Office Depot, Inc. v. AIG SPECIALTY INSURANCE COMPANY, FKA American International Specialty Lines…

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
OFFICE DEPOT, INC.,
Plaintiff-Appellant,
v.
AIG SPECIALTY INSURANCE
COMPANY, FKA American International
Specialty Lines Insurance Company,
Defendant-Appellee.
No. 17-55125
D.C. No.
2:15-cv-02416-SVW-JPR
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Stephen V. Wilson, District Judge, Presiding
Argued and Submitted May 16, 2018
Pasadena, California
Before: WARDLAW, NGUYEN, and OWENS, Circuit Judges.
Office Depot, Inc. appeals from the district court’s judgment against AIG
Specialty Insurance Company (“AIG”). Office Depot alleged breach of contract
arising from AIG’s failure to indemnify and defend an underlying lawsuit brought
under the California False Claims Act (“CFCA”). As the parties are familiar with
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
FILED
MAY 21 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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the facts, we do not recount them here. We reverse and remand.
The district court erred in holding that California Insurance Code section
533 precludes insurance coverage of CFCA claims as a matter of law. Section 533
bars indemnification of “willful” wrongful conduct. See Cal. Ins. Code § 533 (“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.”).
However, the CFCA requires only “reckless[ness]” regarding the truth or falsity of
the information in the claim, and does not require “[p]roof of specific intent to
defraud.” Cal. Gov’t Code § 12650(b)(3). Therefore, CFCA claims do not
necessarily involve the “willful” conduct required for preclusion under section 533.
See Unified W. Grocers, Inc. v. Twin City Fire Ins. Co., 457 F.3d 1106, 1111-12
(9th Cir. 2006) (noting that preclusion under section 533 “requires more than . . .
recklessness” (citation omitted)). We are unpersuaded by the district court’s
reasoning that CFCA liability also requires the “intent to induce reliance.”
“Because section 533 is considered under California [law] to be an
exclusionary clause, the insurer has the burden of proving that the requested claims
are matters uninsurable under the law.” Id. at 1111 (citation and internal quotation
marks omitted). AIG has failed to meet that burden here with respect to the CFCA
claims. As a result, the district court erred in dismissing Office Depot’s duty-to-
indemnify claims and granting summary judgment on Office Depot’s duty-to-

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defend claims.
We leave for the district court to consider in the first instance AIG’s
alternative arguments based on the scope of coverage and exclusions in the
insurance policies.
REVERSED AND REMANDED.

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