Filed 5/29/13
                               CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                SECOND APPELLATE DISTRICT

                                         DIVISION SEVEN

MT. HAWLEY INSURANCE                                    B234082
COMPANY,
                                                        (Los Angeles County
        Plaintiff and Respondent,                       Super. Ct. No. BC434879)

        v.
                                                        ORDER MODIFYING OPINION
RICHARD R. LOPEZ, JR.,                                  [NO CHANGE IN JUDGMENT]

        Defendant and Appellant.




        THE COURT:
        It is ordered that the opinion filed on May 1, 2013, and certified for publication, be
modified as follows:
        1. On page 3, the last sentence of the first full paragraph reads:
                “The eight-count indictment included alleged violations of title 18 United
                States Code sections 18 (conspiracy), 1001 (making false statements), and
                1519 (destruction, alteration, or falsification of evidence in federal
                investigations).”

                It should read: “The eight-count indictment included alleged violations of title
                18 United States Code sections 371 (conspiracy), 1001 (making false
          statements), and 1519 (destruction, alteration, or falsification of evidence in
          federal investigations).”

      The foregoing does not change the judgment.


WOODS, Acting P. J.                      ZELON, J.                            SEGAL, J.*

*       Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.




                                             2
Filed 5/1/13 (unmodified version)

                                CERTIFIED FOR PUBLICATION



             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                    SECOND APPELLATE DISTRICT

                                          DIVISION SEVEN


MT. HAWLEY INSURANCE                                 B234082
COMPANY,
                                                     (Los Angeles County
        Plaintiff and Respondent,                    Super. Ct. No. BC434879)

        v.

RICHARD R. LOPEZ, JR.,

        Defendant and Appellant.




        APPEAL from a judgment of the Superior Court of Los Angeles County,
Robert L. Hess, Judge. Reversed.
        Manatt, Phelps & Phillips, Amy B. Briggs, Kenneth B. Julian, Benjamin G. Shatz,
and Amanda M. Knudsen, for Defendant and Appellant.
        Morison Holden & Prough, William C. Morison and Michael D. Prough, for
Plaintiff and Respondent.
                                       ______________________
                                    INTRODUCTION
       Insurance Code section 533.5, subdivision (b),1 precludes insurers from providing
a defense for certain kinds of claims. The statute provides: “No policy of insurance shall
provide, or be construed to provide, any duty to defend . . . any claim in any criminal
action or proceeding or in any action or proceeding brought pursuant to” California‟s
unfair competition law under Business and Professions Code sections 17200 and 17500
“in which the recovery of a fine, penalty, or restitution is sought by the Attorney General,
any district attorney, any city prosecutor, or any county counsel, notwithstanding whether
the exclusion or exception regarding the duty to defend this type of claim is expressly
stated in the policy.” In Bodell v. Walbrook Ins. Co. (9th Cir. 1997) 119 F.3d 1411
(Bodell), the Ninth Circuit held that section 533.5, subdivision (b), applies to criminal
actions brought by the four listed state and local agencies but does not apply to criminal
actions brought by federal prosecutors. The dissenting judge in Bodell and the trial court
in this case concluded that section 533.5, subdivision (b), applies to any criminal action,
including federal criminal actions. We agree with the Ninth Circuit and hold that section
533.5, subdivision (b), does not preclude an insurer from agreeing to provide a defense
for criminal actions against its insured brought by federal prosecutors. Therefore, the
insurer in this case, which had agreed to provide its insureds with a defense in “a criminal
proceeding . . . commenced by the return of an indictment” “even if the allegations are
groundless, false or fraudulent,” cannot avoid its contractual duty to defend an insured
against federal criminal charges by relying on section 533.5, subdivision (b).
                 FACTUAL AND PROCEDURAL BACKGROUND
       1. The Indictment
       On January 6, 2010 the United States Attorney for the Central District of
California filed a grand jury indictment charging Dr. Richard Lopez with criminal
conspiracy, false statements and concealment, and falsification of records. The
indictment alleged that Lopez, who was the medical director of the St. Vincent‟s Medical
1
       Statutory references are to the Insurance Code unless otherwise indicated.


                                              2
Center Comprehensive Liver Disease Center, conspired with another doctor and other
hospital employees in the liver transplant program to transplant a liver into the wrong
patient.2
       According to the indictment, Lopez diverted a liver designated for one patient to a
different patient who was further down the list of patients waiting for a liver transplant, in
violation of regulations promulgated by the United States Department of Health and
Human Services under the National Organ Transplant Act, and then covered up his
diversion. The indictment alleges that Lopez initially notified the United Network for
Organ Sharing (UNOS) that the second patient had received the liver, but later falsely
told UNOS that the first patient had received the liver. The indictment further alleges
that as a result the first patient never received a liver, “was removed from the liver
transplant wait list,” was “thereafter deprived of the opportunity to have this life-saving
operation,” and subsequently died. The indictment alleges that Lopez engaged in a
cover-up by directing his co-conspirators to restore the second patient‟s name to the
transplant waiting list (even though the second patient had received the liver designated
for the first patient), create a false pathology report for the first patient based on data in
the second patient‟s pathology report, and alter medical reports to support a claim “that
the transplant program had made an honest mistake confusing the names.” The eight-
count indictment included alleged violations of title 18 United States Code sections
18 (conspiracy), 1001 (making false statements), and 1519 (destruction, alteration, or
falsification of evidence in federal investigations).
       2. The Policy
       Daughters of Charity Health Systems, Inc. (DCHS), which owns St.Vincent‟s,
purchased a “Not For Profit Organization and Executive Liability Policy” pursuant to
which Mt. Hawley agreed to “pay on behalf of the Insureds, Loss which the Insureds are


2
       Lopez, using a relatively expansive concept of “success,” contends that
“[a]lthough the surgery was successful, the organ was transplanted into the wrong
patient.”


                                               3
legally obligated to pay as a result of Claims . . . against the Insured for Wrongful
Acts . . . .” The policy defines “Loss” as “monetary damages, judgments, settlements,
including but not limited to punitive, exemplary, multiple or non-contractual liquidated
damages where insurable under applicable law, . . . and Defense Expenses which the
Insureds are legally obligated to pay as a result of a covered Claim.” The policy further
provides that Mt. Hawley “shall have the right and duty to defend any Claim covered by
this Policy, even if any of the allegations are groundless, false or fraudulent . . . .” An
endorsement defines “claim” to include “a criminal proceeding against any Insured
commenced by the return of an indictment” or “a formal civil, criminal, administrative or
regulatory investigation against any Insured . . . .” The policy‟s definition of “insured”
can include employees of St. Vincent‟s like Lopez.3
       3. The Action
       On March 3, 2010 Lopez tendered the defense to the charges to Mt. Hawley. On
April 1, 2010 Mt. Hawley, through its attorneys, sent a letter to Lopez declining to defend
or indemnify Lopez, and on the same date filed this action. Mt. Hawley‟s first amended
complaint alleged that a doctor at St. Vincent‟s, with Lopez‟s “knowledge and approval,”
transplanted a liver designated for one patient “who was second in line on the regional
waitlist” for a liver into another patient “who was fifty-second on the waiting list,”
without prior approval. Mt. Hawley alleged that Lopez “engaged in an elaborate cover-
up of the „switch,‟ which included falsification of documents and encouragement of
others to participate in the cover-up.” Mt. Hawley alleged that it had no duty to defend


3
       Mt. Hawley does not really contend that Lopez is not an insured under the policy.
The closest Mt. Hawley comes to making such an argument is a statement in a footnote
that “Dr. Lopez was a stranger to the contract and at best an incidental third-party
beneficiary to the extent he qualifies as an „insured‟ for limited purposes,” and therefore
“Mt. Hawley made no representations to him, promising to defend him if he was charged
with a crime or otherwise.” We do not read this cryptic sentence as an argument by
Mt. Hawley that Lopez is not an insured under the policy. (See Sabi v. Sterling (2010)
183 Cal.App.4th 916, 947 [“[f]ootnotes are not the appropriate vehicle for stating
contentions on appeal”].)


                                              4
Lopez because of section 533.5, a “remuneration exclusion” or “personal profit
exclusion,” and a “medical incident exclusion.”4 Mt. Hawley sought a declaration that it
did not owe Lopez a duty to defend or indemnify in connection with the indictment.
Lopez filed a cross-complaint against Mt. Hawley for breach of contract, breach of the
implied covenant of good faith and fair dealing, and declaratory relief.
       4. The Demurrer and the Motion for Summary Judgment
       Lopez filed a motion for judgment on the pleadings on Mt. Hawley‟s original
complaint and a demurrer to Mt. Hawley‟s first amended complaint. Lopez argued in
both motions that section 533.5 did not preclude an insurer from providing a defense to
federal criminal charges brought by U.S. Attorney‟s Office, that the
remuneration/personal profit exclusion did not apply because there was no judgment or
final adjudication against Lopez, and that the medical incident exclusion did not apply
because it was not part of the policy. The trial court rejected Lopez‟s argument that
section 533.5 did not apply, granted the motion for judgment on the pleadings on the
original complaint with leave to amend to allow Mt. Hawley to attach a copy of the
policy to the complaint, and then overruled Lopez‟s demurrer to the first amended
complaint.
       Mt. Hawley subsequently filed a motion for summary judgment or in the
alternative for summary adjudication. Mt. Hawley argued that it had no duty to defend
Lopez against the grand jury indictment “because any defense obligation is excluded by

4
       The remuneration exclusion, subdivision (c) of Exclusion 3, excluded coverage
where the insured gains “any profit, remuneration or advantage to which such Insured is
not legally entitled if a judgment or final adjudication adverse to such Insured establishes
that such Insured gained such profit, remuneration or advantage.” The medical incident
exclusion, subdivision (g) of Exclusion 3, excluded coverage for rendering or failing to
render certain professional services. Mt. Hawley conceded that because of “a clerical
error” the medical incident exclusion was not included in the policy, but alleged that
“upon realizing the clerical error” Mt. Hawley “immediately notified [Daughters of
Charity]” of the mistake and “corrected the clerical error by issuing endorsements which,
on their face, are effective as [of] the inception of the insurance contracts of which they
were made a part.”


                                             5
California Insurance Code section 533.5 (b).” Mt. Hawley also argued that it was entitled
to summary judgment on its declaratory relief causes of action and on Lopez‟s cross-
complaint because under section 533.5 Mt. Hawley had no duty to defend or indemnify
Lopez. Although both Mt. Hawley and Lopez argued that section 533.5, subdivision (b),
was unambiguous and supported their respective proposed interpretations, both sides
submitted portions of the legislative history of the statute in support of their positions.
       5. The Ruling
       The trial court found that “section 533.5 unambiguously bars coverage for
criminal actions and proceedings” and that “the plain language of section 533.5 bars
Mt. Hawley‟s duty to defend or indemnify Dr. Lopez against the Indictment.” The trial
court acknowledged that “the legislative history seems to indicate that section 533.5 was
enacted in response to difficulties that the Attorney General had encountered in settling
actions under the unfair competition law due to the participation of insurance
companies,” but “perceive[d] nothing in the legislative history from which it could
clearly conclude that section 533.5 was intended to apply to state and local criminal
actions only as opposed to all criminal actions, including federal proceedings.” The trial
court concluded that “the correct interpretation of [section] 533.5 is that the enumeration
of state, county and local prosecutors ought to be read as referring only to civil actions
for unfair competition and false advertising. And that the prohibition against furnishing a
defense in a criminal action applies regardless of the entity that commenced the criminal
prosecution.” The trial court stated that the Ninth Circuit‟s decision in Bodell was not
binding and was unpersuasive, and concluded that the Bodell court‟s “analysis of
[section] 533.5, is in error.” The trial court therefore granted Mt. Hawley‟s motion for
summary judgment on Mt. Hawley‟s first amended complaint and on Lopez‟s cross-
complaint.
       The trial court entered judgment in favor of Mt. Hawley and against Lopez on
June 23, 2011. Lopez filed a timely notice of appeal on June 29, 2011.




                                               6
                                       DISCUSSION
       1. Standard of Review
       We review a grant of summary judgment de novo. (Wiener v. Southcoast
Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142; see Culver Center Partners East
# 1, L.P. v. Baja Fresh Westlake Village, Inc. (2010) 185 Cal.App.4th 744, 749.) “On
appeal from the granting of a motion for summary judgment, we examine the record de
novo, liberally construing the evidence in support of the party opposing summary
judgment and resolving doubts concerning the evidence in favor of that party.” (Miller v.
Department of Corrections (2005) 36 Cal.4th 446, 460.) The de novo standard of review
applies to issues of statutory and insurance policy interpretation. (See Bruns v. E-
Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 724 (Bruns) [“[s]tatutory interpretation
is a question of law that we review de novo”]; County of San Diego v. Ace Property &
Casualty Ins. Co. (2005) 37 Cal.4th 406, 414 [“[w]e apply a de novo standard of review
to an order granting summary judgment when, on undisputed facts, the order is based on
the interpretation or application of the terms of an insurance policy”]; Sacks v. City of
Oakland (2010) 190 Cal.App.4th 1070, 1082 [where the pertinent facts are undisputed
and the issue is one of statutory interpretation, “the question is one of law and we engage
in a de novo review of the trial court‟s determination”].)
       A “decision to sustain or overrule a demurrer is subject to de novo review on
appeal . . . .” (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th
784, 790.) “In reviewing an order overruling a demurrer, we accept as true all properly
pleaded facts in the complaint and exercise independent judgment to determine whether
the complaint states a cause of action as a matter of law.” (Caliber Bodyworks, Inc. v.
Superior Court (2005) 134 Cal.App.4th 365, 373; see Boy Scouts of America National
Foundation v. Superior Court (2012) 206 Cal.App.4th 428, 438 [“[t]he reviewing court
accepts as true all facts properly pleaded in the complaint in order to determine whether
the demurrer should be overruled”].)




                                              7
       2. The Trial Court Erred in Granting Mt. Hawley’s Motion for Summary
          Judgment
            a. Section 533.5
       Section 533.5, subdivision (b), as originally enacted in 1988, provided: “No
policy of insurance shall provide, or be construed to provide, any duty to defend, as
defined in subdivision (c), any claim in any civil or criminal action or proceeding in
which the recovery of a fine, penalty, or restitution is sought by the Attorney General,
any district attorney, or any city prosecutor, notwithstanding whether the exclusion or
exception regarding the duty to defend this type of claim is expressly stated in the
policy.”5
       In 1990 the Legislature amended section 533.5, subdivision (b), to read
substantially as it does now: “No policy of insurance shall provide, or be construed to
provide, any duty to defend, as defined in subdivision (c), any claim in any criminal
action or proceeding or in any action or proceeding brought pursuant to Chapter 5
(commencing with Section 17200) of Part 2 of, or Chapter 1 (commencing with Section
17500) of Part 3 of, Division 7 of the Business and Professions Code in which the
recovery of a fine, penalty, or restitution is sought by the Attorney General, any district
attorney, or any city prosecutor, notwithstanding whether the exclusion or exception
regarding the duty to defend this type of claim is expressly stated in the policy.” The
parties agree that the language “Chapter 5 (commencing with Section 17200) of Part 2 of,
or Chapter 1 (commencing with Section 17500) of Part 3 of, Division 7 of the Business

5
        Section 533.5, subdivision (c), provides: “For the purpose of this section, „duty to
defend‟ means the insurer‟s right or obligation to investigate, contest, defend, control the
defense of, compromise, settle, negotiate the compromise or settlement of, or indemnify
for the cost of any aspect of defending any claim in any criminal action or proceeding or
in any action or proceeding brought pursuant to Chapter 5 (commencing with Section
17200) of Part 2 of, or Chapter 1 (commencing with Section 17500) of Part 3 of,
Division 7 of the Business and Professions Code in which the insured expects or contends
that (1) the insurer is liable or is potentially liable to make any payment on behalf of the
insured or (2) the insurer will provide a defense for a claim even though the insurer is
precluded by law from indemnifying that claim.”


                                              8
and Professions Code” refers to California‟s unfair competition and false advertising
laws, commonly referred to as the UCL and the FAL. (See Hill v. Roll Internat. Corp.
(2011) 195 Cal.App.4th 1295, 1298.)
       In 1991 the Legislature amended section 533.5, subdivision (b), a second time to
add county counsel to the list of prosecutors in the statute. Thus, the statute currently
reads: “No policy of insurance shall provide, or be construed to provide, any duty to
defend, as defined in subdivision (c), any claim in any criminal action or proceeding or in
any action or proceeding brought pursuant to” the UCL or the FAL “in which the
recovery of a fine, penalty, or restitution is sought by the Attorney General, any district
attorney, any city prosecutor, or any county counsel, notwithstanding whether the
exclusion or exception regarding the duty to defend this type of claim is expressly stated
in the policy.”
       No California court has addressed the issue raised by this appeal of whether
section 533.5, subdivision (b), precludes an insurer from providing a defense in all
criminal actions, including federal criminal actions.6 In Bodell, supra, 119 F.3d 1411, the
Ninth Circuit held that “the phrase „sought by the Attorney General, any district attorney,
any city prosecutor, or any county counsel‟ modifies both „any criminal action or
proceeding‟ and „any action or proceeding brought pursuant to [the UCL and FAL],‟ and
that the statute therefore only precludes the tender of a defense in all criminal actions and
certain civil actions brought by state, county or city officials.” (Id. at p. 1416.) The
dissent in Bodell argued that the phrase “sought by the Attorney General, any district

6
        In Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, the Supreme Court
stated that as originally enacted in 1988, section 533.5 “barred coverage in all civil and
criminal actions, whatever the theory of liability, brought by the Attorney General, a
district attorney, or a city prosecutor. [Citation.] In 1990, the Legislature limited the
statute‟s reach to criminal actions and actions under the Unfair Business Practices Act.”
(Id. at p. 1271.) This passage suggests that the “limited reach” of the statute as a result of
the 1990 amendment also applied only to actions “brought by the Attorney General, a
district attorney, or a city prosecutor,” but Bank of the West did not address that issue and
the court‟s brief discussion of section 533.5 and its history is not conclusive.


                                              9
attorney, any city prosecutor, or any county counsel” modifies only civil actions or
proceedings brought under the UCL and FAL, not criminal actions. (Id. at p. 1421
(dis. opn. of Kozinski, J.).) The dissent noted that “the phrase „any criminal action or
proceeding‟ is separated by the disjunctive „or‟ from actions brought pursuant to” the
UCL and the FAL. (Ibid.) Neither the majority nor the dissent in Bodell discussed or
engaged in the three-step analysis for statutory interpretation under California law.
          b. California law for interpreting statutes
       “We begin with the fundamental rule that our primary task is to determine the
lawmakers‟ intent.” (Delaney v. Superior Court (1990) 50 Cal.3d 785, 798.) “In
construing statutes, we aim „to ascertain the intent of the enacting legislative body so that
we may adopt the construction that best effectuates the purpose of the law.‟” (Klein v.
United States of America (2010) 50 Cal.4th 68, 77 (Klein), quoting Hassan v. Mercy
American River Hospital (2003) 31 Cal.4th 709, 715.) California courts “have
established a process of statutory interpretation to determine legislative intent that may
involve up to three steps.” (Alejo v. Torlakson (2013) 212 Cal.App.4th 768, 786-787
(Alejo).) The “key to statutory interpretation is applying the rules of statutory
construction in their proper sequence . . . as follows: „we first look to the plain meaning
of the statutory language, then to its legislative history and finally to the reasonableness
of a proposed construction.‟” (MacIsaac v. Waste Management Collection &
Recycling, Inc. (2005) 134 Cal.App.4th 1076, 1082 (MacIsaac), quoting Riverview Fire
Protection Dist. v. Workers’ Comp. Appeals Bd. (1994) 23 Cal.App.4th 1120, 1126.)
       “The first step in the interpretive process looks to the words of the statute
themselves.” (Alejo, supra, 212 Cal.App.4th at p. 787; see Klein, supra, 50 Cal.4th at
p. 77 [“[w]e look first to the words of the statute, „because the statutory language is
generally the most reliable indicator of legislative intent‟”].) “If the interpretive question
is not resolved in the first step, we proceed to the second step of the inquiry. [Citation.]
In this step, courts may „turn to secondary rules of interpretation, such as maxims of
construction, “which serve as aids in the sense that they express familiar insights about
conventional language usage.”‟ We may also look to the legislative history. [Citation.]

                                              10
„Both the legislative history of the statute and the wider historical circumstances of its
enactment may be considered in ascertaining the legislative intent.‟ [Citation.] [¶] „If
ambiguity remains after resort to secondary rules of construction and to the statute‟s
legislative history, then we must cautiously take the third and final step in the interpretive
process. [Citation.] In this phase of the process, we apply “reason, practicality, and
common sense to the language at hand.” [Citation.] Where an uncertainty exists, we
must consider the consequences that will flow from a particular interpretation. [Citation.]
Thus, “[i]n determining what the Legislature intended we are bound to consider not only
the words used, but also other matters, „such as context, the object in view, the evils to be
remedied, the history of the times and of legislation upon the same subject, public policy
and contemporaneous construction.‟ [Citations.]” These “other matters” can serve as
important guides, because our search for the statute‟s meaning is not merely an abstract
exercise in semantics. To the contrary, courts seek to ascertain the intent of the
Legislature for a reason—“to effectuate the purpose of the law.”‟” (Alejo, at pp. 787-
788; see MacIsaac, supra, 134 Cal.App.4th at p. 1084.)
       We do not necessarily engage in all three steps of the analysis. “It is only when
the meaning of the words is not clear that courts are required to take a second step and
refer to the legislative history.” (Soil v. Superior Court (1997) 55 Cal.App.4th 872, 875;
accord, Sisemore v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1411; see
MacIsaac, supra, 134 Cal.App.4th at 1084 [“[i]f ambiguity remains after resort to
secondary rules of construction and to the statute‟s legislative history, then we must
cautiously take the third and final step in the interpretative process”].)
          c. Step one: Section 533.5 is not clear and unambiguous
       Mt. Hawley argues that the “plain language of the statute . . . is susceptible to only
one, single, reasonable interpretation regarding the defense of criminal actions: that
California law bars an insurance contract from providing for the defense of „any criminal
action or proceeding.‟” According to Mt. Hawley, “the statutory language used and
enacted by the Legislature has plain meaning” and “[t]here is no need to refer to extrinsic
aids to interpretation, specialized rules of grammar, or legislative history.”

                                              11
       In order for us to agree with Mt. Hawley, its proposed interpretation of section
533.5 must be not merely more reasonable than any other interpretation, Mt. Hawley‟s
proposed interpretation must be the only reasonable interpretation of section 533.5. (See
Coalition of Concerned Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733,
737 [“[i]f the statutory language permits more than one reasonable interpretation, courts
may consider other aids, such as the statute‟s purpose, legislative history, and public
policy”]; accord, Bruns, supra, (2011) 51 Cal.4th at p. 724; see Jones v. Lodge at Torrey
Pines Partnership (2008) 42 Cal.4th 1158, 1162-1163 (Jones) [“statutory language is not
plain” where its “language does lend itself to plaintiff‟s interpretation, but . . . that is not
the only reasonable interpretation of the statutory language”]; Chosak v. Alameda County
Medical Center (2007) 153 Cal.App.4th 549, 561-562 [where both plaintiff‟s and
defendant‟s proposed interpretations of statute were reasonable and “the statutory
language can bear either meaning,” the court proceeded “to a more detailed consideration
of” the purpose and legislative history of the statute “to determine which of the proposed
definitions best fits the intent of the Legislature in enacting the statute,” even though one
side‟s interpretation was “the most obvious” interpretation]; Ailanto Properties, Inc. v.
City of Half Moon Bay (2006) 142 Cal.App.4th 572, 585-586 (Ailanto Properties)
[because plaintiff‟s proposed interpretation of the statute was not “wholly unreasonable,”
statute was ambiguous and court would “turn to the second step of our inquiry and look
to the statute‟s legislative history to clarify its meaning”].) Mt. Hawley‟s interpretation,
however, is not the only reasonable one.
       There are at least three reasonable interpretations of the statute. One reasonable
interpretation, advocated by Mt. Hawley, is that section 533.5, subdivision (b), addresses
“two separate and distinct types of actions: any criminal action or proceeding
(unqualified), or any action or proceeding brought pursuant to certain specific statutes in
which the recovery of a fine, penalty or restitution is sought by certain state and local
attorneys (as distinct from such actions brought by private parties).” Under this
interpretation, “in which the recovery of a fine, penalty, or restitution is sought by the
Attorney General, any district attorney, any city prosecutor, or any county counsel”

                                               12
modifies “any action or proceeding brought pursuant to” the UCL or FAL, but not “any
criminal action or proceeding.” This interpretation precludes insurers from providing a
defense in any criminal action, including a criminal action bought by federal prosecutors.
       Another reasonable interpretation, advocated by Lopez and adopted by the
majority in Bodell, is that section 533.5, subdivision (b), applies to “any criminal action
or proceeding” “in which the recovery of a fine, penalty, or restitution is sought by” the
four California state and local public agencies listed in the statute, or to “any action or
proceeding brought pursuant to [the UCL or the FAL] in which the recovery of a fine,
penalty, or restitution is sought by” the four state and local public agencies. Under this
interpretation, “in which the recovery of a fine, penalty, or restitution is sought by the
Attorney General, any district attorney, any city prosecutor, or any county counsel”
modifies both “any criminal action or proceeding” and “any action or proceeding brought
pursuant to [the UCL and FAL].” This interpretation precludes insurers from providing a
defense in criminal or civil actions brought by the state and local agencies listed in the
statute, but not in criminal or civil actions brought by federal prosecuting agencies.
       Yet another reasonable interpretation, urged by neither Mt. Hawley at all nor by
Lopez directly, is that section 533.5, subdivision (b), applies to “any claim” in either a
criminal action or proceeding or a UCL or FAL action or proceeding “in which the
recovery of a fine, penalty, or restitution is sought by the Attorney General, any district
attorney, any city prosecutor, or any county counsel.” Under this interpretation, “in
which the recovery of a fine, penalty, or restitution is sought by the Attorney General,
any district attorney, any city prosecutor, or any county counsel” modifies “any claim,”
whether the claim is part of a criminal, UCL, or FAL action or proceeding.
       Thus, section 533.5, subdivision (b), is susceptible to at least these three
reasonable interpretations. Even the dissenting judge in Bodell did not argue that the
language of the statute is clear and unambiguous. (See Bodell, supra, 119 F.3d at




                                              13
pp. 1421-1422 (dis. opn. of Kozinski, J.).)7 Therefore, we cannot conclude that the
language of the statute is clear and unambiguous, and we must proceed to the second step
of the interpretive analysis and consider the purpose of the statute, the legislative history,
and secondary rules of interpretation.
       It may be that at first glance Mt. Hawley‟s proposed interpretation is more
grammatically natural. Under the first step of the statutory interpretation analysis,
however, that is not the test. The issue is whether Mt. Hawley‟s proposed interpretation
is the only reasonable interpretation. And because it is not, we proceed to step two. (See
County of San Diego v. Alcoholic Beverage Control Appeals Bd. (2010) 184 Cal.App.4th
396, 401 [“[w]hen the language is reasonably susceptible of more than one meaning, it is
proper to examine a variety of extrinsic aids in an effort to discern the intended
meaning,” including, “for example, the statutory scheme, the apparent purposes
underlying the statute and the presence (or absence) of instructive legislative history”].)
          d. Step two: The statute’s legislative history, the circumstances of its
             enactment, and maxims of construction
       As have the few courts that have considered section 533.5,8 we now “proceed to
the second step of the inquiry,” looking to “the statute‟s legislative history,” which “can
be very instructive.” (People v. Nelson (2011) 200 Cal.App.4th 1083, 1101; see Ailanto
Properties, supra, 142 Cal.App.4th at p. 586 [“[i]n the second step of our interpretive

7
        The dissenting judge in Bodell stated that he agreed with the insurers‟ argument
that the phrase “„any criminal conduct or proceeding‟ is separated by the disjunctive „or‟
from actions brought pursuant to California‟s unfair competition and false advertising
statutes,” which “makes perfect sense because such actions can be brought by both the
government and private parties.” (Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of
Kozinski, J.).) The dissent concluded that “[a]s applied to the specified civil actions,
therefore, the list serves a useful function: It limits the statute‟s scope to unfair
competition and false advertising actions brought by the government, not those by private
parties.” (Ibid.) We agree that this interpretation “makes sense” and is reasonable. But
Lopez‟s proposed interpretation also makes sense and is reasonable.
8
       Bodell, supra, 113 F.3d at pages 1416 to 1417; Bank of the West, supra, 2 Cal.4th
at pages 1270 to 1271; AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 837,
footnote 15.


                                              14
inquiry, we examine the entire history of the Legislature‟s enactment and amendment of
the statute”].) If a statute “is susceptible of multiple interpretations . . . we will divine the
statute‟s meaning by turning to a variety of extrinsic sources, including the legislative
history [citation], the nature of the overall statutory scheme [citation], and consideration
of the sorts of problems the Legislature was attempting to solve when it enacted the
statute [citation].” (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 770.) In addition, an
“examination of the original text of the statute and the evolution of the language” of a
statute that has been amended is “useful in ascertaining its current meaning.” (Ailanto
Properties, at p. 586.)
              i. Legislative history
       We look to the Legislative Counsel‟s digest and other summaries and reports
indicating the Legislature‟s intent. “Although the Legislative Counsel‟s summary digests
are not binding, they are entitled to great weight.” (Van Horn v. Watson (2008)
45 Cal.4th 322, 332, fn. 11; accord, Jones, supra, 42 Cal.4th at p. 1170; see People v.
Superior Court (Lavi) (1993) 4 Cal.4th 1164, 1178 [Legislative Counsel‟s digest is
indicative of legislative intent]; Martin v. PacifiCare of California (2011)
198 Cal.App.4th 1390, 1402.) The Legislative Counsel‟s digest “constitutes the official
summary of the legal effect of the bill and is relied upon by the Legislature throughout
the legislative process,” and thus “is recognized as a primary indication of legislative
intent.” (Souvannarath v. Hadden (2002) 95 Cal.App.4th 1115, 1126, fn. 9.) In addition,
“[c]ommittee reports are often useful in determining the Legislature‟s intent.”
(California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997)
14 Cal.4th 627, 646; see Tesco Controls, Inc. v. Monterey Mechanical Co. (2004)
124 Cal.App.4th 780, 793.) “In construing a statute, legislative committee reports, bill
reports, and other legislative records are appropriate sources from which legislative intent
may be ascertained.” (In re John S. (2001) 88 Cal.App.4th 1140, 1144, fn. 2; see Valley
Vista Services, Inc. v. City of Monterey Park (2004) 118 Cal.App.4th 881, 889 [“[w]hen
construing a statute, we may consider its legislative history, including committee and bill
reports, and other legislative records”].) “Relevant material includes: legislative

                                               15
committee reports; Legislative Analyst‟s reports; and testimony or argument to either a
house of the Legislature or one of its committees,” but “[m]aterial showing the motive or
understanding of an individual legislator, including the bill‟s author, his or her staff, or
other interested persons, is generally not considered.” (Metropolitan Water Dist. v.
Imperial Irrigation Dist. (2000) 80 Cal.App.4th 1403, 1425-1426.)
                      A. The 1988 enactment of section 533.5
       The legislative history of section 533.5 reveals two unmistakable and undisputed
facts about the 1988 statute. First, the Legislature intended the statute to apply equally to
civil and criminal actions brought by the three (at the time) listed state and local public
entities that seek to recover a fine, penalty or restitution, and not to actions brought by
federal agencies. As originally enacted in 1988, section 533.5, subdivision (b), applied to
“any claim in any civil or criminal action or proceeding in which the recovery of a fine,
penalty, or restitution is sought by” the Attorney General, a district attorney, and a city
prosecutor. The Legislative Counsel‟s digest states that Assembly Bill No. 3920
(AB 3920), the bill that would become section 533.5, “would prohibit insurance coverage
or indemnity for the payment of any fine, penalty, or restitution in any civil or criminal
action or proceeding brought by specified law enforcement entities . . . .” (Legis.
Counsel‟s Dig., AB 3920 (1987-1988 Reg. Sess.) at p. 1.)
       Committee analyses and reports confirm the Legislative Counsel‟s understanding.
(See Ailanto Properties, supra, 142 Cal.App.4th at pp. 589-590.) An analysis for the
Assembly Committee on Finance and Insurance stated that AB 3920 would prohibit “any
policy of insurance providing, or being construed to provide, coverage or indemnity for
the payment of fine, penalty, or restitution in any civil or criminal action brought by the
Attorney General, district attorney, or city attorney regardless of what the policy says.”
(Assem. Com. on Finance and Ins., Analysis of AB 3920 (1987-1988 Reg. Sess.) Apr. 19,
1988, p. 1.) The bill also would prohibit “any insurance policy from providing, or being
construed to provide, any duty to defend any claim” “in any civil or criminal action
brought by” the three specified public entities. (Ibid.) Thus, as the Supreme Court noted
in 1990, the original version of section 533.5 “on its face . . . [did] not apply to relief

                                               16
sought by the federal government . . . .” (AIU Ins. Co., supra, 51 Cal.3d at p. 837, fn. 15
[emphasis in original]; see Bank of the West, supra, 2 Cal.4th at p. 1271.)
       Second, the Legislature enacted section 533.5 to address a problem the Attorney
General had encountered (only) in UCL and FAL actions and to address a specific
problem that public entities were experiencing when they brought unfair competition or
false advertising actions, whether civil or criminal, against individuals and businesses.
According to the Attorney General, the bill‟s sponsor and principal supporter, section
533.5 was intended to facilitate “the consumer protection activities of our office and local
district attorneys and city attorneys.” (See Catlin v. Superior Court (2011) 51 Cal.4th
300, 305-306 [considering a letter to Senate and Assembly Committees on Public Safety
expressing the Attorney General‟s concerns about proposed legislation as part of the
legislative history].)
       The Attorney General argued to the Assembly Committee on Finance and
Insurance that the proposed new law would address “a problem which arises under
current law when the Attorney General or a district attorney seeks to enforce [the UCL
and FAL],” because “[i]n many instances” the defendants were claiming “that the
conduct involved is covered by their business insurance policy.” (Office of the Atty.
Gen., Stmt. AB 3920 before Assem. Com. on Finance and Ins. (1989-1990 Reg. Sess.)
Apr. 19, 1988.) The Attorney General complained that defendants “tendered the defense
of the action[s] to insurers whose policies provide general liability coverage which may
include coverage for advertising and unfair competition claims.” (Office of the Atty.
Gen., Bill Proposal Summary of AB 3920 (1989-1990 Reg. Sess.) (undated) at p. 1.) The
public entity then found itself litigating with an insurance company, “rather than the
individual whose conduct violated provisions of the Business & Professions Code,” a
practice that made “no public policy sense.” (Office of the Atty. Gen., Stmt. AB 3920
before Assem. Com. on Finance and Ins. (1989-1990 Reg. Sess.) Apr. 19, 1988.) These
cases became “impossible to settle because the defendants refuse[d] to make restitution of
unlawfully obtained property or to pay any civil penalty out of their own funds,” and law
enforcement agencies would not accept any settlement “paid by the insurer because such

                                             17
a settlement does not impose any penalty for unlawful conduct directly on the defendant
and permits the defendant to retain the ill-gotten gains . . . . [¶] As a result, the cases
consume a large measure of prosecutorial resources during extensive litigation financed
without cost to the defendant by the insurer which should have no obligation to pay the
judgment ultimately awarded.” (Office of the Atty. Gen., Bill Proposal Summary of
AB 3920, supra, at p. 1.) For this reason, the Attorney General proposed and urged the
Legislature to enact section 533.5 “„to hold individuals personally accountable for
behavior [that] constitutes an unfair business practice or false and misleading
advertising,” in order to avoid “the litigation becom[ing] a contest between the public
entity and the insurance company in which the involvement of the person whose conduct
is at issue is almost negligible.‟” (Assem. Com. on Finance and Ins., Analysis of
AB 3920, supra, at p. 2.)
       The Attorney General also argued to the Assembly Committee on Finance and
Insurance and the Senate Insurance Committee that “[m]ost businesses purchase
insurance to protect against losses arising from the operation of the business. Although
existing law expressly prohibits insurance for losses incurred as a result of an insured‟s
willful misconduct, the Attorney General‟s office frequently encounters problems
enforcing [the UCL and FAL] because business defendants claim that the conduct
involved is covered by their business insurance policies. If there is any ambiguity as to
the potential liability of the insurance company, and there often is because there is no
statute expressly dealing with this issue, the insurance company is obligated to defend the
business. [¶] . . . [¶] Instead of individual accountability, the litigation becomes a contest
between the public entity and the insurance company in which the involvement of the
person whose conduct is at issue is almost negligible.” (Office of the Atty. Gen., letters
to Assemblyman Patrick Johnston, Chair of the Assem. Com. on Finance and Ins., and
Senator Alan Robbins, Chair of The Senate Ins. Com. AB 3920, Apr. 12, 1988, pp. 1-2.)
The Attorney General explained that “[c]ases brought under [the UCL and FAL] do not
involve the private victim‟s right to compensation for losses. Rather, the public entities
are seeking civil and/or criminal penalties, fines, and perhaps restitution as well. No

                                              18
legitimate public purpose is served by allowing such fines and penalties to be paid by
insurance companies; nor is there any valid purpose served by forcing insurance
companies to provide defenses in such cases solely because the insurance policy coverage
is ambiguous.” (Office of the Atty. Gen., letters to Assemblyman Patrick Johnston and
Senator Alan Robbins AB 3920, Apr. 12, 1988, at p. 2.)
                     B. The 1990 amendment
       In 1990 the Legislature amended section 533.5, subdivision (b), by enacting what
was referred to as a “clean-up bill” from the Attorney General, Assembly Bill No. 3334
(AB 3334). The legislative history reveals two unmistakable and undisputed facts about
the 1990 amendment.
       First, the legislative history makes clear that the Legislature did not intend the
1990 amendment to the statute to expand the reach of section 533.5, subdivision (b). The
Legislative Counsel‟s digest stated that the bill to amend section 533.5 was designed to
“restrict the civil actions to which those limitations apply . . . .” (Legis. Counsel‟s Dig.,
AB 3334 (1989-1990 Reg. Sess.) Stats. 1990, ch. 1512.) The Assembly Committee on
Finance and Insurance analysis stated that AB 3334, “like its 1988 predecessor, is
sponsored by the Attorney General, to reinforce the notion that person[s] violating our
unfair competition and unfair advertising law may not use their insurance coverage to
evade the personal consequences of wrongdoing. This proposition is not in controversy.”
(Assem. Com. on Finance and Ins., Analysis of AB 3334 (1989-1990 Reg. Sess.) Apr. 17,
1990, p. 1.) The committee analysis stated that the amendment “seeks to conform current
law to its originally declared purpose while avoiding any adverse effect, one way or
another, upon other issues of insurance contract coverage.” (Id. at p. 2.) There is nothing
in the legislative history indicating that the Legislature intended to expand the scope of
the statute. (See Donovan v. Poway Unified School Dist. (2008) 167 Cal.App.4th 567,
597 [“the absence of legislative history [can] be of significance in deciphering legislative
intent”], citing Jones, supra, 42 Cal.4th at p. 1169; Starving Students, Inc. v. Department
of Industrial Relations (2005) 125 Cal.App.4th 1357, 1363 [court can consider “the
presence (or absence) of instructive legislative history”].)

                                              19
       Second, the Legislature intended the 1990 amendment to address a specific
problem that state and local public entities had encountered arising from insurance
companies‟ use of section 533.5, subdivision (b), to avoid paying for environmental
cleanup costs. The new problem arose because of “the use of the overbroad civil action
reference,” which created “other insurance coverage issues . . . which were not remotely
considered by the Legislature in connection with the 1988 legislation . . . .” (Assem.
Com. on Finance and Ins., Analysis of AB 3334, supra, at p. 2.) This coverage issue
arose because insurers were arguing in court that section 533.5 precluded and excused
them from providing coverage under a “Comprehensive General Liability Policy for the
cost of toxic waste cleanup when a business is sued by the state or federal
government . . . .” (Ibid.) As the Assembly Finance and Insurance Committee
Republican Analysis explained, the original statute “prohibited insurers from paying for
fines arising from unfair business practices. Since then it has been interpreted to prevent
insurers to cover [sic] certain toxics costs. That was never the author‟s or the sponsor‟s
intent. This bill clarifies that.” (Assem. Com. on Finance and Ins., Republican Analysis
of AB 3334 (1989-1990 Reg. Sess.) Apr. 10, 1990.)
       The Attorney General, who proposed the 1990 amendment as he had the original
1988 legislation, argued to the Assembly Finance and Insurance Committee that
“Insurance Code section 533.5 was proposed due to the concerns about insurance
companies being involved, on behalf of insured businesses, in the defense and settlement
of cases brought under the unfair competition and false advertising statutes.” (Office of
the Atty. Gen., letter to Assemblyman Patrick Johnston, Chair of the Assem. Finance and
Ins. Com. AB 3920, Apr. 10, 1990, p. 1.) The problem in 1988, the Attorney General
noted, was that “businesses were unwilling to pay penalties or restitution to defrauded
customers out of their own funds, as long as they had [] pending claims against insurance
companies,” which meant that “unfair competition and false advertising cases were
dragging out and consuming a large measure of prosecutorial resources.” (Ibid.) The
Attorney General explained that, to resolve these problems, the Legislature enacted
section 533.5, which “prohibits insurance coverage for fines, penalties, and restitution in

                                            20
any civil or criminal action brought by the Attorney General, district attorneys, and city
attorneys.” (Ibid.)
       In the area of environmental cleanup costs, however, insurers were taking the
position “that state agencies are precluded from arguing that damages within the meaning
of the typical liability policy include environmental clean up costs because such costs are
in the nature of equitable restitution.” (Office of the Atty. Gen., letter to Assemblyman
Patrick Johnston, Chair of the Assem. Finance and Ins. Com. AB 3920, supra, p. 2.)
Thus, insurance companies were interpreting “restitution more broadly in order to restrict
their liability” for environmental cleanup costs. (Ibid.) This was not the intent of the
original statute, and the Attorney General argued that “AB 3334 would clarify the
original intent” of section 533.5 and “preserve the potential of maximizing recovery of
public funds expended pursuant to statutory programs, such as the superfund regarding
release of hazardous substances into the environment . . . .” (Ibid.)
       The Assembly Finance and Insurance Committee also considered a lengthy
memorandum from the Environmental Section of the Attorney General‟s Office entitled
“Bill Proposal: Hazardous Waste Insurance.” (See People v. Cruz (1996) 13 Cal.4th
764, 773, fn. 5 [“it is reasonable to infer that those who actually voted on the proposed
measure read and considered the materials presented in explanation of it, and that the
materials therefore provide some indication of how the measure was understood at the
time by those who voted to enact it”].) This memorandum stated that “section
533.5 . . . prohibits insurance coverage for fines, penalties and restitution in any civil or
criminal action brought the Attorney General, district attorneys and city attorneys. The
Environmental Section proposes an amendment to clarify that section 533.5 is directed at
criminal actions and civil law enforcement actions brought under [the UCL and FAL] and
does not apply to actions filed under state and federal hazardous substance and hazardous
waste control laws.” (Office of the Atty. Gen., Bill Proposal: Hazardous Waste Ins.,
AB 3334 (1989-1990 Reg. Sess.) undated, p. 1.) The Attorney General noted that “[t]he
problem at hand is that Insurance Code section 533.5 was not intended to address the
currently active issue of toxic pollution insurance coverage, yet the statute has played,

                                              21
and undoubtedly will continue to play[,] a role in resolving the coverage question.” (Id.
at p. 2.)
        Thus, the use of the broad term “any civil action” in the 1988 statute was the
problem because it covered more than just UCL and FAL civil actions. As the Attorney
General noted, section 533.5 as originally drafted was “too broad, in that it affects many
more regulatory activities than consumer protection . . . .” (Office of the Atty. Gen., Bill
Proposal, supra, at p. 4.) The statute was supposed to solve a narrow problem in UCL
and FAL actions brought by state and local agencies, but it created problems in other
kinds of cases. As a result, the Legislature amended the statute so that the prohibition on
providing a duty to defend applied to UCL and FAL actions, rather than all civil actions,
which insurers were arguing included environmental cleanup actions. As the analysis of
AB 3334 from the Assembly Committee on Finance and Insurance explained, the
amendment “deletes the general references to civil actions in the 1988 Insurance Code
amendments and, instead, substitutes more specific references to proceedings brought
pursuant to those portions of the Business and Professions Code governing unfair
competition and unfair advertising.” (Analysis of AB 3334, supra, at p. 2.)
        Of course, as is often the case with legislative histories, the legislative history of
AB 3334 is not always entirely consistent. For example, an analysis prepared for the
Senate Committee on Insurance, Claims and Corporations stated that the bill “clarifies
that the prohibition against insurance to provide coverage or indemnity for the payment
of any fine, penalty or restitution shall apply only to proceedings pertaining to unfair
business practices or false or misleading advertisements rather than all civil actions, in
addition to criminal actions.” (Sen. Ins., Claims and Corps. Com., Analysis of AB 3334
(1989-1990 Reg. Sess.) Aug. 8, 1990, p. 1.) This fragment of the legislative history can
be read to support Mt. Hawley‟s position that the 1990 amendment revised section 533.5
to bar insurers from providing a defense in (1) UCL and FAL actions seeking to recover a
fine, penalty, or restitution, and (2) criminal actions. As explained above, however, the
vast majority of the amendment‟s legislative history and the circumstances of its
enactment do not support this interpretation. Indeed, the Senate committee analysis went

                                               22
on to state that the amendment “is needed to avoid any adverse [e]ffects that may result
as a misinterpretation of the unintended broad reference to „any civil action.‟” (Id. at
p. 2.) The committee analysis also did not discuss the issue of what agency (state or
federal) was bringing the action.
       Mt. Hawley relies heavily on section 2 of AB 3334, which states that the
Legislature‟s intent in 1988 in enacting section 533.5 was that it “shall be applicable to
insurance coverage and to the duty to defend only in criminal actions and in actions or
proceedings brought by the Attorney General, any district attorney, or any city
prosecutor, pursuant to [the UCL and the FAL].” (AB 3334 (1989-1990 Reg. Sess.)
Stat. 1990, ch. 1512, § 2, subd. (a), p. 2.) This statement suggests that the statute applies
to (1) criminal actions and (2) civil actions under the UCL and FAL, as Mt. Hawley
contends. This declaration in 1990 of what the Legislature had intended in 1988 is
relevant to our inquiry but it is not binding. (See Apple Inc. v. Superior Court (2013)
56 Cal.4th 128, 131 [“the declaration of a later Legislature is of little weight in
determining the relevant intent of the Legislature that enacted the law”]; McClung v.
Employment Development Dept. (2004) 34 Cal.4th 467, 473 [“„a legislative declaration of
an existing statute‟s meaning‟ is but a factor for a court to consider and „is neither
binding nor conclusive in construing the statute‟”].) “Ultimately, the interpretation of a
statute is an exercise of the judicial power the Constitution assigns to the courts.”
(Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 244 (Western Security
Bank); see In re Retirement Cases (2003) 110 Cal.App.4th 426, 480 [Legislature “has no
legislative authority simply to say what it did mean,” but “[c]ourts do take cognizance of
such declarations when they are consistent with the original intent”].) In any event, it is
undisputed that section 533.5, subdivision (b), as originally enacted in 1988,
unambiguously applied only to actions brought by state and local agencies, and not to
actions brought by federal agencies.
       Moreover, there are other indications in the 1990 legislative record confirming that
the Legislature had intended in 1988 that the original statute apply to civil or criminal
actions brought by the three named state and local public entities that seek to recover a

                                              23
fine, penalty or restitution. (See Ailanto Properties, supra, 142 Cal.App.4th at p. 589,
fn. 13 [“[w]e may properly rely on the legislative history of subsequent enactments to
clarify the Legislature‟s intent regarding an earlier enacted statute,” and, while the
concept of “„subsequent legislative history‟ may seem oxymoronic, it is well established
that „the Legislature‟s expressed views on the prior import of its statutes are entitled to
due consideration, and we cannot disregard them,‟” quoting Western Security Bank,
supra, 15 Cal.4th at p. 244]; City of Long Beach v. California Citizens for Neighborhood
Empowerment (2003) 111 Cal.App.4th 302, 307, fn. 6 [“„[a]lthough a legislative
expression of the intent of an earlier act is not binding upon the courts in their
construction of the prior act, that expression may properly be considered together with
other factors in arriving at the true legislative intent existing when the prior act was
passed,‟” quoting Eu v. Chacon (1976) 16 Cal.3d 465, 470].) For example, the
Legislative Counsel‟s digest for AB 3334 stated that under “[e]xisting law . . . no policy
of insurance shall provide any [duty to defend] any civil or criminal action or proceeding
brought by the Attorney General, any district attorney, or any city prosecutor” for “the
payment of any fine, penalty, or restitution.” (Legis. Counsel‟s Dig., AB 3334, supra.)
An analysis prepared for the Assembly Committee on Finance and Insurance stated that
“California law, enacted by the adoption of Assembly Bill 3920 (Johnston) in 1988[,]
provides that no policy of insurance shall provide coverage or indemnity for the payment
of any fine, penalty, or restitution in any civil or criminal action brought by the Attorney
General, any district attorney, or any city prosecutor . . . .” (Analysis of AB 3334, supra,
at p. 1.) The committee analysis also confirmed that the purpose of AB 3920 in 1988
“was to „hold individuals personally accountable for behavior which constitutes an unfair
business practice or false and misleading advertising.‟” (Ibid.)
       These declarations and statements of prior legislative intent are relevant to our
inquiry, but no individual expression is determinative. Section 2 of AB 3334 does not, as
Mt. Hawley argues, definitively prove that the Legislature intended (in 1988 or 1990) that
“the list of attorneys who are prosecuting an action modifies only those civil actions
brought pursuant to the UCL and the [FAL],” and not criminal actions. The entirety of

                                              24
the legislative history and purpose of the statute show that the Legislature enacted
section 533.5 in 1988 to address actions brought by state and local agencies, and then
amended section 533.5 in 1990 to limit—not expand—the application of the statute.
                      C. The 1991 amendment
       In 1991 the Legislature again amended section 533.5, subdivision (b), as part of
Senate Bill No. 709 (SB 709). SB 709, sponsored by the County of San Bernardino,
made a relatively minor change in the UCL by adding county counsel to the list of public
entities that can bring UCL actions. The Legislative Counsel‟s digest states that the bill
would allow “a county counsel authorized by agreement with the district attorney in
actions involving violation of a county ordinance to prosecute an action for injunction to
enjoin unfair competition.” (Legis. Counsel‟s Dig., SB 709 (1990-1991 Reg. Sess.)
Stat. 1990, ch. 1195.) The Legislative Counsel‟s digest also states that the bill would
authorize the county to collect any fine recovered in such an action brought by a county
counsel. (Ibid.) Although SB 709 was primarily about amending the UCL, the last
section of the bill added county counsel to the group of public entities listed in section
533.5, subdivision (b). (SB 709 (1990-1991 Reg. Sess.) Stat. 1990, ch. 1195, § 4,
subds. (a), (b), pp. 3-4.)
       Most of the legislative history of SB 709 concerns the issue of adding county
counsel to the list of public entities that can bring UCL actions. An analysis of SB 709
prepared for the Senate Committee on Judiciary explains that the bill “would provide that
in addition to the Attorney General, the district attorney and the city attorney, any county
counsel can bring an action for any violation of, or an injunction pursuant to, specified
provisions [of the Unfair Trade Practices Act].” (Sen. Com. on Judiciary, Analysis of
SB 709 (1990-1991 Reg. Sess.) May 14, 1991, p. 2.) This analysis contains one of the
few references in the legislative history of SB 709 to section 533.5 and confirms that
section 533.5, subdivision (b), applies to UCL actions brought by state and local
agencies: “Existing law also provides that no policy of insurance shall provide, or be
construed to provide[,] coverage or indemnity of the payment of any fine, penalty, or
restitution in any action brought under unfair competition laws brought by the Attorney

                                             25
General, any district attorney and city attorney.” (Ibid.) There is no indication in the
legislative history that the Legislature intended in 1991 to preclude insurers from
providing a defense in federal criminal actions, or for that matter in any actions other than
UCL and FAL actions brought by state and local public entities.
                     D. The takeaway
       The legislative history of the original 1988 statute and the 1990 and 1991
amendments makes it clear that the purpose of the statute, the circumstances of its
enactment, and the Legislature‟s goal in enacting the statute, were to preclude insurers
from providing a defense in civil and criminal UCL and FAL actions brought by the
Attorney General, district attorneys, city attorneys, and (later) county counsel. It is
undisputed that the original version of section 533.5, subdivision (b), applied only to
criminal and civil actions brought by the Attorney General, a district attorney, or a city
attorney seeking the recovery of a fine, penalty, or restitution, and not to actions brought
by federal agencies. Although the original version of section 533.5, subdivision (b), did
not specifically mention UCL and FAL claims, the Legislature enacted the original
statute to address UCL and FAL actions. It was in response to a perceived defect in the
wording of the original statute, which allowed insurers to use the statute as a defense in
environmental cleanup cases, that the Legislature in 1990 amended the statute to make it
clear that the prohibition on providing a defense applied only in UCL and FAL cases
brought by the three (and in 1991 four) named state and local agencies. At no time did
the Legislature ever intend section 533.5, subdivision (b), to apply to actions other than
UCL and FAL actions brought by state and local agencies.9 At no time did the
Legislature ever intend section 533.5, subdivision (b), to apply to criminal actions
brought by public entities other than the three and then four enumerated state and local
agencies, such as criminal actions brought by the federal prosecuting authorities.
9
        Indeed, one federal court stated in 1993 that section 533.5 stands for the principle
that there is “no insurance coverage or duty to defend in actions brought under Unfair
Business Practices Act.” (Standard Fire Ins. Co. v. Peoples Church of Fresno
(9th Cir. 1993) 985 F.2d 446, 449.)


                                             26
       Mt. Hawley‟s primary argument on the issue of legislative intent is that “there is
no indication that the Legislature intended to distinguish federal from state criminal
prosecutions and to permit an insurer-funded defense or indemnity for federal [crimes]
while barring it for those brought by the State.” As Lopez concedes, Mt. Hawley is
correct: there is nothing in the legislative history suggesting that the Legislature intended
or was even thinking about a distinction between state and federal criminal actions and
proceedings. (See People v. Taylor (2007) 157 Cal.App.4th 433, 439 [noting that the
“absence from the legislative history” of a distinction “supports our conclusion that no
distinction was intended by the Legislature”].) But that is because the Legislature was
thinking about UCL and FAL actions and proceedings, which only state and local
agencies bring. As Lopez correctly argues, “[b]ecause federal prosecutors do not enforce
the UCL, the Legislature had no reason to include them within the statute‟s ambit,” and
there was no need to distinguish or even consider actions brought by federal prosecutors.
The Attorney General‟s expressed concern that UCL and FAL cases were consuming “a
large measure of prosecutorial resources” was a concern about state resources, not federal
resources. (Bill Proposal Summary of AB 3920, supra, at p. 1.) Indeed, the absence of
any discussion regarding, concern about, or mention of federal prosecutions supports
Lopez‟s position that the Legislature intended the original statute and the two
amendments to apply only to criminal or civil UCL actions brought by the listed state and
local agencies. As the Supreme Court stated in Van Horn v. Watson (2008) 45 Cal.4th
322, “one would expect that, had the Legislature intended to alter the scope of” a statute,
“some mention of its intent would have made it into the legislative history. The absence
of any such discussion suggests the Legislature did not so intend.” (Id. at p. 332, fn. 12.)
              ii. Maxims of construction
       As noted above, section 533.5, subdivision (b), precludes an insurer from
defending “any claim in any criminal action or proceeding or in any action or proceeding
brought pursuant to [the UCL or the FAL] in which the recovery of a fine, penalty, or
restitution is sought by the Attorney General, any district attorney, any city prosecutor, or
any county counsel.” Mt. Hawley argues that the “plain grammatical structure” of

                                             27
section 533.5, subdivision (b), “compels the conclusion that the list of lawyers contained
within the second „in any‟ prepositional phrase qualifies only those types of actions
described within that phrase,” because of the “or” between “criminal action or
proceeding” and “any action or proceeding brought pursuant to” the UCL or FAL.
       Such grammatical and interpretive aids are important tools, but they are only tools.
“The rules of grammar and canons of construction are but tools, „guides to help courts
determine likely legislative intent. [Citations] And that intent is critical. Those who
write statutes seek to solve human problems. Fidelity to their aims requires us to
approach an interpretive problem not as if it were a purely logical game, like a Rubik‟s
Cube, but as an effort to divine the human intent that underlies the statute.‟” (Burris v.
Superior Court (2005) 34 Cal.4th 1012, 1017-1018, quoting J.E.M. AG Supply, Inc. v.
Pioneer Hi-Bred Intl., Inc. (2001) 534 U.S. 124, 156 [122 S.Ct. 593, 151 L.Ed.2d 508].)
“Grammar and syntax thus are a means of gleaning intent, not a basis for preventing its
effectuation.” (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231,
269; see Del Cerro Mobile Estates v. City of Placentia (2011) 197 Cal.App.4th 173, 183
[“[a] litigant may not make a „fortress out of the dictionary‟ [citation], nor similarly
employ the rules of grammar”].) Thus, “„[w]hile punctuation and grammar should be
considered in interpreting a statute, neither is controlling unless the result is in harmony
with the clearly expressed intent of the Legislature.‟” (Zanone v. City of Whittier (2008)
162 Cal.App.4th 174, 189, fn. 16.) Similarly, the “canons of construction . . . are not to
be rotely applied in disregard of other indicia of the intent and purpose of the body which
enacted the statutory provision in question.” (California Chamber of Commerce v.
Brown (2011) 196 Cal.App.4th 233, 258; see Renee J. v. Superior Court (2001)
26 Cal.4th 735, 744 (Renee J.) [“[p]rinciples of statutory construction are not rules of
independent force, but merely tools to assist the courts in discerning legislative intent”].)
       The human problems that the Legislature was seeking to solve with section 533.5
were first that insurers were providing their business insureds with an indemnity and a
defense in UCL and FAL actions brought by state and local public entities, and then later
that insurers were using section 533.5 to argue that they did not have to pay for

                                              28
environmental cleanup costs. The appearance in the 1990 amendment of the second “or
any” phrase does not definitively show that the Legislature intended section 533.5,
subdivision (b), to apply to all criminal actions, including federal criminal actions. The
legislative history is bursting with manifestations of intent to bar indemnity and defense
for UCL and FAL actions brought by state and local agencies, and devoid of any
indications that the bar would apply to criminal actions brought by federal agencies. We
cannot allow technical rules of grammar and construction to defeat the clear legislative
intent behind section 533.5. (See Payless Shoesource, Inc. v. Travelers Companies, Inc.
(10th Cir. 2009) 585 F.3d 1366, 1371-1372 [“while the rules of English grammar often
afford a valuable starting point to understanding a speaker‟s meaning, they are violated so
often by so many of us that they can hardly be safely relied upon as the end point of
analysis”].)
                  A. The last antecedent rule
       Mt. Hawley places considerable reliance on the last antecedent rule. The last
antecedent rule provides that “„qualifying words, phrases and clauses are to be applied to
the words or phrases immediately preceding and are not to be construed as extending to
or including others more remote.‟” (Renee J., supra, 26 Cal.4th at 743; see Genlyte
Group, LLC v. Workers’ Comp. Appeals Bd. (2008) 158 Cal.App.4th 705, 717 (Genlyte
Group).) Mt. Hawley argues that under the last antecedent rule the phrase “in which the
recovery of a fine, penalty, or restitution is sought by the Attorney General, any district
attorney, any city prosecutor, or any county counsel” modifies “any action or proceeding
brought pursuant to” the UCL or FAL, but not the first and more remote “any criminal
action or proceeding.”
       The last antecedent rule, however, “is „not immutable‟ and should not be „rigidly
applied‟ in all cases” and has several exceptions. (People ex rel. Lockyer v. R.J. Reynolds
Tobacco Co. (2003) 107 Cal.App.4th 516, 530; see In re Phelps (2001) 93 Cal.App.4th
451, 456.) One exception “provides that when several words are followed by a clause
that applies as much to the first and other words as to the last, „the natural construction of
the language demands that the clause be read as applicable to all.‟ [Citation] Another

                                              29
provides that when the sense of the entire act requires that a qualifying word or phrase
apply to several preceding words, its application will not be restricted to the last.”
(Renee J., supra, 26 Cal.4th at p. 743.) These “exceptions to a rigid or mechanical
application of the last antecedent rule . . . are simply another way of stating the
fundamental rule that a court is to construe a statute to effectuate the purpose of the law.”
(Genlyte Group, supra, 158 Cal.App.4th at p. 717; see Anderson v. State Farm Mut. Auto.
Ins. Co. (1969) 270 Cal.App.2d 346, 349-350 [“if the clear intent of the parties is
opposed to the application of the rule, the rule must yield”].)
       Both of these exceptions to the last antecedent rule apply here. The clause “in
which the recovery of a fine, penalty, or restitution is sought by the Attorney General,
any district attorney, any city prosecutor, or any county counsel” applies “as much to”
“any criminal action or proceeding” as to “action or proceeding brought pursuant to [the
UCL and FAL].” (See Lickter v. Lickter (2010) 189 Cal.App.4th 712, 726 [last
antecedent rule did not apply because qualifying phrase “is just as applicable to the more
remote [words] . . . as it is to the immediately preceding term”].) With the exception of
county counsel (which we discuss below), the named public entities can bring both
criminal actions and civil actions under the UCL and FAL, and can seek fines and
restitution in criminal actions and penalties in civil actions. (See Kasky v. Nike, Inc.
(2002) 27 Cal.4th 939, 950 [“[i]n a suit under the UCL, a public prosecutor may collect
civil penalties”]; People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 17
[prosecutors can seek restitution under the FAL]; People v. First Federal Credit Corp.
(2002) 104 Cal.App.4th 721 [district attorney sought civil penalties under the UCL and
FAL].)
       In addition, the goal of the legislation that enacted and amended section 533.5,
subdivision (b), was to bar insurers from providing a defense in UCL and FAL actions
but not in environmental actions brought by state agencies seeking fines, penalties, and
restitution. In light of this goal, the “sense” of the entire statute requires that the phrase
“in which the recovery of a fine, penalty, or restitution is sought by the Attorney General,
any district attorney, any city prosecutor, or any county counsel” apply to the words “any

                                               30
criminal action” and “not be restricted to” civil UCL and FAL actions and proceedings.
(See Costco Wholesale Corp. v. Workers’ Comp. Appeals Bd. (2007) 151 Cal.App.4th
148, 154-155 [“[t]he last antecedent rule does not trump” considerations of “the spirit of
the statute . . . as a whole”].) There is no indication or “sense” that the Legislature ever
intended the statute to apply to criminal actions brought by federal prosecutors, who do
not bring actions seeking recovery of a fine, penalty, or restitution under the UCL or the
FAL. The last antecedent rule does not mandate an interpretation that section 533.5,
subdivision (b), applies to federal criminal actions.10
                     B. Other maxims
       “Statutory language is not considered in isolation. Rather, we „interpret the statute
as a whole, so as to make sense of the entire statutory scheme.‟” (Bonnell v. Medical Bd.
of California (2003) 31 Cal.4th 1255, 1261.) We must also “interpret legislative
enactments so as to avoid absurd results.” (People v. Torres (2013) 213 Cal.App.4th
1151, 1158.) Relying heavily on and quoting extensively from the dissenting opinion in
Bodell, Mt. Hawley argues that the use of the word “recovery” in the phrase “in which
the recovery of a fine, penalty, or restitution is sought” by the named public agencies
“reinforces [the] insurers‟ view that the list of lawyers applies only to civil actions”
because a “prosecutor doesn‟t seek „recovery‟ of a conviction in a criminal case.”
(Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of Kozinski, J.).)


10
        A third exception to the last antecedent rule is the presence of a comma between
all of the antecedents and the qualifying phrase (here, between “any criminal action or
proceeding” and “any action or proceeding brought pursuant to” the UCL and FAL, and
“in which the recovery of a fine, penalty, or restitution is sought by the Attorney General,
any district attorney, any city prosecutor, or any county counsel”). There is no comma in
section 533.5, subdivision (b), between the two antecedents and the qualifying phrase.
Nevertheless, just because the punctuation of a statute “[a]dmittedly . . . is not
punctilious” does not justify blind adherence to the last antecedent rule. (Absher v.
AutoZone, Inc. (2008) 164 Cal.App.4th 332, 344; see U.S. Nat. Bank of Oregon v.
Independent Ins. Agents of America, Inc. (1993) 508 U.S. 439, 454 [113 S.Ct. 2173,
124 L.Ed.2d 402] [“a purported plain-meaning analysis based only on punctuation is
necessarily incomplete and runs the risk of distorting a statute‟s true meaning”].)


                                              31
       Prosecutors, however, do seek recovery of fines and restitution as a result of a
conviction in general, and in UCL and FAL cases in particular. (See, e.g., Bus. & Prof.
Code, § 17500 [violation punishable by imprisonment in county jail not to exceed six
months, a fine not to exceed $2,500, or both]; People v. Holmberg (2011)
195 Cal.App.4th 1310, 1324 [prosecutor sought victim restitution].) Indeed, prosecutors
can waive the imposition of a fine if they do not request it or do not object when the trial
court fails to impose it. (See People v. Tillman (2000) 22 Cal.4th 300, 302-303.) And
restitution hearings in criminal cases cannot proceed in the absence of the prosecutor,
even if the victim is present with counsel. (See People v. Dehle (2008) 166 Cal.App.4th
1380, 1386, 1389 [“[r]estitution hearings held pursuant to section 1202.4 are sentencing
hearings and are thus hearings which are a significant part of a criminal prosecution,” and
the “goals of a restitution hearing . . . can only be accomplished with the participation of
the district attorney acting in accordance with his responsibilities to the criminal justice
system”]; see also People v. Smith (2011) 198 Cal.App.4th 415, 434 [“[t]he restitution
hearing, whether for economic or noneconomic damages, is a criminal sentencing
hearing, not a civil trial”].)
       Moreover, the phrase “in which the recovery of a fine, penalty, or restitution is
sought by the Attorney General, any district attorney, any city prosecutor, or any county
counsel” cannot modify only “any action or proceeding brought pursuant to [the UCL
and FAL],” because fines are not recoverable in civil UCL and FAL actions. Only public
entities can prosecute a violation of the UCL and FAL as a misdemeanor and seek a fine
pursuant to Business and Professions Code section 17500. (See Kasky v. Nike, Inc.,
supra, 27 Cal.4th at p. 950 [“[i]n a suit under the UCL . . . a private plaintiff‟s remedies
are „generally limited to injunctive relief and restitution,‟” quoting Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163,
179]; Lavie v. Proctor & Gamble Co. (2003) 105 Cal.App.4th 496, 503 [“Attorney
General and district attorneys . . . are authorized to prosecute violations of the UCL
criminally (see Bus. & Prof. Code, § 17500) and may also seek redress through the
bringing of civil law enforcement cases seeking equitable relief and civil penalties

                                              32
beyond those available to private parties (see Bus. & Prof. Code, §§ 17203, 17206,
17535, 17536)”]; People v. Municipal Court (1972) 27 Cal.App.3d 193, 201-202
[“crimes are considered to be offenses against the body politic for which the punishment
is fine or imprisonment as distinguished from civil wrongs where private redress is
obtained through individually prosecuted lawsuits for damages”].) Because fines can
only be sought in criminal cases, the phrase must also modify “any criminal action or
proceeding,” consistent with the maxim of construction that “our interpretation is faithful
to the canon that we must „interpret a statute consistently with the meaning derived from
its grammatical structure.‟” (Moore v. Hill (2010) 188 Cal.App.4th 1267, 1281.) If, as
Mt. Hawley argues, the phrase modified only “any action or proceeding brought pursuant
to [the UCL and FAL],” then the Legislature would have had no reason to include the
word “fine” in the statute, thus violating another maxim of construction. (See Metcalf v.
County of San Joaquin (2008) 42 Cal.4th 1121, 1135 [“rule of statutory interpretation [is]
that courts should avoid a construction that makes any word surplusage”]; Kulshretha v.
First Union Commercial Corp. (2004) 33 Cal.4th 601, 611 [“courts may not excise words
from statutes”]; Moss v. Kroner (2011) 197 Cal.App.4th 860, 879 [“[i]t is a settled axiom
of statutory construction that significance should be attributed to every word and phrase
of a statute, and a construction making some words surplusage should be avoided”].)
       Again quoting the dissenting opinion in Bodell, Mt. Hawley argues that the
interpretation we are adopting “makes no sense because at least one of the lawyers listed
(the county counsel) cannot bring criminal charges,” that the “circumstances under which
„county counsel‟ was added to the list conclusively undermines the notion that the list has
any relevance to criminal prosecutions,” and that “the list only includes those lawyers
who are authorized to bring unfair competition and false advertising actions, and has
nothing at all to do with criminal prosecutions.” (Bodell, supra, 119 F.3d at p. 1421
(dis. opn. of Kozinski, J.).) This argument misunderstands the 1991 amendment. The
“circumstances under which „county counsel‟ was added to the list” were that the
Legislature was amending the UCL to allow county counsel to file UCL actions, and
amended section 533.5, subdivision (b), accordingly. This history supports the

                                            33
conclusion that the Legislature enacted section 533.5 to address the problem of insurers
providing indemnification and defense in UCL and FAL actions, and to prevent insurers
from litigating against state prosecutors in these kinds of cases, not to prevent insurers
from providing a defense to insureds in all criminal cases. (See Wotton v. Bush (1953)
41 Cal.2d 460, 467 [“the objective sought to be achieved by a statute as well as the evil to
be prevented is of prime consideration in its interpretation”]; All Angels
Preschool/Daycare v. County of Merced (2011) 197 Cal.App.4th 394, 403 [where “the
plain wording does not answer our question of interpretation, it is appropriate to consider
extrinsic aids such as the apparent objective to be achieved and the evils to be remedied
by the entire” statute].) Moreover, because county counsel can bring claims, “county
counsel” can modify the first “any claim” in section 533.5, subdivision (b). In any event,
when the Legislature amended the UCL and section 533.5, subdivision (b), in 1991 to
add county counsel to the statute, the Legislature had to put county counsel somewhere,
and with the Attorney General, district attorney, and city attorney was the only realistic
place county counsel would fit in the statute.
          e. Step three: Reason, practicality, and common sense
       Although it is not necessary to do so, we confirm our interpretation of section
533.5, subdivision (b), by applying “reason, practicality, and common sense to the
language” of the statute. (See Brown v. Valverde (2010) 183 Cal.App.4th 1531, 1552
[although “we need not reach [the] second and third steps” in the analysis, “[w]e
nevertheless discuss them . . . as they lend strong support to our conclusion”]; Ailanto
Properties, supra, 142 Cal.App.4th at p. 591 [“[a]lthough our review of the legislative
history suffices to support our conclusion, applying „reason, practicality, and common
sense to the language at hand‟ confirms that conclusion”].)
       Outside the special area of UCL and FAL actions brought by state and local
prosecuting agencies, there is no public policy in California against insurers contracting
to provide a defense to insureds facing criminal charges, as opposed to indemnification
for those convicted of criminal charges. (See Stein v. Internat. Ins. Co. (1990)
217 Cal.App.3d 609, 615 [“[w]hile nothing would preclude [the insurer] from choosing”

                                             34
to defend the insured‟s criminal action, “it is a judgment call to be left solely to the
insurer”]; Ohio Casualty Ins. Co. v. Hubbard (1984) 162 Cal.App.3d 939, 944 (Ohio
Casualty Ins. Co.) [“„[an] insurer is not absolved from its duty to defend the lawsuit
merely because it is forbidden by law or contract to indemnify the liability-causing
action‟”].) Section 533.5 did not change that law outside of the context of certain actions
brought by the listed state and local agencies.11
       To the contrary, courts have held that section 533, a similar but much older statute
(enacted in 1935) that prohibits indemnification “for a loss caused by the wilful act of the
insured,” does not extinguish an insurer‟s duty to defend an insured accused of those
wilful actions. (See Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 277-278 [“a contract
to defend an assured upon mere accusation of a wilful tort does not encourage such wilful
conduct”]; State Farm General Ins. Co. v. Mintarsih (2009) 175 Cal.App.4th 274, 287
[although “section 533 precluded indemnification . . . coverage” for malicious
prosecution, “section 533 did not relieve the insurer of the contractual duty to defend that
claim”]; Marie Y. v. General Star Indemnity Co. (2003) 110 Cal.App.4th 928, 959
[“[e]ven though public policy or section 533 precludes an insurer from indemnifying an
insured in an underlying action the duty to defend still exists so long as the „insured
reasonably expect[s] the policy to cover the types of acts involved in the underlying
suit‟”]; Mez Industries, Inc. v. Pacific Nat. Ins. Co. (1999) 76 Cal.App.4th 856, 878 (Mez
Industries) [“where a denial of indemnification is based on the application of section 533,
it does not necessarily follow that no duty to defend exists”]; Downey Venture v. LMI
Ins. Co. (1998) 66 Cal.App.4th 478, 508 (Downey Venture) [“[o]bviously, the public
policy concerns applicable to an insurer‟s indemnification” of a malicious prosecution
action because of section 533 “do not extend to the provision of a defense”]; B & E

11
       Indeed, the Legislative Counsel‟s digest for AB 3920 stated that the new statute‟s
provisions did “not constitute a change in, but are declaratory of, the existing law.”
(Legis. Counsel‟s Dig., AB 3920, supra, at p. 1.) Existing law in 1988 did not preclude
insurance companies from providing a defense, as opposed to indemnity, for criminal
charges.


                                              35
Convalescent Center v. State Compensation Ins. Fund (1992) 8 Cal.App.4th 78, 93
[“[p]ut another way, if the reasonable expectations of an insured are that a defense will be
provided for a claim, then the insurer cannot escape that obligation merely because public
policy precludes it from indemnifying [it]”].)12 So for example in Jaffe v. Cranford Ins.
Co. (1985) 168 Cal.App.3d 930 (Jaffe), the insurer argued that, “since the policy excludes
payment for damages resulting from criminal acts, legal defense to criminal charges is
also excluded” and that section 533 was “in accord with the policy.” (Id. at p. 935 &
fn. 9.) The court disagreed, concluding that, although “the policy behind section 533
would prohibit coverage for fines resulting from a criminal conviction,” section 533 only
“restricts the possible liability of insurers for losses. It does not restrict the insurer‟s right
to contract to provide legal services. [Citation.] Nor do we think the policy behind
section 533 necessarily precludes such coverage.” (Id. at p. 935, fn. 9.) Thus, while it is
true, as Mt. Hawley argues, that “California law recognizes a strong public policy of
discouraging certain types of conduct by barring insurance coverage for any resulting
proceedings or damages,” that public policy applies to indemnification not defense.13

12
        The same is true for section 1668 of the Civil Code, assuming, as Mt. Hawley
contends, that it applies to insurance policies. This section provides: “All contracts
which have for their object, directly or indirectly, to exempt anyone from responsibility
for his own fraud, or willful injury to the person or property of another, or violation of
law, whether willful or negligent, are against the policy of the law.” (See Downey
Venture, supra, 66 Cal.App.4th at pp. 486, fn. 1, 492; J.B. Aguerre, Inc. v. American
Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 14; Ohio Casualty Ins. Co.,
supra, 162 Cal.App.3d at pp. 945-946; see also St. Paul Fire & Marine Ins. Co. v. Weiner
(9th Cir. 1979) 606 F.2d 864, 870.) “However, it is not at all clear that section 1668
applies to indemnity agreements such as an insurance policy.” (Downey Venture, at
p. 486, fn. 1.)
13
       Where section 533 precludes indemnification and there is no “reasonable
expectation of a defense even though indemnification is excluded,” there is no duty to
defend. (Mez Industries, supra, 76 Cal.App.4th at p. 878; see Uhrich v. State Farm Fire
& Casualty Co. (2003) 109 Cal.App.4th 598, 621-622.) Where, however, there is a
“separate promise to defend against an inherently intentional tort,” the insurer can still
owe a duty to defend even if section 533 precludes a duty to indemnify. (See Uhrich, at
p. 622; Mez Industries, at p. 878, fn. 21; Downey Venture, supra, 66 Cal.App.4th at


                                               36
       Mt. Hawley, quoting the dissenting opinion in Bodell, argues that Lopez‟s
interpretation of section 533.5, subdivision (b), would create a conflict with subdivision
(a) of section 533.5, “which contains a parallel construction” precluding “coverage or
indemnity for the payment of any fine, penalty, or restitution in any criminal action or
proceeding or in any action or proceeding brought pursuant to” the UCL or FAL by the
same four state agencies.14 Mt. Hawley argues that if we adopt Lopez‟s proposed
interpretation of subdivision (b), then we would have to interpret subdivision (a) to
“mean that insurance coverage would be barred for indemnification for criminal fines,
penalties and restitution, only for criminal actions brought by the state but not the federal
government.” As the dissenting opinion in Bodell rhetorically asks, “Why would
indemnification of criminal fines imposed under federal law create any less of a moral
hazard than indemnification of fines imposed under state law?” (Bodell, supra, 119 F.3d
at p. 1411 (dis. opn. of Kozinski, J.).)
       The alleged conflict with subdivision (a) is a false issue. Section 533 precludes
indemnification of criminal fines, state and federal. (See California Casualty
Management Co. v. Martochhio (1992) 11 Cal.App.4th 1527, 1533 [§ 533 precludes
coverage “for fines or restitution imposed as a result of a criminal conviction”]; Jaffe,
supra, 168 Cal.App.3d at p. 935, fn. 9 [“policy behind section 533 would prohibit
coverage for fines resulting from a criminal conviction”].) Our interpretation of section
533.5, subdivision (b), has no effect on that rule. The Legislature enacted section 533.5


pp. 507-508.) Here, the policy includes a separate promise to defend criminal actions
“even if any of the allegations are groundless, false or fraudulent. ”
14
        Section 533.5, subdivision (a), provides: “No policy of insurance shall provide, or
be construed to provide, any coverage or indemnity for the payment of any fine, penalty,
or restitution in any criminal action or proceeding or in any action or proceeding brought
pursuant to Chapter 5 (commencing with Section 17200) of Part 2 of, or Chapter 1
(commencing with Section 17500) of Part 3 of, Division 7 of the Business and
Professions Code by the Attorney General, any district attorney, any city prosecutor, or
any county counsel, notwithstanding whether the exclusion or exception regarding this
type of coverage or indemnity is expressly stated in the policy.”


                                             37
to address the problem the Attorney General had been experiencing in UCL and FAL
cases, not to allow indemnification of federal criminal fines. Our conclusion that
subdivision (b) does not preclude an insurer from providing a defense to federal criminal
charges does not create any disharmony with subdivision (a). (See Bighorn-Desert View
Water Agency v. Verjil (2006) 39 Cal.4th 205, 218 [“[r]elated provisions „should be read
together and construed in a manner that gives effect to each, yet does not lead to
disharmony with others‟”]; Elsner v. Uveges (2004) 34 Cal.4th 915, 933 [“when
interpreting a statute, we must harmonize its various parts if possible, reconciling them in
the manner that best carries out the overriding purpose of the legislation”].)
       Moreover, the Legislature has enacted statutes authorizing insurance that provides
a defense to individual defendants in various kinds of proceedings, including criminal
proceedings. For example, Corporations Code section 317 authorizes a corporation to
indemnify certain of its agents against “expenses, judgments, fines, settlements, and other
amounts,” including “expenses actually and reasonably incurred by that person in
connection with the defense or settlement of the action . . . .” (Corp. Code, § 317,
subds. (b), (c).)15 Corporations Code section 317 applies to criminal proceedings against
the agent as long as “that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct of the person was
unlawful.” (Corp. Code, § 317, subds. (a), (b); see P. S. & S. Inc. v. Superior Court
(1971) 17 Cal.App.3d 354, 359 [predecessor to Corp. Code, § 317]; 1 Marsh‟s Cal.
Corporate Law (4th ed. 2006) §11.22).) The statute further provides that the corporation

15
       Similar to an insurer‟s right to provide a defense subject to a reservation of rights,
the corporation is entitled to condition the advance of defense costs on behalf of its agent
on the filing by the agent of a bond in case it is subsequently determined that the agent
was not entitled to indemnification and defense under the statute. (See Corp. Code,
§ 317, subd. (f) [“[e]xpenses incurred in defending any proceeding may be advanced by
the corporation prior to the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of the agent to repay that amount if it shall be determined
ultimately that the agent is not entitled to be indemnified as authorized in this section”].)


                                             38
“shall have power to purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in that capacity
or arising out of the agent‟s status . . . .” (Corp. Code, § 317, subd. (i).) Thus,
Corporations Code section 317 embodies a policy decision by the Legislature to allow
insurers in certain circumstances to provide a defense in criminal actions or proceedings.
(See Wilshire-Doheny Associates Ltd. v. Shapiro (2000) 83 Cal.App.4th 1380, 1388-1389
[“[t]he policy considerations behind [Corp. Code §] 317 „are that persons who serve the
corporation in good faith should, in the absence of certain conduct (fraud, breach of
fiduciary duties, etc.) be free from liability for corporate acts; indemnification encourages
capable persons to perform their duties, secure in the knowledge that expenses incurred
by them despite their honesty and integrity will be borne by the corporation‟”]; Channel
Lumber Co. v. Porter Simon (2000) 78 Cal.App.4th 1222, 1231 [by enacting Corp. Code,
§ 317 the Legislature made a policy decision “to encourage capable individuals to act for
and in the place of the corporation by affording them indemnification for the expenses of
defending against lawsuits to which they are made parties because they are agents of the
corporation”].)
       Similarly, Government Code section 990 provides that a local public entity may
“[i]nsure, contract or provide against the expense of defending a claim against the local
public entity or its employee . . . where such liability arose from an act or omission in the
scope of his employment, and an insurance contract for such purpose is valid and binding
notwithstanding Section 1668 of the Civil Code, Section 533 of the Insurance Code, or
any other provision of law.” (Gov. Code, § 990, subd. (c).) Government Code section
995.8 provides that “a public entity may provide for the defense of a criminal action or
proceeding . . . brought against an employee or former employee if” the “criminal action
or proceeding is brought on account of an act or omission in the scope of his employment
as an employee of the public entity . . . .”16 (Gov. Code, § 995.8; see Los Angeles Police

16
       The public entity must also determine that such a defense would be in its best
interest and that “the employee or former employee acted, or failed to act, in good faith,


                                              39
Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 176 [Gov. Code,
§ 995.8 “declares that public entities are not required to provide for the defense of
criminal actions brought against their employees, but instead permits the entities to
provide defenses in certain circumstances”].)
       Our interpretation of section 533.5 allows insurers to contract to provide a defense
to certain kinds of criminal charges, as the Legislature has said insurers can do in the
cases of corporate agents and government employees charged with crimes. Interpreting
section 533.5, subdivision (b), as Mt. Hawley proposes and as the trial court did would
create a potential conflict with statutes in the Corporations Code and the Government
Code. (See Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1086 [“[w]hen we
construe potentially conflicting statutes, our duty is to harmonize them if reasonably
possible”]; Walters v. Weed (1988) 45 Cal.3d 1, 9 [“[s]tatutes that are apparently in
conflict should, if reasonably possible, be reconciled [citation], even when the court
interprets provisions in different codes”]; Ailanto Properties, supra, 142 Cal.App.4th at
p. 591 [refusing to adopt an interpretation of Gov. Code section that “would negate other
statutory provisions” in the Water Code]; In re Marriage of Paddock (1971)
18 Cal.App.3d 355, 359 [“[s]tatutes should be construed so as to harmonize the various
sections, and wherever possible seemingly conflicting provisions should be reconciled to
avoid the declaration of an irreconcilable conflict”].)
       Our interpretation is also consistent with the goal of encouraging individuals to
serve on boards of directors and trustees of corporations and charities. Allowing insurers
to provide for defense costs in criminal cases against corporate agents enhances the
ability of for-profit and non-profit organizations to attract directors, trustees, and
volunteers who otherwise might hesitate or decline to serve because of a fear of lawsuits
and criminal prosecutions. (See In re WorldCom, Inc. Securities Litigation
(S.D.N.Y. 2005) 354 F.Supp.2d 455, 469 [“[u]nless directors can rely on the protections

without actual malice and in the apparent interests of the public entity.” (Gov. Code,
§ 995.8, subd. (b).)


                                              40
given by D & O policies, good and competent men and women will be reluctant to serve
on corporate boards”]; Homestore, Inc. v. Tafeen (Del. 2005) 888 A.2d 204, 211
[“[i]ndemnification encourages corporate service by capable individuals by protecting
their personal financial resources from depletion by the expenses they incur during an
investigation or litigation that results by reason of that service”]; Griffith, Uncovering a
Gatekeeper: Why the SEC Should Mandate Disclosure of Details Concerning Directors’
and Officers’ Liability Insurance Policies (2006) 154 U.Pa. L.Rev. 1147, 1171
[“[c]orporate managers insist on D&O insurance to protect their personal wealth from the
risk of shareholder litigation, making such coverage necessary to attract qualified persons
to board service and executive-level employment”].)
       Our interpretation that insurers may pay for defense costs in federal and some state
criminal actions is also consistent with the principle that insureds charged with crimes
begin with a presumption of innocence. (See Wiley v. County of San Diego (1998)
19 Cal.4th 532, 541 [presumption of innocence is “that bedrock „axiomatic and
elementary‟ principle whose „enforcement lies at the foundation of the administration of
our criminal law,‟” quoting In re Winship (1970) 397 U.S. 358, 363 [90 S.Ct. 1068, 25
L.Ed.2d 368]]; Gong v. Firemen’s Ins. Co. (1962) 202 Cal.App.2d 686, 691 [insured
accused of criminal acts enters “upon the trial clothed with the presumption of
innocence,” “one of the strongest disputable presumptions known to the law”]; see also
U.S. v. Stein (2d Cir. 2008) 541 F.3d 130, 156 [“the Sixth Amendment protects against
unjustified governmental interference with the right to defend oneself using whatever
assets one has or might reasonably and lawfully obtain”]; Associated Elec. & Gas Ins.
Services v. Rigas (E.D.Pa. 2004) 382 F.Supp.2d 685, 700 [insureds under D&O policy
involved in a criminal prosecution “[u]ntil and unless they are found guilty, they are
presumed innocent and must enjoy the constitutionally-based prerogatives of any citizen
who stands merely accused, but not convicted, of a crime”]; CGU Ins. v. Tyson Assoc.
(E.D.Pa. 2001) 140 F.Supp.2d 415, 421 [public policy precluding insurance coverage for
willful criminal acts or for intentional torts “is not appropriately considered during the
duty to defend analysis,” particularly where insureds “have not been found guilty of any

                                             41
wrongdoing”].) The law punishes individuals convicted of crimes, not those accused of
crimes.
       Finally, Mt. Hawley points to the statement in the dissenting opinion in Bodell that
“no California court has ever construed an insurance policy to cover criminal defenses.”
(Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of Kozinski, J.).) No California court,
however, has ever construed an insurance policy like this one not to cover criminal
defenses, nor has any California court ever held that it is against public policy for an
insurer to agree to provide a defense to criminal charges. The two cases cited by the
dissent in Bodell, Perzik v. St. Paul Fire & Marine Ins. Co. (1991) 228 Cal.App.3d 1273
(Perzik), and Jaffe, supra, 168 Cal.App.3d 930, involved medical malpractice general
liability policies that provided a defense to claims for damages and did not include an
express provision providing for a defense against criminal charges. (See Perzik, at
p. 1275; Jaffe, at p. 933.)17 The policy here, unlike the policies in Perzik and Jaffe,
provides that a covered claim includes “a criminal proceeding against any Insured
commenced by the return of an indictment” and that Mt. Hawley has a duty to defend
such a claim.18
          f. Breach of the implied covenant of good faith and fair dealing
       The trial court granted Mt. Hawley‟s motion for summary adjudication on Lopez‟s
second cause of action for breach of the implied covenant of good faith and fair dealing
on the ground that section 533.5 precluded a duty to defend. The trial court ruled:


17
      Actually, only the policy in Perzik contained an express duty to defend provision.
The insured in Jaffe argued that the duty to defend arose because of the potential for
coverage. (See Jaffe, supra, 169 Cal.App.3d at pp. 933-934.)
18
       Mt. Hawley makes the entirely circular argument that it did not contract to provide
Lopez with a defense because the policy states that “Loss shall not include . . . (5) matters
(other than punitive or exemplary damages) which are uninsurable under the law pursuant
to which the Policy shall be construed,” and section 533.5, subdivision (b), precludes any
duty to defend. Because we conclude that section 533.5, subdivision (b), does not
preclude Mt. Hawley‟s duty to defend, exclusion (5) from the definition of loss for
uninsurable matters does not apply.


                                             42
“Having found that Mt. Hawley did not breach the insurance contract by refusing to
defend against the Indictment because Insurance Code section 533.5 bars coverage for his
defense, the Court holds that Dr. Lopez‟s claim for breach of the implied covenant of
good faith and fair dealing fails as a matter of law.” The trial court did not reach
Mt. Hawley‟s alternative argument that it was entitled to summary adjudication on
Lopez‟s bad faith claim because “Mt. Hawley‟s denial was reasonable and based on a
genuine dispute” regarding its duty to defend Lopez against the criminal charges and the
application of section 533.5, subdivision (b). Mt. Hawley argues on appeal that, even if
section 533.5, subdivision (b), does not preclude it from providing Lopez with a defense,
it is still entitled to summary adjudication on Lopez‟s bad faith “because its position has
been at least reasonable.”
       It is doubtful that the so-called “genuine dispute doctrine” applies in third party19
duty to defend20 cases like this one. Here, assuming the reasonableness of Mt. Hawley‟s

19
        (See Yan Fang Du v. Allstate Ins. Co. (9th Cir. 2012) 697 F.3d 753, 758
[collecting cases and concluding that whether the genuine dispute doctrine applies to duty
to settle third party claims under California law is “unsettled”]; Howard v. American
National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 530 [“it has never been held that an
insurer in a third party case may rely on a genuine dispute over coverage to refuse
settlement”]; Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group
2012) ¶ 12:618, p. 12B-104 (rev. #1, 2011) [“[t]he extent to which the „genuine dispute‟
doctrine may apply in third party cases is presently unclear”].)
20
        (See Harbison v. American Motorists Ins. Co. (E.D.Cal. 2009) 636 F.Supp.2d
1030, 1040 [“[b]ecause the existence of a genuine dispute as to the insurer‟s liability
indicates that there is at a potential for coverage, the existence of a genuine dispute is
itself enough to trigger the insurer‟s duty to defend,” and therefore “the genuine dispute
doctrine appears wholly incompatible with duty to defend cases”]; Century Surety Co. v.
Polisso (2006) 139 Cal.App.4th 922, 951 [noting that the insurer in that case “has failed
to cite any cases that apply the genuine dispute doctrine to the duty to defend and our
research has not disclosed any” and that the “doctrine has been applied primarily in first-
party coverage cases”]; but see Gaylord v. Nationwide Mut. Ins. Co. (E.D.Cal. 2011)
776 F.Supp.2d 1101, 1125 [“the Court must respectfully disagree with Harbison‟s
conclusion that the „genuine dispute doctrine‟ cannot apply in all bad faith duty to defend
cases”]; Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, ¶¶ 12:618.5 to
12:618.10, pp. 12B-105 to 12B-106 (rev. #1, 2012) [suggesting that whether the


                                             43
position is a defense to Lopez‟s claim that Mt. Hawley refused to provide Lopez with a
defense in bad faith, material factual issues precluded Mt. Hawley from prevailing on this
claim on summary adjudication.
       The reasonableness of an insurer‟s conduct is ordinarily a question of fact, except
in the “exceptional instance when „only one reasonable inference can be drawn from the
evidence.‟” (Lee v. Fidelity Nat. Title Ins. Co. (2010) 188 Cal.App.4th 583, 599; see
Dalrymple v. United Services Auto. Assn. (1995) 40 Cal.App.4th 497, 511 [“[i]n general,
where bad faith is alleged, a jury is empowered to resolve conflicting evidence regarding
an insurer‟s conduct and motives”]; Walbrook Ins. Co. v. Liberty Mutual Ins. Co. (1992)
5 Cal.App.4th 1445, 1454-1455.) While we agree that Mt. Hawley‟s legal position on the
interpretation of section 533.5, subdivision (b), was reasonable (see above), Lopez
presented other evidence that created factual issues regarding the reasonableness of
Mt. Hawley‟s conduct in refusing to provide Lopez with a defense to the indictment. For
example, at least two years before Mt. Hawley refused to defend Lopez against the
criminal investigation and indictment for allegedly covering up the liver transplant
diversion under the “Not For Profit Organization and Executive Liability Policy,”
Mt. Hawley had “promptly” and “[i]mmediately following notification of the claims”
agreed to defend DCHS against the same criminal investigation under the same policy.21
At one point Mt. Hawley had even “advanced some $600,000 under a reservation of

existence of a genuine dispute as to coverage precludes bad faith liability for refusing to
provide a defense depends on whether the dispute is factual or legal].)
21
       This evidence came from evidentiary admissions in Mt. Hawley‟s litigation with
DCHS. “A pleading in a prior civil proceeding may be offered as an evidentiary
admission against the pleader” on summary judgment. (Magnolia Square Homeowners
Assn. v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1049, 1061; see Weil & Brown, Cal.
Practice Guide: Civil Procedure Before Trial (The Rutter Group 2012) ¶¶ 10:43, p. 10-12
(rev. #1, 2011), 10:150.1, p. 10-59 (rev. #1, 2011).) Such an admission is an evidentiary
admission, not a judicial admission, and may be rebutted with explanatory evidence from
the party against whom the admission is offered. (Deveny v. Entropin, Inc. (2006)
139 Cal.App.4th 408, 426; Magnolia Square, at p. 1061; Dolinar v. Pedone (1944)
63 Cal.App.2d 169, 177.)


                                             44
rights” to DCHS.22 Mt. Hawley never explained why it treated St. Vincent‟s so
differently from Lopez and why it denied Lopez the same defense it provided to
St. Vincent‟s for charges arising out of the same events.
       Lopez also alleged and presented evidence that Mt. Hawley refused to provide
Lopez with a defense based on an exclusion, the medical incident exclusion, that
according to Lopez was not part of the policy. (See Tomaselli v. Transamerica Ins. Co.
(1994) 25 Cal.App.4th 1269, 1281-1282 [insurer‟s continued reliance on endorsement
insureds claimed they never received was “indicia of bad faith” and “one for the jury to
decide”]; Logan v. John Hancock Mut. Life Ins. Co. (1974) 41 Cal.App.3d 988, 992
[insurer may “not rely on uncommunicated exclusions in a policy not yet issued”].) A
jury could reasonably infer from this evidence that Mt. Hawley‟s conduct toward its
insured Lopez was unreasonable and without proper cause. Indeed, Mt. Hawley‟s motion
for summary adjudication did not even address Lopez‟s allegation that Mt. Hawley
breached the implied covenant of good faith and fair dealing by “[d]enying coverage
based on an exclusion that cannot be found in the Policy.” (See Civ. Proc. Code, § 437c,
subd. (f)(1); McCaskey v. California State Automobile Assn. (2010) 189 Cal.App.4th 947,
975 [“there can be no summary adjudication of less than an entire cause of action”];
Hindin v. Rust (2004) 118 Cal.App.4th 1247, 1259 [summary judgment must dispose of
an entire cause of action].) Mt. Hawley is not entitled to summary adjudication on
Lopez‟s claim for breach of the implied covenant of good faith and fair dealing.
       3. The Trial Court Properly Overruled Lopez’s Demurrer
       Mt. Hawley‟s first amended complaint asserted two causes of action for
declaratory relief, one on the issue of Mt. Hawley‟s duty to defend and the other on
Mt. Hawley‟s duty to indemnify. Both causes of action were based on Mt. Hawley‟s
allegations that it had no coverage obligations because of (1) section 533.5, (2) the
medical incident exclusion, and (3) the remuneration/personal profit exclusion. Lopez

22
    Mt. Hawley later sought reimbursement of the “substantial sums” it had paid
DCHS and St. Vincent‟s.


                                             45
demurred to the first cause of action only. Lopez argues that the trial court erred by
overruling his demurrer.
       The trial court properly overruled Lopez‟s demurrer because his argument that the
two exclusions do not apply is based on evidence that was outside the pleadings and not
subject to judicial notice on demurrer. For example, Lopez‟s argument that the medical
incident exclusion does not apply depends on factual statements contained in his requests
for judicial notice of documents in other cases, such as the declaratory relief action
between Mt. Hawley and DCHS. (See Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1055
[“court may take judicial notice that pleadings were filed containing certain allegations
and arguments [citation], but a court may not take judicial notice of the truth of the facts
alleged”]; Williams v. Wraxall (1995) 33 Cal.App.4th 120, 130, fn. 7 [court “cannot take
judicial notice of the truth of hearsay statements in decisions or court files, including
pleadings”].) The factual issue of whether the medical incident exclusion is part of the
policy can be resolved perhaps on summary judgment and certainly at trial, but the issue
cannot be resolved on demurrer. Because Mt. Hawley‟s allegations stated a viable claim
for declaratory relief on at least on a portion of its first cause of action for declaratory
relief, the trial court properly overruled the demurrer. (See Pointe San Diego Residential
Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th
265, 274 [a “demurrer challenges a cause of action and cannot be used to attack a portion
of a cause of action”]; Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 542
[demurrer “may be sustained only if the complaint lacks any sufficient allegations to
entitle the plaintiff to relief”].)
       Finally, Lopez argues for the first time in his reply brief that issue preclusion bars
Mt. Hawley‟s declaratory relief cause of action. We decline to address this issue. (See
Habitat & Watershed Caretakers v. City of Santa Cruz (2013) 213 Cal.App.4th 1277,
1292, fn. 6 [“[a]rguments presented for the first time in an appellant‟s reply brief are
considered waived”]; Holmes v. Petrovich Development Co. (2011) 191 Cal.App.4th
1047, 1064, fn. 2 [“argument is forfeited” where “it is raised for the first time in
[appellant‟s] reply brief without a showing of good cause”].)

                                               46
                                     DISPOSITION
       The June 21, 2011 order granting Mt. Hawley‟s motion for summary judgment is
reversed. The October 18, 2010 order overruling Lopez‟s demurrer to Mt. Hawley‟s first
amended complaint is affirmed. The judgment is reversed. Lopez‟s request for judicial
notice of the Judgment of Discharge in his federal criminal case is granted. Lopez is to
recover his costs on appeal.




                                                              SEGAL, J.
We concur:



                     WOODS, Acting P. J.




                     ZELON, J.




        Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.


                                            47
