The California Supreme Court recently issued a significant decision regarding the applicability of that state’s Unfair Competition Law (UCL) to the insurance industry, allowing certain types of such claims to be brought against insurers, potentially expanding insurers’ extra-contractual liability in that jurisdiction. On August 1, 2013, in Zhang v. The Superior Court Of San Bernardino County, No. S178542, 2013 Cal. LEXIS 6520 (Aug. 1, 2013) the California Supreme Court clarified the interaction between the Unfair Insurance Practices Act (“UIPA”), Insurance Code § 790, et seq. and the UCL, Bus. & Prof. Code §17200, et seq.
§ 790.03 provides, in relevant part:
The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.
. . .
(h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:
The UCL prohibits, in pertinent part, “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” § 17200, et seq. § 17203 provides for a private right of action and class action treatment of UCL claims. In addition, a UCL claim must be based on some substantive violation of another statute or common law.
In Zhang, Plaintiff sued following a coverage dispute for fire damage under a policy issued by Defendant. 2013 Cal. LEXIS 6520 at *4. The complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the UCL. The UCL claim alleged the defendant insurer “engaged in unfair, deceptive, untrue, and/or misleading advertising” by promising to provide timely coverage in the event of a covered loss. Id. The defendant insurer demurred to the UCL claim on the basis that California law bars private actions for breach of §790.03. Id. at *4-5. The trial court sustained the demurrer and the Court of Appeal reversed. Id. at * 5.
At the California Supreme Court, Defendant argued that the UCL claim for putative false advertising regarding prompt claims handling was a hidden attack on Defendant’s claims handling, and that claims handling practices are governed only by the UIPA and cannot form the basis of a UCL claim. The California Supreme Court affirmed the Court of Appeal.
The court recounted the development of UIPA law in Moradi-Shalal v. Fireman’s Fund Insurance Company, 758 P.2d 58 (Cal. 1988) (no private right of action under the UIPA); Manufacturers Life Ins. Co. v. Superior Court, 895 P.2d 56 (Cal. 1995) (agreeing with appellate court that UIPA bar on anti-competitive activity does not preclude UCL action against insurer based on activity prohibited by California anti-trust statute and noting that nothing in the UIPA suggests the California legislature intended passage of UIPA to bar anti-trust actions against insurers); State Farm Fire & Cas. Co. v. Superior Court, 45 Cal.App.4th 1093 (1996) (fraud and common law bad faith are sufficient independent bases of UCL action notwithstanding their prohibition under UIPA).
Zhang ultimately consolidates in a single holding what was already California law regarding the UIPA/UCL interaction, but had been developed over time and haphazardly, causing confusion. In short, “while a plaintiff may not use the UCL to ‘plead around’ an absolute bar to relief, the UIPA does not immunize insurers from UCL liability for conduct that violates other laws in addition to the UIPA.” Zhang, 2013 Cal. LEXIS 6520 at *2-3. Or, as the court phrased it later, “when insurers engage in conduct that violates both the UIPA and obligations imposed by other statutes or the common law, a UCL action may lie.” Id. at *39.
After recounting this sequence of cases, the Zhang court affirmed the appellate court and held Plaintiff’s common law bad faith and false advertising claims arising from Defendant’s claims handling were each sufficient to support a claim under UCL.
Zhang provides some clarity regarding insurer’s susceptibility to claims under UCL, although its application will raise various questions for future cases.