Conduct That Violates Unfair Insurance Practices Act May Be Actionable Under Unfair Competition Law Despite Moradi-Shalal Restriction

On Aug. 1, the California Supreme Court held that an insured may state a cause of action against an insurer under the Unfair Competition Law (UCL) for conduct that violates the Unfair Insurance Practices Act (UIPA) despite the bar against private actions under the UIPA itself.  The Supreme Court’s holding in Zhang v. Superior Court, Opinion No. S178542, resolved a split on the issue among the state’s intermediate appellate courts.

Yanting Zhang sued her insurer, California Capital Insurance Co., over coverage for and the handling of a fire loss claim.  Zhang alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the UCL.  In the UCL claim, Zhang alleged California Capital had “engaged in unfair, deceptive, untrue, and/or misleading advertising” by promising to pay claims with no intention of paying the true value of the covered claims.  Zhang also alleged several bad-faith practices by California Capital including unreasonable delays causing deterioration of the insured property; withholding of policy benefits; refusal to consider cost estimates; misinforming her as to the right to an appraisal; and falsely telling Zhang’s mortgage holder that Zhang did not intend to repair the property, resulting in foreclosure proceedings.

The trial court sustained California Capital’s demurrer on the UCL cause of action finding it was an impermissible attempt to plead around the bar against private actions under the UIPA pursuant to Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal. 3d 287.  The court of appeal had reversed finding the complaint sufficiently pled facts to support a UCL cause of action.  California Capital sought review from the Supreme Court, which affirmed.

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