California Statute Prohibits Insurer from Defending a Unfair Competition and False Advertising Law

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Starr Indemnity, refused to continue to pay for Adir’s defense pursuant to California Insurance Code § 533.5(b), which forbids insurer coverage in certain consumer protection cases brought by the state. In ADIR v. Starr I, No. 19-56320, United States Court Of Appeals For The Ninth Circuit (April 15, 2021) the Ninth Circuit resolved the dispute after the District Court agreed with Starr.

ZALMA OPINION

Insurance is a contract of indemnity that provides defense or indemnity for contingent or unknown events. It is also subject to state statutes that control the use of insurance to the public. In this case § 533.5 prohibited Starr from providing a defense or indemnity to Curacao and was entitled to a return of the money it spent under a reservation of rights to defend Curacao. In essence, the state effectively rewrote the terms, conditions and provisions of the policy and added an exclusion to defense and indemnity that was not in the contract of insurance.