December 15, 2023

Court of Appeal Confirms Availability of Insurance Coverage for Some Kinds of Intentional Conduct

The California Court of Appeal recently issued a thoroughly reasoned decision in City of Whittier v. Everest National Insurance Company, et al. It addresses coverage for whistleblower retaliation claims and also has significant implications for any liability insurance claim arising out of conduct that may be regarded as intentional or willful and, thus, in the eyes of an aggressive insurer, uninsured. The Dec. 6, 2023 decision adds clarity to what has long been a grey area in insurance coverage law.  


On March 3, 2015, six police officers sued the City of Whittier under Labor Code section 1102.5 alleging they were retaliated against for refusing to participate in an unlawful arrest and citation quota. The city notified its liability insurers, Everest National Insurance Company and Starr Indemnity & Liability Company, about the possibility of a multimillion-dollar judgment implicating their policies. The city then settled with the officers for $3 million and sought reimbursement from Everest and Starr.

The insurers denied coverage and the city sued. The insurers moved for summary judgment, arguing that because the officers had alleged that the city engaged in intentional conduct, indemnification was barred by Insurance Code section 533 which disallows coverage for “willful act[s].”

The trial court ruled in favor of the insurers and the city appealed.

The Court of Appeal Clarifies: Intentional Conduct That is Not Inherently Harmful or Intended to Cause Harm Is Insurable.  

The Court of Appeal overturned the trial court’s ruling, finding that Insurance Code section 533, under which “[a]n insurer is not liable for a loss caused by the willful act of the insured,” does not always bar indemnification for whistleblower claims made under Labor Code section 1102.5 because “not all Labor Code section 1102.5 claims involve necessarily willful conduct.” Instead, the court explained, “some [1102.5 claims] involve conduct more akin to negligence.” The Court of Appeal’s decision rested on two primary justifications.

Insurance Code Section 533

First, the court explained that Insurance Code section 533 bars indemnification in two contexts. The most common is where the insured engages in a “willful act,” meaning, “an act deliberately done for the express purpose of causing damage or intentionally performed with knowledge that damage is highly probable or substantially certain to result.” The other, less common, context arises when the insured seeks coverage for “an intentional, wrongful act that is inherently and necessarily harmful,” regardless of “whether or not the insured subjectively intended the harm.”

Labor Code Section 1102.5

Second, the court determined that not every violation of Labor Code section 1102.5 necessarily involves a “willful act.” In fact, an employer could be found liable under Labor Code section 1102.5 “despite making concerted and reasonable efforts to avoid violating the law.” For example, an employer could terminate an employee for refusing to participate in a company policy that the employer reasonably believes is legal. If this terminated employee later brought a whistleblower lawsuit and a reviewing court then found the policy illegal, the employer would still be liable under Labor Code section 1102.5, regardless of its subjective good intent.


Applying these principles, the Court of Appeal found that the city’s conduct was “closer to negligence than intentional misconduct” because the city “intend[ed] the act—the adverse employment action—but not the consequence—a violation of the employee’s rights under Labor Code section 1102.5.” This is possible because these “rights do not become clear until a court has decided the legality of the conduct in which the employee refused to participate.” Thus, because the policy complained of by the officers was not so obviously illegal that the city’s belief it was following the law was unreasonable, the city could not be said to have “willfully” acted to violate the law. Insurance Code section 533 would not bar indemnification because the police officers’ complaint alleged a theory of recovery that did not require proof of the city’s “willful conduct.” 

Insurance Law Takeaways

The opinion contains important language about what the court considers intentional conduct under the Insurance Code. This language ought to apply not only to Section 533, but also to policy language intended to limit coverage to fortuitous events by eliminating coverage for intentional or willful conduct. The decision should help policyholders confronting unwarranted coverage denials by insurers who rely on Section 533 or related policy language.   

Employment Law Takeaways

The court’s opinion is narrow, but important. Retaliation claims are the single most common employment law claim brought each year. By providing at least one avenue for insurance coverage of these claims, the court’s decision provides employers a financial backstop when engaging in settlement discussions with plaintiffs alleging certain types of whistleblower retaliation.

If you need any assistance interpreting or complying with any changes in the law brought about by this decision, please contact Payne & Fears LLP.