform current

law to its originally declared purpose while avoiding any adverse effect, one way or

another, upon other issues of insurance contract coverage.” (Id. at p. 2.) There is nothing

in the legislative history indicating that the Legislature intended to expand the scope of

the statute. (See Donovan v. Poway Unified School Dist. (2008) 167 Cal.App.4th 567,

597 [“the absence of legislative history [can] be of significance in deciphering legislative

intent”], citing Jones, supra, 42 Cal.4th at p. 1169; Starving Students, Inc. v. Department

of Industrial Relations (2005) 125 Cal.App.4th 1357, 1363 [court can consider “the

presence (or absence) of instructive legislative history”].)

19

Second, the Legislature intended the 1990 amendment to address a specific

problem that state and local public entities had encountered arising from insurance

companies‟ use of section 533.5, subdivision (b), to avoid paying for environmental

cleanup costs. The new problem arose because of “the use of the overbroad civil action

reference,” which created “other insurance coverage issues . . . which were not remotely

considered by the Legislature in connection with the 1988 legislation . . . .” (Assem.

Com. on Finance and Ins., Analysis of AB 3334, supra, at p. 2.) This coverage issue

arose because insurers were arguing in court that section 533.5 precluded and excused

them from providing coverage under a “Comprehensive General Liability Policy for the

cost of toxic waste cleanup when a business is sued by the state or federal

government . . . .” (Ibid.) As the Assembly Finance and Insurance Committee

Republican Analysis explained, the original statute “prohibited insurers from paying for

fines arising from unfair business practices. Since then it has been interpreted to prevent

insurers to cover [sic] certain toxics costs. That was never the author‟s or the sponsor‟s

intent. This bill clarifies that.” (Assem. Com. on Finance and Ins., Republican Analysis

of AB 3334 (1989-1990 Reg. Sess.) Apr. 10, 1990.)

The Attorney General, who proposed the 1990 amendment as he had the original

1988 legislation, argued to the Assembly Finance and Insurance Committee that

“Insurance Code section 533.5 was proposed due to the concerns about insurance

companies being involved, on behalf of insured businesses, in the defense and settlement

of cases brought under the unfair competition and false advertising statutes.” (Office of

the Atty. Gen., letter to Assemblyman Patrick Johnston, Chair of the Assem. Finance and

Ins. Com. AB 3920, Apr. 10, 1990, p. 1.) The problem in 1988, the Attorney General

noted, was that “businesses were unwilling to pay penalties or restitution to defrauded

customers out of their own funds, as long as they had [] pending claims against insurance

companies,” which meant that “unfair competition and false advertising cases were

dragging out and consuming a large measure of prosecutorial resources.” (Ibid.) The

Attorney General explained that, to resolve these problems, the Legislature enacted

section 533.5, which “prohibits insurance coverage for fines, penalties, and restitution in

20

any civil or criminal action brought by the Attorney General, district attorneys, and city

attorneys.” (Ibid.)

In the area of environmental cleanup costs, however, insurers were taking the

position “that state agencies are precluded from arguing that damages within the meaning

of the typical liability policy include environmental clean up costs because such costs are

in the nature of equitable restitution.” (Office of the Atty. Gen., letter to Assemblyman

Patrick Johnston, Chair of the Assem. Finance and Ins. Com. AB 3920, supra, p. 2.)

Thus, insurance companies were interpreting “restitution more broadly in order to restrict

their liability” for environmental cleanup costs. (Ibid.) This was not the intent of the

original statute, and the Attorney General argued that “AB 3334 would clarify the

original intent” of section 533.5 and “preserve the potential of maximizing recovery of

public funds expended pursuant to statutory programs, such as the superfund regarding

release of hazardous substances into the environment . . . .” (Ibid.)

The Assembly Finance and Insurance Committee also considered a lengthy

memorandum from the Environmental Section of the Attorney General‟s Office entitled

“Bill Proposal: Hazardous Waste Insurance.” (See People v. Cruz (1996) 13 Cal.4th

764, 773, fn. 5 [“it is reasonable to infer that those who actually voted on the proposed

measure read and considered the materials presented in explanation of it, and that the

materials therefore provide some indication of how the measure was understood at the

time by those who voted to enact it”].) This memorandum stated that “section

533.5 . . . prohibits insurance coverage for fines, penalties and restitution in any civil or

criminal action brought the Attorney General, district attorneys and city attorneys. The

Environmental Section proposes an amendment to clarify that section 533.5 is directed at

criminal actions and civil law enforcement actions brought under [the UCL and FAL] and

does not apply to actions filed under state and federal hazardous substance and hazardous

waste control laws.” (Office of the Atty. Gen., Bill Proposal: Hazardous Waste Ins.,

AB 3334 (1989-1990 Reg. Sess.) undated, p. 1.) The Attorney General noted that “[t]he

problem at hand is that Insurance Code section 533.5 was not intended to address the

currently active issue of toxic pollution insurance coverage, yet the statute has played,

21

and undoubtedly will continue to play[,] a role in resolving the coverage question.” (Id.

at p. 2.)

Thus, the use of the broad term “any civil action” in the 1988 statute was the

problem because it covered more than just UCL and FAL civil actions. As the Attorney

General noted, section 533.5 as originally drafted was “too broad, in that it affects many

more regulatory activities than consumer protection . . . .” (Office of the Atty. Gen., Bill

Proposal, supra, at p. 4.) The statute was supposed to solve a narrow problem in UCL

and FAL actions brought by state and local agencies, but it created problems in other

kinds of cases. As a result, the Legislature amended the statute so that the prohibition on

providing a duty to defend applied to UCL and FAL actions, rather than all civil actions,

which insurers were arguing included environmental cleanup actions. As the analysis of

AB 3334 from the Assembly Committee on Finance and Insurance explained, the

amendment “deletes the general references to civil actions in the 1988 Insurance Code

amendments and, instead, substitutes more specific references to proceedings brought

pursuant to those portions of the Business and Professions Code governing unfair

competition and unfair advertising.” (Analysis of AB 3334, supra, at p. 2.)

Of course, as is often the case with legislative histories, the legislative history of

AB 3334 is not always entirely consistent. For example, an analysis prepared for the

Senate Committee on Insurance, Claims and Corporations stated that the bill “clarifies

that the prohibition against insurance to provide coverage or indemnity for the payment

of any fine, penalty or restitution shall apply only to proceedings pertaining to unfair

business practices or false or misleading advertisements rather than all civil actions, in

addition to criminal actions.” (Sen. Ins., Claims and Corps. Com., Analysis of AB 3334

(1989-1990 Reg. Sess.) Aug. 8, 1990, p. 1.) This fragment of the legislative history can

be read to support Mt. Hawley‟s position that the 1990 amendment revised section 533.5

to bar insurers from providing a defense in (1) UCL and FAL actions seeking to recover a

fine, penalty, or restitution, and (2) criminal actions. As explained above, however, the

vast majority of the amendment‟s legislative history and the circumstances of its

enactment do not support this interpretation. Indeed, the Senate committee analysis went

22

on to state that the amendment “is needed to avoid any adverse [e]ffects that may result

as a misinterpretation of the unintended broad reference to „any civil action.‟” (Id. at

p. 2.) The committee analysis also did not discuss the issue of what agency (state or

federal) was bringing the action.

Mt. Hawley relies heavily on section 2 of AB 3334, which states that the

Legislature‟s intent in 1988 in enacting section 533.5 was that it “shall be applicable to

insurance coverage and to the duty to defend only in criminal actions and in actions or

proceedings brought by the Attorney General, any district attorney, or any city

prosecutor, pursuant to [the UCL and the FAL].” (AB 3334 (1989-1990 Reg. Sess.)

Stat. 1990, ch. 1512, § 2, subd. (a), p. 2.) This statement suggests that the statute applies

to (1) criminal actions and (2) civil actions under the UCL and FAL, as Mt. Hawley

contends. This declaration in 1990 of what the Legislature had intended in 1988 is

relevant to our inquiry but it is not binding. (See Apple Inc. v. Superior Court (2013)

56 Cal.4th 128, 131 [“the declaration of a later Legislature is of little weight in

determining the relevant intent of the Legislature that enacted the law”]; McClung v.

Employment Development Dept. (2004) 34 Cal.4th 467, 473 [“„a legislative declaration of

an existing statute‟s meaning‟ is but a factor for a court to consider and „is neither

binding nor conclusive in construing the statute‟”].) “Ultimately, the interpretation of a

statute is an exercise of the judicial power the Constitution assigns to the courts.”

(Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 244 (Western Security

Bank); see In re Retirement Cases (2003) 110 Cal.App.4th 426, 480 [Legislature “has no

legislative authority simply to say what it did mean,” but “[c]ourts do take cognizance of

such declarations when they are consistent with the original intent”].) In any event, it is

undisputed that section 533.5, subdivision (b), as originally enacted in 1988,

unambiguously applied only to actions brought by state and local agencies, and not to

actions brought by federal agencies.

Moreover, there are other indications in the 1990 legislative record confirming that

the Legislature had intended in 1988 that the original statute apply to civil or criminal

actions brought by the three named state and local public entities that seek to recover a

23

fine, penalty or restitution. (See Ailanto Properties, supra, 142 Cal.App.4th at p. 589,

fn. 13 [“[w]e may properly rely on the legislative history of subsequent enactments to

clarify the Legislature‟s intent regarding an earlier enacted statute,” and, while the

concept of “„subsequent legislative history‟ may seem oxymoronic, it is well established

that „the Legislature‟s expressed views on the prior import of its statutes are entitled to

due consideration, and we cannot disregard them,‟” quoting Western Security Bank,

supra, 15 Cal.4th at p. 244]; City of Long Beach v. California Citizens for Neighborhood

Empowerment (2003) 111 Cal.App.4th 302, 307, fn. 6 [“„[a]lthough a legislative

expression of the intent of an earlier act is not binding upon the courts in their

construction of the prior act, that expression may properly be considered together with

other factors in arriving at the true legislative intent existing when the prior act was

passed,‟” quoting Eu v. Chacon (1976) 16 Cal.3d 465, 470].) For example, the

Legislative Counsel‟s digest for AB 3334 stated that under “[e]xisting law . . . no policy

of insurance shall provide any [duty to defend] any civil or criminal action or proceeding

brought by the Attorney General, any district attorney, or any city prosecutor” for “the

payment of any fine, penalty, or restitution.” (Legis. Counsel‟s Dig., AB 3334, supra.)

An analysis prepared for the Assembly Committee on Finance and Insurance stated that

“California law, enacted by the adoption of Assembly Bill 3920 (Johnston) in 1988[,]

provides that no policy of insurance shall provide coverage or indemnity for the payment

of any fine, penalty, or restitution in any civil or criminal action brought by the Attorney

General, any district attorney, or any city prosecutor . . . .” (Analysis of AB 3334, supra,

at p. 1.) The committee analysis also confirmed that the purpose of AB 3920 in 1988

“was to „hold individuals personally accountable for behavior which constitutes an unfair

business practice or false and misleading advertising.‟” (Ibid.)

These declarations and statements of prior legislative intent are relevant to our

inquiry, but no individual expression is determinative. Section 2 of AB 3334 does not, as

Mt. Hawley argues, definitively prove that the Legislature intended (in 1988 or 1990) that

“the list of attorneys who are prosecuting an action modifies only those civil actions

brought pursuant to the UCL and the [FAL],” and not criminal actions. The entirety of

24

the legislative history and purpose of the statute show that the Legislature enacted

section 533.5 in 1988 to address actions brought by state and local agencies, and then

amended section 533.5 in 1990 to limit—not expand—the application of the statute.

C. The 1991 amendment

In 1991 the Legislature again amended section 533.5, subdivision (b), as part of

Senate Bill No. 709 (SB 709). SB 709, sponsored by the County of San Bernardino,

made a relatively minor change in the UCL by adding county counsel to the list of public

entities that can bring UCL actions. The Legislative Counsel‟s digest states that the bill

would allow “a county counsel authorized by agreement with the district attorney in

actions involving violation of a county ordinance to prosecute an action for injunction to

enjoin unfair competition.” (Legis. Counsel‟s Dig., SB 709 (1990-1991 Reg. Sess.)

Stat. 1990, ch. 1195.) The Legislative Counsel‟s digest also states that the bill would

authorize the county to collect any fine recovered in such an action brought by a county

counsel. (Ibid.) Although SB 709 was primarily about amending the UCL, the last

section of the bill added county counsel to the group of public entities listed in section

533.5, subdivision (b). (SB 709 (1990-1991 Reg. Sess.) Stat. 1990, ch. 1195, § 4,

subds. (a), (b), pp. 3-4.)

Most of the legislative history of SB 709 concerns the issue of adding county

counsel to the list of public entities that can bring UCL actions. An analysis of SB 709

prepared for the Senate Committee on Judiciary explains that the bill “would provide that

in addition to the Attorney General, the district attorney and the city attorney, any county

counsel can bring an action for any violation of, or an injunction pursuant to, specified

provisions [of the Unfair Trade Practices Act].” (Sen. Com. on Judiciary, Analysis of

SB 709 (1990-1991 Reg. Sess.) May 14, 1991, p. 2.) This analysis contains one of the

few references in the legislative history of SB 709 to section 533.5 and confirms that

section 533.5, subdivision (b), applies to UCL actions brought by state and local

agencies: “Existing law also provides that no policy of insurance shall provide, or be

construed to provide[,] coverage or indemnity of the payment of any fine, penalty, or

restitution in any action brought under unfair competition laws brought by the Attorney

25

General, any district attorney and city attorney.” (Ibid.) There is no indication in the

legislative history that the Legislature intended in 1991 to preclude insurers from

providing a defense in federal criminal actions, or for that matter in any actions other than

UCL and FAL actions brought by state and local public entities.

D. The takeaway

The legislative history of the original 1988 statute and the 1990 and 1991

amendments makes it clear that the purpose of the statute, the circumstances of its

enactment, and the Legislature‟s goal in enacting the statute, were to preclude insurers

from providing a defense in civil and criminal UCL and FAL actions brought by the

Attorney General, district attorneys, city attorneys, and (later) county counsel. It is

undisputed that the original version of section 533.5, subdivision (b), applied only to

criminal and civil actions brought by the Attorney General, a district attorney, or a city

attorney seeking the recovery of a fine, penalty, or restitution, and not to actions brought

by federal agencies. Although the original version of section 533.5, subdivision (b), did

not specifically mention UCL and FAL claims, the Legislature enacted the original

statute to address UCL and FAL actions. It was in response to a perceived defect in the

wording of the original statute, which allowed insurers to use the statute as a defense in

environmental cleanup cases, that the Legislature in 1990 amended the statute to make it

clear that the prohibition on providing a defense applied only in UCL and FAL cases

brought by the three (and in 1991 four) named state and local agencies. At no time did

the Legislature ever intend section 533.5, subdivision (b), to apply to actions other than

UCL and FAL actions brought by state and local agencies.9 At no time did the

Legislature ever intend section 533.5, subdivision (b), to apply to criminal actions

brought by public entities other than the three and then four enumerated state and local

agencies, such as criminal actions brought by the federal prosecuting authorities.

9

Indeed, one federal court stated in 1993 that section 533.5 stands for the principle

that there is “no insurance coverage or duty to defend in actions brought under Unfair

Business Practices Act.” (Standard Fire Ins. Co. v. Peoples Church of Fresno

(9th Cir. 1993) 985 F.2d 446, 449.)

26

Mt. Hawley‟s primary argument on the issue of legislative intent is that “there is

no indication that the Legislature intended to distinguish federal from state criminal

prosecutions and to permit an insurer-funded defense or indemnity for federal [crimes]

while barring it for those brought by the State.” As Lopez concedes, Mt. Hawley is

correct: there is nothing in the legislative history suggesting that the Legislature intended

or was even thinking about a distinction between state and federal criminal actions and

proceedings. (See People v. Taylor (2007) 157 Cal.App.4th 433, 439 [noting that the

“absence from the legislative history” of a distinction “supports our conclusion that no

distinction was intended by the Legislature”].) But that is because the Legislature was

thinking about UCL and FAL actions and proceedings, which only state and local

agencies bring. As Lopez correctly argues, “[b]ecause federal prosecutors do not enforce

the UCL, the Legislature had no reason to include them within the statute‟s ambit,” and

there was no need to distinguish or even consider actions brought by federal prosecutors.

The Attorney General‟s expressed concern that UCL and FAL cases were consuming “a

large measure of prosecutorial resources” was a concern about state resources, not federal

resources. (Bill Proposal Summary of AB 3920, supra, at p. 1.) Indeed, the absence of

any discussion regarding, concern about, or mention of federal prosecutions supports

Lopez‟s position that the Legislature intended the original statute and the two

amendments to apply only to criminal or civil UCL actions brought by the listed state and

local agencies. As the Supreme Court stated in Van Horn v. Watson (2008) 45 Cal.4th

322, “one would expect that, had the Legislature intended to alter the scope of” a statute,

“some mention of its intent would have made it into the legislative history. The absence

of any such discussion suggests the Legislature did not so intend.” (Id. at p. 332, fn. 12.)

ii. Maxims of construction

As noted above, section 533.5, subdivision (b), precludes an insurer from

defending “any claim in any criminal action or proceeding or in any action or proceeding

brought pursuant to [the UCL or the FAL] in which the recovery of a fine, penalty, or

restitution is sought by the Attorney General, any district attorney, any city prosecutor, or

any county counsel.” Mt. Hawley argues that the “plain grammatical structure” of

27

section 533.5, subdivision (b), “compels the conclusion that the list of lawyers contained

within the second „in any‟ prepositional phrase qualifies only those types of actions

described within that phrase,” because of the “or” between “criminal action or

proceeding” and “any action or proceeding brought pursuant to” the UCL or FAL.

Such grammatical and interpretive aids are important tools, but they are only tools.

“The rules of grammar and canons of construction are but tools, „guides to help courts

determine likely legislative intent. [Citations] And that intent is critical. Those who

write statutes seek to solve human problems. Fidelity to their aims requires us to

approach an interpretive problem not as if it were a purely logical game, like a Rubik‟s

Cube, but as an effort to divine the human intent that underlies the statute.‟” (Burris v.

Superior Court (2005) 34 Cal.4th 1012, 1017-1018, quoting J.E.M. AG Supply, Inc. v.

Pioneer Hi-Bred Intl., Inc. (2001) 534 U.S. 124, 156 [122 S.Ct. 593, 151 L.Ed.2d 508].)

“Grammar and syntax thus are a means of gleaning intent, not a basis for preventing its

effectuation.” (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231,

269; see Del Cerro Mobile Estates v. City of Placentia (2011) 197 Cal.App.4th 173, 183

[“[a] litigant may not make a „fortress out of the dictionary‟ [citation], nor similarly

employ the rules of grammar”].) Thus, “„[w]hile punctuation and grammar should be

considered in interpreting a statute, neither is controlling unless the result is in harmony

with the clearly expressed intent of the Legislature.‟” (Zanone v. City of Whittier (2008)

162 Cal.App.4th 174, 189, fn. 16.) Similarly, the “canons of construction . . . are not to

be rotely applied in disregard of other indicia of the intent and purpose of the body which

enacted the statutory provision in question.” (California Chamber of Commerce v.

Brown (2011) 196 Cal.App.4th 233, 258; see Renee J. v. Superior Court (2001)

26 Cal.4th 735, 744 (Renee J.) [“[p]rinciples of statutory construction are not rules of

independent force, but merely tools to assist the courts in discerning legislative intent”].)

The human problems that the Legislature was seeking to solve with section 533.5

were first that insurers were providing their business insureds with an indemnity and a

defense in UCL and FAL actions brought by state and local public entities, and then later

that insurers were using section 533.5 to argue that they did not have to pay for

28

environmental cleanup costs. The appearance in the 1990 amendment of the second “or

any” phrase does not definitively show that the Legislature intended section 533.5,

subdivision (b), to apply to all criminal actions, including federal criminal actions. The

legislative history is bursting with manifestations of intent to bar indemnity and defense

for UCL and FAL actions brought by state and local agencies, and devoid of any

indications that the bar would apply to criminal actions brought by federal agencies. We

cannot allow technical rules of grammar and construction to defeat the clear legislative

intent behind section 533.5. (See Payless Shoesource, Inc. v. Travelers Companies, Inc.

(10th Cir. 2009) 585 F.3d 1366, 1371-1372 [“while the rules of English grammar often

afford a valuable starting point to understanding a speaker‟s meaning, they are violated so

often by so many of us that they can hardly be safely relied upon as the end point of

analysis”].)

A. The last antecedent rule

Mt. Hawley places considerable reliance on the last antecedent rule. The last

antecedent rule provides that “„qualifying words, phrases and clauses are to be applied to

the words or phrases immediately preceding and are not to be construed as extending to

or including others more remote.‟” (Renee J., supra, 26 Cal.4th at 743; see Genlyte

Group, LLC v. Workers’ Comp. Appeals Bd. (2008) 158 Cal.App.4th 705, 717 (Genlyte

Group).) Mt. Hawley argues that under the last antecedent rule the phrase “in which the

recovery of a fine, penalty, or restitution is sought by the Attorney General, any district

attorney, any city prosecutor, or any county counsel” modifies “any action or proceeding

brought pursuant to” the UCL or FAL, but not the first and more remote “any criminal

action or proceeding.”

The last antecedent rule, however, “is „not immutable‟ and should not be „rigidly

applied‟ in all cases” and has several exceptions. (People ex rel. Lockyer v. R.J. Reynolds

Tobacco Co. (2003) 107 Cal.App.4th 516, 530; see In re Phelps (2001) 93 Cal.App.4th

451, 456.) One exception “provides that when several words are followed by a clause

that applies as much to the first and other words as to the last, „the natural construction of

the language demands that the clause be read as applicable to all.‟ [Citation] Another

29

provides that when the sense of the entire act requires that a qualifying word or phrase

apply to several preceding words, its application will not be restricted to the last.”

(Renee J., supra, 26 Cal.4th at p. 743.) These “exceptions to a rigid or mechanical

application of the last antecedent rule . . . are simply another way of stating the

fundamental rule that a court is to construe a statute to effectuate the purpose of the law.”

(Genlyte Group, supra, 158 Cal.App.4th at p. 717; see Anderson v. State Farm Mut. Auto.

Ins. Co. (1969) 270 Cal.App.2d 346, 349-350 [“if the clear intent of the parties is

opposed to the application of the rule, the rule must yield”].)

Both of these exceptions to the last antecedent rule apply here. The clause “in

which the recovery of a fine, penalty, or restitution is sought by the Attorney General,

any district attorney, any city prosecutor, or any county counsel” applies “as much to”

“any criminal action or proceeding” as to “action or proceeding brought pursuant to [the

UCL and FAL].” (See Lickter v. Lickter (2010) 189 Cal.App.4th 712, 726 [last

antecedent rule did not apply because qualifying phrase “is just as applicable to the more

remote [words] . . . as it is to the immediately preceding term”].) With the exception of

county counsel (which we discuss below), the named public entities can bring both

criminal actions and civil actions under the UCL and FAL, and can seek fines and

restitution in criminal actions and penalties in civil actions. (See Kasky v. Nike, Inc.

(2002) 27 Cal.4th 939, 950 [“[i]n a suit under the UCL, a public prosecutor may collect

civil penalties”]; People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 17

[prosecutors can seek restitution under the FAL]; People v. First Federal Credit Corp.

(2002) 104 Cal.App.4th 721 [district attorney sought civil penalties under the UCL and

FAL].)

In addition, the goal of the legislation that enacted and amended section 533.5,

subdivision (b), was to bar insurers from providing a defense in UCL and FAL actions

but not in environmental actions brought by state agencies seeking fines, penalties, and

restitution. In light of this goal, the “sense” of the entire statute requires that the phrase

“in which the recovery of a fine, penalty, or restitution is sought by the Attorney General,

any district attorney, any city prosecutor, or any county counsel” apply to the words “any

30

criminal action” and “not be restricted to” civil UCL and FAL actions and proceedings.

(See Costco Wholesale Corp. v. Workers’ Comp. Appeals Bd. (2007) 151 Cal.App.4th

148, 154-155 [“[t]he last antecedent rule does not trump” considerations of “the spirit of

the statute . . . as a whole”].) There is no indication or “sense” that the Legislature ever

intended the statute to apply to criminal actions brought by federal prosecutors, who do

not bring actions seeking recovery of a fine, penalty, or restitution under the UCL or the

FAL. The last antecedent rule does not mandate an interpretation that section 533.5,

subdivision (b), applies to federal criminal actions.10

B. Other maxims

“Statutory language is not considered in isolation. Rather, we „interpret the statute

as a whole, so as to make sense of the entire statutory scheme.‟” (Bonnell v. Medical Bd.

of California (2003) 31 Cal.4th 1255, 1261.) We must also “interpret legislative

enactments so as to avoid absurd results.” (People v. Torres (2013) 213 Cal.App.4th

1151, 1158.) Relying heavily on and quoting extensively from the dissenting opinion in

Bodell, Mt. Hawley argues that the use of the word “recovery” in the phrase “in which

the recovery of a fine, penalty, or restitution is sought” by the named public agencies

“reinforces [the] insurers‟ view that the list of lawyers applies only to civil actions”

because a “prosecutor doesn‟t seek „recovery‟ of a conviction in a criminal case.”

(Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of Kozinski, J.).)

10

A third exception to the last antecedent rule is the presence of a comma between

all of the antecedents and the qualifying phrase (here, between “any criminal action or

proceeding” and “any action or proceeding brought pursuant to” the UCL and FAL, and

“in which the recovery of a fine, penalty, or restitution is sought by the Attorney General,

any district attorney, any city prosecutor, or any county counsel”). There is no comma in

section 533.5, subdivision (b), between the two antecedents and the qualifying phrase.

Nevertheless, just because the punctuation of a statute “[a]dmittedly . . . is not

punctilious” does not justify blind adherence to the last antecedent rule. (Absher v.

AutoZone, Inc. (2008) 164 Cal.App.4th 332, 344; see U.S. Nat. Bank of Oregon v.

Independent Ins. Agents of America, Inc. (1993) 508 U.S. 439, 454 [113 S.Ct. 2173,

124 L.Ed.2d 402] [“a purported plain-meaning analysis based only on punctuation is

necessarily incomplete and runs the risk of distorting a statute‟s true meaning”].)

31

Prosecutors, however, do seek recovery of fines and restitution as a result of a

conviction in general, and in UCL and FAL cases in particular. (See, e.g., Bus. & Prof.

Code, § 17500 [violation punishable by imprisonment in county jail not to exceed six

months, a fine not to exceed $2,500, or both]; People v. Holmberg (2011)

195 Cal.App.4th 1310, 1324 [prosecutor sought victim restitution].) Indeed, prosecutors

can waive the imposition of a fine if they do not request it or do not object when the trial

court fails to impose it. (See People v. Tillman (2000) 22 Cal.4th 300, 302-303.) And

restitution hearings in criminal cases cannot proceed in the absence of the prosecutor,

even if the victim is present with counsel. (See People v. Dehle (2008) 166 Cal.App.4th

1380, 1386, 1389 [“[r]estitution hearings held pursuant to section 1202.4 are sentencing

hearings and are thus hearings which are a significant part of a criminal prosecution,” and

the “goals of a restitution hearing . . . can only be accomplished with the participation of

the district attorney acting in accordance with his responsibilities to the criminal justice

system”]; see also People v. Smith (2011) 198 Cal.App.4th 415, 434 [“[t]he restitution

hearing, whether for economic or noneconomic damages, is a criminal sentencing

hearing, not a civil trial”].)

Moreover, the phrase “in which the recovery of a fine, penalty, or restitution is

sought by the Attorney General, any district attorney, any city prosecutor, or any county

counsel” cannot modify only “any action or proceeding brought pursuant to [the UCL

and FAL],” because fines are not recoverable in civil UCL and FAL actions. Only public

entities can prosecute a violation of the UCL and FAL as a misdemeanor and seek a fine

pursuant to Business and Professions Code section 17500. (See Kasky v. Nike, Inc.,

supra, 27 Cal.4th at p. 950 [“[i]n a suit under the UCL . . . a private plaintiff‟s remedies

are „generally limited to injunctive relief and restitution,‟” quoting Cel-Tech

Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163,

179]; Lavie v. Proctor & Gamble Co. (2003) 105 Cal.App.4th 496, 503 [“Attorney

General and district attorneys . . . are authorized to prosecute violations of the UCL

criminally (see Bus. & Prof. Code, § 17500) and may also seek redress through the

bringing of civil law enforcement cases seeking equitable relief and civil penalties

32

beyond those available to private parties (see Bus. & Prof. Code, §§ 17203, 17206,

17535, 17536)”]; People v. Municipal Court (1972) 27 Cal.App.3d 193, 201-202

[“crimes are considered to be offenses against the body politic for which the punishment

is fine or imprisonment as distinguished from civil wrongs where private redress is

obtained through individually prosecuted lawsuits for damages”].) Because fines can

only be sought in criminal cases, the phrase must also modify “any criminal action or

proceeding,” consistent with the maxim of construction that “our interpretation is faithful

to the canon that we must „interpret a statute consistently with the meaning derived from

its grammatical structure.‟” (Moore v. Hill (2010) 188 Cal.App.4th 1267, 1281.) If, as

Mt. Hawley argues, the phrase modified only “any action or proceeding brought pursuant

to [the UCL and FAL],” then the Legislature would have had no reason to include the

word “fine” in the statute, thus violating another maxim of construction. (See Metcalf v.

County of San Joaquin (2008) 42 Cal.4th 1121, 1135 [“rule of statutory interpretation [is]

that courts should avoid a construction that makes any word surplusage”]; Kulshretha v.

First Union Commercial Corp. (2004) 33 Cal.4th 601, 611 [“courts may not excise words

from statutes”]; Moss v. Kroner (2011) 197 Cal.App.4th 860, 879 [“[i]t is a settled axiom

of statutory construction that significance should be attributed to every word and phrase

of a statute, and a construction making some words surplusage should be avoided”].)

Again quoting the dissenting opinion in Bodell, Mt. Hawley argues that the

interpretation we are adopting “makes no sense because at least one of the lawyers listed

(the county counsel) cannot bring criminal charges,” that the “circumstances under which

„county counsel‟ was added to the list conclusively undermines the notion that the list has

any relevance to criminal prosecutions,” and that “the list only includes those lawyers

who are authorized to bring unfair competition and false advertising actions, and has

nothing at all to do with criminal prosecutions.” (Bodell, supra, 119 F.3d at p. 1421

(dis. opn. of Kozinski, J.).) This argument misunderstands the 1991 amendment. The

“circumstances under which „county counsel‟ was added to the list” were that the

Legislature was amending the UCL to allow county counsel to file UCL actions, and

amended section 533.5, subdivision (b), accordingly. This history supports the

33

conclusion that the Legislature enacted section 533.5 to address the problem of insurers

providing indemnification and defense in UCL and FAL actions, and to prevent insurers

from litigating against state prosecutors in these kinds of cases, not to prevent insurers

from providing a defense to insureds in all criminal cases. (See Wotton v. Bush (1953)

41 Cal.2d 460, 467 [“the objective sought to be achieved by a statute as well as the evil to

be prevented is of prime consideration in its interpretation”]; All Angels

Preschool/Daycare v. County of Merced (2011) 197 Cal.App.4th 394, 403 [where “the

plain wording does not answer our question of interpretation, it is appropriate to consider

extrinsic aids such as the apparent objective to be achieved and the evils to be remedied

by the entire” statute].) Moreover, because county counsel can bring claims, “county

counsel” can modify the first “any claim” in section 533.5, subdivision (b). In any event,

when the Legislature amended the UCL and section 533.5, subdivision (b), in 1991 to

add county counsel to the statute, the Legislature had to put county counsel somewhere,

and with the Attorney General, district attorney, and city attorney was the only realistic

place county counsel would fit in the statute.

e. Step three: Reason, practicality, and common sense

Although it is not necessary to do so, we confirm our interpretation of section

533.5, subdivision (b), by applying “reason, practicality, and common sense to the

language” of the statute. (See Brown v. Valverde (2010) 183 Cal.App.4th 1531, 1552

[although “we need not reach [the] second and third steps” in the analysis, “[w]e

nevertheless discuss them . . . as they lend strong support to our conclusion”]; Ailanto

Properties, supra, 142 Cal.App.4th at p. 591 [“[a]lthough our review of the legislative

history suffices to support our conclusion, applying „reason, practicality, and common

sense to the language at hand‟ confirms that conclusion”].)

Outside the special area of UCL and FAL actions brought by state and local

prosecuting agencies, there is no public policy in California against insurers contracting

to provide a defense to insureds facing criminal charges, as opposed to indemnification

for those convicted of criminal charges. (See Stein v. Internat. Ins. Co. (1990)

217 Cal.App.3d 609, 615 [“[w]hile nothing would preclude [the insurer] from choosing”

34

to defend the insured‟s criminal action, “it is a judgment call to be left solely to the

insurer”]; Ohio Casualty Ins. Co. v. Hubbard (1984) 162 Cal.App.3d 939, 944 (Ohio

Casualty Ins. Co.) [“„[an] insurer is not absolved from its duty to defend the lawsuit

merely because it is forbidden by law or contract to indemnify the liability-causing

action‟”].) Section 533.5 did not change that law outside of the context of certain actions

brought by the listed state and local agencies.11

To the contrary, courts have held that section 533, a similar but much older statute

(enacted in 1935) that prohibits indemnification “for a loss caused by the wilful act of the

insured,” does not extinguish an insurer‟s duty to defend an insured accused of those

wilful actions. (See Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 277-278 [“a contract

to defend an assured upon mere accusation of a wilful tort does not encourage such wilful

conduct”]; State Farm General Ins. Co. v. Mintarsih (2009) 175 Cal.App.4th 274, 287

[although “section 533 precluded indemnification . . . coverage” for malicious

prosecution, “section 533 did not relieve the insurer of the contractual duty to defend that

claim”]; Marie Y. v. General Star Indemnity Co. (2003) 110 Cal.App.4th 928, 959

[“[e]ven though public policy or section 533 precludes an insurer from indemnifying an

insured in an underlying action the duty to defend still exists so long as the „insured

reasonably expect[s] the policy to cover the types of acts involved in the underlying

suit‟”]; Mez Industries, Inc. v. Pacific Nat. Ins. Co. (1999) 76 Cal.App.4th 856, 878 (Mez

Industries) [“where a denial of indemnification is based on the application of section 533,

it does not necessarily follow that no duty to defend exists”]; Downey Venture v. LMI

Ins. Co. (1998) 66 Cal.App.4th 478, 508 (Downey Venture) [“[o]bviously, the public

policy concerns applicable to an insurer‟s indemnification” of a malicious prosecution

action because of section 533 “do not extend to the provision of a defense”]; B & E

11

Indeed, the Legislative Counsel‟s digest for AB 3920 stated that the new statute‟s

provisions did “not constitute a change in, but are declaratory of, the existing law.”

(Legis. Counsel‟s Dig., AB 3920, supra, at p. 1.) Existing law in 1988 did not preclude

insurance companies from providing a defense, as opposed to indemnity, for criminal

charges.

35

Convalescent Center v. State Compensation Ins. Fund (1992) 8 Cal.App.4th 78, 93

[“[p]ut another way, if the reasonable expectations of an insured are that a defense will be

provided for a claim, then the insurer cannot escape that obligation merely because public

policy precludes it from indemnifying [it]”].)12 So for example in Jaffe v. Cranford Ins.

Co. (1985) 168 Cal.App.3d 930 (Jaffe), the insurer argued that, “since the policy excludes

payment for damages resulting from criminal acts, legal defense to criminal charges is

also excluded” and that section 533 was “in accord with the policy.” (Id. at p. 935 &

fn. 9.) The court disagreed, concluding that, although “the policy behind section 533

would prohibit coverage for fines resulting from a criminal conviction,” section 533 only

“restricts the possible liability of insurers for losses. It does not restrict the insurer‟s right

to contract to provide legal services. [Citation.] Nor do we think the policy behind

section 533 necessarily precludes such coverage.” (Id. at p. 935, fn. 9.) Thus, while it is

true, as Mt. Hawley argues, that “California law recognizes a strong public policy of

discouraging certain types of conduct by barring insurance coverage for any resulting

proceedings or damages,” that public policy applies to indemnification not defense.13

12

The same is true for section 1668 of the Civil Code, assuming, as Mt. Hawley

contends, that it applies to insurance policies. This section provides: “All contracts

which have for their object, directly or indirectly, to exempt anyone from responsibility

for his own fraud, or willful injury to the person or property of another, or violation of

law, whether willful or negligent, are against the policy of the law.” (See Downey

Venture, supra, 66 Cal.App.4th at pp. 486, fn. 1, 492; J.B. Aguerre, Inc. v. American

Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 14; Ohio Casualty Ins. Co.,

supra, 162 Cal.App.3d at pp. 945-946; see also St. Paul Fire & Marine Ins. Co. v. Weiner

(9th Cir. 1979) 606 F.2d 864, 870.) “However, it is not at all clear that section 1668

applies to indemnity agreements such as an insurance policy.” (Downey Venture, at

p. 486, fn. 1.)

13

Where section 533 precludes indemnification and there is no “reasonable

expectation of a defense even though indemnification is excluded,” there is no duty to

defend. (Mez Industries, supra, 76 Cal.App.4th at p. 878; see Uhrich v. State Farm Fire

& Casualty Co. (2003) 109 Cal.App.4th 598, 621-622.) Where, however, there is a

“separate promise to defend against an inherently intentional tort,” the insurer can still

owe a duty to defend even if section 533 precludes a duty to indemnify. (See Uhrich, at

p. 622; Mez Industries, at p. 878, fn. 21; Downey Venture, supra, 66 Cal.App.4th at

36

Mt. Hawley, quoting the dissenting opinion in Bodell, argues that Lopez‟s

interpretation of section 533.5, subdivision (b), would create a conflict with subdivision

(a) of section 533.5, “which contains a parallel construction” precluding “coverage or

indemnity for the payment of any fine, penalty, or restitution in any criminal action or

proceeding or in any action or proceeding brought pursuant to” the UCL or FAL by the

same four state agencies.14 Mt. Hawley argues that if we adopt Lopez‟s proposed

interpretation of subdivision (b), then we would have to interpret subdivision (a) to

“mean that insurance coverage would be barred for indemnification for criminal fines,

penalties and restitution, only for criminal actions brought by the state but not the federal

government.” As the dissenting opinion in Bodell rhetorically asks, “Why would

indemnification of criminal fines imposed under federal law create any less of a moral

hazard than indemnification of fines imposed under state law?” (Bodell, supra, 119 F.3d

at p. 1411 (dis. opn. of Kozinski, J.).)

The alleged conflict with subdivision (a) is a false issue. Section 533 precludes

indemnification of criminal fines, state and federal. (See California Casualty

Management Co. v. Martochhio (1992) 11 Cal.App.4th 1527, 1533 [§ 533 precludes

coverage “for fines or restitution imposed as a result of a criminal conviction”]; Jaffe,

supra, 168 Cal.App.3d at p. 935, fn. 9 [“policy behind section 533 would prohibit

coverage for fines resulting from a criminal conviction”].) Our interpretation of section

533.5, subdivision (b), has no effect on that rule. The Legislature enacted section 533.5

pp. 507-508.) Here, the policy includes a separate promise to defend criminal actions

“even if any of the allegations are groundless, false or fraudulent. ”

14

Section 533.5, subdivision (a), provides: “No policy of insurance shall provide, or

be construed to provide, any coverage or indemnity for the payment of any fine, penalty,

or restitution in any criminal action or proceeding or in any action or proceeding brought

pursuant to Chapter 5 (commencing with Section 17200) of Part 2 of, or Chapter 1

(commencing with Section 17500) of Part 3 of, Division 7 of the Business and

Professions Code by the Attorney General, any district attorney, any city prosecutor, or

any county counsel, notwithstanding whether the exclusion or exception regarding this

type of coverage or indemnity is expressly stated in the policy.”

37

to address the problem the Attorney General had been experiencing in UCL and FAL

cases, not to allow indemnification of federal criminal fines. Our conclusion that

subdivision (b) does not preclude an insurer from providing a defense to federal criminal

charges does not create any disharmony with subdivision (a). (See Bighorn-Desert View

Water Agency v. Verjil (2006) 39 Cal.4th 205, 218 [“[r]elated provisions „should be read

together and construed in a manner that gives effect to each, yet does not lead to

disharmony with others‟”]; Elsner v. Uveges (2004) 34 Cal.4th 915, 933 [“when

interpreting a statute, we must harmonize its various parts if possible, reconciling them in

the manner that best carries out the overriding purpose of the legislation”].)

Moreover, the Legislature has enacted statutes authorizing insurance that provides

a defense to individual defendants in various kinds of proceedings, including criminal

proceedings. For example, Corporations Code section 317 authorizes a corporation to

indemnify certain of its agents against “expenses, judgments, fines, settlements, and other

amounts,” including “expenses actually and reasonably incurred by that person in

connection with the defense or settlement of the action . . . .” (Corp. Code, § 317,

subds. (b), (c).)15 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.” (Corp. Code, § 317, subds. (a), (b); see P. S. & S. Inc. v. Superior Court

(1971) 17 Cal.App.3d 354, 359 [predecessor to Corp. Code, § 317]; 1 Marsh‟s Cal.

Corporate Law (4th ed. 2006) §11.22).) The statute further provides that the corporation

15

Similar to an insurer‟s right to provide a defense subject to a reservation of rights,

the corporation is entitled to condition the advance of defense costs on behalf of its agent

on the filing by the agent of a bond in case it is subsequently determined that the agent

was not entitled to indemnification and defense under the statute. (See Corp. Code,

§ 317, subd. (f) [“[e]xpenses incurred in defending any proceeding may be advanced by

the corporation prior to the final disposition of the proceeding upon receipt of an

undertaking by or on behalf of the agent to repay that amount if it shall be determined

ultimately that the agent is not entitled to be indemnified as authorized in this section”].)

38

“shall have power to purchase and maintain insurance on behalf of any agent of the

corporation against any liability asserted against or incurred by the agent in that capacity

or arising out of the agent‟s status . . . .” (Corp. Code, § 317, subd. (i).) Thus,

Corporations Code section 317 embodies a policy decision by the Legislature to allow

insurers in certain circumstances to provide a defense in criminal actions or proceedings.

(See Wilshire-Doheny Associates Ltd. v. Shapiro (2000) 83 Cal.App.4th 1380, 1388-1389

[“[t]he policy considerations behind [Corp. Code §] 317 „are that persons who serve the

corporation in good faith should, in the absence of certain conduct (fraud, breach of

fiduciary duties, etc.) be free from liability for corporate acts; indemnification encourages

capable persons to perform their duties, secure in the knowledge that expenses incurred

by them despite their honesty and integrity will be borne by the corporation‟”]; Channel

Lumber Co. v. Porter Simon (2000) 78 Cal.App.4th 1222, 1231 [by enacting Corp. Code,

§ 317 the Legislature made a policy decision “to encourage capable individuals to act for

and in the place of the corporation by affording them indemnification for the expenses of

defending against lawsuits to which they are made parties because they are agents of the

corporation”].)

Similarly, Government Code section 990 provides that a local public entity may

“[i]nsure, contract or provide against the expense of defending a claim against the local

public entity or its employee . . . where such liability arose from an act or omission in the

scope of his employment, and an insurance contract for such purpose is valid and binding

notwithstanding Section 1668 of the Civil Code, Section 533 of the Insurance Code, or

any other provision of law.” (Gov. Code, § 990, subd. (c).) Government Code section

995.8 provides that “a public entity may provide for the defense of a criminal action or

proceeding . . . brought against an employee or former employee if” the “criminal action

or proceeding is brought on account of an act or omission in the scope of his employment

as an employee of the public entity . . . .”16 (Gov. Code, § 995.8; see Los Angeles Police

16

The public entity must also determine that such a defense would be in its best

interest and that “the employee or former employee acted, or failed to act, in good faith,

39

Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 176 [Gov. Code,

§ 995.8 “declares that public entities are not required to provide for the defense of

criminal actions brought against their employees, but instead permits the entities to

provide defenses in certain circumstances”].)

Our interpretation of section 533.5 allows insurers to contract to provide a defense

to certain kinds of criminal charges, as the Legislature has said insurers can do in the

cases of corporate agents and government employees charged with crimes. Interpreting

section 533.5, subdivision (b), as Mt. Hawley proposes and as the trial court did would

create a potential conflict with statutes in the Corporations Code and the Government

Code. (See Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1086 [“[w]hen we

construe potentially conflicting statutes, our duty is to harmonize them if reasonably

possible”]; Walters v. Weed (1988) 45 Cal.3d 1, 9 [“[s]tatutes that are apparently in

conflict should, if reasonably possible, be reconciled [citation], even when the court

interprets provisions in different codes”]; Ailanto Properties, supra, 142 Cal.App.4th at

p. 591 [refusing to adopt an interpretation of Gov. Code section that “would negate other

statutory provisions” in the Water Code]; In re Marriage of Paddock (1971)

18 Cal.App.3d 355, 359 [“[s]tatutes should be construed so as to harmonize the various

sections, and wherever possible seemingly conflicting provisions should be reconciled to

avoid the declaration of an irreconcilable conflict”].)

Our interpretation is also consistent with the goal of encouraging individuals to

serve on boards of directors and trustees of corporations and charities. Allowing insurers

to provide for defense costs in criminal cases against corporate agents enhances the

ability of for-profit and non-profit organizations to attract directors, trustees, and

volunteers who otherwise might hesitate or decline to serve because of a fear of lawsuits

and criminal prosecutions. (See In re WorldCom, Inc. Securities Litigation

(S.D.N.Y. 2005) 354 F.Supp.2d 455, 469 [“[u]nless directors can rely on the protections

without actual malice and in the apparent interests of the public entity.” (Gov. Code,

§ 995.8, subd. (b).)

40

given by D & O policies, good and competent men and women will be reluctant to serve

on corporate boards”]; Homestore, Inc. v. Tafeen (Del. 2005) 888 A.2d 204, 211

[“[i]ndemnification encourages corporate service by capable individuals by protecting

their personal financial resources from depletion by the expenses they incur during an

investigation or litigation that results by reason of that service”]; Griffith, Uncovering a

Gatekeeper: Why the SEC Should Mandate Disclosure of Details Concerning Directors’

and Officers’ Liability Insurance Policies (2006) 154 U.Pa. L.Rev. 1147, 1171

[“[c]orporate managers insist on D&O insurance to protect their personal wealth from the

risk of shareholder litigation, making such coverage necessary to attract qualified persons

to board service and executive-level employment”].)

Our interpretation that insurers may pay for defense costs in federal and some state

criminal actions is also consistent with the principle that insureds charged with crimes

begin with a presumption of innocence. (See Wiley v. County of San Diego (1998)

19 Cal.4th 532, 541 [presumption of innocence is “that bedrock „axiomatic and

elementary‟ principle whose „enforcement lies at the foundation of the administration of

our criminal law,‟” quoting In re Winship (1970) 397 U.S. 358, 363 [90 S.Ct. 1068, 25

L.Ed.2d 368]]; Gong v. Firemen’s Ins. Co. (1962) 202 Cal.App.2d 686, 691 [insured

accused of criminal acts enters “upon the trial clothed with the presumption of

innocence,” “one of the strongest disputable presumptions known to the law”]; see also

U.S. v. Stein (2d Cir. 2008) 541 F.3d 130, 156 [“the Sixth Amendment protects against

unjustified governmental interference with the right to defend oneself using whatever

assets one has or might reasonably and lawfully obtain”]; Associated Elec. & Gas Ins.

Services v. Rigas (E.D.Pa. 2004) 382 F.Supp.2d 685, 700 [insureds under D&O policy

involved in a criminal prosecution “[u]ntil and unless they are found guilty, they are

presumed innocent and must enjoy the constitutionally-based prerogatives of any citizen

who stands merely accused, but not convicted, of a crime”]; CGU Ins. v. Tyson Assoc.

(E.D.Pa. 2001) 140 F.Supp.2d 415, 421 [public policy precluding insurance coverage for

willful criminal acts or for intentional torts “is not appropriately considered during the

duty to defend analysis,” particularly where insureds “have not been found guilty of any

41

wrongdoing”].) The law punishes individuals convicted of crimes, not those accused of

crimes.

Finally, Mt. Hawley points to the statement in the dissenting opinion in Bodell that

“no California court has ever construed an insurance policy to cover criminal defenses.”

(Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of Kozinski, J.).) No California court,

however, has ever construed an insurance policy like this one not to cover criminal

defenses, nor has any California court ever held that it is against public policy for an

insurer to agree to provide a defense to criminal charges. The two cases cited by the

dissent in Bodell, Perzik v. St. Paul Fire & Marine Ins. Co. (1991) 228 Cal.App.3d 1273

(Perzik), and Jaffe, supra, 168 Cal.App.3d 930, involved medical malpractice general

liability policies that provided a defense to claims for damages and did not include an

express provision providing for a defense against criminal charges. (See Perzik, at

p. 1275; Jaffe, at p. 933.)17 The policy here, unlike the policies in Perzik and Jaffe,

provides that a covered claim includes “a criminal proceeding against any Insured

commenced by the return of an indictment” and that Mt. Hawley has a duty to defend

such a claim.18

f. Breach of the implied covenant of good faith and fair dealing

The trial court granted Mt. Hawley‟s motion for summary adjudication on Lopez‟s

second cause of action for breach of the implied covenant of good faith and fair dealing

on the ground that section 533.5 precluded a duty to defend. The trial court ruled:

17

Actually, only the policy in Perzik contained an express duty to defend provision.

The insured in Jaffe argued that the duty to defend arose because of the potential for

coverage. (See Jaffe, supra, 169 Cal.App.3d at pp. 933-934.)

18

Mt. Hawley makes the entirely circular argument that it did not contract to provide

Lopez with a defense because the policy states that “Loss shall not include . . . (5) matters

(other than punitive or exemplary damages) which are uninsurable under the law pursuant

to which the Policy shall be construed,” and section 533.5, subdivision (b), precludes any

duty to defend. Because we conclude that section 533.5, subdivision (b), does not

preclude Mt. Hawley‟s duty to defend, exclusion (5) from the definition of loss for

uninsurable matters does not apply.

42

“Having found that Mt. Hawley did not breach the insurance contract by refusing to

defend against the Indictment because Insurance Code section 533.5 bars coverage for his

defense, the Court holds that Dr. Lopez‟s claim for breach of the implied covenant of

good faith and fair dealing fails as a matter of law.” The trial court did not reach

Mt. Hawley‟s alternative argument that it was entitled to summary adjudication on

Lopez‟s bad faith claim because “Mt. Hawley‟s denial was reasonable and based on a

genuine dispute” regarding its duty to defend Lopez against the criminal charges and the

application of section 533.5, subdivision (b). Mt. Hawley argues on appeal that, even if

section 533.5, subdivision (b), does not preclude it from providing Lopez with a defense,

it is still entitled to summary adjudication on Lopez‟s bad faith “because its position has

been at least reasonable.”

It is doubtful that the so-called “genuine dispute doctrine” applies in third party19

duty to defend20 cases like this one. Here, assuming the reasonableness of Mt. Hawley‟s

19

(See Yan Fang Du v. Allstate Ins. Co. (9th Cir. 2012) 697 F.3d 753, 758

[collecting cases and concluding that whether the genuine dispute doctrine applies to duty

to settle third party claims under California law is “unsettled”]; Howard v. American

National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 530 [“it has never been held that an

insurer in a third party case may rely on a genuine dispute over coverage to refuse

settlement”]; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group

2012) ¶ 12:618, p. 12B-104 (rev. #1, 2011) [“[t]he extent to which the „genuine dispute‟

doctrine may apply in third party cases is presently unclear”].)

20

(See Harbison v. American Motorists Ins. Co. (E.D.Cal. 2009) 636 F.Supp.2d

1030, 1040 [“[b]ecause the existence of a genuine dispute as to the insurer‟s liability

indicates that there is at a potential for coverage, the existence of a genuine dispute is

itself enough to trigger the insurer‟s duty to defend,” and therefore “the genuine dispute

doctrine appears wholly incompatible with duty to defend cases”]; Century Surety Co. v.

Polisso (2006) 139 Cal.App.4th 922, 951 [noting that the insurer in that case “has failed

to cite any cases that apply the genuine dispute doctrine to the duty to defend and our

research has not disclosed any” and that the “doctrine has been applied primarily in first-

party coverage cases”]; but see Gaylord v. Nationwide Mut. Ins. Co. (E.D.Cal. 2011)

776 F.Supp.2d 1101, 1125 [“the Court must respectfully disagree with Harbison‟s

conclusion that the „genuine dispute doctrine‟ cannot apply in all bad faith duty to defend

cases”]; Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, ¶¶ 12:618.5 to

12:618.10, pp. 12B-105 to 12B-106 (rev. #1, 2012) [suggesting that whether the

43

position is a defense to Lopez‟s claim that Mt. Hawley refused to provide Lopez with a

defense in bad faith, material factual issues precluded Mt. Hawley from prevailing on this

claim on summary adjudication.

The reasonableness of an insurer‟s conduct is ordinarily a question of fact, except

in the “exceptional instance when „only one reasonable inference can be drawn from the

evidence.‟” (Lee v. Fidelity Nat. Title Ins. Co. (2010) 188 Cal.App.4th 583, 599; see

Dalrymple v. United Services Auto. Assn. (1995) 40 Cal.App.4th 497, 511 [“[i]n general,

where bad faith is alleged, a jury is empowered to resolve conflicting evidence regarding

an insurer‟s conduct and motives”]; Walbrook Ins. Co. v. Liberty Mutual Ins. Co. (1992)

5 Cal.App.4th 1445, 1454-1455.) While we agree that Mt. Hawley‟s legal position on the

interpretation of section 533.5, subdivision (b), was reasonable (see above), Lopez

presented other evidence that created factual issues regarding the reasonableness of

Mt. Hawley‟s conduct in refusing to provide Lopez with a defense to the indictment. For

example, at least two years before Mt. Hawley refused to defend Lopez against the

criminal investigation and indictment for allegedly covering up the liver transplant

diversion under the “Not For Profit Organization and Executive Liability Policy,”

Mt. Hawley had “promptly” and “[i]mmediately following notification of the claims”

agreed to defend DCHS against the same criminal investigation under the same policy.21

At one point Mt. Hawley had even “advanced some $600,000 under a reservation of

existence of a genuine dispute as to coverage precludes bad faith liability for refusing to

provide a defense depends on whether the dispute is factual or legal].)

21

This evidence came from evidentiary admissions in Mt. Hawley‟s litigation with

DCHS. “A pleading in a prior civil proceeding may be offered as an evidentiary

admission against the pleader” on summary judgment. (Magnolia Square Homeowners

Assn. v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1049, 1061; see Weil & Brown, Cal.

Practice Guide: Civil Procedure Before Trial (The Rutter Group 2012) ¶¶ 10:43, p. 10-12

(rev. #1, 2011), 10:150.1, p. 10-59 (rev. #1, 2011).) Such an admission is an evidentiary

admission, not a judicial admission, and may be rebutted with explanatory evidence from

the party against whom the admission is offered. (Deveny v. Entropin, Inc. (2006)

139 Cal.App.4th 408, 426; Magnolia Square, at p. 1061; Dolinar v. Pedone (1944)

63 Cal.App.2d 169, 177.)

44

rights” to DCHS.22 Mt. Hawley never explained why it treated St. Vincent‟s so

differently from Lopez and why it denied Lopez the same defense it provided to

St. Vincent‟s for charges arising out of the same events.

Lopez also alleged and presented evidence that Mt. Hawley refused to provide

Lopez with a defense based on an exclusion, the medical incident exclusion, that

according to Lopez was not part of the policy. (See Tomaselli v. Transamerica Ins. Co.

(1994) 25 Cal.App.4th 1269, 1281-1282 [insurer‟s continued reliance on endorsement

insureds claimed they never received was “indicia of bad faith” and “one for the jury to

decide”]; Logan v. John Hancock Mut. Life Ins. Co. (1974) 41 Cal.App.3d 988, 992

[insurer may “not rely on uncommunicated exclusions in a policy not yet issued”].) A

jury could reasonably infer from this evidence that Mt. Hawley‟s conduct toward its

insured Lopez was unreasonable and without proper cause. Indeed, Mt. Hawley‟s motion

for summary adjudication did not even address Lopez‟s allegation that Mt. Hawley

breached the implied covenant of good faith and fair dealing by “[d]enying coverage

based on an exclusion that cannot be found in the Policy.” (See Civ. Proc. Code, § 437c,

subd. (f)(1); McCaskey v. California State Automobile Assn. (2010) 189 Cal.App.4th 947,

975 [“there can be no summary adjudication of less than an entire cause of action”];

Hindin v. Rust (2004) 118 Cal.App.4th 1247, 1259 [summary judgment must dispose of

an entire cause of action].) Mt. Hawley is not entitled to summary adjudication on

Lopez‟s claim for breach of the implied covenant of good faith and fair dealing.

3. The Trial Court Properly Overruled Lopez’s Demurrer

Mt. Hawley‟s first amended complaint asserted two causes of action for

declaratory relief, one on the issue of Mt. Hawley‟s duty to defend and the other on

Mt. Hawley‟s duty to indemnify. Both causes of action were based on Mt. Hawley‟s

allegations that it had no coverage obligations because of (1) section 533.5, (2) the

medical incident exclusion, and (3) the remuneration/personal profit exclusion. Lopez

22

Mt. Hawley later sought reimbursement of the “substantial sums” it had paid

DCHS and St. Vincent‟s.

45

demurred to the first cause of action only. Lopez argues that the trial court erred by

overruling his demurrer.

The trial court properly overruled Lopez‟s demurrer because his argument that the

two exclusions do not apply is based on evidence that was outside the pleadings and not

subject to judicial notice on demurrer. For example, Lopez‟s argument that the medical

incident exclusion does not apply depends on factual statements contained in his requests

for judicial notice of documents in other cases, such as the declaratory relief action

between Mt. Hawley and DCHS. (See Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1055

[“court may take judicial notice that pleadings were filed containing certain allegations

and arguments [citation], but a court may not take judicial notice of the truth of the facts

alleged”]; Williams v. Wraxall (1995) 33 Cal.App.4th 120, 130, fn. 7 [court “cannot take

judicial notice of the truth of hearsay statements in decisions or court files, including

pleadings”].) The factual issue of whether the medical incident exclusion is part of the

policy can be resolved perhaps on summary judgment and certainly at trial, but the issue

cannot be resolved on demurrer. Because Mt. Hawley‟s allegations stated a viable claim

for declaratory relief on at least on a portion of its first cause of action for declaratory

relief, the trial court properly overruled the demurrer. (See Pointe San Diego Residential

Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th

265, 274 [a “demurrer challenges a cause of action and cannot be used to attack a portion

of a cause of action”]; Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 542

[demurrer “may be sustained only if the complaint lacks any sufficient allegations to

entitle the plaintiff to relief”].)

Finally, Lopez argues for the first time in his reply brief that issue preclusion bars

Mt. Hawley‟s declaratory relief cause of action. We decline to address this issue. (See

Habitat & Watershed Caretakers v. City of Santa Cruz (2013) 213 Cal.App.4th 1277,

1292, fn. 6 [“[a]rguments presented for the first time in an appellant‟s reply brief are

considered waived”]; Holmes v. Petrovich Development Co. (2011) 191 Cal.App.4th

1047, 1064, fn. 2 [“argument is forfeited” where “it is raised for the first time in

[appellant‟s] reply brief without a showing of good cause”].)

46

DISPOSITION

The June 21, 2011 order granting Mt. Hawley‟s motion for summary judgment is

reversed. The October 18, 2010 order overruling Lopez‟s demurrer to Mt. Hawley‟s first

amended complaint is affirmed. The judgment is reversed. Lopez‟s request for judicial

notice of the Judgment of Discharge in his federal criminal case is granted. Lopez is to

recover his costs on appeal.

SEGAL, J.

We concur:

WOODS, Acting P. J.

ZELON, J.

Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to

article VI, section 6 of the California Constitution.

47