[00:00:00] Speaker 00:
Good afternoon.

[00:00:01] Speaker 00:
The United States Court of Appeals for the Ninth Circuit is now in session.

[00:00:07] Speaker 05:
Good afternoon.

[00:00:08] Speaker 05:
As you can now see, I'm here with Judge Desai and Trotter and Phoenix.

[00:00:18] Speaker 05:
And this is the time set for argument in United Talent Agency, LLC against Merkle American Insurance Company.

[00:00:28] Speaker 05:
So we have both counsel.

[00:00:30] Speaker 05:
Councilor Appel, you may proceed.

[00:00:33] Speaker 04:
Thank you, Your Honors, and good afternoon.

[00:00:36] Speaker 04:
May it please the court, Michael Garrett, on behalf of United Talent Agency, LLC, at this time, and with the court's permission, I would like to reserve three minutes for rebuttal.

[00:00:48] Speaker 04:
You may just keep an eye on your clock.

[00:00:50] Speaker 04:
Will do, thank you.

[00:00:53] Speaker 04:
Your Honors, the issues on appeal have been briefed several times now.

[00:00:56] Speaker 04:
And while there are several areas of dispute, I would like to start with what I think is the heart of the dispute, at least with respect to Section 533.

[00:01:08] Speaker 04:
California law is clear that Section 533 precludes indemnification for a loss caused by the willful act of the insured.

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But the California Supreme Court has also made it clear, and I'm quoting from Gray versus Zurich Insurance Company,

[00:01:25] Speaker 04:
that, quote, Section 533 precludes only indemnification of willful conduct and not the defense of an action in which such conduct is alleged.

[00:01:34] Speaker 04:
And here, the error that the district court and Markel make is to suggest that the distinction between the duty to advance defense costs and the duty to defend somehow changes this analysis, such that there is really, in their view, no distinction between indemnity and the payment of defense costs.

[00:01:55] Speaker 04:
And under that argument, Section 533 precludes coverage for everything, defense costs and indemnity.

[00:02:02] Speaker 04:
And the problem with that view is that the duty to advance defense costs is a distinct promise.

[00:02:08] Speaker 04:
It's a promise that is separate and apart from the promise to ultimately indemnify for a settlement or a judgment.

[00:02:16] Speaker 04:
And the policy is clear on this.

[00:02:18] Speaker 04:
It contains a separate provision.

[00:02:20] Speaker 04:
not just the loss definition that requires payment of claim expenses, a separate provision that requires Markel to quote, advance covered claim expenses on a current basis.

[00:02:30] Speaker 04:
And that advancement occurs while the actions are pending prior to any payment of a judgment or a settlement.

[00:02:37] Speaker 05:
For that to apply, don't the expenses have to be claim expenses?

[00:02:42] Speaker 05:
Correct.

[00:02:43] Speaker 05:
Okay, but so then, but doesn't that sort of get you back to the question of what is the scope of the duty to indemnify?

[00:02:52] Speaker 05:
I guess another way of asking the question is, how does that provide a basis for coverage that extends beyond the scope of the duty to indemnify?

[00:03:02] Speaker 04:
Yeah, that's an issue that has been addressed in two ways, Your Honor.

[00:03:10] Speaker 04:
That's an issue that's been addressed by Downey Ventures.

[00:03:12] Speaker 04:
A similar argument was made there, which is that, well, if Section 533 precludes indemnification for the alleged conduct, in that case, malicious prosecution, then how can there be any duty to pay defense costs, or in that case, duty to defend?

[00:03:28] Speaker 04:
And the court said, no, that's a separate, distinct promise.

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If you have a reasonable expectation that you'll be provided a defense obligation with respect to, in that case, malicious prosecution, then

[00:03:40] Speaker 04:
enforcing that defense funding commitment does no malice to Section 533.

[00:03:44] Speaker 04:
It doesn't violate the public policy behind Section 533.

[00:03:49] Speaker 04:
So not only is there the public policy rationale, but the policy itself explicitly promises to pay defense costs for uninsurable matters.

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And it does this in the definition of loss.

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It excludes from the definition of loss, quote, matters uninsurable under the law,

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but then states this does not apply to, this does not exclude claim expenses with respect to such matters.

[00:04:15] Speaker 04:
So in other words, the policy expressly does or promises to pay claim expenses for matters that are unassurable, like those excluded by section 533, but not any other form of loss.

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And this is important because that policy structure providing

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The payment of defense expenses for matters that are otherwise uninsurable is consistent with decades of California jurisprudence.

[00:04:41] Speaker 04:
That's Downey, B&E, and Bray.

[00:04:44] Speaker 04:
And the only distinction between the rationales that have been implied in all of those cases and this case is the distinction between the duty to defend and the duty to advance defense costs.

[00:04:55] Speaker 04:
And we cited the decision in Braden Partners versus Twin City Fire Insurance Company in our brief, and that's admittedly a Northern District case.

[00:05:02] Speaker 04:
But in that case, the court correctly found that the duty to advance creates, quote, a reasonable expectation on the part of the insured.

[00:05:10] Speaker 04:
And as a result, an insurer is still required to fulfill its defense funding commitment, regardless of whether Section 533 prohibits indemnification.

[00:05:21] Speaker 04:
That conclusion, again, is supported by the public policy, and it's also supported by the explicit terms of the policy here, which says we will pay claim expenses for matters that are otherwise uninsurable.

[00:05:37] Speaker 04:
Markel's only real response to this structure is to say that it only has a duty to advance, quote unquote, covered claim expenses, and that UTA has not proven that coverage exists.

[00:05:51] Speaker 04:
And there are two problems with that argument.

[00:05:53] Speaker 04:
One is dispensed with quickly, which is that Markel does not dispute the applicability of the policies and insurance agreement.

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That is the extent of UTA's burden.

[00:06:02] Speaker 04:
Markel must establish that an exception or exclusion applies.

[00:06:05] Speaker 04:
The district court correctly found that that was the case.

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And we would submit that Markel has not done so.

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But the second fundamental problem with the reliance on the word, quote, covered claim expenses,

[00:06:16] Speaker 04:
is again that the policy tells us that claim expenses incurred for uninsurable insurable matters are covered defense costs.

[00:06:29] Speaker 04:
I go back to.

[00:06:30] Speaker 04:
On that point, the foundational cases, Gray, B&E, Downey, all of which have been cited by the parties, which stand for the basic proposition that the terms of the policy would lead an insurer to reasonably expect a defense of the type of claim asserted, that a defense may be required even though there can legally be no duty to identify.

[00:06:51] Speaker 04:
In that case, there is coverage for defense expenses here for uninsurable matters.

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And frankly, that's,

[00:06:57] Speaker 04:
If section 533 does not apply to the duty to advance defense costs, that's dispositive on Markel's motion, because they would not be entitled to summary judgment if the duty to advance defense costs is not precluded by section 533, which we submit is the case.

[00:07:17] Speaker 04:
In addition to the duty to advance defense costs, there's additional reasons why section 533 does not

[00:07:28] Speaker 04:
Does not preclude coverage here.

[00:07:33] Speaker 04:
Section 533 only does not apply unless the plaintiff in order to prevail in their cause of action can show the specific intent to injure

[00:07:43] Speaker 04:
or that the conduct is inherently harmful.

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And we've detailed why the causes of action in the underlying lawsuits do not require proof of subjective intent.

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And so we would submit that it's possible that a jury could have awarded damages without such a finding.

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There was no determination here by a jury.

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It's an unproven claim.

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And in response to that, Markel primarily points to rhetoric in the complaints about, and they frequently quote, a lawless midnight raid, et cetera.

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But I think,

[00:08:13] Speaker 04:
The factual allegations are not the barometer for whether claims are precluded by Section 533.

[00:08:18] Speaker 04:
And that's this court's holding Unified Western Grocers versus Twin City Fire Insurance Company, which I think is instructive on this point.

[00:08:28] Speaker 04:
There, as was the case here, the court needed to determine whether an unproven claim without any development of evidence is covered by an applicable insurance policy in light of Section 533.

[00:08:37] Speaker 04:
And the court said, we are reluctant to frame coverage based on the allegations in the underlying complaint.

[00:08:43] Speaker 04:
And that's reasoning is simple.

[00:08:44] Speaker 04:
The third party complainant, quote, who may overstate the claims against the insured should not be the arbiter of the policy's coverage.

[00:08:52] Speaker 05:
But even if we don't, I mean, assuming you're right about that and that we don't look at the specific factual allegations and we just look sort of in a more categorical way of what the claims are,

[00:09:07] Speaker 05:
Aren't claims for things like intentional interference with perspective economic advantage and a breach of fiduciary duty, those kinds of claims seem like they necessarily involve willful conduct, don't they?

[00:09:22] Speaker 04:
I think they, as we laid out, I think they involve a knowledge of conduct, but not necessarily the specific motivation or specific intent to cause injury that is necessary in order to trigger section 533.

[00:09:36] Speaker 04:
But in addition to that, and I think this again goes back to Unified Western Grocers, even when, and the court said, even when you're faced with allegations of a broad fraudulent scheme and conspiracy,

[00:09:50] Speaker 04:
The application of Section 533 made on summary judgment without evidence of the insurance actual conduct, which is the case here.

[00:09:56] Speaker 04:
There's no evidence of actual conduct, just allegations.

[00:09:59] Speaker 04:
Then the application of Section 533 should only consider whether any asserted claim may allow for liability based on alleged conduct that has a lower degree of culpability.

[00:10:08] Speaker 04:
Again, that's Unified Western Grocers.

[00:10:09] Speaker 04:
And here, there's no evidence of UJ's actual conduct.

[00:10:13] Speaker 04:
And even under the district court's reading, multiple causes of action

[00:10:16] Speaker 04:
the duty of loyalty, fiduciary duty, don't involve willful conduct.

[00:10:23] Speaker 04:
And I wanna take a step back a little bit in terms of how this, in our view, how this should properly be analyzed.

[00:10:29] Speaker 04:
There's the initial question as whether or not the duty to advance defense costs is even implicated by section 533, whether section 533 can even preclude the duty to advance defense costs.

[00:10:40] Speaker 04:
That's separate and apart from an analysis of whether or not the causes of action involve willful conduct.

[00:10:47] Speaker 04:
Another separate argument before you get to analyzing each individual cause of action is the applicability of Section 533 to UTA itself.

[00:10:57] Speaker 04:
And we would submit that Section 533 does not apply to UTA the entity because Markel has not established that UTA's board of directors ratified the alleged conduct.

[00:11:08] Speaker 04:
So only then, only after jumping through those two steps do we actually get to

[00:11:14] Speaker 04:
whether or not each individual cause of action involves willful conduct.

[00:11:18] Speaker 04:
And we would submit that when there is no evidence of actual conduct, then the question is whether or not there is a possibility for a lower degree of culpability to be proved.

[00:11:29] Speaker 04:
And in this case, we would submit that that's the case, which again would defeat Markell's motion for summary judgment.

[00:11:38] Speaker 02:
Excuse me.

[00:11:40] Speaker 02:
This is Judge Schroeder, just quickly.

[00:11:42] Speaker 02:
But do I understand your threshold position to be that even if this is willful conduct excluded from coverage, that you were nevertheless entitled to the advancement of these costs?

[00:11:54] Speaker 04:
Absolutely, Your Honor.

[00:11:57] Speaker 04:
And that's critical.

[00:11:57] Speaker 04:
And I thank you for putting a fine point on that.

[00:12:00] Speaker 02:
And so what you're trying to do now is to claim that the insurer owes you those costs and you get to keep them?

[00:12:13] Speaker 04:
Yes, Your Honor.

[00:12:14] Speaker 04:
Yes, Your Honor, in the first instance.

[00:12:15] Speaker 04:
I mean, arguably, they may raise allocation arguments, but none of that is before the court today or on the record.

[00:12:23] Speaker 02:
And you don't have to pay them back even if we were to say there's no coverage?

[00:12:27] Speaker 04:
Not on the duty to advance defense costs, no.

[00:12:33] Speaker 05:
You're down to three minutes.

[00:12:34] Speaker 05:
Did you want to reserve rest of your time?

[00:12:37] Speaker 05:
I would thank you.

[00:12:38] Speaker 05:
You may.

[00:12:43] Speaker 03:
Is it Mr. Perlis?

[00:12:45] Speaker 03:
Yes, your honor.

[00:12:47] Speaker 03:
I have the privilege of representing Markel American Insurance Company in this matter.

[00:12:53] Speaker 03:
There's an expression in politics that is recently used, which is elections have consequences.

[00:13:00] Speaker 03:
And the election that UTA made in this case has consequences which UTA is seeking to avoid.

[00:13:07] Speaker 03:
When UTA purchased the policy, they had an option to purchase either a duty to defend option or an indemnity option.

[00:13:14] Speaker 03:
What they're now trying to do is transform the indemnity option into a duty to defend option.

[00:13:21] Speaker 03:
And they simply can't do that.

[00:13:24] Speaker 03:
What's happened here, and in some measure, UTA is seeking to

[00:13:28] Speaker 03:
ignore the earlier ruling of this court in this case relative to the broad professional services exclusion and the 533 exclusion.

[00:13:41] Speaker 03:
If this were a duty to defend policy theoretically, if there were allegations that could in any way encompass a claim covered by the policy, we'd have an obligation to defend.

[00:13:52] Speaker 03:
That obligation would permit Markel American to

[00:13:59] Speaker 03:
point defense counsel to control the defense and limit what UTA could do in connection with the retention of its counsel and the manner in which the case was defended.

[00:14:11] Speaker 03:
Now, having selected an indemnity policy, they seek to have all the benefit of a duty to defend policy, and that's simply not appropriate.

[00:14:20] Speaker 03:
There are a few things that deal with the 533 aspect of this case.

[00:14:25] Speaker 03:
Number one, if you look at Downey Venture, Downey Venture isn't as broadly applicable as they contend.

[00:14:32] Speaker 03:
Downey Venture recognized that coverage for defense was only available because the policy explicitly said that it would cover malicious prosecution cases.

[00:14:48] Speaker 03:
And if the policy hadn't said that, there would have been no duty to defend because the only reason they had it with the malicious prosecution specifically identified under coverage was if they didn't have it, the policy would be illusory.

[00:15:05] Speaker 03:
There would be a statement of specific coverage, and yet the insurer would be contending that there wasn't any.

[00:15:12] Speaker 03:
The court went further and said,

[00:15:15] Speaker 03:
One of the parties said, well, what if we said this was a duty to defend aspect of the case where we simply took what we would expect to have been the defense costs and move them into a settlement posture and therefore they would have been covered for everything.

[00:15:34] Speaker 03:
And the Court of Appeals said, no, you can't do that.

[00:15:37] Speaker 03:
You can't make it some illusory payment, calling it a defense cost payment, and then transform it into a legitimate covered settlement.

[00:15:48] Speaker 03:
But there is another case, which is Urick.

[00:15:51] Speaker 03:
And Urick says, unless there is a specific identification of a duty to defend a particular matter, there is no duty to defend under 533.

[00:16:00] Speaker 03:
It simply doesn't exist.

[00:16:03] Speaker 03:
Moving on to another aspect of the case, they try to say, well, there are a number of claims that are not intentional, not inherently harmful, and therefore there would be a duty to advance defense costs, which, by the way, simply says there is an advancement of defense costs solely for covered loss.

[00:16:26] Speaker 03:
not for potentially covered loss, not because particular causes of action may arguably contain covered loss.

[00:16:34] Speaker 03:
And here that isn't even the case because the policy in its first couple of paragraphs reads, not the policy, but the CIA complaint, reads like a criminal indictment, not a civil claim.

[00:16:49] Speaker 03:
Case talks about secret meetings, it talks about unlawful activities, and incorporates those early paragraphs into every single cause of action.

[00:16:59] Speaker 05:
So it's not as if... Can I ask, what is the relevance of those factual allegations?

[00:17:03] Speaker 05:
I mean, do we assess coverage based on what the conduct is, or is it... We see a lot of...

[00:17:16] Speaker 05:
Sometimes in the criminal context, we have to apply the categorical rule.

[00:17:19] Speaker 05:
We just look at what is the minimum that would be required to establish what are the elements of the claim essentially.

[00:17:27] Speaker 05:
So do we do it categorically or do we look at the specific facts?

[00:17:30] Speaker 03:
Well, in the last appeal, the court said basically allegations determined with the application of 533 would exist.

[00:17:40] Speaker 03:
In this, each and every cause of action

[00:17:44] Speaker 03:
contains the allegations that are inherently harmful and intentional, not simply negligent, not simply reckless, but inherently harmful and intentional.

[00:17:54] Speaker 03:
But not only that, there's a California Court of Appeal case, the Montarsi case, which says that if the inherently harmful intentional conduct is inextricably intertwined with potentially negligent or reckless conduct, 533 still applies.

[00:18:11] Speaker 03:
Here, every cause of action is inextricably intertwined with the intentional inherently harmful conduct.

[00:18:18] Speaker 03:
You can't separate them out.

[00:18:20] Speaker 03:
It's all part of the same story, all part of the same causes of action and unlawful conduct.

[00:18:28] Speaker 03:
And therefore, it doesn't matter whether you have a negligence representation or an intentional interference with contractual obligations.

[00:18:36] Speaker 03:
It's all part of the same scheme.

[00:18:38] Speaker 03:
And if you read through the complaint, it's obvious.

[00:18:41] Speaker 03:
that whether you're dealing with intentional interference of contract or whether you're dealing with breach of fiduciary duty, the one depends upon the others, not simply separate contention.

[00:18:53] Speaker 03:
So you can have a complaint, for example, that breaks down conduct into various categories with different elements and hang independently from other causes of action.

[00:19:04] Speaker 03:
That's not the case here.

[00:19:07] Speaker 03:
One of the other things that

[00:19:09] Speaker 03:
UTA argues is, well, there's no evidence that UTA has any liability or responsibility for what happened.

[00:19:18] Speaker 03:
The problem with that is that CAE repeatedly argues that senior management of UTA was inextricably involved with the things that occurred here that were inherently harmful and intentional.

[00:19:32] Speaker 03:
They simply can't separate it out.

[00:19:35] Speaker 03:
For example, to say that particular members of CAA underway to UTA delayed meetings with potential clients at CAA is somehow separate from intentional interference with contract makes no sense.

[00:19:52] Speaker 03:
They're all hung together.

[00:19:54] Speaker 03:
The other thing, of course, is one never understands how CAA can seriously, or UTA, I'm sorry, can seriously contend that

[00:20:05] Speaker 03:
When you bring on a group that large, management didn't have any role in it.

[00:20:09] Speaker 03:
Somehow they appeared the day after signing an agreement without the knowledge of senior management.

[00:20:15] Speaker 03:
That's simply not factually correct or possible.

[00:20:20] Speaker 03:
And so I don't see how they can contend that UTA did not have knowledge and participation.

[00:20:27] Speaker 03:
I don't think if they were asked to sign a declaration to the effect that senior management wasn't aware, they couldn't do it.

[00:20:35] Speaker 03:
I think that putting all that together, the fact that defense costs are only paid for covered claims, the fact that this is indemnity policy, not the duty to defend policy, the fact that there was an inextricable intertie in between the so-called negligent claims and the intentional claims, the fact that the intentional conduct was incorporated or the allegations into each and every cause of action, the fact that the complaint alleged

[00:21:03] Speaker 03:
that senior management, the general counsel's office, CEO was aware.

[00:21:09] Speaker 01:
Let me ask you a hypothetical.

[00:21:11] Speaker 03:
Sure.

[00:21:11] Speaker 01:
So let's assume because as you acknowledge the determination that we're supposed to make and the panel that heard this appeal before us sort of referenced the allegations and the complaints.

[00:21:23] Speaker 01:
And so these determinations are really

[00:21:25] Speaker 01:
supposed to be made according to the rule that's been set forth by the prior panel based on the allegations of the complaint.

[00:21:31] Speaker 01:
So let's assume that you have a case where the allegations are, you know,

[00:21:39] Speaker 01:
alleged this willful conduct and ultimately that is disproven and there's not a settlement in it.

[00:21:49] Speaker 01:
But based on the allegations of the willful conduct that allows an insurer like yourself or your client to disclaim payment of defense costs or to advance defense costs.

[00:22:03] Speaker 01:
Would you later have an obligation to pay those

[00:22:06] Speaker 01:
if it's determined that the allegations were in fact not provable or did not in fact involve willful conduct?

[00:22:15] Speaker 03:
No, because I think, Your Honor, that the policy provides that all we have to do is advance defense costs for covered loss.

[00:22:26] Speaker 03:
And it doesn't say that there has to be an adjudication of covered loss.

[00:22:30] Speaker 03:
And in fact, if we do advance defense costs because we want out of an abundance of caution to provide it, we're entitled to the extent that there's a determination of the application of 533 to get it back.

[00:22:45] Speaker 03:
The policy specifically says we can recover from suit after the event, matters which or money which we paid that turned out to be for non-covered loss.

[00:22:55] Speaker 03:
And that may be something that a court or a jury ultimately determines, but it doesn't have to because our obligation is only to pay for claims where the allegations are covered, not because there is a determination that the allegations were in fact supported.

[00:23:15] Speaker 05:
And what is your answer to the point that your friend made that the definition of loss excludes

[00:23:23] Speaker 05:
You know, matters that are uninsurable under the law, but it says that that does not exclude claim expenses with respect to that category.

[00:23:32] Speaker 05:
So I think he's saying that the willful conduct, although excludable under the law from indemnity, is not excluded from the definition of claim expenses.

[00:23:43] Speaker 03:
Well, it says we should probably cover or advance claims expenses for covered loss only.

[00:23:50] Speaker 03:
and not for things which may be potentially covered, but things which are in fact covered.

[00:23:57] Speaker 03:
And in our view, the allegations of intentional interference of contract together with the other allegations which are inextricably intertwined with the intentional inherently harmful allegations precludes the advancement of... So then what is... Maybe I'm not sure I'm understanding

[00:24:20] Speaker 05:
what that clause in the loss definition is doing.

[00:24:23] Speaker 05:
Why does it say, provided this does not exclude claim expenses with respect to the following?

[00:24:29] Speaker 03:
What does that mean?

[00:24:31] Speaker 03:
I think there may be circumstances.

[00:24:33] Speaker 03:
There's an allocation provision in the policy as well.

[00:24:36] Speaker 03:
And it could well be that there are claims in the policy which are not either intentional, inherently harmful, or not inextricably intertwined with the others.

[00:24:47] Speaker 03:
And we'd have to allocate the situation.

[00:24:49] Speaker 03:
and in those cases there'd be claims expenses which are potentially covered or are covered and claims expenses which are not and we'd allocate what is covered from what is not covered or potentially covered and therefore we would advance the non-intentional inherently harmful claims expenses and if it's later turned out that they are inherently harmful claims expenses we have a chance under allocation to get them back but we don't have to advance claims expenses for

[00:25:19] Speaker 03:
things that are clearly non-covered, like malicious prosecution.

[00:25:24] Speaker 03:
We talked about what would happen under Downy Venture, where the court said the only reason you'd get claims expenses is because the policy explicitly says we have to advance for malicious prosecution.

[00:25:37] Speaker 03:
And had they not said that, they wouldn't have gotten claims expenses.

[00:25:41] Speaker 03:
Yurik says, unless there's specific coverage for a particular matter, you don't get claims expenses.

[00:25:47] Speaker 03:
So I don't think you can say that you get claims expenses even if the policy excludes them or the policy doesn't explicitly cover them.

[00:26:03] Speaker 03:
So have I answered your question, Your Honor?

[00:26:07] Speaker 03:
I didn't know if you wanted to.

[00:26:08] Speaker 05:
Yeah, I don't have further questions on that point.

[00:26:12] Speaker 03:
Okay.

[00:26:15] Speaker 03:
And I just don't see how

[00:26:18] Speaker 03:
when they chose to purchase an indemnity policy as opposed to a claims made defense policy, that they can transform both different kinds of obligation to pay defense costs into the same obligation.

[00:26:40] Speaker 03:
It wouldn't make any sense.

[00:26:42] Speaker 03:
They pay different premiums for two different policy provisions.

[00:26:46] Speaker 03:
They have different rights, different obligations, and they just want to transform it.

[00:26:52] Speaker 03:
And that way, by tying the indemnity policy, they get control of the defense, they get control of defense counsel, and now they can say, okay, we had all of that, we paid less, but we'll get the same rights as we would in the duty to defend policy.

[00:27:13] Speaker 03:
And I just don't see how they can do that, particularly in a case where there were allegations that were, as I said, basically criminal in nature.

[00:27:24] Speaker 03:
Unless Your Honors have any further questions, I would complete my argument.

[00:27:31] Speaker 05:
It appears we do not, so thank you.

[00:27:33] Speaker 05:
Thank you.

[00:27:34] Speaker 05:
Rebaul?

[00:27:38] Speaker 05:
Mr. Gardner, I think you're still muted.

[00:27:41] Speaker 04:
Thank you.

[00:27:42] Speaker 04:
Thank you, Your Honors.

[00:27:44] Speaker 04:
A couple of points on rebuttal.

[00:27:46] Speaker 04:
First, UTA is not seeking to transform the policy into a duty to defend policy.

[00:27:52] Speaker 04:
We're simply enforcing the duty to advance defense costs, which again, as I mentioned, is a separate promise.

[00:27:58] Speaker 04:
It's not just a requirement to pay loss, including claim expenses.

[00:28:04] Speaker 04:
There's a separate obligation to advance defense costs on a current basis prior to any judgment, prior to any settlement.

[00:28:10] Speaker 04:
And we're simply seeking to enforce that and enforcing that provision does not violate any public policy and the rationale behind section 533.

[00:28:21] Speaker 04:
Again, I go back to both of us, I've been going back to Downey Ventures, but the critical decision of Downey Ventures was that identification of a malicious prosecution claim

[00:28:36] Speaker 04:
may be precluded by Section 533, quote, that conclusion does not apply to the defense commitment, which in this policy is a specific and distinct commitment.

[00:28:45] Speaker 04:
Likewise here, just like the duty to defend and that policy was a separate and distinct commitment, the duty to advance defense cost is also a separate and distinct commitment.

[00:28:53] Speaker 04:
And I would refer the court to the logic of the Northern District in Braden making that same connection.

[00:29:00] Speaker 04:
On the ratification by UTA,

[00:29:06] Speaker 04:
Markel has simply pointed to allegations in the complaint, and they've pointed to, I think, just factual suppositions, basically.

[00:29:15] Speaker 04:
But there's no proof of any ratification by UTA.

[00:29:19] Speaker 04:
And this goes back to the DART Industries versus Liberty Mutual Insurance case cited in our briefing.

[00:29:25] Speaker 04:
In DART, there was no dispute that the willful actor was an agent of the insured corporation.

[00:29:29] Speaker 04:
He was the president.

[00:29:31] Speaker 04:
There was no dispute that he was acting in the course of his employment.

[00:29:34] Speaker 04:
When he sent the libelous letter, there was evidence that other corporate officials were consulted or aware of the preparation of the libelous letter that was at issue in that case.

[00:29:42] Speaker 04:
But nevertheless, the court said there remains a complete absence of proof that the policymaking management of the corporation approved to ratify the conduct.

[00:29:49] Speaker 04:
Same issue here.

[00:29:51] Speaker 04:
Markel can point to no evidence that there's ratification, only supposition and allegations.

[00:29:56] Speaker 04:
And in that situation, Section 533 simply does not apply.

[00:30:01] Speaker 04:
The last point with a few seconds I have remaining is the reference to URIC.

[00:30:07] Speaker 04:
URIC turned on a coverage grant that required an accident.

[00:30:10] Speaker 04:
That's not the case here.

[00:30:11] Speaker 04:
As the court said, the issue in that case that the court faced was a coverage question rather than an exclusion question.

[00:30:17] Speaker 04:
Here, UTA does not need to show an accident, and that's important because it goes back to the reasonable expectations that the courts talked about in Downey and B&E.

[00:30:26] Speaker 04:
Here, the underlying actions fall within the policies coverage grant.

[00:30:30] Speaker 04:
Markel doesn't dispute that.

[00:30:32] Speaker 04:
The policy says that loss does not include matters uninsurable under the law, like section 533, but explicitly says it will pay claim expenses with respect to such matters.

[00:30:42] Speaker 04:
That's more than a reasonable expectation of coverage in our view.

[00:30:44] Speaker 04:
That's an explicit promise.

[00:30:48] Speaker 05:
Thank you very much.

[00:30:50] Speaker 05:
We thank both counsel for their helpful arguments and the case is submitted.

[00:30:54] Speaker 05:
Thank you, Your Honor.

[00:30:57] Speaker 00:
This court for this session stands adjourned.