California’s Unfair Competition Law Can Provide an Independent Cause of Action Against an Insurance Company

Earlier this month, the California Supreme Court issued its highly anticipated decision in the case Zhang v. Superior Court of San Bernardino County.¹

The Court addressed the question of whether insurance practices that violate the Unfair Insurance Practices Act (UIPA)² can support an action based on the Unfair Competition Law (UCL).³

The short answer is yes.

In Zhang, the plaintiff in her UCL claim, alleged that her insurance company had "engaged in unfair, deceptive, untrue, and/or misleading advertising" by promising to provide timely coverage in the event of a compensable loss, when it had no intention of paying the true value of its insureds’ covered claims. The insurer contended that the UCL claim was an attempt to plead around the rule established in Moradi-Shalal v. Fireman’s Fund Insurance Companies,⁴ which precludes a private cause of action for the insurer’s commission of various unfair practices listed in Insurance Code § 790.03(h).

The Court held that although violations of Insurance Code § 790.03(h) are themselves not actionable, insureds can still sue under the UCL on grounds independent from the UIPA.
According to the Court, the UCL which prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising"⁵ does provide alternate grounds for relief. In addition, insureds can still retain common law bad faith claims against the insurer.

There are limitations to a UCL claim with respect to available remedies. For one, a plaintiff must be able to show economic injury caused by the unfair competition. Second, the UCL remedies are equitable in nature and rather narrow in scope. Generally, prevailing plaintiffs are entitled to restitution and injunctive relief and cannot recover compensatory damages or attorney fees.

It will be interesting to see whether more UCL claims, especially those that are predicated on false advertising claims, will be brought against insurance companies if not individually, but perhaps as class actions.

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¹ Zhang v. Superior Court of San Bernardino County (August 1, 2013) — Cal. 4th —.
² Ins. Code § 790 et seq.
³ Bus. & Prof. Code § 17200 et seq.
⁴ Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal. 3d 287, 758 P. 2d 58.
5 Bus. & Prof. Code § 17200.