Rizzo v. Insurance Co. of Pennsylvania
969 F. Supp. 2d 1180
C.D. Cal.2013Background
- Robert Rizzo, former Chief Administrative Officer of the City of Bell, was sued in multiple actions (civil by the California Attorney General, a City cross-complaint, and several criminal prosecutions) arising from alleged excessive salaries, benefits, concealment, and related misconduct while he was employed by the City.
- The City of Bell maintained an ICSOP professional liability/municipal liability policy (July 1, 2010–July 1, 2011) that afforded a duty to defend claims seeking "damages," defined insureds to include appointed officials and employees acting within scope of duties, and contained exclusions for claims arising out of willful criminal/dishonest acts (Exclusion O) and wrongful acts for gain/profit (Exclusion P), both permitting discretionary defense with reimbursement if judgment adverse.
- Rizzo tendered the civil and criminal matters and his own cross-complaint to ICSOP; ICSOP initially agreed to defend the civil actions under a full reservation of rights, declined the criminal defense, and later withdrew its civil defense (April 28, 2011), then later agreed to defend the appeal under reservation.
- Rizzo sued ICSOP for breach of the duty to defend and indemnify, breach of the covenant of good faith and fair dealing, and declaratory relief to force coverage for defense costs (including criminal defense and prosecuting his cross-complaint).
- The parties stipulated there were no disputed material facts; cross-motions for summary judgment followed. The central legal questions: whether Rizzo is an "Insured," whether the civil complaints sought "damages" under the policy, and whether Exclusions O and P preclude coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rizzo is an "Insured" under the Policy | Rizzo is an appointed official/employee and acted within scope of duties, so the policy covers him | ICSOP contested that his alleged misconduct was outside scope of employment or otherwise excluded | Held: Rizzo qualifies as an insured; his acts arose out of his employment and were not so unusual as to be outside the scope of employment |
| Whether the civil actions seek "damages" covered by the Policy | The AG and City seek monetary relief (including restitution/damages under Cal. Civ. P. Code § 526a and general damages), so claims fall within the Policy's coverage for suits seeking damages | ICSOP argued plaintiffs disclaimed damages and some remedies may be equitable restitution not "damages" | Held: AG FAC and City cross-complaint potentially seek "damages" as California law defines that term, so the Policy's damages requirement is satisfied |
| Whether Exclusions O (dishonest/criminal acts) and P (wrongful acts for gain) bar coverage | Rizzo argued exclusions require final adjudication or apply only to proven wrongdoing | ICSOP argued the complaints, on their face and via allegations of deliberate concealment/self-enrichment, fall squarely within exclusions and therefore there is no potential for coverage | Held: Exclusions O and P apply because the civil complaints are inseparably intertwined with alleged dishonest, intentional self-enrichment and concealment, eliminating any potential for coverage and duty to defend |
| Whether ICSOP must cover criminal defense or prosecution of Rizzo’s cross-complaint as "reasonable and necessary" defense costs | Rizzo relied on Aerojet and related authority to claim insurer must pay reasonable costs incurred to minimize civil liability, including parallel criminal defense or prosecuting cross-claims | ICSOP argued the policy limits suits to civil proceedings and Cal. Ins. Code § 533.5 forbids imposing a duty to defend state criminal actions | Held: No duty to defend criminal prosecutions (policy limits and § 533.5); insurer also has no duty to prosecute Rizzo’s cross-complaint absent express policy language |
Key Cases Cited
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (insurer must show no potential for coverage to avoid duty to defend)
- Gray v. Zurich Ins. Co., 65 Cal.2d 263 (Cal. 1966) (extrinsic facts may create duty to defend; coverage interpreted in insured's favor)
- Buss v. Superior Court, 16 Cal.4th 35 (Cal. 1997) (duty to defend extends to entire action if any claim is potentially covered)
- AIU Insurance Co. v. Superior Court, 51 Cal.3d 807 (Cal. 1990) (defining "damages" broadly for insurance coverage purposes)
- Bank of the West v. Superior Court, 2 Cal.4th 1254 (Cal. 1992) (orders requiring return of wrongfully acquired money may be restitution, not insurable damages)
- Farmers Insurance Group v. County of Santa Clara, 11 Cal.4th 992 (Cal. 1995) (scope of employment analysis and limits on vicarious liability for certain intentional misconduct)
- Certain Underwriters at Lloyd’s of London v. Superior Court, 24 Cal.4th 945 (Cal. 2001) (no duty to indemnify follows where duty to defend is absent)
- Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal.4th 38 (Cal. 1997) (insurer may cover reasonable, necessary costs undertaken to minimize liability in related proceedings)
- Uhrich v. State Farm Fire & Casualty Co., 109 Cal.App.4th 598 (Cal. Ct. App. 2003) (claims inseparably intertwined with excluded intentional misconduct are not covered)