Appeals
Ninth Circuit Victory in California: No Duty to Indemnify for Insured’s Fraud
Christian Nagy, Al Alikin, Will Hadikusumo, and Nick Directo secured a victory in the matter of Primary Color Systems, Inc. v. Hiscox Insurance Company, 2024 WL 489171 (9th Cir. Cal. 2024) aff’d 654 F. Supp.…
Christian Nagy, Al Alikin, Will Hadikusumo, and Nick Directo secured a victory in the matter of Primary Color Systems, Inc. v. Hiscox Insurance Company, 2024 WL 489171 (9th Cir. Cal. 2024) aff’d 654 F. Supp. 3d 982 (C.D. Cal. 2023), before the Ninth Circuit Court of Appeals. In its opinion, the Ninth Circuit affirmed the decision of the U.S. Central District Court to dismiss the Complaint against Hiscox with prejudice. Al Alikin, Will Hadikusumo, and Nick Directo drafted the winning briefs in the trial court in which Hiscox’s Motion to Dismiss was granted and Plaintiff’s Motion for Summary Judgment was denied.
The case involved a claimant who was a former employee of the insured, Primary Color. The claimant alleged that Primary Color fraudulently promised him an equity stake in the company to induce him to stay at the company. Nearly six years later, upon separating from Primary Color, the employee demanded his equity stake, and the company denied ever making such a promise. The matter proceeded to arbitration, where the employee was awarded a $850,000 judgment plus costs and fees against Primary Color based on a finding of fraud.
Primary Color sought indemnity from Hiscox for the award arguing that its promise to grant equity were covered “employment-related misrepresentations” that was not excluded under the exclusion for deliberate fraudulent acts because there was no finding of “deliberate” fraud as opposed to regular, plain-vanilla fraud. Hiscox defended Primary Color in the arbitration but denied indemnity because the company’s actions and conduct triggered the deliberate fraudulent act exclusion. Primary Color sued Hiscox for breach of contract and bad faith in the present coverage action.
In our Motion to Dismiss and Opposition to Plaintiff’s Motion for Summary Judgment, we argued that all fraud is “deliberate” by virtue of the very nature of a fraud claim and a finding of fraud by the arbitrator. Further, we argued that Insurance Code section 533, which prohibits indemnification for willful acts, also applies to completely bar coverage. The trial court agreed and dismissed the action with prejudice.
On appeal, the Ninth Circuit affirmed, holding that the district court correctly determined that Hiscox had no contractual obligation to indemnify Primary Color for the fraud claim. Furthermore, regarding Primary Color’s new argument that reliance on the underlying arbitration findings violates the California Supreme Court’s decision in Vandenberg, the Ninth Circuit correctly noted that Primary Color waived this argument by failing to raise it at the trial court level.
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