Zhang v. Superior Court of San Bernardino County

Can an Unfair Insurance Practices Act violation support a private civil cause of action under the Unfair Competition Law?

Zhang v. Superior Court of San Bernardino County, 4th Appellate District, Case No. E047207 (2009 DJDAR 15454), October 30, 2009

An insured sustained a fire loss sued her insurer for alleged delay in authorizing adequate payment for repair and restoration of the burned premises. In addition to Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing claims, the insured asserted a cause of action for breach of the “Unfair Competition Law” alleging that the carrier engaged in unfair and deceptive advertising by promising its insureds that it would timely pay benefits in the event of a covered loss. The trial court sustained the carrier’s demurrer to the Unfair Competition Law cause of action relying on Moradi-Shalal v. Firemans Fund Insurance Cos.(1988) 46 Cal.3d 287, as well as Textron Financial Corp. v. National Union Fire Insurance Co.(2004) 118 Cal.App.4th 106, for the proposition that the Unfair Insurance Practices Act does not give rise to private civil causes of action in its own name or under other statutes.

The Fourth District Court of Appeal disagreed with the trial court’s decision and remanded the matter with the order that the Unfair Competition Law cause of action be reinstated. In so doing, the Fourth District acknowledged a split of authority within the appellate districts in the State of California perhaps setting up review by the California Supreme Court to once and for all answer whether the Unfair Insurance Practices Act can give rise to a private civil cause of action in a first party context.

The Fourth District’s decision is notable for its distinction of those first party cases which give credence to the Moradi-Shalal prohibition of private causes of action based on the Unfair Insurance Practices Act. In noting this distinction, the Appellate Court stated:  A[t]here is no reason to treat insurers differently from other businesses when it comes to actions under the UCL except as required by Moradi-ShalalMoradi-Shalal prohibited a private cause of action for alleged violation of Unfair Insurance Practices Act in a third party context only. Therefore, to the extent that other appellate courts have extended Moradi-Shalal into the first party setting via the Unfair Competition Law, this appellate court disagreed with that extension. While the Unfair Insurance Practices Act does not provide a private cause of action, that same limitation should not be read into the Unfair Competition Law which has provided a private cause of action albeit for equitable remedies only.

It will be interesting to know if and how the California Supreme Court will weigh in on the issue. Will it allow insureds to utilize the Unfair Claims Practices Act to generate Unfair Competition claims under Business & Professions Code ‘17200, et seq.?  In doing so, it will yield a new claim to plaintiffs in bad faith litigation allowing additional opportunity to obtain injunctive and equitable remedies as well as attorneys’ fees. While the injunctive and equitable remedies may be limited by the circumstances of the case, attorneys’ fees will not.