Insurers Can Be Sued For Unfair Competition Under Business & Professions Code Section 17200

Zhang v. Superior Court
(Cal. Sup. Ct.), filed August 1, 2013, published August 1, 2013

KEY FACTS

Yanting Zhang owned certain commercial premises. California Capital Insurance Company insured the premises. A fire damaged the premises. Zhang made a claim to California Capital.

Zhang sued California Capital as a result of its handling of her claim. She alleged causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing based on the way California Capital handled her claim. In particular, she alleged California Capital refused to authorize adequate payment for the repair and restoration of the premises.

Zhang also alleged a cause of action for violation of the Unfair Competition Law (“UCL”) embodied in Business and Professions Code Section 17200. She incorporated all of the prior allegations in her complaint and alleged that California Capital “engaged in unfair, deceptive, untrue, and/or misleading advertising.” She alleged that California Capital “promises its insureds that it will timely pay proper coverage in the event the insured suffers a covered loss” but had no intention of honoring its advertised promises.

California Capital demurred, arguing that the cause of action was based on conduct that the Insurance Code Section 790.03 prohibits, and Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (1988), barred the UCL cause of action.

The trial court sustained California Capital’s demurrer. Zhang appealed.

The Court of Appeal reversed. It held that regardless of whether a UCL claim could be based on conduct prohibited by section 790.03, it could be based on false advertising and that Zhang had alleged false advertising.

California Capital sought California Supreme Court review.

HOLDING & REASONING

The California Supreme Court affirmed.

It held that although Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (1988), precludes actions based on violations of Insurance Code Section 790.03(h), it 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. It said:  “We have made it clear that while a plaintiff may not use the UCL to ‘plead around’ an absolute bar to relief, the [Unfair Insurance Practices Act] does not immunize insurers from UCL liability for conduct that violates other laws in addition to the [Unfair Insurance Practices Act].”

In reaching this decision, the court agreed with State Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093 (1996).  It disapproved of Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal.App.4th 1061 (2004). Additionally, it noted that its ruling does not affect the opinions in third party cases such as Industrial Indemnity Co. v. Superior Court, 209 Cal.App.3d 1093 (1989), or Safeco Ins. Co. v. Superior Court, 216 Cal.App.3d 1491 (1990).

In reaching its decision, the Court noted that in an action under the UCL, prevailing plaintiffs are generally limited to injunctive relief and restitution and may not receive damages or attorney fees, except to the extent attorney fees are awarded on a “private attorney general” theory in a class action. Moreover, a plaintiff must have “suffered injury in fact and [have] lost money or property as a result of…unfair competition.” As a result, permitting a UCL action would not have the same negative societal impact as permitting one under Section 790.03(h) (which led to Moradi-Shalal).

The Court declined to consider California Capital’s argument that no UCL cause of action may be based on an insurer’s handling of a fire loss claim, because the exclusive remedy in disputes over such claims is the appraisal process provided in Insurance Code Section 2071. It did so because California Capital had not raised it in the trial court, the Court of Appeal, or its petition for review.

ANALYSIS

This decision will probably mean that insurers will be facing more Section 17200 claims in first party cases. The decision does not address Section 17200 claims in a third-party context.