California Supreme Court Finds that Violations of the Unfair Insurance Practices Act Can Form the Basis of a UCL Claim
Zhang v. Superior Court, 57 Cal. 4th 364 (Aug. 1, 2013)
In Zhang v. Superior Court, the California Supreme Court held that although only the Insurance Commissioner has the authority to prosecute direct claims against an insurer for violations of California’s Unfair Insurance Practices Act (“UIPA”) (Ins. Code § 790.03(h)), a private cause of action under California’s Unfair Competition Law (“UCL”) (Bus. & Prof. Code §§ 17200 et. seq.) against an insurer can still be based on conduct proscribed by the UIPA if that conduct also is independently actionable under another statute or the common law.
In Zhang, the insured filed a lawsuit alleging that the insurer violated the UCL by falsely advertising and fraudulently misrepresenting that it would provide coverage in the event that the insured suffered a loss. The insurer argued that the UCL claim was subject to dismissal because it was an impermissible attempt to plead around Moradi-Shalal v. Fireman’s Fund Insurance Cos., 46 Cal. 3d 287 (1988) (“Moradi-Shalal”), and its bar against private actions for unfair insurance practices under Section 790.03, which proscribed practices such as false advertising, failing to promptly respond to a claim, and not attempting to settle a claim in good faith.
While the Zhang court agreed that a plaintiff may not use the UCL to plead around an absolute bar to relief, the court noted that UIPA does not immunize insurers from UCL liability for conduct that violates other laws in addition to the UIPA. The court further held that the UCL claim was not precluded by the rule in Moradi-Shalal because the UCL claim was adequately supported by allegations of common law bad faith and false advertising, which are actionable independent of the UIPA. Notably, however, the Court confined its ruling to the first party insurance context, and stated that “[t]hird party claims raise distinct analytical and policy issues, which are not involved in this case.”
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