In a recent short opinion, the Ninth Circuit held that the California statute precluding insurance coverage for loss caused by a willful act bars coverage for the underlying malicious prosecution claim even though the claim settled and there was no adjudication that the alleged willful act took place. For reasons set out below, I believe the court’s interpretation of the statute –-even though apparently well-grounded in established authority — goes beyond the statute’s purpose and plain language and produces a result that undermines the very purposes of the insurance policy. The Ninth Circuit’s March 15, 2023, opinion can be found here. A March 22, 2023 post on the Wiley Law Firm’s Executive Summary Blog about the decision can be found here.


The law firm Miller Barondess LLP and several of its partners were sued for malicious prosecution. The law firm submitted the claim to its insurer, which denied coverage in reliance on California Insurance Code Section 533, which provides that “an insurer is not liable for a loss caused by the willful act of the insured.” The underlying matter settled. The insurer initiated an action seeking a judicial declaration that it had no coverage for the settlement amount. The district court granted the law firm’s motion to dismiss, on the grounds that Section 533 did not apply because there was no final adjudication that the insureds engaged in malicious prosecution. The insurer appealed.

The Ninth Circuit’s Opinion

On March 15, 2023, in a brief per curiam opinion marked “Not for Publication,” a three-judge panel of the Ninth Circuit, applying California law, reversed the district court’s dismissal and remanded the case back to the district court.

The court’s opinion opens with a review Section 533, which the court said was meant to “prevent the encouragement of willful torts.” The statute represents “an implied exclusionary clause” that “must be read into all insurance policies,” as a result of which “the parties to an insurance policy cannot contract for such coverage.”

In concluding that Section 533 precludes coverage for the malicious prosecution claim against the law firm, the appellate court relied heavily on Downey Venture v. LMI Ins. Co, a 1998 California intermediate appellate court decision, which, according to the Ninth Circuit panel, held that Section 533 applied to preclude coverage for a malicious prosecution claim, even though the underlying claim had settled without a final adjudication.

The Ninth Circuit panel also cited four other California intermediate appellate court decisions which the court said confirm that “courts examine the allegations of the underlying complaint, not whether there has been an adjudication of the allegations, in determining whether Section 533 bars coverage.”

The Ninth Circuit also rejected the law firm’s attempt to argue that Section 533 did not apply because the insured firm was vicariously, rather than personally or directly liable. The appellate court said that underlying claim was no based on an innocent party’s vicarious liability for the wrongdoing of another. The complaint, the court said, alleged that the insureds themselves, not an agent or third party, engaged in the acts of malicious prosecution.


At least from the face of its opinion, it appears that the Ninth Circuit’s ruling is well-grounded in precedent. The appellate court cited a total of five California intermediate appellate decision – including one specifically relating to a settled malicious prosecution action – for the proposition that in determining whether Section 533 applies, California’s courts “examine the allegations of the underlying complaint, not whether there has been an adjudication of the allegations.”

However, and even though the Ninth Circuit’s opinion seems well-grounded on solid authority, the Court’s opinion seems wrong to me, for reasons I set out below. In expressing my disagreement with the Court, I freely concede that I am not admitted to practice in California and acknowledge that I have done no independent research to test the precedential authority on which the appellate court relied.

First, the appellate court’s conclusion seems contrary to the plain language of the statute. The statute provides that “an insurer is not liable for a loss caused by the willful act of the insured.” The statute requires a causal connection between the loss and the willful act. If there has been no determination that a willful act took place, how can it be said that the requisite causal connection has been established? If instead all that has happened is a settlement of disputed claims, it cannot be said the willful act caused the loss; rather, the decision to compromise disputed claims caused the loss. More to the point, the statute doesn’t require a causal connection between the loss and an alleged willful act; the connection must be to a willful act. The court’s interpretation of the statute implicitly inserts the word “alleged” into the statutory language, even though the word “alleged” emphatically is not there.

Second, the court’s reading of this statute is problematic when it comes to D&O insurance. To be sure, the insurance involved in this case was not D&O insurance. There is, however, nothing about the court’s decision and its interpretation of the statute that would render the court’s decision inapplicable in the context of a D&O insurance policy. The problem in the D&O insurance context is that just about every D&O claim involves an alleged willful act; certainly, every serious D&O insurance claim involves willful act allegations. If mere allegations of a wrongful act are sufficient to preclude coverage, even in the absence of a determination that the alleged wrongful act actually took place, the statutory exclusion becomes the exception to coverage that swallows up the entire policy, rendering coverage under the policy illusory.

Third, the court’s interpretation of the statute arguably is inconsistent with what the court itself says are the policy reasons behind the statute – or at least there is nothing in the stated policy reasons that requires the result the court has reached. The court said that the public policy is intended to “prevent encouragement of willful torts,” adding that the statute is “a codification of the jurisprudential maxim that no man shall profit from his own wrong.” Well, if a willful tort is merely alleged but not proven, and if there has been no determination that the law firm profited by its own wrong, how does the court’s ruling, allowing mere allegations to trigger the statute’s preclusive effect, serve the statutory purpose?

Finally, litigants allege all kinds of crazy stuff. Most complaints are festooned with ominous-sounding adjectives and adverbs. Claimants’ attorneys load up their complaints to try to make them seem more dangerous for the defendant, knowing full well that it is extremely unlikely that they will ever have to substantiate the allegations, because almost all cases settle. Given this reality, it seems truly bizarre to me that a plaintiff’s lawyers mere unsubstantiated allegations could possibly be seen as sufficient to completely undermine the insurance contract’s essential purpose.

I am sure I am going to get a boatload of hate mail from insurer-side coverage attorneys telling me that I am completely wrong and don’t know what I am talking about. That is fine, I still think the interpretation of the statute the court applied here goes way beyond both the purpose and the plain language of the statute.

In short, I respectfully dissent.