The Ninth Circuit found that a California statute excluding coverage for alleged violation of consumer protection laws did not violate due process. Adir Int'l, LLC v. Starr Indem. & Liability Co., 2021 U.S. App,. LEXIS 10756 (9th Cir. April 15, 2021).
Adir operated a retail chain called Curacao. In 2017, the California Attorney General sued Adir for unfair and misleading business tactics that allegedly exploited low income, Spanish-speaking customers. The complaint alleged violation of California's Unfair Competition Law (UCL) and False Advertising Law (FAL), and sought restitution, civil penalties, costs of suit and other equitable relief.
Adir tendered the defense to Starr Indemnity. A defense was initially granted under a reservation of rights. The defense was revoked, however, when Starr received a letter from the Attorney General explaining that Starr violated the California statute which stated no insurer would provide any coverage for payment of any fine penalty, or restitution in any proceeding brought pursuant to the UCL or FAL by the Attorney General.
Adir sued Starr. Starr moved for summary judgment. The district court granted the motion, noting that the California statute unambiguously precluded an insurer's duty to defend any claim brought pursuant to the UCL or FAL in which the Attorney General sought a fine, penalty, or restitution. The court also found that Starr was entitled to reimbursement of defense costs because the policy provided for a right to reimbursement.
Adir appealed, arguing the California statute violated an insured's due process right to retain and find counsel of its choice. The Ninth Circuit noted there was no allegation that Adir could not afford competent counsel absent coverage under the policy. The law made it harder, but not impossible, for a civil litigant to retain the counsel of its choice. Therefore, the constitutional challenge was rejected.
Starr was also entitled to reimbursement of defense costs based upon the policy language. Because there was no duty to defend or indemnify, Starr was entitled to reimbursement of any defense funds expended on behalf of Adir.
Thanks to my blogging colleague, Mark Murakami, for the heads up on this case.
