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Zhang v. Superior Court (California Capital Insurance Company)

Supreme Court of California

August 1, 2013

YANTING ZHANG, Petitioner,

Superior Court San Bernardino County Nos. CIVVS701287, Ct.App. 4/2 E047207 Joseph R. Brisco Judge

Viau & Kwasniewski, Gary K. Kwasniewski and Jeanette L. Viau for Petitioner.

Steven W. Murray for Italian Marble & Tile as Amicus Curiae on behalf of Petitioner.

No appearance for Respondent.

Horvitz & Levy, Peter Abrahams, Mitchell C. Tilner; Grant, Genovese & Baratta, Lance D. Orloff and Aaron J. Mortensen for Real Party in Interest.

Lewis Brisbois Bisgaard & Smith and Raul L. Martinez for American Insurance Association as Amicus Curiae on behalf of Real Party in Interest.

Garrett & Tully, Ryan C. Squire and Alexander Levy for California Land Title Association as Amicus Curiae on behalf of Real Party in Interest.

Michelman & Robinson and William L. Gausewitz for the Association of California Insurance Companies, the Pacific Association of Domestic Insurance Companies and the Personal Insurance Federation of California as Amici Curiae on behalf of Respondent and Real Party in Interest.


This case arises at the intersection of the Unfair Competition Law (UCL; Bus. & Prof. Code, § 17200 et seq.) and the Unfair Insurance Practices Act (UIPA; Ins. Code, § 790 et seq.). The question is whether insurance practices that violate the UIPA can support a UCL action. In Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 304 (Moradi-Shalal) we held that when the Legislature enacted the UIPA, it did not intend to create a private cause of action for commission of the various unfair practices listed in Insurance Code section 790.03, subdivision (h).[1] In the wake of Moradi-Shalal, a split has developed in the Courts of Appeal regarding the viability of UCL claims based on insurer conduct covered by section 790.03.

We hold that Moradi-Shalal does not preclude first party UCL actions based on grounds independent from section 790.03, even when the insurer’s conduct also violates section 790.03.[2] We have made it clear that while a plaintiff may not use the UCL to “plead around” an absolute bar to relief, the UIPA does not immunize insurers from UCL liability for conduct that violates other laws in addition to the UIPA. (Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 283-284 (Manufacturers Life); see also Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182-183 (Cel-Tech); Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 43 (Quelimane); Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 565 (Stop Youth Addiction).)

Here, plaintiff alleges causes of action for false advertising and insurance bad faith, both of which provide grounds for a UCL claim independent from the UIPA. Allowing her also to sue under the UCL does no harm to the rule established in Moradi-Shalal. The Moradi-Shalal court madeit plain that while violations of section 790.03(h) are themselves not actionable, insureds retain other causes of action against insurers, including common law bad faith claims. Furthermore, UCL actions by private parties are equitable proceedings, with limited remedies. They are thus quite distinct from the claims for damages with which Moradi-Shalal was concerned.


Plaintiff Yanting Zhang bought a comprehensive general liability policy from California Capital Insurance Company (California Capital). She sued California Capital in a dispute over coverage for fire damage to her commercial property. The complaint included causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the UCL. In her UCL claim, Zhang alleged that California Capital 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.

California Capital demurred to the UCL claim, contending it was an impermissible attempt to plead around Moradi-Shalal’s bar against private actions for unfair insurance practices under section 790.03.[3] The trial court agreed, and sustained the demurrer without leave to amend. The Court of Appeal reversed, holding that Zhang’s false advertising claim was a viable basis for her UCL cause of action. California Capital sought review.


“The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also ‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context....’ [Citation.] [¶] If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer. ‘[W]e are not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory....’ [Citations.]” (Quelimane, supra, 19 Cal.4th at pp. 38-39.)

A. Overview of the UCL

The UCL defines “unfair competition” as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. & Prof. Code, § 17200.) By proscribing “any unlawful” business act or practice (ibid.), the UCL “ ‘borrows’ ” rules set out in other laws and makes violations of those rules independently actionable. (Cel-Tech, supra, 20 Cal.4th at p. 180.) However, a practice may violate the UCL even if it is not prohibited by another statute. Unfair and fraudulent practices are alternate grounds for relief. (Ibid.) False advertising is included in the “fraudulent” category of prohibited practices. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 311-312; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950-951.)

We have made it clear that “an action under the UCL ‘is not an all-purpose substitute for a tort or contract action.’ [Citation.] Instead, the act provides an equitable means through which both public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices. As we have said, the ‘overarching legislative concern [was] to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition.’ [Citation.] Because of this objective, the remedies provided are limited.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1150.) Accordingly, while UCL remedies are “cumulative... to the remedies or penalties available under all other laws of this state” (Bus. & Prof. Code, § 17205), they are narrow in scope.

“Prevailing plaintiffs are generally limited to injunctive relief and restitution. [Citations.] Plaintiffs may not receive damages... or attorney fees.”[4] (Cel-Tech, supra, 20 Cal.4th at p. 179.) “Restitution under [Business and Professions Code] section 17203 is confined to restoration of any interest in ‘money or property, real or personal, which may have been acquired by means of such unfair competition.’ (Italics added.) A restitution order against a defendant thus requires both that money or property have been lost by a plaintiff, on the one hand, and that it have been acquired by a defendant, on the other.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 336.) “[C]ompensatory damages are not recoverable as restitution.” (Pineda v. Bank of America, N.A. (2010) 50 Cal.4th 1389, 1402, fn. 14.)

We have also emphasized that the equitable remedies of the UCL are subject to the broad discretion of the trial court. (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179.) The UCL does not require “restitutionary or injunctive relief when an unfair business practice has been shown. Rather, it provides that the court ‘may make such orders or judgments... as may be necessary to prevent the use or employment... of any practice which constitutes unfair competition... or as may be necessary to restore... money or property.’ ” (Cortez, at p. 180, quoting Bus. & Prof. Code, § 17203.) “[I]n addition to those defenses which might be asserted to a charge of violation of the statute that underlies a UCL action, a UCL defendant may assert equitable considerations. In deciding whether to grant the remedy or remedies sought by a UCL plaintiff... consideration of the equities between the parties is necessary to ensure an equitable result.” (Cortez, at pp. 180-181.)

The voters restricted private enforcement of the UCL in 2004, by approving Proposition 64. Standing under the UCL is now limited to those who have “suffered injury in fact and [have] lost money or property as a result of... unfair competition.” (Bus. & Prof. Code, § 17204.) Accordingly, to bring a UCL action, a private plaintiff must be able to show economic injury caused by unfair competition. (Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at p. 326.) Proposition 64 also required that representative actions by private parties must “compl[y] with Section 382 of the Code of Civil Procedure.” (Bus. & Prof. Code, § 17203; seeCalifornians for Disability Rights v. Mervyn’s, LLC (2006) 3 ...

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