Insurer Cannot Avoid Its Contractual Duty.

The United States Attorney for the Central District of California filed a grand jury indictment against a medical doctor alleging the doctor conspired with another doctor and employees to transplant a liver into the wrong patient. The doctor tendered the defense to the charges to his insurance company, which insurer declined to defend pursuant to Insurance Code section 533.5. That 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.” The trial court held that section 533.5 unambiguously bars coverage for criminal actions and proceedings. The appellate court reversed, stating:  “. . . 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).” Mt. Hawley Insurance Company v. Lopez  (Cal. App. Second Dist., Div. 7; May 1, 2013) (As Mod. May 29, 2013) 215 Cal.App.4th 1385.