Mt. Hawley Insurance v. Lopez

5. The Ruling

The trial court found that “section 533.5 unambiguously bars coverage for criminal actions and proceedings” and that “the plain language of section 533.5 bars Mt. Hawley’s duty to defend or indemnify Dr. Lopez against the Indictment.” The trial court acknowledged that “the legislative history seems to indicate that section 533.5 was enacted in response to difficulties that the Attorney General had encountered in settling actions under the unfair competition law due to the participation of insurance companies,” but “perceive[d] nothing in the legislative history from which it could clearly conclude that section 533.5 was intended to apply to state and local criminal actions only as opposed to all criminal actions, including federal proceedings.” The trial court concluded that “the correct interpretation of [section] 533.5 is that the enumeration of state, county and local prosecutors ought to be read as referring only to civil actions for unfair competition and false advertising. And that the prohibition against furnishing a defense in a criminal action applies regardless of the entity that commenced the criminal prosecution.” The trial court stated that the Ninth Circuit’s decision in Bodell was not binding and was unpersuasive, and concluded that the Bodell court’s “analysis of [section] 533.5, is in error.” The trial court therefore granted Mt. Hawley’s motion for summary judgment on Mt. Hawley’s first amended complaint and on Lopez’s cross-complaint.

The trial court entered judgment in favor of Mt. Hawley and against Lopez on June 23, 2011. Lopez filed a timely notice of appeal on June 29, 2011.

DISCUSSION

1. Standard of Review

We review a grant of summary judgment de novo. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138 , 1142 [ 12 Cal.Rptr.3d 615 ,

A “decision to sustain or overrule a demurrer is subject to de novo review on appeal . . . .” (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th 784 , 790 [ 90 Cal.Rptr.2d 598 ].) “In reviewing an order overruling a demurrer, we accept as true all properly pleaded facts in the complaint and exercise independent judgment to determine whether the complaint states a cause of action as a matter of law.” (Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365 , 373 [ 36 Cal.Rptr.3d 31 ]; see Boy Scouts of America National Foundation v. Superior Court (2012) 206 Cal.App.4th 428 , 438 [ 141 Cal.Rptr.3d 819 ] [“ ‘[t]he reviewing court accepts as true all facts properly pleaded in the complaint in order to determine whether the demurrer should be overruled’ ”].)

2. The Trial Court Erred in Granting Mt. Hawley’s Motion for Summary Judgment

a. Section 533.5

Section 533.5, subdivision (b), as originally enacted in 1988, provided: “No policy of insurance shall provide, or be construed to provide, any duty to defend, as defined in subdivision (c), any claim in any civil or criminal action

“The first step in the interpretive process looks to the words of the statute themselves.” (Alejo, supra, 212 Cal.App.4th at p. 787; see Klein, supra, 50 Cal.4th at p. 77 [“[w]e look first to the words of the statute, ‘because the statutory language is generally the most reliable indicator of legislative intent’ ”].) “If the interpretive question is not resolved in the first step, we proceed to the second step of the inquiry. [Citation.] In this step, courts may ‘turn to secondary rules of interpretation, such as maxims of construction, “which serve as aids in the sense that they express familiar insights about conventional language usage.” ’ [Citation.] We may also look to the legislative history. [Citation.] ‘Both the legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the legislative intent.’ [Citation.] [f] ‘If ambiguity remains after resort to secondary rules of construction and to the statute’s legislative history, then we must cautiously take the third and final step in the interpretive process. [Citation.] In this phase of the process, we apply “reason, practicality, and common sense to the language at hand.” [Citation.] Where an uncertainty exists, we must consider the consequences that will flow from a particular interpretation. [Citation.] Thus, “[i]n determining what the Legislature intended we are bound to consider not only the words used, but also other matters, ‘such as context, the object in view, the evils to be remedied, the history of the times and of legislation upon the same subject, public policy and contemporaneous construction.’ [Citation.]” [Citation.] These “other matters” can serve as important guides, because our search for the statute’s meaning is not merely an abstract exercise in semantics. To the contrary, courts seek to ascertain the intent of the Legislature for a reason—“to effectuate the purpose of the law.” ’ ” (Alejo, at pp. 787-788; see MacIsaac, supra, 134 Cal.App.4th at p. 1084.)

We do not necessarily engage in all three steps of the analysis. “It is only when the meaning of the words is not clear that courts are required to take a second step and refer to the legislative history.” (Soil v. Superior Court (1997) 55 Cal.App.4th 872 , 875 [ 64 Cal.Rptr.2d 319 ]; accord, Sisemore v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386 , 1411 [ 60 Cal.Rptr.3d 719 ]; see MacIsaac, supra, 134 Cal.App.4th at p. 1084 [“[i]f ambiguity remains after resort to secondary rules of construction and to the statute’s legislative history, then we must cautiously take the third and final step in the interpretive process”].)

Mt. Hawley argues that the “plain language of the statute ... is susceptible to only one, single, reasonable interpretation regarding the defense of criminal actions: that California law bars an insurance contract from providing for the defense of ‘any criminal action or proceeding.’ ” According to Mt. Hawley, “the statutory language used and enacted by the Legislature has plain meaning” and “[t]here is no need to refer to extrinsic aids to interpretation, specialized rules of grammar, or legislative history.”

In order for us to agree with Mt. Hawley, its proposed interpretation of section 533.5 must be not merely more reasonable than any other interpretation; Mt. Hawley’s proposed interpretation must be the only reasonable interpretation of section 533.5. (See Coalition of Concerned Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733 , 737 [ 21 Cal.Rptr.3d 676 , 101 P.3d 563 ] [“[i]f the statutory language permits more than one reasonable interpretation, courts may consider other aids, such as the statute’s purpose, legislative history, and public policy”]; accord, Bruns, supra, 51 Cal.4th at p. 724; see Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158 , 1162-1163 [ 72 Cal.Rptr.3d 624 , 177 P.3d 232 ] (Jones) [“statutory language is not plain” where its “language does lend itself to plaintiff’s interpretation, but . . . that is not the only reasonable interpretation of the statutory language”]; Chosak v. Alameda County Medical Center (2007) 153 Cal.App.4th 549 , 561-562 [ 63 Cal.Rptr.3d 184 ] [where both plaintiffs and defendant’s proposed interpretations of statute were reasonable and “the statutory language can bear either meaning,” the court proceeded “to a more detailed consideration of’ the purpose and legislative history of the statute “to determine which of the proposed definitions best fits the intent of the Legislature in enacting the statute,” even though one side’s interpretation was “the most obvious” interpretation]; Ailanto Properties, Inc. v. City of Half Moon Bay (2006) 142 Cal.App.4th 572 , 585-586 [ 48 Cal.Rptr.3d 340 ] (Ailanto Properties) [because plaintiff’s proposed interpretation of the statute was not “wholly unreasonable,” statute was ambiguous and court would “turn to the second step of our inquiry and look to the statute’s legislative history to clarify its meaning”].) Mt. Hawley’s interpretation, however, is not the only reasonable one.

There are at least three reasonable interpretations of the statute. One reasonable interpretation, advocated by Mt. Hawley, is that section 533.5, subdivision (b), addresses “two separate and distinct types of actions: any criminal action or proceeding (unqualified), or any action or proceeding brought pursuant to certain specific statutes in which the recovery of a fine, penalty or restitution is sought by certain state and local attorneys (as distinct from such actions brought by private parties).” Under this interpretation, “in

We look to the Legislative Counsel’s Digest and other summaries and reports indicating the Legislature’s intent. “Although the Legislative Counsel’s summary digests are not binding [citation], they are entitled to great weight.” (Van Horn v. Watson (2008) 45 Cal.4th 322 , 332, fn. 11 [ 86 Cal.Rptr.3d 350 , 197 P.3d 164 ]; accord, Jones, supra, 42 Cal.4th at p. 1170; see People v. Superior Court (Lavi) (1993) 4 Cal.4th 1164 , 1178 [ 17 Cal.Rptr.2d 815 , 847 P.2d 1031 ] [Legis. Counsel’s Dig. is indicative of legislative intent.]; Martin v. PacifiCare of California (2011) 198 Cal.App.4th 1390 , 1402 [ 130 Cal.Rptr.3d 714 ].) The Legislative Counsel’s Digest “constitutes the official summary of the legal effect of the bill and is relied upon by the Legislature throughout the legislative process,” and thus “is recognized as a primary indication of legislative intent.” (Souvannarath v. Hadden (2002) 95 Cal.App.4th 1115 , 1126, fn. 9 [ 116 Cal.Rptr.2d 7 ].) In addition, “[c]ommittee reports are often useful in determining the Legislature’s intent.” (California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997) 14 Cal.4th 627 , 646 [ 59 Cal.Rptr.2d 671 , 927 P.2d 1175 ]; see Tesco Controls, Inc. v. Monterey Mechanical Co. (2004) 124 Cal.App.4th 780 , 793 [ 21 Cal.Rptr.3d 751 ].) “In construing a statute, legislative committee reports, bill reports, and other legislative records are appropriate sources from which legislative intent may be ascertained.” (In re John S. (2001) 88 Cal.App.4th 1140 , 1144, fn. 2 [ 106 Cal.Rptr.2d 476 ]; see Valley Vista Services, Inc. v. City of Monterey Park (2004) 118 Cal.App.4th 881 , 889 [ 13 Cal.Rptr.3d 433 ] [“[w]hen construing a statute, we may consider its legislative history, including committee and bill reports, and other legislative records”].) “Relevant material includes: legislative committee reports [citation]; Legislative Analyst’s reports [citation]; and testimony or argument to either a house of the Legislature or one of its committees,” but “[m]aterial showing the motive or understanding of an individual legislator, including the bill’s author, his or her staff, or other interested persons, is generally not considered.” (Metropolitan Water Dist. v. Imperial Irrigation Dist. (2000) 80 Cal.App.4th 1403 , 1425-1426 [ 96 Cal.Rptr.2d 314 ].)

(A) The 1988 enactment of section 533.5

The legislative history of section 533.5 reveals two unmistakable and undisputed facts about the 1988 statute. First, the Legislature intended the statute to apply equally to civil and criminal actions brought by the three (at the time) listed state and local public entities that seek to recover a fine, penalty or restitution, and not to actions brought by federal agencies. As originally enacted in 1988, section 533.5, subdivision (b), applied to “any claim in any civil or criminal action or proceeding in which the recovery of a fine, penalty, or restitution is sought by” the Attorney General, a district

Committee analyses and reports confirm the Legislative Counsel’s understanding. (See Ailanto Properties, supra, 142 Cal.App.4th at pp. 589-590.) An analysis for the Assembly Committee on Finance and Insurance stated that Assembly Bill 3920 would prohibit “any policy of insurance providing, or being construed to provide, coverage or indemnity for the payment of fine, penalty, or restitution in any civil or criminal action brought by the Attorney General, district attorney, or city attorney regardless of what the policy says.” (Assem. Com. on Finance and Insurance, Analysis of Assem. Bill 3920 (1987-1988 Reg. Sess.) Apr. 19, 1988, p. 1.) The bill also would prohibit “any insurance policy from providing, or being construed to provide, any duty to defend any claim” “in any civil or criminal action brought by” the three specified public entities. (Ibid.) Thus, as the Supreme Court noted in 1990, the original version of section 533.5 “on its face . . . [did] not apply to relief sought by the federal government. .. .” (AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d at p. 837, fn. 15, original italics; see Bank of the West, supra, 2 Cal.4th at p. 1271.)

Second, the Legislature enacted section 533.5 to address a problem the Attorney General had encountered (only) in UCL and FAL actions and to address a specific problem that public entities were experiencing when they brought unfair competition or false advertising actions, whether civil or criminal, against individuals and businesses. According to the Attorney General, the bill’s sponsor and principal supporter, section 533.5 was intended to facilitate “the consumer protection activities of our office and local district attorneys and city attorneys.” (See Catlin v. Superior Court (2011) 51 Cal.4th 300 , 305-306 [ 120 Cal.Rptr.3d 135 , 245 P.3d 860 ] [considering a letter to Senate and Assembly Committees on Public Safety expressing the Attorney General’s concerns about proposed legislation as part of the legislative history].)

The Attorney General argued to the Assembly Committee on Finance and Insurance that the proposed new law would address “a problem which arises under current law when the Attorney General or a district attorney seeks to enforce [the UCL and FAL],” because “[i]n many instances” the defendants were claiming “that the conduct involved is covered by their business insurance policy.” (Office of Atty. Gen., Statement on Assem. Bill 3920

The Attorney General also argued to the Assembly Committee on Finance and Insurance and the Senate Insurance Committee that “[m]ost businesses purchase insurance to protect against losses arising from the operation of the business. Although existing law expressly prohibits insurance for losses incurred as a result of an insured’s willful misconduct, the Attorney General’s office frequently encounters problems enforcing [the UCL and FAL] because business defendants claim that the conduct involved is covered by their business insurance policies. If there is any ambiguity as to the potential liability of the insurance company, and there often is because there is no statute expressly dealing with this issue, the insurance company is obligated to defend the business. [][]... [f] Instead of individual accountability, the litigation becomes a contest between the public entity and the insurance company in which the involvement of the person whose conduct is at issue is almost negligible.” (Office of Atty. Gen., letters to Assemblyman Patrick Johnston, Chair of the Assem. Com. on Finance and Insurance, and Senator

(B) The 1990 amendment

In 1990 the Legislature amended section 533.5, subdivision (b), by enacting what was referred to as a “clean-up bill” from the Attorney General, Assembly Bill No. 3334 (1989-1990 Reg. Sess.) (Assembly Bill 3334). The legislative history reveals two unmistakable and undisputed facts about the 1990 amendment.

First, the legislative history makes clear that the Legislature did not intend the 1990 amendment to the statute to expand the reach of section 533.5, subdivision (b). The Legislative Counsel’s Digest stated that the bill to amend section 533.5 was designed to “restrict the civil actions to which those limitations apply” (Legis. Counsel’s Dig., Assem. Bill 3334 (1989-1990 Reg. Sess.) 5 Stats. 1990, Summary Dig., p. 613.) The Assembly Committee on Finance and Insurance analysis stated that Assem. Bill 3334, “like its 1988 predecessor, is sponsored by the Attorney General, to reinforce the notion that person[s] violating our unfair competition and unfair advertising law may not use their insurance coverage to evade the personal consequences of wrongdoing. This proposition is not in controversy.” (Assembly Com. on Finance and Insurance, Analysis of Assem. Bill 3334 (1989-1990 Reg. Sess.) Apr. 17, 1990, p. 1.) The committee analysis stated that the amendment “seeks to conform current law to its originally declared purpose while avoiding any adverse effect, one way or another, upon other issues of insurance contract coverage.” (Id. at p. 2.) There is nothing in the legislative history indicating that the Legislature intended to expand the scope of the statute. (See Donovan v. Poway Unified School Dist. (2008) 167 Cal.App.4th 567 , 597 [ 84 Cal.Rptr.3d 285 ] [“the absence of legislative history [can] be of significance in deciphering legislative intent”], citing Jones, supra, 42 Cal.4th at p. 1169; Starving Students, Inc. v. Department of Industrial Relations (2005) 125 Cal.App.4th 1357 , 1363 [ 23 Cal.Rptr.3d 583 ] [court can consider “the presence (or absence) of instructive legislative history”].)

The Attorney General, who proposed the 1990 amendment as he had the original 1988 legislation, argued to the Assembly Committee on Finance and Insurance that “Insurance Code section 533.5 was proposed due to the concerns about insurance companies being involved, on behalf of insured businesses, in the defense and settlement of cases brought under the unfair competition and false advertising statutes.” (Office of Atty. Gen., letter to Assemblyman Patrick Johnston, Chair of the Assem. Com. on Finance and Insurance, regarding Assem. Bill 3334, Apr. 10, 1990, p. 1.) The problem in 1988, the Attorney General noted, was that “businesses were unwilling to pay penalties or restitution to defrauded customers out of their own funds, as long as they had . . . pending claims against insurance companies,” which meant that “unfair competition and false advertising cases were dragging out and consuming a large measure of prosecutorial resources.” (Ibid.) The Attorney General explained that, to resolve these problems, the Legislature enacted section 533.5, which “prohibits insurance coverage for fines, penalties, and restitution in any civil or criminal action brought by the Attorney General, district attorneys, and city attorneys.” (Office of the Atty. Gen., letter to Assemblyman Patrick Johnston, supra, at p. 1.)

In the area of environmental cleanup costs, however, insurers were taking the position “that state agencies are precluded from arguing that damages within the meaning of the typical liability policy include environmental clean up costs because such costs are in the nature of equitable restitution.” (Office of Atty. Gen., letter to Assemblyman Patrick Johnston, Chair of the

The Assembly Committee on Finance and Insurance also considered a lengthy memorandum from the environmental section of the Attorney General’s Office, entitled “Bill Proposal: Hazardous Waste Insurance.” (See People v. Cruz (1996) 13 Cal.4th 764 , 773, fn. 5 [ 55 Cal.Rptr.2d 117 , 919 P.2d 731 ] [“it is reasonable to infer that those who actually voted on the proposed measure read and considered the materials presented in explanation of it, and that the materials therefore provide some indication of how the measure was understood at the time by those who voted to enact it”].) This memorandum stated that “section 533.5 . . . prohibits insurance coverage for fines, penalties and restitution in any civil or criminal action brought [by] the Attorney General, district attorneys and city attorneys. The Environmental Section proposes an amendment to clarify that section 533.5 is directed at criminal actions and civil law enforcement actions brought under [the UCL and FAL] and does not apply to actions filed under state and federal hazardous substance and hazardous waste control laws.” (Office of Atty. Gen., Bill Proposal; Hazardous Waste Insurance, Assem. Bill No. 3334 (1989-1990 Reg. Sess.) (undated) p. 1.) The Attorney General noted that “[t]he problem at hand is that Insurance Code section 533.5 was not intended to address the currently active issue of toxic pollution insurance coverage, yet the statute has played, and undoubtedly will continue to play[,] a role in resolving the coverage question.” (Id. at p. 2.)

Thus, the use of the broad term “any civil action” in the 1988 statute was the problem because it covered more than just UCL and FAL civil actions. As the Attorney General noted, section 533.5 as originally drafted was “too broad, in that it affects many more regulatory activities than consumer protection” (Office of the Atty. Gen.,.Bill Proposal Summary, supra, at p. 4.) The statute was supposed to solve a narrow problem in UCL and FAL actions brought by state and local agencies, but it created problems in other kinds of cases. As a result, the Legislature amended the statute so that the prohibition on providing a duty to defend applied to UCL and FAL actions, rather than all civil actions, which insurers were arguing included environmental cleanup actions. As the analysis of Assembly Bill 3334 from the Assembly Committee on Finance and Insurance explained, the amendment

Of course, as is often the case with legislative histories, the legislative history of Assembly Bill 3334 is not always entirely consistent. For example, an analysis prepared for the Senate Committee on Insurance, Claims and Corporations stated that the bill “clarifies that the prohibition against insurance to provide coverage or indemnity for the payment of any fine, penalty or restitution shall apply only to proceedings pertaining to unfair business practices or false or misleading advertisements rather than all civil actions, in addition to criminal actions.” (Sen. Insurance, Claims and Corporations Com., Analysis of Assem. Bill 3334 (1989-1990 Reg. Sess.) Aug. 8, 1990, p. 1.) This fragment of the legislative history can be read to support Mt. Hawley’s position that the 1990 amendment revised section 533.5 to bar insurers from providing a defense in (1) UCL and FAL actions seeking to recover a fine, penalty, or restitution, and (2) criminal actions. As explained above, however, the vast majority of the amendment’s legislative history and the circumstances of its enactment do not support this interpretation. Indeed, the Senate Committee analysis went on to state that the amendment “is needed to avoid any adverse [ejffects that may result as a misinterpretation of the unintended broad reference to ‘any civil action.’ ” (Sen. Insurance, Claims and Corporations Com., Analysis of Assem. Bill 3334, supra, at p. 2.) The committee analysis also did not discuss the issue of what agency (state or federal) was bringing the action.

Mt. Hawley relies heavily on section 2 of Assembly Bill 3334, which states that the Legislature’s intent in 1988 in enacting section 533.5 was that it “shall be applicable to insurance coverage and to the duty to defend only in criminal actions and in actions or proceedings brought by the Attorney General, any district attorney, or any city prosecutor, pursuant to [the UCL and the FAL].” (Assem. Bill 3334; Stats. 1990, ch. 1512, § 2, p. 2.) This statement suggests that the statute applies to (1) criminal actions and (2) civil actions under the UCL and FAL, as Mt. Hawley contends. This declaration in 1990 of what the Legislature had intended in 1988 is relevant to our inquiry but it is not binding. (See Apple Inc. v. Superior Court (2013) 56 Cal.4th 128 , 145 [ 151 Cal.Rptr.3d 841 , 292 P.3d 883 ] [“ ‘[t]he declaration of a later Legislature is of little weight in determining the relevant intent of the Legislature that enacted the law’ ”]; McClung v. Employment Development Dept. (2004) 34 Cal.4th 467 , 473 [ 20 Cal.Rptr.3d 428 , 99P.3d 1015] [“ ‘a legislative declaration of an existing statute’s meaning’ is but a factor for a court to consider and ‘is neither binding nor conclusive in construing the statute’ ”].) “Ultimately, the interpretation of a

Moreover, there are other indications in the 1990 legislative record confirming that the Legislature had intended in 1988 that the original statute apply to civil or criminal actions brought by the three named state and local public entities that seek to recover a fine, penalty or restitution. (See Ailanto Properties, supra, 142 Cal.App.4th at p. 589, fn. 13 [“[w]e may properly rely on the legislative history of subsequent enactments to clarify the Legislature’s intent regarding an earlier enacted statute,” and, while the concept of “ ‘subsequent legislative history’ may seem oxymoronic, it is well established that ‘the Legislature’s expressed views on the prior import of its statutes are entitled to due consideration, and we cannot disregard them’ ”], quoting Western Security Bank, supra, 15 Cal.4th at p. 244; City of Long Beach v. California Citizens for Neighborhood Empowerment (2003) 111 Cal.App.4th 302 , 307, fn. 6 [ 3 Cal.Rptr.3d 473 ] [“ ‘[although a legislative expression of the intent of an earlier act is not binding upon the courts in their construction of the prior act, that expression may properly be considered together with other factors in arriving at the true legislative intent existing when the prior act was passed’ ”], quoting Eu v. Chacon (1976) 16 Cal.3d 465 , 470 [ 128 Cal.Rptr. 1 , 546 P.2d 289 ].) For example, the Legislative Counsel’s Digest for Assembly Bill 3334 stated that under “[e]xisting law ... no policy of insurance shall provide any [duty to defend] any civil or criminal action or proceeding brought by the Attorney General, any district attorney, or any city prosecutor” for “the payment-of any fine, penalty, or restitution.” (Legis. Counsel’s Dig., Assem. Bill 3334, supra, 5 Stats. 1990, Summary Dig., at p. 613.) An analysis prepared for the Assembly Committee on Finance and Insurance stated that “California law, enacted by the adoption of Assembly Bill 3920 (Johnston) in 1988[,] provides that no policy of insurance shall provide coverage or indemnity for the payment of any fine, penalty, or restitution in any civil or criminal action brought by the Attorney General, any district attorney, or any city prosecutor . . . .” (Assembly Com. on Finance and Insurance, Analysis of Assem. Bill 3334, supra, at p. 1.) The committee analysis also confirmed that the purpose of Assembly Bill 3920 in 1988 “was to ‘hold individuals personally accountable for behavior which constitutes an

These declarations and statements of prior legislative intent are relevant to our inquiry, but no individual expression is determinative. Section 2 of Assem. Bill 3334 does not, as Mt. Hawley argues, definitively prove that the Legislature intended (in 1988 or 1990) that “the list of attorneys who are prosecuting an action modifies only those civil actions brought pursuant to the UCL and the [FAL],” and not criminal actions. The entirety of the legislative history and purpose of the statute show that the Legislature enacted section 533.5 in 1988 to address actions brought by state and local agencies, and then amended section 533.5 in 1990 to limit—not expand—the application of the statute.

(C) The 1991 amendment

In 1991 the Legislature again amended section 533.5, subdivision (b), as part of Senate Bill No. 709 (1990-1991 Reg. Sess.) (Senate Bill 709). Senate Bill 709, sponsored by the County of San Bernardino, made a relatively minor change in the UCL by adding county counsel to the list of public entities that can bring UCL actions. The Legislative Counsel’s Digest states that the bill would allow “a county counsel authorized by agreement with the district attorney in actions involving violation of a county ordinance to prosecute an action for injunction to enjoin unfair competition.” (Legis. Counsel’s Dig., Sen. Bill 709 (1991-1992 Reg. Sess.) 4 Stat. 1991 , Summary Dig., p. 560.) The Legislative Counsel’s Digest also states that the bill would authorize the county to collect any fine recovered in such an action brought by a county counsel. (Ibid.) Although Senate Bill 709 was primarily about amending the UCL, the last section of the bill added county counsel to the group of public entities listed in section 533.5, subdivision (b). (Sen. Bill 709, §4.)

Most of the legislative history of Senate Bill 709 concerns the issue of adding county counsel to the list of public entities that can bring UCL actions. An analysis of the bill prepared for the Senate Committee on Judiciary explains that the bill “would provide that in addition to the Attorney General, the district attorney and the city attorney, any county counsel can bring an action for any violation of, or an injunction pursuant to, specified provisions [of the Unfair Trade Practices Act].” (Sen. Com. on Judiciary, Analysis of Sen. Bill 709 (1990-1991 Reg. Sess.) May 14, 1991, p. 2.) This analysis contains one of the few references in the legislative history of Senate Bill 709 to section 533.5 and confirms that section 533.5, subdivision (b), applies to UCL actions brought by state and local agencies: “Existing law also provides that no policy of insurance shall provide, or be construed to

ii. Maxims of construction

As noted above, section 533.5, subdivision (b), precludes an insurer from defending “any claim in any criminal action or proceeding or in any action or proceeding brought pursuant to [the UCL or the FAL] in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel.” Mt. Hawley argues that the “plain grammatical structure” of section 533.5, subdivision (b), “compels the conclusion that the list of lawyers contained within the second ‘in any’ prepositional phrase qualifies only those types of actions described within that phrase,” because of the “or” between “criminal action or proceeding” and “any action or proceeding brought pursuant to” the UCL or FAL.

Such grammatical and interpretive aids are important tools, but they are only tools. “The rules of grammar and canons of construction are but tools, ‘guides to help courts determine likely legislative intent. [Citations] And that intent is critical. Those who write statutes seek to solve human problems. Fidelity to their aims requires us to approach an interpretive problem not as if it were a purely logical game, like a Rubik’s Cube, but as an effort to divine the human intent that underlies the statute.’ ” (Burris v.

The human problems that the Legislature was seeking to solve with section 533.5 were first that insurers were providing their business insureds with an indemnity and a defense in UCL and FAL actions brought by state and local public entities, and then later that insurers were using section 533.5 to argue that they did not have to pay for environmental cleanup costs. The appearance in the 1990 amendment of the second “or any” phrase does not definitively show that the Legislature intended section 533.5, subdivision (b), to apply to all criminal actions, including federal criminal actions. The legislative history is bursting with manifestations of intent to bar indemnity and defense for UCL and FAL actions brought by state and local agencies, and devoid of any indications that the bar would apply to criminal actions brought by federal agencies. We cannot allow technical rules of grammar and construction to defeat the clear legislative intent behind section 533.5. (See Payless Shoesource, Inc. v. Travelers Companies, Inc. (10th Cir. 2009) 585 F.3d 1366 , 1371-1372 [“while the rules of English grammar often afford a valuable starting point to understanding a speaker’s meaning, they are violated so often by so many of us that they can hardly be safely relied upon as the end point of any analysis”].)

(A) The last antecedent rule

Mt. Hawley places considerable reliance on the last antecedent rule. The last antecedent rule provides that “ ‘ “qualifying words, phrases and clauses

The last antecedent rule, however, “is ‘ “not immutable” ’ and should not be ‘rigidly applied’ in all cases” and has several exceptions. (People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th 516 , 530 [ 132 Cal.Rptr.2d 151 ]; see In re Phelps (2001) 93 Cal.App.4th 451 , 456 [ 113 Cal.Rptr.2d 217 ].) One exception “provides that when several words are followed by a clause that applies as much to the first and other words as to the last, ‘ “ ‘the natural construction of the language demands that the clause be read as applicable to all.’ ” ’ [Citation] Another provides that when the sense of the entire act requires that a qualifying word or phrase apply to several preceding words, its application will not be restricted to the last.” (Renee supra, 26 Cal.4th at p. 743.) These “exceptions to a rigid or mechanical application of the last antecedent rule ... are simply another way of stating the fundamental rule that a court is to construe a statute to effectuate the purpose of the law.” (Genlyte Group, supra, 158 Cal.App.4th at p. 717; see Anderson v. State Farm Mut. Auto. Ins. Co. (1969) 270 Cal.App.2d 346 , 349-350 [ 75 Cal.Rptr. 739 ] [“if the clear intent of the parties is opposed to the application of the rule, the rule must yield”].)

Both of these exceptions to the last antecedent rule apply here. The clause “in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel” applies “as much to” “any criminal action or proceeding” as to “action or proceeding brought pursuant to [the UCL and FAL].” (See Lickter v. Lickter (2010) 189 Cal.App.4th 712 , 726 [ 118 Cal.Rptr.3d 123 ] [last antecedent rule did not apply because qualifying phrase “is just as applicable to the more remote [words] ... as it is to the immediately preceding term”].) With the exception of county counsel (which we discuss below), the named public entities can bring both criminal actions and civil actions under the UCL and FAL, and can seek fines and restitution in criminal actions and penalties in civil actions. (See Kasky v. Nike, Inc. (2002) 27 Cal.4th 939 , 950 [ 119 Cal.Rptr.2d 296 , 45 P.3d 243 ] [“[i]n a suit under the UCL, a public prosecutor may collect civil penalties . . .”]; People v. Pacific Land Research Co. (1977) 20 Cal.3d 10 , 17 [ 141 Cal.Rptr. 20 , 569 P.2d 125 ] [prosecutors can seek

Prosecutors, however, do seek recovery of fines and restitution as a result of convictions in general, and in UCL and FAL cases in particular. (See, e.g., Bus. & Prof. Code, § 17500 [violation punishable by imprisonment in county jail not to exceed six months, a fine not to exceed $2,500, or both]; People v. Holmberg (2011) 195 Cal.App.4th 1310 , 1324 [ 125 Cal.Rptr.3d 878 ] [prosecutor sought victim restitution].) Indeed, prosecutors can waive the imposition of a fine if they do not request it or do not object when the trial court fails to impose it. (See People v. Tillman (2000) 22 Cal.4th 300 , 302-303 [ 92 Cal.Rptr.2d 741 , 992 P.2d 1109 ].) And restitution hearings in criminal cases cannot proceed in the absence of the prosecutor, even if the victim is present with counsel. (See People v. Dehle (2008) 166 Cal.App.4th 1380 , 1386, 1389 [ 83 Cal.Rptr.3d 461 ] [“[Restitution hearings held pursuant to section 1202.4 are sentencing hearings and are thus hearings which are a significant part of a criminal prosecution,” and the “goals of a restitution hearing . . . can only be accomplished with the participation of the district attorney acting in accordance with his responsibilities to the criminal justice system”]; see also People v. Smith (2011) 198 Cal.App.4th 415 , 434 [ 129 Cal.Rptr.3d 910 ] [“[t]he restitution hearing, whether for economic or noneconomic damages, is a criminal sentencing hearing, not a civil trial”].)

Moreover, the phrase “in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel” cannot modify only “any action or proceeding brought pursuant to [the UCL and FAL],” because fines are not recoverable in civil UCL and FAL actions. Only public entities can prosecute a violation of the UCL and FAL as a misdemeanor and seek a fine pursuant to Business and Professions Code section 17500. (See Kasky v. Nike, Inc., supra, 27 Cal.4th at p. 950 [“[i]n a suit under the UCL ... a private plaintiff’s remedies are ‘generally limited to injunctive relief and restitution’ ”], quoting Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163 , 179 [ 83 Cal.Rptr.2d 548 , 973 P.2d 527 ]; Lavie v. Procter & Gamble Co. (2003) 105 Cal.App.4th 496 , 503 [ 129 Cal.Rptr.2d 486 ] [“Attorney General and district attorneys ... are authorized to prosecute violations of the UCL criminally (see [Bus. & Prof. Code, ]§ 17500) and may also seek redress through the bringing of civil law enforcement cases seeking equitable relief and civil penalties beyond those available to private parties (see [Bus. & Prof. Code, ]§§ 17203, 17206, 17535, 17536).”]; People v. Municipal Court (Bishop) (1972) 27 Cal.App.3d 193 , 201-202 [ 103 Cal.Rptr. 645 ] [“crimes are considered to be offenses against the body politic for which the punishment is fine or imprisonment as distinguished from civil wrongs where private redress is obtained through individually prosecuted lawsuits for damages”].) Because fines can only be sought in criminal cases, the phrase

Again quoting the dissenting opinion in Bodell, Mt. Hawley argues that the interpretation we are adopting “makes no sense because at least one of the lawyers listed (the county counsel) cannot bring criminal charges,” that the “circumstance[s] under which ‘county counsel’ was added to the list conclusively undermines the notion that the list has any relevance to criminal prosecutions,” and that “the list only includes those lawyers who are authorized to bring unfair competition and false advertising actions, and has nothing at all to do with criminal prosecutions.” (Bodell, supra, 119 F.3d at p. 1421 (dis. opn. of Kozinski, J.).) This argument misunderstands the 1991 amendment. The “circumstance[s] under which ‘county counsel’ was added to the list” were that the Legislature was amending the UCL to allow county counsel to file UCL actions, and amended section 533.5, subdivision (b), accordingly. This history supports the conclusion that the Legislature enacted section 533.5 to address the problem of insurers providing indemnification and defense in UCL and FAL actions, and to prevent insurers from litigating against state prosecutors in these kinds of cases, not to prevent insurers from providing a defense to insureds in all criminal cases. (See Wotton v. Bush (1953) 41 Cal.2d 460 , 467 [ 261 P.2d 256 ] [“ ‘the objective sought to be achieved by a statute as well as the evil to be prevented is of prime consideration in its interpretation’ ”]; All Angels Preschool/Daycare v. County of Merced (2011) 197 Cal.App.4th 394 , 403 [ 128 Cal.Rptr.3d 349 ] [where “the plain wording does not answer our question of interpretation, it is appropriate to consider extrinsic aids such as the apparent objective to be achieved and the evils to be remedied by the entire” statute].) Moreover, because county counsel can bring claims, “county counsel” can modify the first “any claim” in section 533.5, subdivision (b). In any event, when the

Our interpretation that insurers may pay for defense costs in federal and some state criminal actions is also consistent with the principle that insureds charged with crimes begin with a presumption of innocence. (See Wiley v. County of San Diego (1998) 19 Cal.4th 532 , 541 [ 79 Cal.Rptr.2d 672 , 966 P.2d 983 ] [presumption of innocence is “ ‘that bedrock “axiomatic and elementary” principle whose “enforcement lies at the foundation of the administration of our criminal law” ’ ”], quoting In re Winship (1970) 397 U.S. 358 , 363 [ 25 L.Ed.2d 368 , 90 S.Ct. 1068 ]; Gong v. Firemen’s Ins. Co. (1962) 202 Cal.App.2d 686 , 691 [ 21 Cal.Rptr. 110 ] [insured accused of criminal acts enters “upon the trial clothed with the presumption of innocence,” “one of the strongest disputable presumptions known to the law”]; see also United States v. Stein (2d Cir. 2008) 541 F.3d 130 , 156 [“the Sixth Amendment protects against unjustified governmental interference with the right to defend oneself using whatever assets one has or might reasonably and lawfully obtain”]; Associated Electric & Gas Ins. Services v. Rig as (E.D.Pa. 2004) 382 F.Supp.2d 685 , 700 [insureds under director and officer policy involved in a criminal prosecution “[u]ntil and unless they are found guilty, they are presumed innocent and must enjoy the constitutionally-based prerogatives of any citizen who stands merely accused, but not convicted, of a crime”]; CGU Ins. v. Tyson Assoc. (E.D.Pa. 2001) 140 F.Supp.2d 415 , 421 [public policy precluding insurance coverage for wilful criminal acts or for intentional torts “is not appropriately considered during the duty to defend analysis,” particularly where insureds “have not been found guilty of any wrongdoing”].) The law punishes individuals convicted of crimes, not those accused of crimes.

The trial court properly overruled Lopez’s demurrer because his argument that the two exclusions do not apply is based on evidence that was outside the pleadings and not subject to judicial notice on demurrer. For example, Lopez’s argument that the medical incident exclusion does not apply depends on factual statements contained in his requests for judicial notice of documents in other cases, such as the declaratory relief action between Mt. Hawley and DCHS. (See Oiye v. Fox (2012) 211 Cal.App.4th 1036 , 1055 [ 151 Cal.Rptr.3d 65 ] [“court may take judicial notice that pleadings were filed containing certain allegations and arguments [citation], but a court may not take judicial notice of the truth of the facts alleged”]; Williams v. Wraxall (1995) 33 Cal.App.4th 120 , 130, fn. 7 [ 39 Cal.Rptr.2d 658 ] [court “cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings”].) The factual issue of whether the medical incident exclusion is part of the policy can be resolved perhaps on summary judgment and certainly at trial, but the issue cannot be resolved on demurrer. Because Mt. Hawley’s allegations stated a viable claim for declaratory relief on at least a portion of its first cause of action for declaratory relief, the trial court properly overruled the demurrer. (See Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265 , 274 [ 125 Cal.Rptr.3d 540 ] [a “demurrer challenges a cause of action and cannot be used to attack a portion of a cause of action”]; Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532 , 542 [ 71 Cal.Rptr.2d 462 ] [demurrer “may be sustained only if the complaint lacks any sufficient allegations to entitle the plaintiff to relief’].)

Finally, Lopez argues for the first time in his reply brief that issue preclusion bars Mt. Hawley’s declaratory relief cause of action. We decline to address this issue. (See Habitat & Watershed Caretakers v. City of Santa Cruz (2013) 213 Cal.App.4th 1277 , 1292, fn. 6 [ 152 Cal.Rptr.3d 888 ] [“[arguments presented for the first time in an appellant’s reply brief are considered waived”]; Holmes v. Petrovich Development Co. (2011) 191 Cal.App.4th 1047 , 1064, fn. 2 [ 119 Cal.Rptr.3d 878 ] [“argument is forfeited” where “it is raised for the first time in [appellant’s] reply brief without a showing of good cause”].)

DISPOSITION

The June 21, 2011 order granting Mt. Hawley’s motion for summary judgment is reversed. The October 18, 2010 order overruling Lopez’s demurrer

Woods, Acting P. J., and Zelon, J., concurred.

On May 29, 2013, the opinion was modified to read as printed above. Respondent’s petition for review by the Supreme Court was denied July 31, 2013, S211292. Werdegar, J., did not participate therein.