On August 1, the California Supreme Court issued its highly-anticipated decision in Zhang v. Superior Court, holding that the California Unfair Insurance Practices Act (Ins. Code §790 et seq.) does not necessarily preempt an action against an insurer under the California Unfair Competition Law (Bus. & Prof. Code §17200 – the “UCL”). The decision greatly expands an insurer’s potential exposure in California to private actions arising from conduct that, for over twenty five years, had been considered to be subject solely to the California insurance law (which does not provide for a private right of action). 

In Zhang, the plaintiff sued her insurer, California Capital Insurance, over a dispute arising from a fire at her business. Zhang contended that the insurer’s claim handling had been inadequate, in violation of the California Unfair Insurance Practices Act. However, recognizing that the Unfair Insurance Practices Act does not authorize a private right of action, Zhang’s complaint, alleged that the insurer’s advertising (in which it promised timely and proper payment of insurance claims), was “false advertising” potentially actionable under the California UCL. 

Before the California Supreme Court, California Capital Insurance (as well as several amici) maintained that the plaintiff’s action was, in essence, a claims handling dispute, and that the court’s 1988 decision in Moradi-Shalel v. Fireman’s Fund acted as a bar to any private cause of action for conduct that is also covered by the Unfair Insurance Practices Act. However, the court rejected that argument, holding that “Moradi-Shalel 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.” The court continued: [W]hile a plaintiff may not use the UCL to ‘plead around’ an absolute bar to relief, the [Insurance law] does not immunize insurers from UCL liability for conduct that violates other laws in addition to the [Insurance law].” In reaching this decision, the California Supreme Court further noted that Moradi-Shalel had been intended to protect against the adverse consequences of permitting a broad implied right of action for damages under the Insurance law, and that this concern should not apply because UCL remedies are more limited in scope (generally extending only to injunctive relief and restitution.) 

Whether the limited remedies afforded by the UCL noted by the Court will temper plaintiff interest in bringing UCL claims against insurers remains to be seen, particularly given that UCL claims can give rise to punitive damages and, in some circumstances, an award of attorney fees to a prevailing plaintiff (under a “private attorney general” theory). Time will tell; these “limited” remedies do not seem to have had any significant chilling effect on UCL actions against other entities. For now, what is clear is that plaintiff Yanting Zhang’s false advertising-based UCL claim returns to the trial court for further proceedings, and that future plaintiffs have just been granted a new avenue for challenging insurer conduct in the California courts.