Melugin

In this case, respondent insurer sold a policy to its insureds covering liability for “discrimination, . . . violation of civil rights, [and] sexual discrimination,” but providing as to this grant of coverage that “damages based on the above offences are only covered where insurance against same is not prohibited by law.” The respondent insurer now contends it had no duty to defend a lawsuit alleging that its insureds committed sexual discrimination, because insurance for those discrimination allegations would be prohibited by law under the provisions of Insurance Code section 533 (section 533) and by certain exclusionary clauses of the policy. We conclude that the provisions of section 533 as applied to this case, and applicable policy exclusions, do not relieve the insurer of the duty to defend its insureds in an underlying lawsuit brought by former employees alleging discrimination in employment in violation of the provisions of the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12940 et seq.), and related common law causes of action.

Appellants Gary Melugin (Melugin) and his employer, the Canada Life Assurance Company (Canada Life), were sued for…