Hunton Insurance Recovery Blog

In an article appearing in Law360, Hunton & Williams insurance partner, Michael Levine, weighs in on Office Depot’s pending Ninth Circuit appeal of a district court ruling that Office Depot is not entitled to coverage for a California False Claims Act case alleging that the office supply chain overbilled public agency customers.  The decision is premised on a finding that California Insurance Code Section 533 — which precludes coverage for a policyholder's willful acts — applies to the entire underlying CFCA action, including allegations of reckless and negligent conduct.  But as Levine points out, the district court made the "fundamental error" of presuming that Office Depot had actually been found liable for a violation of the CFCA, when it had not.  Section 533 requires "more than the mere allegation" of a willful act by a policyholder, he said.  Levine goes on to explain the danger in affirming such an erroneous ruling is that “it creates a dilemma for policyholders, because even the mere allegation of a CFCA violation would be barred from coverage [even though n]othing in Section 533 suggests it was intended to have such a broad preclusive effect."