Plaintiff insured appealed a summary judgment of the Superior Court of the City and County of San Francisco, California, rejecting his breach of contract claim against defendant insurer for its refusal to reimburse him for attorney fees he was ordered to pay the prevailing party in an earlier action against him for housing discrimination.

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Overview

The insured did not dispute that Ins. Code, § 533, prohibited the insurer from indemnifying him for the compensatory and punitive damages for which he was held liable in the underlying action. However, he argued that § 533 did not preclude reimbursement of the prevailing party’s attorney fees for which he was held liable that were covered by a supplementary payments provision. The court concluded that supplementary coverage for the costs incurred by the prevailing party in the underlying action was not a necessary component of providing the insured with a defense, which was discharged when the action was concluded. Like the duty to indemnify, the obligation to pay costs taxed to the insured could arise only after liability was established. The prevailing party’s attorney fees became payable only when the insured was found liable, in this case as a statutory consequence of his liability. Permitting the insured to insure against this consequence would undercut the public policy behind § 533 and permit him to avoid what may have been a significant consequence of the wrongdoing. Thus, despite the insurer’s contractual agreement to pay these costs, § 533 prohibited it from doing so.

Outcome

The judgment was affirmed.