A first-party claimant may pursue a cause of action against an insurer for violations of California’s Unfair Competition Law (Business & Professions Code section 17200 et seq.), even though California’s Unfair Insurance Practices Act (Insurance Code section 790.03 et seq.) does not allow a “private” cause of action for the same conduct. ( Zhang v. Superior Court (2013) 57 Cal.4th 364)
Facts
Yanting Zhang bought a commercial property insurance policy from California Capital Insurance Company. After a dispute arose over coverage for fire damage to her commercial property, Zhang sued California Capital. Zhang’s complaint included causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Unfair Competition Law (UCL) set forth in Business & Professions Code section 17200 et seq.
In her UCL claim, Zhang alleged that California Capital had “engaged in unfair, deceptive, untrue, and/or misleading advertising” by promising to provide timely coverage in the event of a compensable loss, when in fact California Capital had no intention of paying the true value of covered claims. She further alleged that California Capital had unreasonably withheld policy benefits; unreasonably delayed payment, causing deterioration of her property; refused to consider cost estimates; misinformed her about the right to request appraisal; and falsely told her lender that she did not intend to repair the property, which caused the lender to initiate foreclosure proceedings.
California Capital demurred to the UCL claim, contending it was an impermissible attempt to circumvent the holdings of Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 and Zephyr Park v. Superior Court (1989) 213 Cal.App.3d 833. Moradi-Shalal bars third-party claimants from pursuing private actions for violations of the Unfair Insurance Practices Act (UIPA) set forth in Insurance Code section 790 et seq., and Zephyr Park similarly bars first-party claimants from pursuing private causes of action for violations of the UIPA.
The California Supreme Court granted review of Zhang’s case in order to resolve conflicting holdings in the Court of Appeal on the question of whether insurance practices that violate the UIPA can nonetheless support a UCL action.
Holding
The Supreme Court held that Zhang could pursue a cause of action against California Capital for violations of the UCL, even though the UIPA does not allow a private cause of action for the same conduct. The Supreme Court noted that when the Legislature enacted the UIPA, the Legislature contemplated only administrative enforcement by the Insurance Commissioner. Private UIPA actions are absolutely barred, and neither first-party claimants nor third-party claimants may rely on violations of the UIPA as the basis for a UCL claim. However, when insurers engage in conduct that violates both the UIPA and obligations imposed by other statutes or the common law, a first-party claimant can assert a cause of action against an insurer for violation of the UCL.
Comment
The UCL defines “unfair competition” as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” By prohibiting “any unlawful” business act or practice, the UCL borrows rules set forth in other laws and makes violations of those rules independently actionable. However, a practice may violate the UCL even if that practice is not prohibited by another statute. Unfair and fraudulent practices are alternate grounds for relief, and false advertising is a prohibited fraudulent practice.
While UCL remedies are cumulative to the remedies or penalties available under all other California laws, they are narrow in scope. More specifically, prevailing plaintiffs are generally limited to injunctive relief and restitution, and may not recover damages or attorney fees.