The Ninth Circuit ruled that despite language in an insurance policy requiring that the insurer cover defense fees for false advertising or unfair competition claims, a retailer was required pay for its own defense in a state consumer protection lawsuit brought against it by the California Attorney General. The retailer was therefore forced to pay to its insurer approximately two million Dollars to compensate the insurer for the amounts it already had expended to defend the retailer.
The three-judge panel based their decision on California Insurance Code § 533.5, which provides that insurance policies may not cover any fines or fees arising from criminal actions or lawsuits brought by state or local authorities pursuant to California’s False Advertising Law and Unfair Competition Law. The law also prohibits insurers from defending or indemnifying an insured against such claims, even where the insurer’s duty to defend “is expressly stated in the policy.” The retailer argued that this prohibition strips it of due process and contract rights since it should be entitled to retain the legal counsel of its choosing. But the Court found that California’s insurance code nullified the insurer’s duty to defend, which did not violate the Due Process Clause since parties have no constitutional right to civil counsel and courts have long recognized only limited civil due process rights in “extreme scenarios,” such as where the government substantially interferes with a party’s ability to communicate with its attorney or prevents a party from obtaining any counsel.