Petitioners State Farm Fire and Casualty Company and State Farm Mutual Automobile Company (collectively State Farm) are defendants in an action filed by 165 individual plaintiffs who were insured by petitioners and allege a number of claims relating to the Northridge earthquake on January 17, 1994. State Farm filed a demurrer to plaintiffs' first amended complaint on three grounds which are relevant here: (1) plaintiffs' fifth cause of action, based on an alleged violation of Business and Professions Code section 17200, failed to state sufficient facts to constitute a cause of action; (2) the court lacks primary jurisdiction over the subject matter of the action until plaintiffs' complaints are first presented to and addressed by the Insurance Commissioner; and (3) there is a misjoinder of plaintiffs.
We find that a cause of action limited to a request for injunctive or restitutive relief can be prosecuted under Business and Professions Code section 17200 based upon an insurer's alleged fraudulent misconduct and breach of the covenant of good faith implied in every policy of insurance; that such alleged acts might also violate the provisions of Insurance Code
FACTUAL AND PROCEDURAL BACKGROUND
The facts upon which this case must turn are those alleged in plaintiffs' complaint, which, under the usual appellate standard, we accept as true.
On April 17, 1995, plaintiffs filed their first amended complaint against State Farm and 85 separately named individual defendants alleged to be the agents of State Farm who marketed and sold to plaintiffs the several policies of homeowner insurance at issue in this case. Plaintiffs allege that each of them were sold policies of homeowner insurance issued by State Farm which covered real and personal property owned by them. While plaintiffs allege that each of them suffered damage in the Northridge earthquake, the amount of such damage differs with respect to each plaintiff.
Prior to 1985, State Farm provided earthquake coverage as an endorsement to its homeowner policies but, in that year, began providing such coverage by "a separate policy covering only the peril of earthquake." Plaintiffs allege that this was done without their consent and without adequate notice of the significant reduction in coverage which they claim was the object and result of this tactic.
Plaintiffs allege that this amounted to a false, fraudulent and unfair plan or scheme to "limit its risk of losses arising from the peril of earthquake while maximizing profits." Plaintiffs then alleged some 15 different types of
In order to seek redress for State Farm's alleged fraudulent, unfair and unlawful practices, plaintiffs asserted claims for (1) breach of the implied covenant of good faith (i.e., common law "bad faith"), (2) breach of contract, (3) professional negligence, (4) fraud, (5) violation of the UCA and (6) reformation.
State Farm filed a demurrer and a motion to strike to the entire complaint, which were overruled and denied, respectively. State Farm was given 30 days to answer the complaint.
On October 25, 1995, we issued an alternative writ, stayed all further proceedings in the trial court and set this matter for hearing.
CONTENTIONS OF THE PARTIES
State Farm asserts three basic contentions: (1) plaintiffs' attempt in their fifth cause of action to allege a claim under the UCA is an improper attempt to plead around the bar against statutory bad faith actions announced in Moradi-Shalal, and therefore State Farm's demurrer should have been sustained as to that cause of action; (2) plaintiffs' complaint, in effect, challenges the way State Farm packages and prices earthquake insurance and this involves an industry-wide issue which is regulated by the Insurance Commissioner; under the primary jurisdiction doctrine (see Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377 [6 Cal.Rptr.2d 487, 826 P.2d 730]), the entire action should be stayed until the commissioner has investigated and acted upon plaintiffs' complaints; and (3) plaintiffs are 165
Plaintiffs dispute each of these contentions and argue that: (1) they are not seeking to recover under section 790.03 and therefore their fifth cause of action in no way implicates the bar announced in Moradi-Shalal; (2) they are seeking to recover on recognized principles of common law liability and are not raising issues which require the courts to defer to the primary jurisdiction of the Insurance Commissioner; and (3) joinder of the plaintiffs was proper in this case.
1. The Demurrer to the Fifth Cause of Action Was Properly Overruled
a. Nature of an Action Under the Unfair Competition Act
The statutory scheme of the UCA is straightforward. In section 17200 of the Business and Professions Code (section 17200) any "unlawful," "unfair" or "fraudulent" business act or practice is deemed to be unfair competition.
The statute imposes strict liability. It is not necessary to show that the defendant intended to injure anyone. (People ex rel. Van de Kamp v. Cappuccio, Inc. (1988) 204 Cal.App.3d 750, 760-761 [251 Cal.Rptr. 657].) Because section 17200's definition is disjunctive, a "business act or practice" is prohibited if it is "unfair" or "unlawful" or "fraudulent." In other words, a practice is prohibited as "unfair" or "deceptive" even if not "unlawful" and vice versa. (Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735, 740, fn. 2 [162 Cal.Rptr. 543].) Virtually any law — federal,
However, it is not necessary for a business practice to be "unlawful" in order to be subject to a UCA action. The "unfair" standard, the second prong of section 17200, also provides an independent basis for relief. This standard is intentionally broad, thus allowing courts maximum discretion to prohibit new schemes to defraud. (Motors, Inc. v. Times Mirror Co., supra, 102 Cal. App.3d at 740.) The test of whether a business practice is unfair "involves an examination of [that practice's] impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged
Examples of unfair business practices include: charging a higher than normal rate for copies of deposition transcripts (by a group of certified shorthand reporters), where the party receiving the original is being given an undisclosed discount as the result of an exclusive volume-discount contract with two insurance companies (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 840-841 [33 Cal.Rptr.2d 438]); placing unlawful or unenforceable terms in form contracts (People v. McKale (1979) 25 Cal.3d 626, 634-635 [159 Cal.Rptr. 811, 602 P.2d 731]); asserting a contractual right one does not have (People v. McKale, supra, 25 Cal.3d at p. 635; People v. Custom Craft Carpets, Inc. (1984) 159 Cal.App.3d 676, 683-684 [206 Cal.Rptr. 12]); systematically breaching a form contract affecting many consumers (Orkin Exterminating Co., Inc. v. F.T.C. (11th Cir.1988) 849 F.2d 1354, 1367-1368), or many producers (Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d 432, 449-453 [249 Cal.Rptr. 872]); and imposing contract terms that make the debtor pay the collection costs (Bondanza v. Peninsula Hospital & Medical Center (1979) 23 Cal.3d 260, 266-267 [152 Cal.Rptr. 446, 590 P.2d 22]).
b. A Cause of Action Under the Unfair Competition Act Was Alleged
While Moradi-Shalal clearly held that the Legislature did not intend to create new causes of action when it enacted section 790.03, it is also clear that the Legislature did not intend in any way to circumscribe the previously existing common law right of an insured to seek redress for an insurer's fraudulent deception or breach of the covenant of good faith implied in the policy. Moradi-Shalal, as correctly understood, "`marks a return to the fundamental principal that [section 790.03], like all statutes, is to be applied according to its terms. Its language neither creates new private rights nor
Each of these claims is independently actionable and the allegations supporting them have been found sufficient by the trial court.
In addition, neither Moradi-Shalal, nor any of the cases following it, involved an attempt, as we have here, to state a proper UCA cause of action seeking only injunctive or restitutive relief. Those cases all represent examples of a plaintiff's attempt to do an "end-run" on Moradi-Shalal and recover damages for conduct which violated section 790.03 by recasting their claim on some ground other than that Insurance Code section. However, in none of
In only one of these cases is there even a reference to injunctive relief. In Safeco Ins. Co. v. Superior Court, supra, "plaintiff claimed entitlement to an injunction, compensatory damages, additional compensation for prosecuting the action, punitive damages and attorneys' fees." (216 Cal. App.3d at p. 1493, italics added.) However, we agree with the comments recently made on this point by Justice Baxter: "[N]othing in Safeco ... suggests that the claim for injunctive relief was anything more than a makeweight allegation. For all practical purposes the suit appears to have been for compensatory and punitive damages. The fact that the court never even discussed the claim for injunctive relief ... suggests that no serious issue was ever raised as to injunctive relief." (Rubin v. Green (1993) 4 Cal.4th 1187, 1210 [17 Cal.Rptr.2d 828, 847 P.2d 1044] (conc. and dis. opn. of Baxter, J.).) Nothing in Moradi-Shalal suggests that it was addressing anything other than the viability of an implied right of action for damages.
State Farm argues that recognition of a right of action in plaintiffs under the UCA for conduct proscribed in section 790.03 would revive what the
We do not agree with State Farm's related argument that recognition of an injunctive remedy would interfere with the Insurance Commissioner's ability to uniformly regulate the insurance industry or even the marketing activities of a particular insurer. Contrary to State Farm's assertion, a court would not be asked to limit or regulate how State Farm could market its earthquake coverage. Rather, injunctive relief would only be addressed to the enjoinment of future acts of fraud or deception. Whether State Farm sells earthquake coverage separately or as part of a more general policy is not something a court would or should regulate. However, whether State Farm's marketing efforts work a fraud on its insureds is another matter entirely. A similar analysis would apply to State Farm's alleged bad faith claims practices.
Finally, as Business and Professions Code section 17205 states, "... the remedies or penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of this state." (Italics added.) This statutory language strongly suggests that a claim for relief otherwise available under the provisions of the UCA should not be precluded by the circumstance that if it were instead based on violations of section 790.03, it would be barred as inconsistent with the rule announced in Moradi-Shalal. As we have discussed, State Farm's concern that such a
2. The Primary Jurisdiction Doctrine Does Not Bar Plaintiffs' Action
On the other hand, the cumulative remedy clause in Business and Professions Code section 17205 does not preclude application of the primary jurisdiction doctrine but "merely reflects legislative intent that the remedy under [the UCA] not displace any other remedy that might exist." (Farmers Ins. Exchange v. Superior Court, supra, 2 Cal.4th at p. 395.) Thus, it is a matter within the discretion of the court as to whether a case should be stayed pending administrative action on the issue.
3. Plaintiffs Were Properly Joined
This requirement that the right to relief arise from the "same transaction or series of transactions" has been construed broadly so that joinder of plaintiffs is permitted if there is any factual relationship between the claims alleged. (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial 1 (The Rutter Group 1995) ¶ 2:211 et seq.)
In Anaya v. Superior Court (1984) 160 Cal.App.3d 228 [206 Cal.Rptr. 520], over 200 employees and their family members claimed injuries resulting from the employees having been exposed to hazardous chemicals over a period of years at their place of employment. The fact that each employee was not exposed on every occasion any other employee was exposed did not destroy the community of interest linking the plaintiffs. (See also Parmely v. Boone (1939) 35 Cal.App.2d 517 [96 P.2d 164] [multiple purchasers of securities sued for refund of their money based on the issuer's violation of the Corporate Securities Act]; Aldrich v. Transcontinental Land etc. Co. (1955) 131 Cal.App.2d 788, 796 [281 P.2d 362] [purchasers in subdivision sued the subdivider for fraud on the same basic misrepresentations to each of them in connection with their purchase].)
We have essentially the same circumstances here. Plaintiffs have alleged that State Farm engaged in a systematic practice to deceive its policyholders with respect to their purchase of earthquake insurance. It is alleged that State Farm, without adequate notice of a reduction in the scope of coverage, issued policies of earthquake coverage to replace endorsements to homeowner coverage without a change in premium. Those allegations clearly reflect a claim containing common facts central to the alleged deception.
In addition, the complaint alleges systematic claims handling practices which invaded the rights of plaintiffs as insureds. While not every plaintiff may have been victimized by the same claims handling practice, that is a matter which can be resolved in discovery; and the trial court will always
We are satisfied that, at least as far as the pleadings are concerned, there has been a proper joinder of plaintiffs under Code of Civil Procedure section 378.
The alternative writ is discharged. The peremptory writ is denied. Our order staying the trial court proceedings is vacated.
Klein, P.J., and Aldrich J., concurred.
A petition for a rehearing was denied June 18, 1996, and petitioners' application for review by the Supreme Court was denied September 4, 1996.
"1. Deliberately and unreasonably failing to provide notice or information to the plaintiffs that, in addition to their claims under the earthquake policies, plaintiffs were entitled to payment and reimbursement for certain losses under plaintiffs' homeowner's coverage separately and independently of the earthquake coverage and unreasonably failing and refusing to process the damages which STATE FARM knew were covered under the homeowner's policies under the provisions of those policies;
"2. Deliberately and unjustifiably estimating the losses claimed by plaintiffs at substantially and significantly less than the actual losses incurred, a practice known as "low-balling;"
"3. Deliberately and unjustifiably attempting to assess losses covered under the policy as attributable to "pre-existing" defects in the property;
"4. Deliberately and unjustifiably failing and refusing to warn or give notice to their insureds of the danger and risk of exposure to asbestos contamination to the plaintiffs resulting from the covered property damage to the dwelling;
"5. Deliberately and unjustifiably retaining unlicensed, uncertified and/or unqualified contractors, engineers, and testing companies who were inadequately trained or inadequately equipped to conduct the necessary testing, surveying, analysis, estimation and investigation of plaintiffs' losses;
"6. Failing to provide benefits for land stabilization when the stabilization was necessary to the proper stabilization and foundationalization of the dwelling;
"7. Improperly, unjustifiably and illegally deducting the amount of profit and overhead included by contractors in their bids for repair and replacement of plaintiffs' properties, typically in the amount of 20% of the costs for labor and materials, in calculating the replacement cost of the property claims made by plaintiffs;
"8. Improperly, unjustifiably and in violation of California law, calculating the actual cash value of the property on the basis of replacement cost less depreciation when, under California law, defendant is required to base actual cash value on fair market value of the property prior to the loss;
"9. Improperly and unjustifiably failing to provide fair rental value as an alternative to incurred expenses under the additional living expense provisions of the policies;
"10. Unreasonably and unjustifiably failing to timely and fully pay plaintiffs' claims under the policies;
"11. Unreasonably and unjustifiably failing to provide plaintiffs with guaranteed replacement cost benefits and full policy limits equivalent to the plaintiffs' homeowner's coverage limits in contradiction of defendants' agents representations to plaintiffs the plaintiffs were fully covered;
"12. Unreasonably and unjustifiably failing and refusing to provide sufficient and adequate payment for asbestos abatement and/or seeking to force plaintiffs to return to their asbestos-infested homes by refusing to provide sufficient and adequate additional living expenses;
"13. Unreasonably and unjustifiably failing and refusing to pay for costs incurred in retaining and utilizing structural engineers, soils engineers, contractors, asbestos testing companies and other experts necessary to determine the damages suffered by plaintiffs.
"14. Unreasonably and unjustifiably delaying payment of benefits which STATE FARM admittedly owed and thereby causing further structural damage to plaintiffs' structures.
"15. Unreasonably and unjustifiably contacting insureds who were represented by counsel and attempting to convince plaintiffs to, or coerce plaintiffs into, terminating their legal representation."
"(a) Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon, or making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies, or making any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates, or using any name or title of any policy or class of policies misrepresenting the true nature thereof, or making any misrepresentation to any policyholder insured in any company for the purpose of inducing or tending to induce such policyholder to lapse, forfeit, or surrender his or her insurance.
"(b) Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his or her insurance business, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading.
"(h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:
"(1) Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.
"(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
"(3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.
"(4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.
"(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
"(6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.
"(7) Attempting to settle a claim by an insured for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application.
"(8) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker.
"(9) Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made.
"(10) Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
"(11) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
"(12) Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
"(13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.
"(14) Directly advising a claimant not to obtain the services of an attorney.
"(15) Misleading a claimant as to the applicable statute of limitations.
"(16) Delaying the payment or provision of hospital, medical, or surgical benefits for services provided with respect to acquired immune deficiency syndrome or AIDS-related complex for more than 60 days after the insurer has received a claim for those benefits, where the delay in claim payment is for the purpose of investigating whether the condition preexisted the coverage. However, this 60-day period shall not include any time during which the insurer is awaiting a response for relevant medical information from a health care provider."
"(a) All persons may join in one action as plaintiffs if:
"(1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or
"(2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.
"(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief."