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A California appellate court has affirmed a judgment against an insurance company, rejecting its broad reading of the criminal acts exclusion in its commercial general liability insurance policies.

The Case

Monique Mingione sued Events and Adventures California, Inc. – a “membership club designed to help singles meet while experiencing adventures” – in a California state court. Ms. Mingione alleged that Events violated California Penal Code Section 632 by improperly recording a private interview with her without her knowledge and publishing it to third parties.

Nautilus Insurance Company, which had issued commercial general liability (“CGL”) insurance policies to Events, defended Events under a reservation of rights.

Nautilus, Ms. Mingione, and Events settled Ms. Mingione's lawsuit, with Ms. Mingione agreeing not to execute on any Events assets except the insurance policy.

Nautilus asked a California court to declare that it did not owe coverage, contending that Ms. Mingione's claims were not covered because they fell within the policies' criminal acts exclusion, which provided that there was no coverage for “'[p]ersonal and advertising injury' arising out of a criminal act committed by or at the direction of the insured.'”

The trial court ruled against Nautilus, and the insurer appealed.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court first pointed out that there was “never any finding of criminal conduct” by Events. It noted that Events denied any wrongdoing and that Ms. Mingione's lawsuit was settled without any admission or finding of wrongdoing by Events. In fact, the appellate court added, the settlement agreement and judgment specifically stated that Events denied all liability and provided that the settlement was not an admission of liability.

Moreover, the appellate court continued, no criminal charges ever were filed against Events so there was no guilty verdict.

The appellate court also pointed out that Nautilus chose to settle Ms. Mingione's lawsuit without any finding of criminal conduct, even though it could have defended that action, with the possibility of a jury verdict that Events had committed a criminal act. Instead, the court added, Nautilus agreed to try the case based on stipulated facts, which did not include a stipulation of misconduct or criminal conduct. “Without criminal conduct,” the appellate court stated, the exclusion did not apply.

The court also observed that, generally, in California cases holding that the criminal acts exclusion applied, the insured had been convicted of or had pleaded guilty to a crime.

Here, there was no finding of guilt or even liability by the insured, the court noted.

Finally, the court was not persuaded by Nautilus' argument that the term “arising out of” a criminal act was to be “broadly construed,” stating that the excluded acts “must constitute an actual crime, something Nautilus failed to establish here.”

The court stated that public policy and the rules of insurance policy interpretation dictated against application of the criminal acts exclusion in this case. Insurance policy exclusions must be narrowly constructed against the insurer, especially when, based on the coverage section of the policy, an insured would reasonably expect to be covered for the claim at issue, the court concluded.

The case is Nautilus Ins. Co. v. Mingione, No. G055914 (Cal. Ct. App. May 31, 2019). Attorneys involved include: Selman Breitman, Alan B. Yuter and Rachel E. Hobbs for Plaintiff and Appellant. Lakeshore Law Center and Jeffrey N. Wilens for Defendant and Respondent.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at smeyerowitz@meyerowitzcommunications.com.