From Insurer's Shield to Insured's Sword: California Supreme Court Authorizes Policyholder Unfair Competition Law Claims for Unfair Insurance Practices

On August 1, 2013, the California Supreme Court ruled in Zhang v. The Superior Court of San Bernardino County, No. S178542 (Cal. Aug. 1, 2013) that insurance practices violating the state’s Unfair Insurance Practices Act (UIPA) may also support a first-party action under California’s Unfair Competition Law (UCL).

The UCL prohibits acts of “unfair competition,” which are defined as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code§ 17200. By prohibiting “any unlawful” business act or practice, the UCL generally makes violations of other laws independently actionable via first-party claims. Yet in a previous ruling, the California Supreme Court held that the UIPA does not “create a private cause of action against an insurer that commits one of the various acts listed [in the Insurance Code].” Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287, 304-05 (1988). The majority’s decision in Zhang partly resolved an ambiguity that arose after the Moradi-Shalal ruling regarding the viability of UCL claims against insurers whose practices allegedly violate the UIPA.

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