Last Thursday, in Zhang v. Superior Court (Cal. Capital Ins. Co.), ___ Cal.App.4th ___ (Oct. 29, 2009), the Court of Appeal (Fourth Appellate District, Division Two) held that Moradi-Shalal v. Fireman's Fund Ins. Companies, 46 Cal.3d 287 (1988), did not bar a UCL "fraudulent" prong claim against an insurance company and, on a writ petition, reversed a trial court order holding otherwise.
In Moradi-Shalal, the Supreme Court held that Insurance Code section 790.03 (which is part of the Unfair Insurance Practices Act ("UIPA") and prohibits insurance companies from engaging in a variety of kinds of unfair and deceptive conduct) did not carry a private right of action. In later cases, such as Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal.App.4th 1061 (2004), this holding was interpreted to bar UCL "unlawful" prong claims against insurers based on conduct prohibited by section 790.03. In my original post on Textron Financial, I pointed out that insurers are the only class of defendants who enjoy this kind of special exemption from UCL coverage.
In Zhang, the Fourth District, Division Two departed from Textron Financial, holding instead that Moradi-Shalal exempted insurance companies from UCL liability only to the extent the UCL claim was based solely on "conduct that violates the Unfair Insurance Practices Act but is not otherwise prohibited." Slip op. at 8 (original emphasis). In the case before it, the complaint alleged "conduct that is not merely improper under" the UIPA, but that also amounted to fraudulent misrepresentations and misleading advertising, which the UCL prohibits independently of the UIPA. Slip op. at 6, 9. The Court expressly "disagree[d] with Textron Financial, and instead followed Progressive West Ins. Co. v. Superior Court, 135 Cal.App.4th 263 (2005) (see my original blog post on Progressive West).
Several times in the opinion, the Court of Appeal expressed its distaste for the idea that insurance companies should have special immunity from UCL liablity not enjoyed by any other industry:
- "The UCL, which on its face applies to all 'businesses' and certainly does not expressly except or exempt insurers, does authorize any injured person to sue for the violation of its requirements and/or prohibitions—that is, for 'unfair competition.' (Bus. & Prof. Code, § 17204.) .... Undoubtedly an insurer is subject to suit under the UCL, and numerous cases so reflect. (See, e.g., Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th 26; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528.)" (Slip op. at 5.)
- "[A] strong case can be made for the proposition that the fact that specified acts—such as those involved in claims handling—might be prohibited by Insurance Code section 790.03 should not give an insurer a 'free pass' with respect to conduct that violates the UCL as well as that section. (See State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1098-1099, criticized on other grounds in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 184-185.) This is, in effect, the argument that we find both compelling and well supported by authority with respect to the claim of false or fraudulent advertising. As we can decide this case on the latter basis, we need not determine the broader issue." (Slip op. at 4 n.1.) (In other words, this panel likely believes that a UCL "unlawful prong" claim based on violation of section 790.03 will lie notwithstanding Moradi-Shalal.)
- "No reason appears why an insurance company should not be subject to similar liability under the UCL if false advertising or similar misrepresentations can be proved." (Slip op. at 9.)
- "[I]f a plaintiff expressly alleges conduct expressly prohibited by the UCL, such as fraudulent conduct likely to deceive the public (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th 1457) or false advertising, there is simply no reason to apply Moradi-Shalal to prohibit the cause of action." (Slip op. at 10-11.) (Note the panel's application of the pre-Prop. 64 formulation of the "fraudulent" prong.)
- "[T]o construe the Unfair Insurance Practices Act as immunizing insurers from the consequences of misconduct that other business must suffer would simply make no sense. Moradi-Shalal does not require such a result ...." (Slip op. at 11.)
It will be interesting to see whether this holding "sticks" and whether the Supreme Court takes up the issue.