After a class action suit under Cal. Corp. Code § 25500 for price manipulation was settled, appellants, a corporation and its officers, filed suit for breach of contract and bad faith against respondent insurer which denied coverage. The Superior Court, County of Ventura, California, granted the insurer’s motion for judgment on the pleadings, holding that Cal. Ins. Code § 533 precluded coverage. The appellants sought further review.

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The underlying suit alleged that appellants made false and misleading statements to inflate the price of the corporation’s stock. The appellate court held that since Cal. Corp. Code § 25500 required a defendant to knowingly and intentionally make a false or misleading statement to be liable, coverage was precluded by Cal. Ins. Code § 533 as a matter of law, so the trial court did not err in granting the insurer’s motion. To be liable under Cal. Corp. Code § 25500, a person must have participated in market manipulation that violated Cal. Corp. Code § 25400. Because § 25400(d) was involved, § 25500 liability required the appellants to make a false or misleading statement for the purpose of inducing the purchase or sale of stock. Such willful conduct required for § 25500 liability must have been knowing and deliberate and, therefore, necessarily constituted a “wilful act” under Cal. Ins. Code § 533. Further, the record supported the trial court’s refusal to apply judicial estoppel because appellants’ inconsistent positions involved a legal rather than a factual issue, and their position in the class action was unsuccessful.


The judgment was affirmed.