Is California Business and Professions Code §17200 a Disappearing Cause of Action for Property Insurance Claims?

I’ve written about California Business and Professions Code §17200 previously and explained how this statute provides consumer protection for policyholders from unfair business practices, misrepresentations of contract to false advertising. In those blogs, I’ve indicated the importance of this cause of action as it allows for pattern of practice discovery after a lawsuit commences. In recent years, keeping §17200 in individual policyholder actions has become increasingly more difficult. Courts are reluctant to allow this cause of action on individual claims when a pattern of practice is less likely to be proved by an individual policyholder. Probably the most cited case that has negatively impacted the §17200 cause of action is Morardi-Shalal v. Fireman’s Fund Insurance Companies.

In Moradi–Shalal v. Fireman’s Fund Insurance Companies (1988) 46 Cal.3d 287, the Supreme Court reversed its decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 and held the prohibitory provisions of Insurance Code section 790.03 (part of the Unfair Insurance Practices Act (UIPA) (Ins.Code, § 790 et seq.)) did not create a private right of action against "insurers who commit unfair practices enumerated in that provision." (Moradi–Shalal, at p. 292.) The holding and rationale of Moradi–Shalal have been extended by the Courts of Appeal to preclude claims under California’s Unfair Competition Law (Bus. & Prof.Code, § 17200 et seq.) (UCL) based directly on violations of the UIPA. Time and time again, insurers are using this decision to strike the §17200 cause of action in individual policyholder actions.

Over the last few years, a handful of cases indicate that Morardi-Shalal does not bar all private actions against insurers for unfair or anti-competitive patterns of practice. Individual cases arising out of policyholders’ use of the preferred vendors recommended and pushed by insurers shows that individuals are successfully bringing §17200 claims. For consumers, the Morardi -Shalal decision was indeed a setback, however, as the legislative intent of statutes are being examined by the courts, there is renewed hope that future case law will override the Morardi-Shalal decision and bring §17200 back to the forefront.