In re Ins. Installment Fee Cases

• Citation: 150 Cal.Rptr.3d 618,211 Cal.App.4th 1395
• Decision Date: 13 December 2012
• Docket Number: D057138
• Court: California Court of Appeals Court of Appeals
• Parties: IN RE INSURANCE INSTALLMENT FEE CASES.

211 Cal.App.4th 1395

150 Cal.Rptr.3d 618

IN RE INSURANCE INSTALLMENT FEE CASES.

D057138

Court of Appeal,

Fourth District, Division 1, California.

Filed December 13, 2012

APPEALS from a judgment and a postjudgment order of the Superior Court of San Diego County, Ronald L. Styn, Judge. Judgment affirmed; postjudgment order reversed and remanded with directions. (Super. Ct. No. JCCP 4493)

Coughlin Stoia Geller Rudman & Robbins; Robbins Geller Rudman & Dowd, John J. Stoia, Jr., Pamela M. Parker, Rachel L. Jensen, Amanda M. Frame, Kevin K. Green, San Diego; Blood Hurst & O'Reardon, Timothy G. Blood, Leslie E. Hurst, Thomas J. O'Reardon II, San Diego; Freedman, Boyd, Daniels, Hollander & Goldberg, David Freedman; Peifer, Hanson & Mullins, Charles R. Peifer, Robert E. Hanson; Myers, Oliver & Price, Floyd. D. Wilson; Robbins Umeda, Brian J. Robbins, San Diego; Alan Konrad; Eaves & Mendenhall, John M. Eaves for Plaintiffs, Appellants and Cross–Respondents Christine Slocum, Katherine Bull and Frank Reed.

Sedgwick, Detert, Moran & Arnold, Kevin Dunne, San Francisco, Maria Louise Cousineau, Los Angeles; Sedgwick, Victoria Collman Brown; Hogan Lovells, Vanessa O. Wells; Skadden, Arps, Slate, Meagher & Flom, James P. Schaefer, Jeffrey W. McKenna, Salezka Aguirre, for Defendant, Respondent and Cross–Appellant State Farm Mutual Automobile Insurance Company.

O'ROURKE, J.

Plaintiffs in a tentatively certified class action ¹ against defendant State Farm Mutual Automobile Insurance Company (State Farm) appeal from a judgment of dismissal entered after the trial court sustained State Farm's demurrer to plaintiffs' fourth amended complaint (the complaint) without leave to amend. The members of the putative plaintiff class are insureds of State Farm who pay the premiums on their automobile insurance policies in monthly installments. The complaint includes causes of action for breach of contract, violation of the Unfair Competition Law ( Bus. & Prof.Code, § 17200 et seq.) (UCL), and related causes of action based on allegations that State Farm unlawfully charges the class members a service charge (also referred to herein as an installment fee) to cover its installment billing and collection costs without specifying the service charge as additional premium on its policies as required by Insurance Code sections ²381 and 383.5, and without obtaining prior approval from the Insurance Commissioner for that additional premium as required by section 1861.01 et seq.³ Plaintiffs contend the complaint sufficiently pleads causes of action for breach of contract and violation of the UCL.

State Farm appeals from a postjudgment order granting plaintiffs' motion to tax costs of $713,463.72 that State Farm sought to shift to plaintiffs. State Farm incurred the costs in providing notice to putative class members that plaintiffs sought discovery of their contact information and installment fee payment information.⁴ We affirm the judgment and reverse the postjudgment order.

FACTUAL AND PROCEDURAL BACKGROUND

On appeal of a judgment of dismissal entered after the sustaining of a demurrer without leave to amend, we accept as true all the material allegations of the complaint, reasonable inferences that can be drawn from those allegations, and facts that may properly be judicially noticed. (Crowley v. Katleman (1994) 8 Cal.4th 666, 672, 34 Cal.Rptr.2d 386, 881 P.2d 1083; Saks v. Damon Raike & Co. (1992) 7 Cal.App.4th 419, 422, 8 Cal.Rptr.2d 869.) However, we do not accept as true contentions, deductions, or conclusions of fact or law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) ⁵

The relevant facts alleged in the complaint are few and largely undisputed.⁶ The representative plaintiffs and other State Farm policyholders who pay for their insurance in monthly installments are billed a service charge that is not included in the contract price specified in the policy. The installment fee is $3.00 per month for class members who receive a paper bill and do not return payment by automatic deduction from a bank account, $2.00 per month for class members who receive a paper bill but pay by automatic deduction from a bank account, and $1.00 per month for class members who receive no paper billing and pay by automatic deduction from a bank account. The installment fee is intended to cover State Farm's installment billing and collection costs. However, plaintiffs allege that State Farm also includes those costs in the prices it charges for its policies, but does not disclose that fact to its customers. As a result, plaintiffs and the class members allegedly are charged twice for the installment billing and collection costs.

The premium for a State Farm policy is specified in the policy declarations page as the “Total Premium” due for the policy period. Plaintiffs allege the policy contemplates that the policyholder may pay the “Total Premium” in installments as long as the “Total Premium” is paid before the end of the current policy period. The installment fee at issue is not specified in the declarations page or anywhere else in the policy. Plaintiffs allege the installment fee is “additional premium” that State Farm misrepresents as being a mandatory service charge. They also allege the State Farm Payment Plan (SFPP) agreement, which insureds enter into to pay in monthly installments, is an illegal contract that cannot be used to modify the insurance contract. ⁷ Plaintiffs characterize State Farm's charging the installment fee as a misrepresentation “that the installment ‘service charges' were due and owing, even though they were not.”

The complaint includes the following six causes of action based on the allegedly unlawful installment fee: first cause of action for breach of contract, second cause of action for violation of the UCL, third cause of action for unjust enrichment, fourth cause of action for fraud and deceit, fifth cause of action for negligent misrepresentation, and sixth cause of action for declaratory relief. On appeal, plaintiffs challenge only the sustaining of State Farm's demurrer without leave to amend as to the first cause of action for breach of contract and second cause of action for violation of the UCL.

In the first cause of action, plaintiffs allege that State Farm breaches the express terms of the insurance contract, as well as statutes that are made part of the contract under California law, by demanding more premium in the form of the installment fee than the total premium specified on the declarations page of the insurance contract. State Farm also allegedly breaches the insurance contract by double charging for its billing and collection costs through both the total premium and the installment fee.

In sustaining the demurrer without leave to amend as to the breach of contract cause of action, the court rejected plaintiffs' argument that the language of State Farm's policy itself (apart from the SFPP) allows for the payment of the premium in installments and ruled that the SFPP is not an illegal premium, but rather “pays for the convenience of paying monthly and covers a separate payment plan apart from the issuance of insurance coverage.” The court further ruled that “the allegations do not support a cause of action under the UCL, [or causes of action for] fraud or negligent misrepresentation. A fraud claim must be based on alleged misrepresentation or omission of fact. [Citation.] The misrepresentations alleged are opinions and legal conclusions, not facts.” The court also found that the alleged misrepresentations were true and that the representative plaintiffs failed to sufficiently plead reliance because they alleged that they paid their premiums “in installments because their finances required them to do so.”

DISCUSSION

PLAINTIFFS' APPEAL

I. Cause of Action for Breach of Contract

Plaintiffs contend the complaint sufficiently pleads that State Farm breaches its insurance contract (policy) by requiring its policyholders who pay monthly installments to enter into the SFPP agreement and pay an installment fee. Plaintiffs argue that requiring the installment fee is a breach of contract because, as alleged in the complaint, (1) the installment fee is additional premium that is not specified on the policy's declaration page as required by sections 381 and 383.5; ⁸ (2) the policy already allows for installment payments without a separate agreement; (3) regardless of whether the installment fee is premium, the policy does not permit State Farm to impose the installment fee without amending the policy by endorsement to include that additional charge; and (4) policyholders who pay in installments are double charged for State Farm's cost of billing and collecting installment payments.

A. The installment fee is not premium

As this court has noted, “[i]t is commonly understood that a premium is the amount paid for certain insurance for a certain period of coverage.” (Interinsurance Exchange of the Automobile Club v. Superior Court (2007) 148 Cal.App.4th 1218, 1230, 56 Cal.Rptr.3d 421, fn. omitted (Auto Club); Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1324, 90 Cal.Rptr.3d 589 ( Troyk ).) In both Auto Cluband Troyk, this court, in considering whether the insurance installment fees at issue in those cases were premium within the meaning of section 381, subdivision (f), applied the rule that when the language of a statute is clear and unambiguous, there is no need for construction.

In Auto Club, the insurer, Interinsurance Exchange of Automobile Club (Exchange) gave policyholders the option of paying premiums for automobile insurance in nine monthly installments, subject to additional charges for interest at a rate of about 18 percent per year. ( Auto Club, supra, 148 Cal.App.4th at p. 1222, 56 Cal.Rptr.3d 421.) The Auto Clubcourt concluded that “the fee Exchange charges for making payments of the annual premium in installments is interest for the...