                    FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

UNIFIED WESTERN GROCERS, INC.;            
CERTIFIED GROCERS OF CALIFORNIA,
LTD.; GROCERS SPECIALTY
COMPANY; ALFRED A. PLAMANN;
CHARLES PILLITER; DANIEL T. BANE;                No. 05-15986
ROBERT M. LING; DAVID A.
WOODWARD,                                         D.C. No.
                                                CV-03-00336-HG
              Plaintiffs-Appellants,
                                                   OPINION
                v.
TWIN CITY FIRE INSURANCE
COMPANY, an Indiana corporation,
              Defendant-Appellee.
                                          
         Appeal from the United States District Court
                  for the District of Hawaii
           Helen Gillmor, District Judge, Presiding

                    Argued and Submitted
              June 9, 2006—Pasadena, California

                      Filed August 14, 2006

Before: Alex Kozinski and Ronald M. Gould, Circuit Judges,
         and Ricardo S. Martinez,* District Judge.

                     Opinion by Judge Gould




   *The Honorable Ricardo S. Martinez, United States District Judge for
the Western District of Washington, sitting by designation.

                                9543
9546     UNIFIED WESTERN GROCERS v. TWIN CITY FIRE


                       COUNSEL

Jonathan H. Steiner, McCorriston Miller Mukai MacKinnon
LLP, Honolulu, Hawaii, for the plaintiffs-appellants.

Kim W. West, Tucker Ellis & West LLP, San Francisco, Cali-
fornia, for the defendant-appellee.
           UNIFIED WESTERN GROCERS v. TWIN CITY FIRE                 9547
                              OPINION

GOULD, Circuit Judge:

    We must determine whether the Appellants, three related
corporate entities and six officers and/or directors of these
entities, are entitled to insurance coverage for an underlying
litigation brought by the bankruptcy trustee of a former sub-
sidiary of the corporate entities. The district court granted
summary judgment to the insurance company based on find-
ings that the trustee’s complaint alleged only willful acts and
sought only restitutionary relief uninsurable under California
law. We hold that genuine issues of material fact remain as to
the resolution of these issues, and we remand to the district
court for further factual development.

                                    I

   Before May 1996, Hawaiian Grocery Stores, Inc. (“HGS”)
was a wholly-owned subsidiary of Appellant Grocers Spe-
cialty Corporation, which was itself a subsidiary of Appellant
Certified Grocers of California, Ltd., now known as Appellant
Unified Western Grocers, Inc.1 Unified acquired HGS on Jan-
uary 16, 1990 for about $2.3 million and reportedly invested
a total of $7 million into the subsidiary from 1990 to 1996.
After HGS began to lose money in 1995 and 1996, Unified
decided to sell HGS. In May 1996, Unified appointed six cor-
porate officers of Unified to act as officers and/or directors of
HGS (the “Individual Appellants”). These officers and/or
directors approved a leveraged buy-out transaction on May
14, 1996 to sell all of the common shares of HGS from Uni-
fied to an entity named RHL, Inc. for around $2.4 million.2
  1
     Following the method of the Appellants, all three corporate appellants
will be referred to as “Unified” or the “Corporate Appellants.”
   2
     RHL, Inc. is alleged to be the alter ego of Richard H. Loeffler who
acted as President of HGS after Unified relinquished its ownership interest
in HGS.
9548       UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
   To fund this transaction, Unified obtained a line of credit
from Congress Financial Corporation for $4.5 million, which
was secured by the assets of HGS. At the same time, the Indi-
vidual Appellants, acting as the HGS board of directors, also
authorized a secured promissory note for $5.3 million from
HGS to Unified, which converted Unified’s equity investment
in HGS into a secured debt, and issued preferred stock of
HGS to Unified. The Individual Appellants, except for Appel-
lant Daniel Bane, then resigned their positions as officers and/
or directors of HGS on May 28, 1996 after the consummation
of the sale of stock from Unified to RHL, Inc.

   HGS filed for bankruptcy on December 15, 1999 in the
District of Hawaii. Mark J.C. Yee (“Yee” or “trustee”) was
appointed trustee for the bankruptcy estate. Yee then filed two
actions in the district court: Yee v. Unified Western Grocers,
et al., Civil No. 02-164, (the “Entity Litigation”), which
involved only the Corporate Appellants and HGS’s account-
ing firm, KPMG, and Yee v. Unified Western Grocers, et al.,
Civil No. 02-668, (the “Underlying Litigation”), which named
the Corporate Appellants, Individual Appellants, and other
law firms and individuals.3

   According to the Third Amended Complaint (“TAC” or
“Underlying Complaint”) in the Underlying Litigation, which
is the operative pleading for the summary judgment motions
at issue, Unified “retained a control position in HGS, through
its conspiratorial relationship with RHL, Inc, and used this
position to obtain not only the $2.4 million . . . for its stock,
but large payments on its antecedent investment, that it would
likely not have been repaid if the HGS had been liquidated or
sold at a nominal price in 1996.” TAC ¶ 106. The complaint
alleges that Unified continued to drain assets out of HGS
while misleading creditors as to the credit-worthiness of HGS
and concealing damaging information. Yee alleges that
  3
  According to the parties, both actions have settled and been dismissed
while this appeal was pending.
           UNIFIED WESTERN GROCERS v. TWIN CITY FIRE                9549
around $8.5 million was transferred from HGS to Unified
between May 1996 and December 1999. See Entity Litig., 4th
Am. Compl. ¶ 158.

   The Individual Appellants were insured by Appellee Twin
City under a Directors’ and Officers’ Liability Policy (“D&O
Policy”) issued to Unified. The D&O Policy did not provide
corporate entity coverage for these types of claims, but
required Twin City to reimburse Unified for any losses for
which Unified had indemnified its insured directors and offi-
cers and for which the directors and officers became legally
obligated to pay as a result of any covered claim made during
the policy period. The Underlying Complaint alleged three
claims against the insured Individual Appellants for which
Unified sought coverage under this policy: breach of fiduciary
duty (Count 2), aiding and abetting (Count 17), and civil con-
spiracy (Count 19).4

   On June 27, 2003, Appellants filed a Complaint for Declar-
atory Relief seeking a judgment that Twin City was obligated
to pay defense costs and reimburse Appellants for losses
resulting from the Underlying Complaint. Cross-motions for
summary judgment for the first phase were filed on August
30, 2004.5 After a hearing on December 6, 2004, the district
court issued an order on April 21, 2005, granting Twin City’s
motion for summary judgment and denying Appellants’
motion for summary judgment. See Unified W. Grocers, Inc.
  4
     The Underlying Complaint asserted identical claims by Value Recov-
ery Group (“VRG”), a creditor who assumed the revolving line of credit
issued by Congress Financial Services. The district court held that Appel-
lants’ complaint against Twin City did not seek reimbursement or declara-
tory relief with respect to claim asserted by VRG. See Unified W. Grocers,
Inc. v. Twin City Fire Ins. Co., 371 F. Supp. 2d 1234, 1249 (D. Haw.
2005). Appellants have not challenged this finding on appeal.
   5
     Both parties stipulated to bifurcation of cross-motions for summary
judgment. The first phase of cross-motions was to determine whether or
not any coverage existed for the trustee’s claims, while the second phase
would address allocation of any non-covered losses.
9550       UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
v. Twin City Fire Ins. Co., 371 F. Supp. 2d 1234, 1249 (D.
Haw. 2005). The district court held that coverage was prop-
erly denied based on section 533 of the California Insurance
Code, which precludes indemnification or reimbursement for
claims resulting from willful acts. Id. at 1245. The district
court also held that a public policy exclusion under California
law precluded indemnification because the claims only sought
restitutionary relief or disgorgement of ill-gotten gains. See id.
at 1247. Finally, the district court held that a contractual
exclusion in the policy barred reimbursement for claims
asserted against Appellant Bane because he was sued by a
trustee of the outside entity where he was acting as an employee.6
Id. at 1247.

                                   II

   “In determining what state law to apply, a federal court
applies the choice-of-law rules of the state in which it sits.”
Kohlrautz v. Oilmen Participation Corp., 441 F.3d 827, 833
(9th Cir. 2006). Hawaii, which is the location of the district
court in this appeal, has “moved away from the traditional and
rigid conflict-of-laws rules in favor of the modern trend
towards a more flexible approach looking to the state with the
most significant relationship to the parties and subject mat-
ter.” Lewis v. Lewis, 748 P.2d 1362, 1365 (Haw. 1988) (citing
Peters v. Peters, 634 P.2d 586 (Haw. 1981). “Primary empha-
sis is placed on deciding which state would have the strongest
interest in seeing its laws applied to the particular case.” Id.

   The district court held that California had the most signifi-
cant relationship to the parties and the subject matter. While
the Underlying Litigation involved a Hawaiian bankruptcy
trustee and a Hawaiian corporation, the Appellants for this
  6
   Daniel Bane remained a director of HGS and an officer of Unified after
the buy-out transaction when HGS ceased to be a subsidiary of Unified.
Twin City issued an endorsement extending coverage for Bane during his
service as a director for an outside entity (i.e. HGS).
          UNIFIED WESTERN GROCERS v. TWIN CITY FIRE           9551
appeal are predominantly from California7 and Appellee Twin
City is a large insurance company based in Indiana. The sub-
ject matter of this action involves a insurance policy negoti-
ated and formed in California. The district court did not err in
holding that California has the strongest interest in seeing its
laws applied to this case and that the parties were most
closely connected with California.

                                III

   [1] The district court held that section 533 of the California
Insurance Code would preclude coverage for the claims
asserted against the directors and officers in the Underlying
Complaint. Section 533 states: “An insurer is not liable for a
loss caused by the wilful act of the insured; but he is not
exonerated by the negligence of the insured, or of the
insured’s agents or others.”

   The California Supreme Court has made clear: “Section
533 reflects a fundamental public policy of denying coverage
for willful wrongs.” J.C. Penney Cas. Ins. Co. v. M.K., 804
P.2d 689, 694 n.8 (Cal. 1991) (citations omitted), cert. denied,
502 U.S. 902 (1991). “It is an implied exclusionary clause
which, by statute, must be read into all insurance policies.”
Downey Venture v. LMI Ins. Co., 78 Cal. Rptr. 2d 142, 154
(Ct. App. 1998). Because section 533 is considered under Cal-
ifornia to be an exclusionary clause, the insurer has the “bur-
den of proving that the requested claims are matters
‘uninsurable under the law.’ ” Raychem Corp. v. Fed. Ins.
Co., 853 F. Supp. 1170, 1175 (N.D. Cal. 1994).

   [2] “Section 533 does not bar coverage for conduct which
may be wrongful, but which is not intentional or willful from
the standpoint of the insured.” Melugin v. Zurich Can., 57
Cal. Rptr. 2d 781, 785 (Ct. App. 1996). Preclusion under this
statute requires more than negligence, recklessness or even
  7
   One of the Appellants, David A. Woodward, is from Texas.
9552      UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
the “intentional doing of an act constituting ordinary negli-
gence or the violation of a statute.” Downey, 78 Cal. Rptr. 2d
at 155. The statutory exclusion is intended to preclude indem-
nification for conduct that is “clearly wrongful and necessar-
ily harmful.” Mez Indus., Inc. v. Pac. Nat’l Ins. Co., 90 Cal.
Rptr. 2d 721, 736 (Ct. App. 1999) (footnote omitted).

   Although previous case law had required a specific intent
to inflict harm, see Clemmer v. Hartford Ins. Co., 587 P.2d
1098, 1110 (Cal. 1978), the California Supreme Court held in
1991 that section 533 can preclude indemnification without “a
showing by the insurer of its insured’s ‘preconceived design
to inflict harm’ when the insured seeks coverage for an inten-
tional and wrongful act if the harm is inherent in the act
itself.” J.C. Penney, 804 P.2d at 698. A “willful act” has been
further defined by California’s intermediate appellate courts
as “an act deliberately done for the express purpose of causing
damage or intentionally performed with knowledge that dam-
age is highly probable or substantially certain to result.” Shell
Oil Co. v. Winterthur Swiss Ins. Co., 15 Cal. Rptr. 2d 815,
832 (Ct. App. 1993). “Therefore, section 533 precludes
indemnification for liability arising from deliberate conduct
that the insured expected or intended to cause damage.” Id. at
833.

   [3] In determining whether an unproven claim is covered
by an applicable insurance policy, we are reluctant to frame
coverage based on isolated allegations in an underlying com-
plaint. As we stated previously, “the third party complainant,
who may overstate the claims against the insured, should not
be the arbiter of the policy’s coverage.” Gon v. First State Ins.
Co., 871 F.2d 863, 869 (9th Cir. 1989); see also Gray v.
Zurich Ins. Co., 419 P.2d 168, 176 (Cal. 1966) (“Obviously,
. . . the complainant in the third party action drafts his com-
plaint in the broadest terms; he may very well stretch the
action which lies in only nonintentional conduct to the dra-
matic complaint that alleges intentional misconduct.” (citation
           UNIFIED WESTERN GROCERS v. TWIN CITY FIRE                 9553
omitted)).8 The same underlying conduct that is eventually
proven to be merely negligent may be asserted in the com-
plaint as intentional and willful. Even when faced with allega-
tions that paint a broad picture of fraudulent schemes and
conspiracies, the application of section 533, made on sum-
mary judgment without evidence of the insured’s actual con-
duct, should consider whether any asserted claim may allow
for liability based on alleged conduct that has a lower degree
of culpability. See, e.g., Raychem, 853 F. Supp. at 1180
(Because “alleged violations of § 10(b) and Rule 10b-5 . . .
require only a showing of recklessness to fulfill the scienter
requirement . . . summary judgment [for the insured] is appro-
priate, unless [the insurer] can put forth facts which show that
the acts of the officers and directors were willful.”); B & E
Convalescent Ctr. v. State Comp. Ins. Fund, 9 Cal. Rptr. 2d
894, 905 (Ct. App. 1992) (holding that the underlying wrong-
ful termination claim was precluded by section 533 because
the claim created a potential for recovery only if there was
proof of willful conduct).

   It is clear that certain allegations in the Underlying Com-
plaint describe willful conduct. Twin City makes repeated ref-
erence to allegations in the Underlying Complaint concerning
a “scheme to withdraw the cash from HGS and give it to
[Unified] for essentially worthless stock.” TAC ¶ 82. Yee
alleges that the “scheme by [Unified] was intended to mislead
others who would rely upon the credit worthiness of HGS and
be left unpaid after RHL and [Unified] drained the remaining
assets out of the company for their own benefit.” Id. ¶ 107. A
claim for conspiracy asserted against the insured Appellants
  8
    Gon and Gray involved interpretations of an insurer’s duty to defend
potentially covered claims and is not directly applicable to determining an
insurer’s duty to indemnify loss, which requires an actually covered claim.
However, in granting the insurer’s motion for summary judgment, the dis-
trict court concluded that there were no covered claims as a matter of law
in the Underlying Litigation, which is closely analogous to the question of
whether there is a potentially covered claim. See Coit Drapery Cleaners,
Inc. v. Sequoia Ins. Co., 18 Cal. Rptr. 2d 692, 704 (Ct. App. 1993).
9554      UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
alleges that the “Defendants entered into a continuing conspir-
acy . . . aimed at obtaining money from HGS with the view
that all or much of that money would be funneled to Unified
or Certified.” Id. ¶ 254.

   [4] Although the conspiracy claim contains allegations of
willful conduct, another claim asserted against the Individual
Appellants does not necessarily require such a high degree of
culpability. Count 2 of the Underlying Complaint asserts that
the directors, officers, and other participants in the May 1996
transaction breached their fiduciary duties owed to HGS and
its creditors. This claim alleges that the Individual Appellants
had a conflict of interest from acting as officers and/or direc-
tors of both Unified and HGS at the same time during this
transaction and that the transaction was against the best inter-
est of HGS and its creditors. See id. ¶ 137, 142-44. Yee
alleges that the Individual Appellants “knew or should have
known, that taking these actions was improper and a breach
of their respective duties as employees, officers, directors,
and/or fiduciaries.” Id. ¶ 144.

   Although these allegations are similar to the conspiracy
claims described above, the trustee did not hinge liability on
a fraud or deceit on the corporation or its creditors, but on a
conflict of interest by the Individual Appellants while they
acted as officers and/or directors of HGS. As alleged in the
Underlying Complaint, a claim for breach of fiduciary duty
could allow for liability if the Appellants should have known
that their actions were against the interests of HGS and its
creditors, but did not take the necessary precautions to protect
these interests. See Lippi v. City Bank, 955 F.2d 599, 612 (9th
Cir. 1992) (“[W]here there is evidence that the parties knew
or should have known that the transaction would deplete the
assets of the company, the court will look beyond [the lever-
aged buy-out’s] formal structure” in determining fraudulent
transfer liability.); see also William Meade Fletcher, 3
Fletcher Cyclopedia of the Law of Private Corporations
§ 837.60 (2005) (“If, for example, an officer neglects the sub-
          UNIFIED WESTERN GROCERS v. TWIN CITY FIRE          9555
stantial interests of his or her corporate principal by preferring
another in a matter of importance, the officer may well offend
his or her duty of loyalty though his or her heart is pure.”).
“As a fiduciary, [the director’s] duties to the corporation
include undivided, unselfish and unqualified loyalty, unceas-
ing effort never to profit personally at corporate expense, and
unbending disavowal of any opportunity which would permit
the director’s private interests to clash with those of his corpo-
ration.” Lussier v. Mau-Van Dev., Inc., 667 P.2d 804, 819-20
(Haw. 1983) (internal quotations and citation omitted).
Breach of this fiduciary duty, which may occur without any
intent or expectation to cause harm, is not necessarily a will-
ful act because it does not require a “knowing, intentional and
purposeful act that is clearly wrongful and necessarily harm-
ful.” See Mez Indus., 90 Cal. Rptr. 2d at 736 (footnote omit-
ted).

   Twin City argues that any negligent or non-willful conduct
that may allow for liability in the breach of fiduciary duty
claim is inseparably intertwined with the willful conduct
alleged as part of the Appellants’ conspiracy. California case
law does not allow the underlying complaint to expand the
scope of coverage for the insured by including claims of neg-
ligence when the underlying factual allegations against the
insureds are exclusively intentional or willful. See Coit Drap-
ery Cleaners, Inc. v. Sequoia Ins. Co., 18 Cal. Rptr. 2d 692,
701-02 (Ct. App. 1993) (rejecting any duty to defend or
indemnify for noncriminal sexual harassment based on sec-
tion 533, regardless of any potential negligence claim which
could have been asserted on the underlying facts). The court
in Coit held: “We are required to interpret section 533 so as
to give effect and meaning to all its provisions; just as we can-
not allow insurers to recharacterize negligent conduct as
intentional, we cannot allow the insured to recast intentional
conduct as merely negligent.” Id. at 702. Allegations of negli-
gence do not give rise to an insurer’s duty to indemnify if the
harm is alleged to result from negligent conduct which is “so
intertwined with intentional and willful wrongdoing as to be
9556      UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
inseparable from the wrongdoing.” Marie Y. v. Gen. Star
Indem. Co., 2 Cal. Rptr. 3d 135, 157 (Ct. App. 2003) (internal
citation, quotation and alteration omitted).

   [5] Based on the current record, we conclude that the alle-
gations of negligent conduct are not inseparably intertwined
with the allegations of willful conduct. The damages alleged
in the Underlying Complaint do not unavoidably originate
from intentional and willful conduct by the insured. See
Uhrich v. State Farm Fire & Cas. Co., 135 Cal. Rptr. 2d 131,
144 (Ct. App. 2003) (“The defamations shown by the evi-
dence were embraced by Lindseth’s campaign. Uhrich cannot
manufacture coverage from conjecture about potential claims
concerning unspecified, yet hypothetically ‘different,’ defa-
mations.” (citation omitted)). Also, the alleged non-willful
conduct is not “part and parcel” with the willful conduct
alleged as a scheme to defraud. See Marie Y., 2 Cal. Rptr. 3d
at 157. The insureds may be subject to liability solely for their
negligence in holding conflicting positions and approving a
transaction which allegedly caused the bankruptcy of HGS.

   [6] The presence of allegations in the Underlying Com-
plaint that assert a broader scheme to defraud creditors does
not automatically subsume all allegations of a negligent char-
acter into the sphere of willful conduct. It is commonplace
under liberal pleading rules for complaints to assert alterna-
tive theories of liability. The Underlying Complaint did not
simply recast claims involving willful conduct into smaller
acts of negligence in order to allow for coverage. Instead, it
alleged a variety of claims against the insured Appellants,
some of which asserted negligence and others of which
required willfulness. Because the alleged breach of fiduciary
duty in the complaint may be satisfied by proof of negligent
conduct without any evidence of or logical correlation to a
willful scheme to defraud, the district court erred in finding
no genuine issue as to whether there was a covered claim that
was not inseparable from allegations of willful conduct.
          UNIFIED WESTERN GROCERS v. TWIN CITY FIRE          9557
                               IV

   The district court also denied indemnification for Unified’s
reimbursement of the insured Appellant’s losses because the
Underlying Complaint sought only restitution of an ill-gotten
gain. The district court held that the trustee’s litigation “seeks
relief that is restitutionary in character; namely, the return by
all Plaintiffs of the monies improperly funneled to the Corpo-
rate Defendants as a result of and flowing from the Corporate
and Individual Plaintiffs’ conspiracy and scheme to loot HGS
and strip it of all of its assets.” See Unified W. Grocers, 371
F. Supp. 2d at 1246. Appellants argue that the Underlying
Complaint not only sought restitution, but also sought com-
pensation for monetary loss that was proximately caused by
Appellants’ wrongful actions but was not actually taken by
the Appellants.

   [7] California case law precludes indemnification and reim-
bursement of claims that seek the restitution of an ill-gotten
gain. See Bank of the West v. Superior Court, 833 P.2d 545,
553 (Cal. 1992). This public policy exclusion for restitution-
ary relief applies in limited circumstances. “Although the con-
cept of ‘restitution’ may have a broader meaning in other
contexts, we limit our reference to it here to situations in
which the defendant is required to restore to the plaintiff that
which was wrongfully acquired.” Id. at 554 (citing Jaffe v.
Cranford Ins. Co., 214 Cal. Rptr. 567, 570-71 (Ct. App.
1985). “The defendant is asked to return something he wrong-
fully received; he is not asked to compensate the plaintiff for
injury suffered as a result of his conduct.” Id.

   The label of “restitution” or “damages” does not dictate
whether a loss is insurable. See id. at 548 (“[I]nsurable ‘dam-
ages’ include monetary awards that represent compensation
for harm to third parties, even if such awards bear the label
‘restitution.’ ”); Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272
F.3d 908, 911 (7th Cir. 2001) (“How the claim or judgment
order or settlement is worded is irrelevant.”). The fundamen-
9558      UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
tal distinction is not whether the insured received “some bene-
fit” from a wrongful act, but whether the claim seeks to
recover only the money or property that the insured wrong-
fully acquired. See Bank of the West, 833 P.2d at 556 (“To
emphasize the distinction between what is insurable and what
is not, we noted that Jaffe bars coverage only in situations in
which the defendant is required to restore to the plaintiff that
which was wrongfully acquired.” (emphasis in original)
(internal quotation marks omitted)).

   [8] Here, the allegations and asserted claims in the Under-
lying Complaint do not necessarily restrict all potential recov-
ery to restitution. The Underlying Complaint alleges that the
wrongful actions of the Appellants “proximately caused the
irreversible insolvency of HGS to begin and accelerate into
some $13.5 million of losses.” TAC ¶ 147. This calculation of
total damages was not based on the amount wrongfully
acquired by the Corporate Defendants, but on the amount of
unpaid debt eventually accumulated by HGS before its bank-
ruptcy. Only a portion of the outstanding debt was apparently
taken by the Corporate Defendants after the May 1996 trans-
action. Although the complaint sought $13.5 million in dam-
ages, only $8.5 million were alleged to have been received by
Appellants. See Entity Litig., 4th Am. Compl. ¶ 158.

   [9] When an underlying complaint contains a mixture of
covered and uncovered loss, the insurer is obligated to allo-
cate the reimbursement of funds between the two types. See
D&O Policy § VII (requiring Twin City to “fairly and reason-
ably allocate such amount between covered Loss and uncov-
ered loss”). While the complaint alleges the wrongful receipt
of funds from HGS, other allegations seek damages proxi-
mately caused by the Defendants’ actions in an amount
greater than the amount of money actually alleged to have
been taken by the Defendants. A genuine issue of material
           UNIFIED WESTERN GROCERS v. TWIN CITY FIRE                 9559
fact remains as to the extent that the Underlying Complaint
sought restitution of money wrongfully acquired by Unified.9

                                    V

   The district court held that Exclusion (F) of the Twin City
policy precluded coverage for claims relating to Defendant
Bane. An endorsement issued by Twin City extended cover-
age for Bane as serving in an Outside Position while he con-
tinued to act as a director of HGS after it ceased to be a
subsidiary for Unified. Exclusion (F) precludes coverage for
a person in an Outside Position for claims brought by or with
“the solicitation, assistance or participation of the entity in
which the Director or Officer serves in the Outside Position
or any director, officer, trustee, regent, governor or employee
of such entity.” See D&O Policy § V(F). Appellants argue
that the phrase “any trustee of the outside entity” in Exclusion
(F) should not include a bankruptcy trustee because a bank-
ruptcy trustee represents the bankruptcy estate and not the
pre-bankrupt entity.

  When interpreting ambiguous terms in a contract, we have
long held:

      Under statutory rules of contract interpretation, the
      mutual intention of the parties at the time the con-
      tract is formed governs interpretation. (Civ. Code,
      § 1636.) Such intent is to be inferred, if possible,
      solely from the written provisions of the contract.
      (Id., § 1639.) The “clear and explicit” meaning of
      these provisions, interpreted in their “ordinary and
      popular sense,” unless “used by the parties in a tech-
  9
    Because we find that the allegations in the pleadings are sufficient to
raise a genuine issue as to the existence of a covered claim, we do not
decide whether the expert reports supplied by Appellants in their motion
for reconsideration were properly included within the record on summary
judgment.
9560      UNIFIED WESTERN GROCERS v. TWIN CITY FIRE
    nical sense or a special meaning is given to them by
    usage” (id., § 1644), controls judicial interpretation.
    (Id., § 1638.) Thus, if the meaning a layperson
    would ascribe to contract language is not ambiguous,
    we apply that meaning.

AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1264 (Cal.
1990).

   [10] “[A] court that is faced with an argument for coverage
based on assertedly ambiguous policy language must first
attempt to determine whether coverage is consistent with the
insured’s objectively reasonable expectations.” Bank of the
West, 833 P.2d at 552. The “language in a contract must be
construed in the context of that instrument as a whole, and in
the circumstances of that case, and cannot be found to be
ambiguous in the abstract.” Id. (alteration and emphasis omit-
ted). If ambiguities remain in the policy, then these ambigu-
ous terms are construed against the insurer and in favor of
coverage. AIU Ins., 799 P.2d at 1264.

   The word “trustee” is not defined in the insurance policy
and appears to be used to refer both to bankruptcy trustees
and other types of trustees who act within corporate manage-
ment. In some sections of the policy, the word “trustee” is
used to describe an executive position within the company,
see D&O Policy § II(D) (defining “Outside Position” as “the
position of director, officer, trustee, or other equivalent exec-
utive position held by a Director or Officer” in any other
entity (emphasis added)), while in other contexts it is clearly
intended to refer to bankruptcy trustees. See id. § IV(G)
(defining “Financial Insolvency” as the status of the Company
after “appointment of any receiver, conservator, liquidator,
trustee, rehabilitator or similar official to control, supervise,
manage or liquidate the Company, or the Company becoming
a debtor in possession” (emphasis added)).
           UNIFIED WESTERN GROCERS v. TWIN CITY FIRE                9561
   [11] Although the “ordinary and popular sense” of the
phrase “any trustee” may reasonably be viewed in the abstract
as including bankruptcy trustees, the surrounding language of
the policy exclusion at issue raises an ambiguity.10 The list in
Exclusion (F) of “any director, officer, trustee, regent, gover-
nor or employee of the entity” implies that a “trustee” is
viewed as a type of executive position in the company and not
as a bankruptcy trustee or other representative of the estate.
When the policy intended to refer to a bankruptcy trustee, it
did not imply that the bankruptcy trustee was a member of the
company. A layperson would not likely view a bankruptcy
trustee as a trustee of HGS, the corporate entity, but as a
trustee of the bankruptcy estate of HGS. See In re Swift Aire
Lines, Inc., 30 B.R. 490, 495 (9th Cir. B.A.P. 1983) (“The
bankruptcy estate of Swift is, represented by the trustee, a
new legal entity distinct from the debtor Swift Aire Lines,
Inc.” (citing 11 U.S.C. §§ 323, 363, 541, 704, and 721)).

   [12] The insured’s objectively reasonable interpretation of
this phrase would not necessarily include a bankruptcy
trustee. Because the contractual exclusion is ambiguous in
this context, its application should be construed against the
insurer in a manner that affords coverage for Defendant Bane.
The district court erred in holding that this exclusion pre-
cludes coverage for Defendant Bane.

                                   VI

  The district court’s grant of summary judgment to Twin
City is REVERSED.11 We REMAND for further proceedings
consistent with this opinion.
  10
     “Our construction of that phrase is informed by the doctrine of ejus-
dem generis under which a term is interpreted by reference to the sur-
rounding language.” Mez Indus., 90 Cal. Rptr. 2d at 733.
  11
     Because we reverse the district court’s grant of summary judgment,
we need not consider the appeal of Appellants’ motion for reconsideration.
