Violations of the Unfair Insurance Practices Act May Be Actionable

By Marc Zimet, Esq, of Jampol Zimet LLP  
CA Supreme Court Holds Violations of the Unfair Insurance Practices Act May Be Actionable Under Unfair Competition Law
 
A recent California Supreme Court decision holds that a violation of the Unfair Insurance Practices Act (UIPA; Ins. Code, §790 et seq.) may provide a claim under the Unfair Competition Law (UCL; Bus. & Prof. Code, §17200 e seq.) in certain circumstances. The case, Yanting Zhang v. Superior Court was decided August 1, 2013. The decision comes after the Court previously held in Moradi–Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 304 that when the UIPA was enacted, the legislature did not intend to create a cause of action for a violation of the various unfair practices listed in Insurance Code section 790.03. Since that case was decided, the Courts of Appeal have been split regarding whether UCL claims based on insurer conduct covered by section 790.03 could be brought. In clarifying when a claim may be brought, the Supreme Court held that where an insurer’s conduct covered by the UIPA also violates other law, a cause of action may be brought under the UCL.
In the case at hand, plaintiff Yanting Zhang purchased a comprehensive general liability policy from California Capital Insurance Company (Capital Insurance). A dispute later arose between plaintiff and insurer regarding fire damage to plaintiff’s commercial property which resulted in plaintiff suing Capital Insurance. The complaint included numerous causes of action, including a violation of the UCL for Capital Insurance’s deceptive or misleading advertising by promising to provide coverage when it had no intention of paying an insured’s covered claims. Capital Insurance demurred to the UCL claim as barred by the Moradi-Shalal decision; the trial court agreed. On appeal, the Court of Appeals reversed, holding the plaintiff’s cause of action for false advertising was a legitimate ground for her UCL claim. Capital Insurance sought review.
On review, the Court noted the development of case law on this issue and the split at the appellate level. Defendant Capital Insurance urged the Court to follow Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 in which it was held that the unfair business practices alleged were the type of activities covered by the UIPA and alleging that those activities constituted unfair business practices was insufficient to overcome the Moradi-Shalal ruling. Thus it was held that a party could not “plead around” Moradi-Shalal by “relabeling” their cause of action as one of unfair competition. However, the Court declined to follow this line of reasoning, instead following the reasoning held in State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093. In State Farm, the court held that a plaintiff’s causes of action for fraud and bad faith were viable under the UCL, despite the fact that they also violated section 790.03. The Court noted that the State Farm court correctly recognized that actions falling under UIPA may also be actionable under the UCL if it is “independently actionable under the common law of insurance bad faith.”
In affirming the Court of Appeal’s decision, the Court determined that the plaintiff had alleged an independent cause of action under the UCL, despite the fact that the conduct was also covered by section 790.03, and therefore the claim under the UCL was viable.
It is important for insurers to recognize and understand the laws governing their conduct that must be adhered to. Failure to comply with applicable rules and regulations may result in not only liability under UIPA, but the UCL as well.

For additional information, contact Marc at (213) 689-8500 or mzimet@jzlaw.com

 

 

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