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Zhang v. Superior Court of San Bernardino County

October 29, 2009


ORIGINAL PROCEEDINGS; petition for writ of mandate. Joseph R. Brisco, Judge. Petition granted. (Super. Ct. No. CIVVS701287).

The opinion of the court was delivered by: Richli Acting P. J.



This case presents the question of whether fraudulent conduct by an insurer, which is connected with conduct that would violate Insurance Code section 790.03 et seq.- sometimes referred to as the "Unfair Insurance Practices Act"-can also give rise to a private civil cause of action under the Unfair Competition Law (UCL), Business and Professions Code section 17200 et seq. The trial court ruled that it does not and, therefore, sustained defendant and real party in interest California Capital Insurance Company's demurrer to a cause of action under the UCL. We disagree and will direct the trial court to reinstate the cause of action.


The facts-procedural facts-and content of the allegations are not in dispute and may be quickly summarized. Plaintiff Yanting Zhang has sued her insurer, California Capital Insurance Company, over a dispute following a fire at Zhang's commercial premises. In the complaint's "Factual Background" and first two causes of action- based on the legal theories of breach of contract and breach of the covenant of good faith-Zhang sets out a litany of misconduct relating generally to California Capital's handling of her loss claim and its refusal to authorize adequate payment under the policy for the repair and restoration of the premises. In the third cause of action, that based on the UCL, Zhang incorporates all 88 of the previous paragraphs, but she also alleges that defendant "engaged in unfair, deceptive, untrue, and/or misleading advertising . . . . [Defendant] promises its insureds that it will timely pay proper coverage in the event the insured suffers a covered loss . . . . However . . . [defendant] in fact has no intention of properly paying the true value of its insureds' covered claims. [¶] . . . [defendant] had and has no intention of honoring such advertised promises."

Defendant demurred to this cause of action on the basis that the conduct alleged in the third cause of action was prohibited by Insurance Code section 790.03, and plaintiff could not state a private cause of action due to the decision in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal). In accepting this position, the trial court also relied on Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 (Textron Financial). We are compelled to disagree in part with the decision in Textron Financial and to hold that Moradi-Shalal does not bar the claim under the UCL.


First, in reviewing a ruling on demurrer, we are not concerned with the plaintiff's ability to prove the allegations, but only with the allegations' adequacy to state a cause of action. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39.) We are also required to give a generous interpretation of the pleading in favor of stating a cause of action. (Sanchez v. City of Modesto (2006) 145 Cal.App.4th 660, 671.) This means that if any of the allegations would support a cause of action under the UCL, it is immaterial, for our purposes, that some of them might not. For this reason, we find it unnecessary to determine whether plaintiff's allegations, found in other causes of action but incorporated into the UCL cause of action, relating to claim handling procedures would alone permit suit under the UCL. This is because we consider it clear that her claims of false advertising do support the cause of action.*fn1

In Moradi-Shalal, the Supreme Court reversed its decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 and held that the prohibitory provisions of Insurance Code section 790.03*fn2 did not create a private right of action under the statute against "insurers who commit the unfair practices enumerated in that provision." (Moradi-Shalal, supra, 46 Cal.3d at p. 304.) While Moradi-Shalal was a "third party" case-that is, the plaintiff had been injured by the insurance defendant's insured-the principle was later extended to "first party" suits, those brought by the insured against the insurer. (Zephyr Park v. Superior Court (1989) 213 Cal.App.3d 833, 837-838.) Neither case expressly references the UCL, but both stand for what is now the accepted principle that a violation of section 790.03 does not result in a private cause of action for "unfair practices." To that extent we agree that plaintiff would be unable to state a cause of action for tort damages based directly and solely on real party in interest's alleged violations of the statute.

The issue before us, however, is not so simple.

The UCL, which on its face applies to all "businesses" and certainly does not expressly except or exempt insurers, does authorize any injured person to sue for the violation of its requirements and/or prohibitions-that is, for "unfair competition." (Bus. & Prof. Code, § 17204.) "Unfair competition" is defined in Business and Professions Code section 17200 to "include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising . . . ." Undoubtedly an insurer is subject to suit under the UCL, and numerous cases so reflect. (See, e.g., Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th 26; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528.)

In the case at hand, the trial court followed Textron Financial in ruling that the principles of Moradi-Shalal barred plaintiff's attempt to state a cause of action against California Capital under the UCL. Textron Financial is indeed quite similar to this case.*fn3

There, the plaintiff was a secured party with respect to the subject vehicle and alleged that when the owner cancelled coverage, the insurer failed to notify the plaintiff. The complaint alleged that the insurer ""used misleading documents to falsely suggest that it would provide insurance . . . where it had no intention to do so' "falsely suggested that it would . . . provid[e] timely notice of [policy] cancellations,' "misrepresented the terms and meaning of its policies, [and] engaged in a pattern and ...

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