The Ninth Circuit Court of Appeals has upheld the dismissal of a case involving Citizens of Humanity, LLC, and RLI Insurance Company. The court's decision, issued on October 29, 2026, confirms that Citizens of Humanity's claims of breach of contract and bad faith against RLI were not valid. This ruling affects the way businesses interpret insurance policies and their rights in claims against insurers.

Citizens of Humanity, a clothing manufacturer based in California, filed the lawsuit against RLI Insurance after it denied coverage for certain claims. The dispute centered on whether RLI had a duty to provide independent legal counsel to Citizens when it had reserved its rights regarding coverage issues. This case is significant as it addresses the responsibilities of insurance companies when conflicts of interest arise.

The case reached the Ninth Circuit after the United States District Court for the Central District of California dismissed Citizens' claims. Citizens argued that RLI's denial of coverage constituted a breach of contract and that the insurer acted in bad faith by not providing independent counsel. However, the district court found that Citizens did not adequately support its claims.

The Ninth Circuit reviewed the dismissal under a de novo standard, meaning it considered the case from the beginning without relying on the lower court's conclusions. The judges examined the insurance policy and relevant California law to determine if Citizens had a valid claim. The opinion noted that the right to independent counsel arises only when an insurer reserves its rights in a way that creates a conflict of interest.

The court stated, "Citizens failed to plausibly state a claim for breach of contract. The right to independent counsel arises only if an insurer reserves its rights to deny indemnification on specific coverage issues, and the reservation creates a conflict of interest between the insurer and its insured that precludes dual representation." This ruling emphasized that Citizens' interpretation of the insurance policy was unreasonable and that RLI's general reservation of rights did not create a conflict of interest.

Furthermore, the court ruled that Citizens' claims for contractual and tortious bad faith also failed. The judges explained, "Where a breach of contract cannot be shown, there is no basis for a finding of breach of the covenant [of good faith and fair dealing]." This statement underscores the importance of demonstrating a breach of contract to support bad faith claims against an insurer.

The decision has implications for businesses and insurance policyholders in California. It clarifies the circumstances under which insurers must provide independent counsel and reinforces the principle that a mere denial of coverage does not automatically lead to bad faith claims. This ruling may influence future cases involving similar disputes between insured parties and their insurers.

Moving forward, this ruling may set a precedent for how courts handle similar cases in the future. It highlights the necessity for clear communication and understanding of insurance policy language. Businesses must carefully review their policies and understand the implications of coverage reservations made by insurers.

As for the possibility of an appeal, Citizens of Humanity may seek to challenge this ruling, but the Ninth Circuit's decision is binding unless overturned by a higher court. Details regarding any potential related cases were not available in the court filing.