In Henderson v. Farmers Group, Inc., ___ Cal.App.4th ___ (Oct. 24, 2012), the trial court granted summary adjudication of the UCL claim, holding it barred by Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287 (1988). The Court of Appeal (Second Appellate District, Division Four) reversed:
The Unfair Insurance Practices Act (UIPA), provides that no person may engage in an unfair or deceptive act or practice in the business of insurance. (§ 790.02.) An unfair practice is defined as the failure to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. (§ 790.03, subd. (h)(5).)In Moradi-Shalal, supra, 46 Cal.3d at page 304, the California Supreme Court held that the UIPA does not create a private cause of action. Rather, enforcement of the UIPA is left primarily to the California Insurance Commissioner.
A party cannot plead around Moradi-Shalal by relabeling a cause of action for violations of UIPA as a cause of action under the UCL. (Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 283 (Manufacturers Life).) In other words, UIPA’s provisions may not be “borrowed” to serve as a basis for a UCL action. (Id. at pp. 283-284.)
There is a split of authority on whether a breach of contract or bad faith cause of action may serve as a predicate for a UCL claim where the allegations supporting the claim also would constitute a violation of the UIPA.
In State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093 (State Farm), ... [t]he court held that Moradi-Shalal did not bar a UCL claim based on common law theories of fraud or bad faith, even though such alleged acts might also violate the provisions of the UIPA. (State Farm, at pp. 1098-1099.) ....
The court in Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 (Textron), disagreed with State Farm. ....
The Supreme Court has granted review to clarify the issue. (Zhang v. Superior Court (2009) 178 Cal.App.4th 1081, review granted Feb. 10, 2010, S178542.)
We follow State Farm, and based on the reasoning of Manufacturers Life, we conclude that Moradi-Shalal does not bar a UCL cause of action based on an insurer’s bad faith, even though the conduct in question may also constitute a violation of the UIPA. Since “courts retain jurisdiction to impose civil damages or other remedies against insurers in appropriate common law actions,” including those based on breach of the implied covenant of good faith and fair dealing (Moradi-Shalal, supra, 46 Cal.3d at p. 304), a UCL claim based on those actions is not an end-run around Moradi-Shalal. Thus, we conclude the trial court’s grant of summary judgment on this basis was erroneous.
Slip op. at 20-23. I would expect this case to be taken up as a "grant and hold" pending resolution of Zhang. The Daily Journal had an article on Zhang last Wednesday (Oct. 24), which will be of interest to those of us following the case.
UPDATE: On January 16, 2013, as expected, the Supreme Court took up this case as a "grant and hold" pending resolution of Zhang. Henderson v. Farmers Group, No. S207068.