Zhang v. Superior Court (Cal. Cap’l Ins. Co.): Cal. Supreme Ct. Rules That Insured May Bring Private Cause of Action under Unfair Comp. Law, B&P Code § 17200
In Moradi-Shalal v. Fireman’s Fund Ins. Cos., 46 Cal.3d 287 (1988), the California Supreme Court ruled that the Legislature did not intend to create a private right of action for the various practices listed in the Unfair Insurance Practices Act (“UIPA”) ( Ins. Code § 790, et seq.). In Zhang v. Superior Court (Cal. Cap. Ins. Co.), 57 Cal. 4th 364, 2013 Cal.LEXIS 6520 (2013), the Court addressed whether insurance practices that violate the UIPA can support a private right of action under California’s Unfair Competition Law (“UCL”) (Bus. & Prof. Code § 17200, et seq.). The Court held that Moradi-Shalal does not preclude an insured from bringing a UCL action against an insurer where the insurer’s conduct violates both the UIPA and obligations imposed by other statutes or the common law. (The decision does not address “third-party” claims by injured parties against a liable party’s insurer.)
Yanting Zhang and California Capital Insurance Company entered into a comprehensive general liability insurance contract. Zhang sued California Capital in a coverage dispute regarding fire damage to her commercial property. Zhang’s complaint included causes of action for breach of contract, bad faith and violation of the UCL.
Zhang’s UCL claim included allegations that California Capital falsely advertised by promising to provide timely coverage for compensable losses when it had no intention to pay the true value of its insured’s covered claims. California Capital contended that Zhang’s UCL claim was actually directed at improper claims handling. California Capital demurred to the UCL claim, asserting that Zhang attempted to plead around Moradi-Shalal’s bar against private actions for unfair insurance practices under Insurance Code section 790.03. The trial court sustained without leave to amend the demurrer. The Court of Appeal reversed and the Supreme Court granted California Capital’s petition for review.
The Supreme Court affirmed the Court of Appeal’s ruling. Writing for the Court, Justice Corrigan explained that the UCL is not an all-purpose substitute for a tort or contract action, but provides an equitable means through which public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of those practices. The UCL remedies are limited, generally extending only to injunctive relief and restitution, and cumulative to the remedies available under all other laws of the state. The Court noted that it had previously ruled that the UIPA does not exempt insurers from UCL liability. The Court held that an insured cannot plead around Moradi-Shalal by basing a UCL claim solely on section 790.03 violations, but can maintain such a claim if the conduct proscribed by the UIPA is independently actionable as common law fraud or insurance bad faith. The Court found that Zhang’s false advertising claim and bad faith allegations—including unreasonable delays causing property deterioration, withholding policy benefits, refusal to consider cost estimates, misinforming her regarding appraisal rights, and falsely telling her mortgage holder that she did not intend to repair the property resulting in foreclosure proceedings—were sufficient to support an unlawful business practices claim against California Capital under the UCL.
In a concurring opinion, Justice Werdegar, joined by Justice Liu, contended that Moradi-Shalal only precludes a private right of action under the UIPA and was not intended to foreclose any other private rights of action. Justice Werdegar therefore would allow a private plaintiff to maintain a UCL claim predicated solely on section 790.03 violations.
Mike Melendez is a commercial litigator specializing in all types of complex insurance coverage, including construction defect, advertising injury, personal injury, directors and officers, general liability, environmental, workers’ compensation and bad faith. In addition to insurance coverage, Mike has handled a variety of cases involving ERISA, the Americans With Disabilities Act and general commercial disputes.
For more information about Mike Melendez and Melendez & Associates, please visit www.MelendezFirm.com.