California Amplifier, Inc. v. RLI Ins. Co.

An insurer refused to indemnify its insured for the settlement of an action alleging that the insured engaged in the market manipulation of stock in violation of Corporations Code sections 25400 and 25500. We hold that liability under section 25500 requires a “wilful act” within the meaning of Insurance Code section 533, which precludes coverage under directors and officers liability insurance.

A class action was filed against appellants California Amplifier, Inc. (Cal Amp) and its officers, Ira Coron and David Nichols, seeking damages under section 25500 based on allegations that appellants made false and misleading statements to inflate the price of Cal Amp stock. Appellants filed this case for breach of contract and bad faith when respondent RLI Insurance Company (RLI) denied coverage.

The trial court granted RLI’s motion for judgment on the pleadings, concluding that coverage was precluded by Insurance Code section 533. Appellants contend that coverage is permitted because Corporations Code section 25500 liability may be based on negligent conduct. We disagree and affirm.

Facts and Procedural History

Appellants obtained a primary policy of directors and officers…