Using California’s Unfair Competition Law, Business & Professions Code § 17200 in a Bad Faith Claim allows Insureds to Uncover Pattern and Practice Discovery

California’s unfair competition or unfair business statute is found in Business & Professions Code section 17200 (the “Unfair Competition Law” or “UCL”). The UCL protects consumers and businesses from unfair competition described in Section 17200 as: “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.”

The purpose of the UCL is to protect consumers and business by “promoting fair competition in commercial markets for goods and services.” (Kasky v. Nike, Inc., (2002) 27 Cal.4th 939, 949, 119 Cal.Rptr.2d 296.)

Section 17200 is framed in the disjunctive, a business practice need only meet one of the three criteria, unlawful, unfair or fraudulent, to be considered unfair competition. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., [“Cel Tech”] (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548 [the UCL “‘establishes three varieties of unfair competition – acts or practices which are unlawful, or unfair, or fraudulent. . . . a practice is prohibited as ‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa’”].)

The UCL has been applied in bad faith cases to aid in pursuing pattern and practice discovery to fight unfair insurer practices. Although actual damages are not permitted for a claim brought under the UCL and awards are restricted to injunctive relief and restitution, the UCL may also support punitive damages claims and aid in the request for attorney fees. Attorney fees are not generally awarded under the UCL, but, “if a plaintiff prevails in an unfair competition law claim, it may seek attorney fees as a private attorney general pursuant to Code of Civil Procedure section 1021.5.” (Walker v. Countrywide Home Loans, Inc., (2002) 98 Cal.App.4th 1158, 1179, 121 Cal.Rptr.2d 79.) There is no similar provision for an award of attorney fees to a successful defendant. Further, if a provision in a contract allows attorneys’ fees to the prevailing party and the contract is challenged in an action under the statute, attorney fees may be awarded. (Shadoan v. World Savings & Loan Ass’n., (1990) 219 Cal.App.3d 97, 107-109, 268 Cal.Rptr. 207.)

The UCL cause of action, through restitution relief, permits a court to make orders and judgments necessary to restore any money or property an insurance company acquires by wrongful conduct. Through the years, carriers have fought viciously to have the UCL removed from causes of actions, arguing insureds have other remedies, such as breach or contract and the breach of implied covenant of good faith and fair dealing, to make them whole. However, this argument does not make the UCL an invalid cause of action in a bad faith action.

In a bad faith case, the UCL may be a powerful tool. Keeping the UCL cause of action in a claim bolsters the insured’s argument that the pattern of practice discovery is relevant in the case and allows discovery on how an insurance company handles similar claims. This can help prove an insurance company has a conscious and willful pattern of practice of wrongful denials, delays and refusals to investigate, exposing the insurer to tortious breach and punitive damages.