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California Supreme Court Holds That Unfair Competition Law Can Include Insurance Claims

SAN FRANCISCO — (Mealey’s) The California Supreme Court said Aug. 1 that an insurance policyholder can bring bad faith and false advertising claims against her insurance company under the state’s unfair competition law (UCL; Business and Professions Code Section 17200, et seq.) and that those claims are not prohibited by the state’s Unfair Insurance Practices Act (UIPA; Insurance Code Section 790, et seq.) (Yanting Zhang v. The Superior Court of San Bernardino County, et al., No. S178542, Calif. Sup.) [an enhanced version of this opinion is available to subscribers].

A fire damaged a commercial premises owned by Yanting Zhang.  After California Capital Insurance Co. (CCIC) refused to authorize what she believed was an adequate payment, she sued the company under the UCL in the San Bernardino County Superior Court.

Zhang alleged that CCIC mishandled her loss claim and refused “to authorize adequate payment under the policy for the repair and restoration of the premises.”  Zhang alleged that CICC’s conduct constituted “unfair, deceptive, untrue, and/or misleading advertising” because it “promises its insureds that it will timely pay” in the event of a covered loss, although it “has no intention of properly paying the true value” of their claims.

CCIC demurred, claiming that per Moradi-Shalal v. Fireman’s Fund Insurance Cos. (46 Cal.3d 287 [1988]), California Insurance Code Section 790.03 did not create a private right of action for UCL claims related to actions proscribed by the Insurance Code.  The Superior Court agreed but was reversed on appeal.  CCIC’s petition to the California Supreme Court was accepted.

Independent Grounds OK

“We hold that Moradi-Shalal does not preclude first party UCL actions based on grounds independent from section 790.03, even when the insurer’s conduct also violates section 790.03,” five Supreme Court justices said in the majority opinion.  “We have made it clear that while a plaintiff may not use the UCL to ‘plead around’ an absolute bar to relief, the UIPA does not immunize insurers from UCL liability for conduct that violates other laws in addition to the UIPA.”

“Here, plaintiff alleges causes of action for false advertising and insurance bad faith, both of which provide grounds for a UCL claim independent from the UIPA,” the majority continued.  “Allowing her also to sue under the UCL does no harm to the rule established in Moradi-Shalal.”

“The Moradi-Shalal court made it plain that while violations of section 790.03(h) are themselves not actionable, insureds retain other causes of action against insurers, including common law bad faith claims,” the majority said.  “Furthermore, UCL actions by private parties are equitable proceedings, with limited remedies.  They are thus quite distinct from the claims for damages with which Moradi-Shalal was concerned.”

“Private UIPA actions are absolutely barred; a litigant may not rely on the proscriptions of section 790.03 as the basis for a UCL claim,” the majority continued, citing Moradi-Shalal and state appellate case law.  “However, when insurers engage in conduct that violates both the UIPA and obligations imposed by other statutes or the common law, a UCL action may lie.  The Legislature did not intend the UIPA to operate as a shield against any civil liability.”

‘Unnecessary Dictum’

Justice Carol A. Corrigan wrote the majority opinion.  She was joined by Chief Justice Tani Cantil-Sakauye and Justices Joyce L. Kennard, Marvin R. Baxter and Ming W. Chin.

Justice Kathryn M. Werdegar wrote a separate concurring opinion and was joined by Justice Goodwin Lui.  Justice Werdegar said she fully concurs with the majority that the Court of Appeal was correct in allowing Zhang’s case to proceed and the trial court was wrong to sustain a demurrer.

However, Justice Werdergar said majority went further and asserted that no UCL claim can ever be based on violations of the UIPA.  “Given Zhang’s conscious decision not to predicate a UCL claim directly on such transgressions, this assertion is unnecessary dictum,” she wrote.

“Moreover, it is wrong: it misreads our own precedent and imposes on the UCL limits never contemplated by the Legislature,” she concluded.

Gary K. Kwasniewski and Jeanette L. Viau of Viau & Kwasniewski in Los Angeles represent Zhang.  CCIC is represented by Lance D. Orloff and Aaron J. Mortensen of Grant, Genovese & Baratta in Irvine, Calif., and Peter Abrahams and Mitchell C. Tilner of Horvitz & Levy in Encino, Calif.

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