Carrier Held to Have No Duty to Defend Lawsuit Involving a Negligence Claim Because That Count Was “Inseparably Intertwined” With a Claim for Non-Covered, Intentional Conduct
Rizzo v. Ins. Co. of the State of Penn., 2013 U.S. Dist. LEXIS 126255 (C.D. Cal. Aug. 30, 2013)
Rizzo v. Insurance Co. of the State of Pennsylvania involved several underlying lawsuits against Richard Rizzo based on his allegedly fraudulent and self-interested acts while serving as an administrator for the City of Bell, California. During his time in office, Rizzo was alleged to have, among other things, siphoned off millions of taxpayer dollars to personal accounts and to have drafted intentionally self-serving contracts for city officials. As a result of these alleged actions, Rizzo was named as a defendant in an action filed by the California Attorney General and was also named in a cross-complaint filed by the City of Bell. In addition, Rizzo was named in multiple criminal actions which sought, among other things, fines and penalties.
Bell’s cross-complaint contained causes of action for: (1) intentional misrepresentation; (2) breach of the covenant of good faith and fair dealing; (3) violation of California Government Code section 1090; (4) rescission and restitution; and (5) declaratory relief. Rizzo tendered the cross-complaint to his carrier, which denied coverage. The carrier argued that the policy’s exclusions for claims “[a]rising out of an alleged willful commission of a crime . . . or other dishonest, fraudulent or malicious act” and for claims “[a]rising out of [the insured’s] wrongful act for gain, profit, or advantage to which [the insured] is not legally entitled” eliminated any potential coverage for Rizzo. Rizzo sued and the parties filed cross-motions for summary judgment. The court ruled in favor of the carrier and against Rizzo.
In reaching its ruling, the court conceded that several of the counts against Rizzo “theoretically need not arise out of dishonesty, fraud, malice or [a] wrongful act for gain, profit or advantage” but held that those claims were “inseparably intertwined” with the non-covered intentional and fraudulent conduct. The court went on to hold that the “gravamen of [Bell’s cross-complaint] is that Rizzo and his cohorts knowingly and deceptively received and authorized excessive and wasteful salaries and benefits.” The Rizzo court also noted that each of the counts in Bell’s cross-complaint incorporated these allegations. Accordingly, the court held that none of the claims in Bell’s cross-complaint were independent from the claims falling within the ambit of the policy’s exclusions, and that the carrier had no duty to defend or indemnify Rizzo against Bell’s cross-complaint.
Rizzo also involved the carrier’s duty to defend Rizzo in the criminal actions pending against him. Citing Aerojet-General Corp. v. Transportation Indemnity Co., 17 Cal. 4th 38, 61 (1997), Rizzo argued that the carrier should defend him in the criminal actions “to avoid or at least minimize liability” in the civil matters pending against him. The Rizzo court rejected that position for two reasons. First, because the carrier had no duty to defend the civil actions, it also had no ancillary duty to defend the criminal actions. Second, the court held that even if the carrier had a duty to defend Rizzo in the civil actions, California Insurance Code section 533.5 specifically prohibits a carrier from defending an insured against a criminal action “by the Attorney General, any district attorney, city prosecutor or any county counsel. . . .” Accordingly, the court held that Aerojet does not apply to criminal actions brought by state, county or city officials.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result. Follow Troutman Sanders on Twitter.