The California Supreme Court has announced that it will hear arguments on May 8, 2013, in San Francisco on the Court of Appeal’s 2009 decision in Zhang v. Superior Court, which held that an insurer may be sued under California’s Unfair Competition Law (UCL) for practices that are governed by the Unfair Insurance Practices Act (UIPA).
In 1988, the California Supreme Court ruled in Moradi-Shalal v. Fireman’s Fund Insurance Companies that violations of the UIPA may be prosecuted only by administrative action taken by the Insurance Commissioner, not by civil action by private citizens.
In Zhang, the Court of Appeal concluded that, notwithstanding the ruling in Moradi-Shalal, an insurer may be sued by a private citizen for conduct prohibited by the UCL even though the conduct is within the scope of the UIPA. In other words, the UCL in certain contexts would allow insureds or third-party claimants to make an end run around the absence of a private action under the UIPA.
Because of the importance of the issue presented by the Zhang decision, ACIC joined with other insurance associations in filing an amicus brief with the Supreme Court. The brief argues that the plaintiff in the Zhang case is improperly attempting to circumvent the rule established by Moradi-Shalal. The brief warns, “Allowing the Court of Appeal decision to stand would have serious adverse consequences for the business of insurance. … Upholding the Court of Appeal decision would also allow future third-party litigants to bring direct UCL actions against insurers and to obtain similar increased leverage against insurers under liability claims, thus increasing the amount and complexity of litigation, which will ultimately increase the cost of insurance to consumers.”
Zhang is one of a line of cases which have held that a private right of action exists for alleged violations of the UCL by insurers. Another line of cases have held that a plaintiff may not “plead around” the Moradi-Shalal rule by stating a claim under the UCL. Presumably, the Supreme Court’s decision in Zhang will bring certainty to these conflicting cases and reconcile the interplay of the UCL and the UIPA.