Saturday, October 31, 2009

Fourth District Rules Fraud Prong of the UCL Not Barred by the UPA in Zhang v. Superior Court

On October 29, 2009, the Fourth District (Division Two) issued an opinion in Zhang v. Superior Court, __ Cal. App. 4th __ (2009), concluding that insurers are not immune from liability under the fraud prong of the UCL for conduct that would violate the “Unfair Insurance Practices Act” (Insurance Code § 790.03 et seq.).

In reversing the trial court’s demurrer, the court concluded that that the California Supreme Court’s decision in Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287 (1988) did not stand for the proposition “that insurers who violate the Unfair Insurance Practices Act can never be liable in tort to the injured party” [id., at 7], as the Supreme Court’s decisions in both Moradi-Shalal and Manufacturers Life Ins. Co. v. Superior Court, 10 Cal.4th 257, 267 (1995) expressly acknowledged that the Unfair Insurance Practices Act did not stand as a substantive bar to existing tort law remedies. See id., at 7-8. Rather, drawing from the analysis in both Moradi-Shalal and Manufacturers Life, the Zhang court reasoned that a UCL claim can be barred only if “a plaintiff relies on conduct that violates the Unfair Insurance Practices Act but is not otherwise prohibited…” See id., at 8.

Thus, in the words of Zhang, “if a plaintiff expressly alleges conduct expressly prohibited by the UCL, such as fraudulent conduct likely to deceive the public [] or false advertising, there is simply no reason to apply Moradi-Shalal to prohibit the cause of action." See id., at 10-11.

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