Insurer Might Be Liable in Talent Agency’s $5 Million Suit
District Court Judge Must Determine Whether Allegations of Raiding Rival Outfit’s Hollywood Agents, Stars Could
Have Occurred in the Absence of a ‘Wilful Act of the Insured’ for Which, Under California Law, There Is No Coverage
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals held yesterday that an insurer might be liable in a $5 million action against it for a bad-faith refusal to defend brought by a global talent agency based in Beverly Hills, but that a District Court judge needs to do some further analysis.
Judge Mark C. Scarsi of the Central District of California ruled on Jan. 26, 2022, that California Insurance Code §533, which bar liability of an insurer for “the wilful act of the insured,” does not apply, but that a professional liability exclusion in the $5million policy does apply. In yesterday’s memorandum opinion, Circuit Judge Bridget Shelton Bade and Senior Circuit Judges Andrew D. Hurwitz and A. Wallace Tashima reversed, saying that the exclusion does apply but that whether §533 applies of not requires scrutiny, requiring a remand.
United Talent Agency (“UTA”) is seeking to recover from defendant Markel American Insurance Company under a management liability policy. It claims the insurer was obliged to defend it in a Los Angeles action brought on April 2, 2015 by a competitor, Creative Artists Agency (“CAA”).
‘Lawless Midnight Raid’
CAA contended that UTA had staged a “lawless, midnight raid,” wooing from CAA high-profile Hollywood agents and the stars they represented, such as Will Ferrell, Melissa McCarthy, Chris Pratt, Ed Helms, Zach Galifianakis, Vin Diesel, Olivia Munn, Jason Sudeikis and Jim Parsons. The case was settled and CAA filed a request for dismissal on Jan. 28, 2019.
UTA on Dec. 18, 2020, sued Markel in Los Angeles Superior Court for breach of contract;, tortious breach of the implied covenant of good faith and fair dealing, and declaratory relief. The complaint alleges:
“As a direct and proximate result of Market’s breach of contract, UTA has sustained damages totaling in excess of $5,000,000, plus interest at the legal rate.”
Markel, a Virginia company, removed the case to the U.S. District Court based on diversity of citizenship.
Insurance Code §533
Addressing §533, invoked by Markel, Scarci quoted the policy as saying:
“The Insurer shall not be liable under this Coverage Part to pay any Loss on account of. and shall not be obligated to defend, any Claim made against any Insured...based upon, arising out of or in any way involving any deliberately fraudulent act or omission or any willful violation of any statute or regulation committed by such Insured, if a final and non-appealable adjudication adverse to such Insured in any proceeding not brought by the Insurer establishes such a deliberately fraudulent act or omission or willful violation.”
The judge reasoned:
“This contract language requires a specific type of proof for Defendant to invoke Section 533. Defendant only references the underlying Complaint to invoke this exclusion and does not provide any final and non-appealable judgment demonstrating a willful act….Thus, Defendant cannot use Section 533 as a ground to exclude coverage.”
Ninth Circuit Opinion
Disagreeing, the Ninth Circuit panel said yesterday:
“California courts have found that §533 precludes coverage of litigation when the allegations of the underlying complaint can be established only by showing wilful misconduct….
“Thus the court’s task is to examine the allegations in the underlying complaint to determine whether those allegations necessarily involve a wilful act within the meaning of §533. The district court did not do so here. We therefore remand for the district court to make this determination in the first instance.”
The policy excluded liability “based upon, arising out of, or in any way involving any actual or alleged error, misstatement, misleading statement, act, omission, neglect, or breach of duty in connection with the rendering or failure to render any professional services to others for a fee, commission or other compensation.”
Scarsi said the exclusion applies, explaining:
“First, the fact that an act harms a competitor instead of a customer does not take the act out of the realm of professional services….Second, Plaintiff has no serious argument that the allegations of hiring agents from a competitive entertainment company have no connection with the rendering of professional services to others for compensation. The Court cannot imagine, and Plaintiff did not provide, any other motive for the alleged acts than for Plaintiff to increase its profits.”
Again disagreeing, the Ninth Circuit judges set forth:
“The conduct in connection with the rendering of professional services to others for a fee. Rather, UTA represents clients in the negotiation of contracts for fees. Even if UTA’s only possible motive could have been to increase profits, as the district court found, this does not bring the conduct within the meaning of rendering professional services. Everything that UTA does can be described as motivated by increasing profits.”
The case is United Talent Agency, LCC v. Markel American Insurance Company, 22-55205.
The same panel yesterday handed down another memorandum opinion dealing with §533. There, the panel reversed an order by District Court Judge Andre Birotte Jr. dismissing an action by an insurer, Aspen Specialty Insurance Company, against the law firm of Miller Barondess, LLP (“MB”) and four of its partners, Louis R. “Skip” Miller, James Goldman, Alexander Frid, and Jason Tokoro.
Aspen had defended those policyholders in a malicious prosecution action and funded a pre-trial settlement under a reservation of rights. Following that settlement, it sought reimbursement.
In its opening brief on appeal, Aspen contended that Birotte’s order “is not only contrary to controlling California law, but also undermines California’s public policy and threatens to upend long-held practices regarding the handling of liability insurance claims in the state.”
The insurer placed reliance on the 1998 opinion of this district’s Court of Appeal in Downey Venture v. LMI Insurance Co. Agreeing that it controls, the Ninth Circuit panel said in yesterday’s decision:
“The underlying complaint against MB alleged malicious prosecution, which Downey categorically finds to be a willful act within the meaning of §533.”
The case is Aspen Specialty Insurance Company v. Miller Barondess, LLP, 22-55032.
Miller’s clients include numerous Hollywood stars and the County of Los Angeles.
Copyright 2023, Metropolitan News Company