California Supreme Court Authorizes UCL Lawsuits Against Insurers

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Yanting Zhang v. California Capital Insurance Company

In a decision by the state’s highest court, the California Supreme Court harmonized years of split opinions among California courts regarding the inability to bring a private action under the Unfair Insurance Practices Act (UIPA).  The inability to do so arose out of a 1988 decision by the same court, which stated that UIPA never intended to create a private cause of action for commission of the unfair practices listed therein. Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (Cal. 1988).

In this matter, the plaintiff suffered fire damage to her commercial property and filed a complaint including 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).  The insurer demurred to the UCL claim, stating that the plaintiff was merely trying to plead around the Moradi-Shalal bar to private causes of action for acts listed in the UIPA.  In support of its position, the insurer cited to Textron Fin. Corp. v. Nat’l Union Fire Ins. Co., 118 Cal.App.4th 1061 (Cal. App. 2004).  In Textron, the court denied the plaintiff’s UCL claim on the basis of Moradi-Shalal, stating that they consisted of “the type of activities covered by the UIPA.” Id. at 1070-71.

Nevertheless, the Supreme Court explicitly decided in favor of permitting claims for conduct violating other statutes or the common law, including for conduct enumerated under UIPA since “[t]he Legislature did not intend the UIPA to operate as a shield against any civil liability,” “as long as they did not rest exclusively on UIPA violations.”  Accordingly, the Supreme Court explicitly disapproved Textron.