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From Antitrust Law Daily, August 1, 2013

False advertising claim against insurer under California Unfair Competition Law not barred by state insurance law

By Jeffrey May, J.D.

Although an insured may not rely solely on an insurance company's violations of California's Unfair Insurance Practices Act (UIPA) to state a claim under the Unfair Competition Law (UCL), the insured may bring a UCL claim challenging conduct that allegedly violates both the UIPA and obligations imposed by other statutes or the common law, the California Supreme Court ruled today. The legislature did not intend the UIPA to operate as a shield against any civil liability, according to the court (Zhang v. Superior Court of San Bernardino County, August 1, 2013, Corrigan, C.).

The insured alleged causes of action for false advertising and insurance bad faith, both of which provide grounds for a UCL claim independent from the UIPA, in the court's view. Allowing the insured to sue did not conflict with a state supreme court's decision in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, which held that no private cause of action existed based on the commission of the various unfair practices listed in the Insurance Code. The court also was satisfied that the plaintiff's claim should proceed in the context of the “complicated evolution” of the law regarding UCL claims against insurers following Moradi-Shalal.

The case was brought by an individual who purchased a comprehensive general liability policy from California Capital Insurance Company. The dispute involved coverage for fire damage to the individual's commercial property.

The insured contended that California Capital misleadingly advertised that it would timely pay the true value of covered claims. However, the insurer's treatment of the insured's claim demonstrated that the insurer had no intention of honoring its promise, according to the plaintiff.

The insured's allegations were sufficient to support a claim of unlawful business practices, according to the court. The court cited the alleged “litany of bad faith practices by California Capital, including unreasonable delays causing deterioration of her property; withholding of policy benefits; refusal to consider cost estimates; misinforming her as to the right to an appraisal; and falsely telling her mortgage holder that she did not intend to repair the property, resulting in foreclosure proceedings.”

Concurring opinion. A concurring opinion questioned the majority's assertion that no UCL claim can ever be based on violations of the UIPA. “Given [the plaintiff's] conscious decision not to predicate a UCL claim directly on such transgressions, this assertion is unnecessary dictum,” according to Justice Kathryn M. Werdegar's concurrence.

The case is No. S178542.

Attorneys: Gary Kwasniewski (Viau and Kwasniewski) for Yanting Zhang. Lance David Orloff (Grant Genovese and Baratta LLP) for California Capital Insurance Co.

Companies: California Capital Insurance Co.

MainStory: TopStory Advertising StateUnfairTradePractices CaliforniaNews

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