Loyd

Janice D. Loyd, trustee and liquidator of First Assurance Casualty Co., Ltd., appeals the district court’s dismissal of her complaint against the company’s former law firm, Aguilar & Sebastinelli. The complaint charged the firm with malpractice for failing to prevent the company’s shareholders from conducting a fraudulent insurance scheme. The district court dismissed the action on the alternative grounds that: (1) the trustee lacked standing to Sue; and (2) the complaint failed to state a claim for legal malpractice. We conclude the trustee had standing, but the complaint failed to state a claim for malpractice under California law.

I.

This appeal arises out of an alleged conspiracy to defraud purchasers of First Assurance Casualty’s insurance policies. 1 Approximately one year after First Assurance was incorporated in the Turks & Caicos islands, it was acquired by seven individuals (hereinafter “insiders”), who caused the company to sell insurance policies in the United States, mostly in Texas and California.

Offshore insurance companies are regulated by the California Department of Insurance. They must prove they have sufficient capital to pay potential claims, and must…