UCL Action by Insured Against Insurer May Be Based on Common Law Fraud and Bad Faith Settlement Practices, Even Though Those Practices Violate Unfair Insurance Practices Act.
In Zhang v. Superior Court (2013) 57 C.4th 364, 159 C.R.3d 672, 304 P.3d 163, plaintiff insured sued defendant insurer in a dispute over coverage for fire damage to plaintiff's commercial property. Plaintiff alleged that defendant violated the Unfair Competition Law (UCL) based on common law claims of (a) false advertising (falsely promising to provide timely coverage); and (b) bad faith settlement practices (unreasonable delays causing the deterioration of plaintiff's property, withholding policy benefits, refusing to consider cost estimates, misinforming her about the right to an appraisal, and falsely telling her mortgage holder that she did not intend to repair the property, resulting in foreclosure). The trial judge dismissed the action on the ground that it was an impermissible attempt to plead around the bar of Moradi-Shalal v. Fireman's Fund Ins. Cos. (1988) 46 C.3d 287, 250 C.R. 116, 758 P.2d 58, 2 Summary (10th), Insurance, §254, precluding UCL actions for unfair insurance practices under Ins.C. 790.03, part of the Unfair Insurance Practices Act (UIPA). The Court of Appeal reversed, holding that plaintiff's false advertising and unfair settlement practices allegations were a viable basis for her UCL claim. Held, judgment of the Court of Appeal affirmed.
(a) Conflict in Courts of Appeal. State Farm Fire & Cas. Co. v. Superior Court (1996) 45 C.A.4th 1093, 53 C.R.2d 229, 13 Summary (10th), Equity, §112, held that, although insureds could not borrow the provisions of Ins.C. 790.03 to establish an unfair business practice in violation of the UCL by their insurer, the insureds could properly allege the independent grounds of fraud and common law bad faith settlement practices to support their UCL claim against their insurer. (57 C.4th 375.) However, Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 C.A.4th 1061, 13 C.R.3d 586, 13 Summary (10th), Equity, §119, disagreed with State Farm, holding that Moradi-Shalal's bar against a UCL action may not be overcome by alleging common law claims of unfair competition. (57 C.4th 377, 378.)
(b) Resolution of conflict. To preclude a UCL action, another statute, such as Ins.C. 790.03 in the present case must absolutely bar private causes of action or clearly permit the defendant's conduct. But Moradi-Shalal itself established that, although violations of Ins.C. 790.03 are themselves not actionable, there is no bar to claims based on common law fraud and bad faith settlement actions brought by an insured against an insurer. (57 C.4th 381, 384.) Textron is disapproved to the extent it conflicts with this rule. (57 C.4th 382.)
A separate concurring opinion by two justices, although agreeing with the result reached in the majority opinion, disagreed with the majority's conclusion that a UCL claim may never be based on a violation of the UIPA alone. (57 C.4th 384.)
On the Unfair Competition Law generally, see 13 Summary (10th), Equity, §105.
On the permissible and impermissible insurance practices under Unfair Competition Law, see 2 Summary (10th), Insurance, §256A, 13 Summary (10th), Equity, §§112, 119.
On bad faith liability of insurers, see 2 Summary (10th), Insurance, §239 et seq.
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