The California Court of Appeal, Second Appellate District, Division Seven, reversed a dismissal in favor of an insurer of a claim filed under California's Unfair Competition Law ("UCL"). The UCL claim was premised solely on the insurer's alleged violation of Insurance Code section 758.5 ("Section 758.5"), which prohibits an insurer from requiring or even suggesting its insured use certain automobile repair shops.
Chris Hughes was involved in an accident in which his automobile sustained some damage. Hughes was insured by Progressive Direct Insurance Company. Hughes alleged that although he informed Progressive of his preference for a certain repair shop, Progressive recommended Hughes take his car to a shop belonging to Progressive's Direct Repair Program ("DRP"), explaining that his claim would be approved and the repairs completed more quickly at that shop.
Hughes alleged Progressive failed to inform him of his right under Section 758.5 to select his own shop. Hughes took his automobile to the DRP-affiliated shop, but was dissatisfied with the work. He suspected substandard or used parts had been used.
Hughes subsequently filed suit against Progressive on behalf of himself and a proposed class of persons (1) who are or were a residents of California, (2) who had claims covered by Progressive automobile insurance policies, and (3) who had their vehicles repaired by shops belonging to Progressive's DRP. Hughes asserted a single cause of action against Progressive for allegedly violating the UCL (California's Business and Profession Code section 17200, et. seq). Hughes alleged that while Progressive assures its insureds that DRP facilities "are carefully selected to provide only the highest quality of work, those shops are actually selected based on their agreement to Progressive's demands to reduce the costs to repairs."
Progressive demurred to Hughes's complaint on the ground that it did not state facts sufficient to constitute a cause of action. Specifically, Progressive alleged Moradi-Shalal v. Fireman's Fund Ins. Co. (1988) 46 Cal.3d 287 and its progeny prohibit private actions to enforce provisions of the Unfair Insurance Practices Act ("UIPA"), found at Insurance Code section 790 et seq., including claims under the UCL. Accordingly, even if Hughes proved Progressive violated Section 758.5, Progressive argued this could not support a UCL claim.
Hughes opposed the demurrer, arguing Section 758.5, while part of the Insurance Code, is not part of the UIPA. Hughes contended that Moradi-Shalal, supra, and the cases that followed it have never been extended to preclude a UCL claim based on violations of a non-UIPA provision. Progressive responded by analyzing the legislative history of Section 758.5 and arguing this history demonstrated that the Legislature did not intend to create a private right of action. The trial court agreed and sustained Progressive's demurrer. Hughes timely appealed.
The Court of Appeal examined the scope of the UCL and Moradi-Shalal. It recognized the breadth of the UCL, noting that parallel actions for unfair competition under the UCL are proper even though a specific statutory enforcement scheme exists. UCL claims are barred only where the statutory scheme precludes cumulative remedies. The Court found that Moradi-Shalal, and the cases following it, stand for the proposition that the UIPA was not "intended to create a private civil cause of action against an insurer that commits one of the various acts listed." Thus, violations of the UIPA alone cannot give rise to claims under the UCL.
The Court of Appeal then evaluated the intent and language of Section 758.5. It noted this statute was enacted to prevent insurance companies from using coercive tactics to steer consumers to particular automobile repair shops. No private right of action is provided under Section 758.5. But Section 758.5 grants the Insurance Commissioner the power to enforce the section in the same manner as UIPA violations.
Given the breadth of the UCL, and the absence of any "express" language repealing the cumulative remedies generally made available by the Legislature under the UCL or any intent to transform Section 758.5 into simply another unlawful practice under the UIPA, the Court of Appeal concluded an alleged violation of Section 758.5 may serve as the predicate for a UCL claim. The Court of Appeal confirmed a plaintiff may not rely on conduct that violates the UIPA, but which is not otherwise prohibited, as a predicate for a UCL claim. However, alleged violation of other statutes applicable to insurers, whether part of the Insurance Code or otherwise, may serve as the predicate for a UCL claim absent an express legislative direction to the contrary.
Accordingly, the Court concluded Hughes's allegations that Progressive violated Section 758.5 properly stated a cause of action for unfair competition. It therefore reversed the trial court's order dismissing the action.
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This opinion is not final. Though it has been certified for publication, it may be modified on rehearing, or granted review by the Supreme Court of the State of California. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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