In Hughes v. Progressive Direct Ins. Co., ___ Cal.App.4th ___ (Jun. 15, 2011), the Court of Appeal (Second Appellate District, Division Seven) held that Moradi-Shalal did not bar a UCL action predicated on violation of Insurance Code section 758.5, which "prohibits an insurer from either requiring an insured’s automobile be repaired by a specific automobile repair dealer or suggesting or recommending that a specific automobile repair dealer be used unless the insured is informed in writing of his or her right to select another repair dealer." Slip op. at 2.
This is another decision chipping away at the rule of Moradi-Shalal as interpreted in cases such as Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal.App.4th 1061 (2004). In Hughes, the Court of Appeal held that "UCL actions may be maintained against an insurer when the alleged conduct, even though violating the UIPA, also violates other statutes applicable to insurers. .... [R]ecognizing a violation of section 758.5 as a predicate unlawful business practice for a UCL claim does not appear to conflict with Moradi-Shalal and the case law extending its holding to UCL causes of action based solely on alleged violations of the UIPA." Slip op. at 12, 14.
A similar case is now pending before the Supreme Court. As the Hughes court put it:
In Zhang v. Superior Court (2009) 178 Cal.App.4th 1081, review granted Feb. 10, 2010, S178542, the Supreme Court will consider two related issues similar to, but not necessarily dispositive of, the question presented by the case at bar: “(1) Can an insured bring a cause of action against its insurer under the unfair competition law (Bus. & Prof. Code, § 17200) based on allegations that the insurer misrepresents and falsely advertises that it will promptly and properly pay covered claims when it has no intention of doing so? (2) Does Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 bar such an action?”
Slip op. at 8 n.2.
UPDATE: On September 28, 2011, the Supreme Court took up this case as a "grant and hold" pending resolution of Zhang. Hughes v. Progressive Direct Ins. Co., no. S195069.