New UCL opinion addresses Moradi-Shalal insurer liability issue: Henderson v. Farmers Group, Inc.
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’sFund 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 personmay engage in an unfair or deceptive act or practice in the business ofinsurance. (§ 790.02.) An unfair practice is defined as the failureto attempt in good faith to effectuate prompt, fair, and equitable settlementsof claims in which liability has become reasonably clear. (§ 790.03, subd. (h)(5).)
InMoradi-Shalal, supra, 46 Cal.3d at page 304, the California Supreme Court held thatthe UIPA does not create a private cause of action. Rather, enforcement of the UIPA is leftprimarily to the California Insurance Commissioner.
A party cannot plead around Moradi-Shalalby relabeling a cause of action for violations of UIPA as a cause of actionunder the UCL. (Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th257, 283 (Manufacturers Life).) In otherwords, UIPA’s provisions may not be “borrowed” to serve as a basis for a UCLaction. (Id. at pp. 283-284.)
Thereis a split of authority on whether a breach of contract or bad faith cause ofaction may serve as a predicate for a UCL claim where the allegationssupporting the claim also would constitute a violation of the UIPA.
In StateFarm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093 (State Farm), ... [t]he court held that Moradi-Shalal did notbar a UCL claim based on common law theories of fraud or bad faith, even thoughsuch alleged acts might alsoviolate the provisions of the UIPA. (State Farm, at pp. 1098-1099.) ....
Thecourt in Textron Financial Corp. v. National Union Fire Ins. Co. (2004)118 Cal.App.4th 1061 (Textron), disagreed with StateFarm. ....
....
The Supreme Court has granted review to clarify the issue. (Zhangv. Superior Court (2009) 178 Cal.App.4th 1081, review granted Feb.10, 2010, S178542.)
Wefollow State Farm, and based on thereasoning of Manufacturers Life, weconclude that Moradi-Shalal does notbar a UCL cause of action based on an insurer’s bad faith, even though theconduct in question may also constitute a violation of the UIPA. Since “courts retain jurisdiction to impose civil damages or other remediesagainst insurers in appropriate common law actions,” including those based onbreach of the implied covenant of good faith and fair dealing (Moradi-Shalal, supra, 46 Cal.3d atp. 304), a UCL claim based on those actions is not an end-run around Moradi-Shalal. Thus, we conclude the trial court’s grant ofsummary 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.