Opinion ID: 1036210
Heading Depth: 2
Heading Rank: 3

Heading: Opinions Construing Moradi-Shalal and the UCL

Text: After Moradi-Shalal, the law regarding UCL claims against insurers went through a rather complicated evolution, in a variety of contexts. First, a series of Court of Appeal decisions rejected attempts to state UCL causes of action against insurers in bad faith cases. (Industrial Indemnity Co. v. Superior Court (1989) 209 Cal.App.3d 1093, 1097 (Industrial Indemnity) [Moradi-Shalal barred third party claim for damages under UCL]; Safeco Ins. Co. v. Superior Court (1990) 216 Cal.App.3d 1491, 1494 (Safeco) [third party action; UCL “provides no toehold for scaling the barrier of Moradi-Shalal”]; Maler v. Superior Court (1990) 220 Cal.App.3d 1592, 1598 (Maler) [first party action; “plaintiffs cannot circumvent [Moradi-Shalal‟s] ban by bootstrapping an alleged violation of section 790.03 onto Business and Professions Code section 17200 so as to state a cause of action under section 1861.03”5].) In Rubin v. Green (1993) 4 Cal.4th 1187 (Rubin), we relied by way of analogy on these Court of Appeal opinions. At issue in Rubin was whether injunctive relief was available under the UCL for conduct protected by the litigation privilege (Civ. Code, § 47, subd. (b)). (Rubin, at p. 1193.) We decided 5 Section 1861.03, added in 1988 by Proposition 103, provides in relevant part: “The business of insurance shall be subject to the laws of California applicable to any other business, including, but not limited to, the . . . unfair business practices laws.” (§ 1861.03, subd. (a).) 8 it was not, given the absolute nature of that privilege. We referred to Industrial Indemnity, Safeco, and Maler as cases where “implied private rights of action alleging bad faith claims against insurers, barred by our opinion in Moradi-Shalal, were not resurrected by casting the action as one for relief under the unfair competition statute.” (Rubin, at p. 1202.) However, in the seminal case of Manufacturers Life, we distinguished Rubin and made it plain that the UIPA does not generally exempt insurers from UCL liability. Rather, we held, the remedies provided in the UCL are cumulative to those available to the Insurance Commissioner under the UIPA. (Manufacturers Life, supra, 10 Cal.4th at p. 263.) The Manufacturers Life plaintiff was an insurance agency. It alleged a conspiracy by other elements of the insurance industry to retaliate against it for its practice of disclosing to attorneys the actual costs of settlement annuities. The complaint asserted violations of the UIPA and the Cartwright Act, California‟s antitrust statute (Bus. & Prof. Code, § 16700 et seq.). The plaintiff also sought UCL remedies based on the UIPA and Cartwright Act violations. (Manufacturers Life, at pp. 263-265.) The Manufacturers Life defendants argued that permitting a UCL action for an unfair insurance practice prohibited by the UIPA would seriously compromise Moradi-Shalal‟s bar against private causes of action for violations of section 790.03, even if the practice also violated the Cartwright Act.6 (Manufacturers Life, supra, 10 Cal.4th at p. 268.) We were not persuaded. We noted that the Court of Appeal, relying on Rubin, had held the plaintiff could not plead around 6 Section 790.03, subdivision (c) broadly prohibits agreements or concerted action tending to restrain the business of insurance. Thus, the UIPA substantially overlaps with the Cartwright Act. (See Manufacturers Life, supra, 10 Cal.4th at pp. 274, 280.) 9 Moradi-Shalal by basing a UCL cause of action on conduct violating only the UIPA, but that a UCL claim was supported when the insurer‟s conduct independently violated the Cartwright Act. (Manufacturers Life, at p. 283.) We explained that Rubin had “analogized” an attempt to plead around the litigation privilege “to the attempts to avoid the bar to „implied‟ private causes of action under section 790.03, which several Courts of Appeal had held could not be avoided by characterizing the claim as one under the [UCL]. [Citations.]” (Manufacturers Life, supra, 10 Cal.4th at p. 283.) “[H]owever, a cause of action for unfair competition based on conduct made unlawful by the Cartwright Act is not an „implied‟ cause of action which Moradi-Shalal held could not be found in the UIPA. There is no attempt to use the [UCL] to confer private standing to enforce a provision of the UIPA. Nor is the cause of action based on conduct which is absolutely privileged or immunized by another statute, such as the litigation privilege of Civil Code section 47, subdivision (b).” (Manufacturers Life, at p. 284.) “This conclusion does not compromise the rule of Moradi-Shalal in any way. The court concluded there that the Legislature did not intend to create new causes of action when it described unlawful insurance business practices in section 790.03, and therefore that section did not create a private cause of action under the UIPA. The court did not hold that by identifying practices that are unlawful in the insurance industry . . . the Legislature intended to bar Cartwright Act causes of action based on those practices. Nothing in the UIPA would support such a conclusion. The UIPA nowhere reflects legislative intent to repeal the Cartwright Act insofar as it applies to the insurance industry, and the Legislature has clearly stated its intent that the remedies and penalties under the [UCL] are cumulative to other remedies and penalties.” (Manufacturers Life, supra, 10 Cal.4th at p. 284.) 10 Manufacturers Life had an impact in State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093 (State Farm), a first party bad faith action. Insured homeowners sought damages for breach of the implied covenant of good faith, breach of contract, professional negligence, and fraud, based on State Farm‟s alleged surreptitious alteration of their earthquake insurance coverage. They also pursued UCL remedies. (State Farm, at pp. 1099, 1101.) State Farm‟s demurrer was overruled and it sought writ relief, contending the UCL claim was an improper attempt to plead around Moradi-Shalal‟s bar against private actions under section 790.03. (State Farm, at p. 1101.) The State Farm court denied the writ. Relying on Manufacturers Life, it acknowledged that the insureds could not borrow the provisions of section 790.03 to establish an unlawful business practice. (State Farm, supra, 45 Cal.App.4th at p. 1103.) However, it held that the UCL cause of action was supported by the insureds‟ allegations of fraud and common law bad faith, which included examples of all three varieties of prohibited business practices: unlawful, unfair, and fraudulent. (State Farm, at p. 1107.) In particular, the State Farm court found that the fraud and bad faith claims were “independent bases for plaintiffs‟ [UCL] cause of action [that] are not distinguishable from the independent Cartwright Act violation which the Supreme Court recently held was sufficient to support a claim for relief under the [UCL], notwithstanding that the acts complained of also violated section 790.03.” (State Farm, at p. 1108, citing Manufacturers Life, supra, 10 Cal.4th at p. 284.) The State Farm court noted that unlike the plaintiffs in Industrial Indemnity, Safeco, and Maler, these insureds had pleaded a proper UCL cause of action seeking only injunctive and restitutive relief. (State Farm, supra, 45 Cal.App.4th at pp. 1108-1109.) “Nothing in Moradi-Shalal suggests that it was 11 addressing anything other than the viability of an implied right of action for damages.” (Id. at p. 1109.) State Farm argued that recognizing a right of action under the UCL for conduct proscribed by section 790.03 “would revive what the Supreme Court called the „undesirable social and economic effects of the [Royal Globe] decision (i.e., multiple litigation, unwarranted bad faith claims, coercive settlements, excessive jury awards, and escalating insurance, legal and other “transaction” costs).‟ (Moradi-Shalal, supra, 46 Cal.3d at p. 299.)” (State Farm, supra, 45 Cal.App.4th at pp. 1109-1110.) The court disagreed: “[W]e believe that this concern is overblown. The injunctive and restitutive remedies authorized under the [UCL] . . . are of very limited utility. They are designed to prevent unfair business practices and to require disgorgement of money or property obtained by means of such practices. Damages are not available under Business and Professions Code section 17203. [Citation.] That means that no claim for compensatory or punitive damages can be recovered in a [UCL] action. It is therefore not at all clear to us how our application of the very clear language of the [UCL] will necessarily resurrect any of the perceived evils of Royal Globe.” (State Farm, at p. 1110.) In Stop Youth Addiction, supra, 17 Cal.4th 553, this court discussed the holdings in Rubin, Manufacturers Life, and the Safeco line of cases, without mentioning State Farm. The defendant in Stop Youth Addiction argued that, because Penal Code section 308 provides no private cause of action for violations of its prohibition against selling cigarettes to minors, UCL remedies for that conduct were unavailable. (Stop Youth Addiction, at p. 561.) The defendant claimed Rubin had endorsed the Safeco court‟s view that a UCL claim cannot be based on a statute that does not authorize an independent cause of action. (Safeco, supra, 216 Cal.App.3d at p. 1494; see Stop Youth Addiction, at pp. 561-562.) We 12 disagreed, noting that Manufacturers Life had limited Rubin‟s holding to the absolute bar to relief created by the litigation privilege. (Stop Youth Addiction, at p. 564.) We added: “Neither from our discussion nor from the authorities we cited in Manufacturers Life . . . does it follow that a private plaintiff lacks UCL standing whenever the conduct alleged to constitute unfair competition violates a statute for the direct enforcement of which there is no private right of action. To the contrary, . . . in Manufacturers Life we permitted a UCL claim based on the Cartwright Act to go forward, even while recognizing that the conduct alleged as unfair competition also violated the UIPA, for the direct enforcement of which, following Moradi-Shalal, there is no private right of action. . . . [¶] In Manufacturers Life, moreover, we explained that Moradi-Shalal was not meant to impose sweeping limitations on private antitrust or unfair competition actions.” (Stop Youth Addiction, supra, 17 Cal.4th at p. 565.) “As relevant here, Safeco and similar cases on which [the defendant] relies, such as [Maler], supra, 220 Cal.App.3d 1592, and [Rubin], supra, 4 Cal.4th 1187, stand at most for the proposition the UCL cannot be used to state a cause of action the gist of which is absolutely barred under some other principle of law.” (Stop Youth Addiction, at p. 566.) We again reaffirmed Manufacturers Life in Quelimane, supra, 19 Cal.4th 26, where the plaintiff claimed that title companies had conspired to withhold title insurance for property purchased at tax sales. We noted that Manufacturers Life had established the viability of Cartwright Act violations as the predicate for a UCL action. (Quelimane, at pp. 42-44.) We further held that the plaintiffs had stated a UCL claim based on the defendants‟ allegedly false advertising, which consisted of promising to issue title insurance for any property with good title. (Id. at pp. 51, 54-55.) 13 In Cel-Tech, supra, 20 Cal.4th 163, we revisited the rule of Manufacturers Life, as follows: “If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination. When specific legislation provides a „safe harbor,‟ plaintiffs may not use the general unfair competition law to assault that harbor.” (Cel-Tech, at p. 182.) “[Rubin], supra, 4 Cal.4th 1187, illustrates this principle. In that case, the plaintiff relied on the unfair competition law to pursue an action that the litigation privilege of Civil Code section 47, subdivision (b), otherwise prohibited. We „rejected the claim that a plaintiff may, in effect, “plead around” absolute barriers to relief by relabeling the nature of the action as one brought under the unfair competition statute.‟ ([Rubin], supra, 4 Cal.4th at p. 1201.)” (Cel-Tech, at p. 182.) “A plaintiff may thus not „plead around‟ an „absolute bar to relief‟ simply „by recasting the cause of action as one for unfair competition.‟ (Manufacturers Life[, supra,] 10 Cal.4th 257, 283.) The rule does not, however, prohibit an action under the [UCL] merely because some other statute on the subject does not, itself, provide for the action or prohibit the challenged conduct. To forestall an action under the [UCL], another provision must actually „bar‟ the action or clearly permit the conduct.” (Cel-Tech, supra, 20 Cal.4th at pp. 182-183.) After Cel-Tech, a split in Court of Appeal opinion was created by Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 (Textron), which disagreed with State Farm, supra, 45 Cal.App.4th 1093. Textron held a security interest in a bus insured by the defendant. It submitted a claim after the bus was damaged in an accident. The claim was denied, and Textron sued the insurer for breach of contract, fraud, and bad faith. It also included a UCL claim for injunctive relief and restitution. The trial court sustained a demurrer to the UCL claim. Textron prevailed on its other claims at trial, but filed 14 an appeal challenging the demurrer ruling. (Textron, at pp. 1067-1070.) The Court of Appeal affirmed, reasoning that the unfair practices alleged in the complaint were “the type of activities covered by the UIPA,” and that “merely alleging these purported acts constitute unfair business practices under the unfair competition law is insufficient to overcome Moradi-Shalal.” (Id. at pp. 10701071.) “While insurance companies are subject to California laws generally applicable to other businesses, including laws governing unfair business practices (. . . § 1861.03, subd. (a)), parties cannot plead around Moradi-Shalal‟s holding by merely relabeling their cause of action as one for unfair competition.” (Textron, supra, 118 Cal.App.4th at p. 1070, citing Manufacturers Life, supra, 10 Cal.4th at pp. 283-284, Maler, supra, 220 Cal.App.3d at p. 1598, and Safeco, supra, 216 Cal.App.3d at page 1494.) “The persuasiveness of [State Farm] has been undercut by the Supreme Court‟s subsequent disapproval of its definition of „unfair‟ business practices.” (Textron, at p. 1071; see Cel-Tech, supra, 20 Cal.4th at pp. 184-185 [disapproving definition of “unfair” business acts or practices quoted in State Farm].) The Textron court concluded: “[G]iven the Supreme Court‟s disapproval of State Farm‟s „amorphous‟ definition of „unfair‟ practices and its focus on legislatively declared public policy, reliance on general common law principles to support a cause of action for unfair competition is unavailing.” (Textron, at p. 1072.) In the case at bench, the Court of Appeal disagreed with Textron, believing it “focused too narrowly on the „unfair‟ prong of potential liability under the UCL.” The court endorsed the proposition, which it drew from State Farm, that an insurer is not protected from UCL liability simply because its claims handling practices may be prohibited by section 790.03. It decided that Zhang‟s false advertising claim supported her UCL cause of action, a result it deemed consistent 15 with Moradi-Shalal and Manufacturers Life. For reasons set forth below, we conclude the Court of Appeal correctly followed State Farm instead of Textron.