Adir International, LLC v. Starr Indemnity & Liability Co
994 F.3d 1032
| 9th Cir. | 2021Background
- California Attorney General sued Adir (Curacao) under the UCL and FAL seeking restitution, civil penalties, and injunctive relief to stop alleged misleading practices.
- Adir tendered the suit to its D&O insurer, Starr, which initially agreed to defend under a reservation of rights and participated in the defense.
- The California Attorney General’s office warned Starr that Cal. Ins. Code § 533.5 bars coverage and a duty to defend for AG actions seeking fines, penalties, or restitution under the UCL/FAL.
- Starr stopped paying defense costs and later sought reimbursement for amounts already advanced.
- Adir sued Starr; the district court granted summary judgment to Starr, concluding § 533.5 precluded a duty to defend and that the policy reserved Starr’s reimbursement right. Adir appealed.
Issues
| Issue | Plaintiff's Argument (Adir) | Defendant's Argument (Starr/State) | Held |
|---|---|---|---|
| Whether Cal. Ins. Code § 533.5(b) facially violates due process by denying insureds the ability to fund/retain counsel via insurance. | §533.5(b) infringes a civil litigant’s due process right to retain and fund counsel of choice by depriving insureds of contracted defense coverage before allegations are proven. | The civil due-process right to retain counsel is narrow and applies only where government actively prevents hiring or communicating with counsel; §533.5(b) does not do that. | Affirmed: No facial due-process violation; statute doesn’t bar Adir from obtaining or communicating with counsel. |
| Whether §533.5(b) bars insurers’ duty to defend claims that seek injunctive relief when the Attorney General also seeks monetary remedies (fines/penalties/restitution). | §533.5(b) applies only to claims seeking monetary relief and should not bar defense of claims seeking injunctive relief. | The statute bars a duty to defend "any claim" in an action in which the AG seeks fines/penalties/restitution, so coverage is precluded for UCL/FAL claims when monetary recovery is sought—even if injunctive relief is also sought. | Affirmed: §533.5(b) precludes the duty to defend any UCL/FAL claim in actions where the AG seeks monetary relief, including when injunctive relief is also sought. |
| Whether construing §533.5(b) to bar defense of claims seeking monetary relief while §533.5(a) addresses indemnity creates an impermissible inversion of duty to defend vs. duty to indemnify. | If §533.5(a) does not bar indemnity for injunctions, §533.5(b) should not bar defense for injunctions—duty to defend cannot be narrower than duty to indemnify. | The policy and statutory context show little or no indemnity exposure for injunctive relief here; duty-to-defend remains broader, and §533.5(b) properly removes the duty to defend where monetary recovery is sought by the AG. | Held: No problematic inversion here; policy language and relief sought mean no duty to indemnify for injunctive relief in this case, and §533.5(b) validly forecloses duty to defend. |
| Whether Starr is entitled to reimbursement of defense costs it advanced. | Adir argued Starr should be estopped or otherwise prevented from reclaiming advanced defense costs despite a reservation of rights. | Insurance policy contains an express in-policy right to reimbursement for amounts paid when coverage does not apply; Starr advanced the defense under reservation of rights. | Affirmed: Starr entitled to reimbursement under the policy’s explicit reimbursement clause; estoppel and Buss-based arguments fail. |
Key Cases Cited
- Powell v. Alabama, 287 U.S. 45 (1932) (due process includes opportunity to be heard and historically includes the aid of counsel when desired).
- Luis v. United States, 136 S. Ct. 1083 (2016) (pretrial restraint of legitimate assets needed to retain counsel of choice violates the Sixth Amendment).
- United States v. Stein, 541 F.3d 130 (2d Cir. 2008) (prosecutorial pressure on counsel’s payment of fees implicated Sixth Amendment right to counsel).
- Potashnick v. Port City Const. Co., 609 F.2d 1101 (5th Cir. 1980) (recognizing a civil litigant’s due-process right to retain counsel).
- CFTC v. Noble Metals Int’l, Inc., 67 F.3d 766 (9th Cir. 1995) (no constitutional right to release frozen assets to pay counsel in civil context).
- Certain Underwriters at Lloyd's of London v. Superior Court, 16 P.3d 94 (Cal. 2001) (duty to defend is broader than duty to indemnify).
- Broughton v. Cigna Healthplans of California, 988 P.2d 67 (Cal. 1999) (distinguishing arbitrable remedies from non-arbitrable injunctive relief).
- Bank of the W. v. Superior Ct., 833 P.2d 545 (Cal. 1992) (insurer should not indemnify disgorgement that would eliminate deterrent for illegal acts).