Smith v. State Farm Mut. Auto. Ins. Co.

• Citation: 113 Cal.Rptr.2d 399,93 Cal.App.4th 700
• Decision Date: 02 November 2001
• Docket Number: No. B136688.,B136688.
• Court: California Court of Appeals
• Parties: Elizabeth SMITH et al., Plaintiffs and Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Defendants and Respondents.

113 Cal.Rptr.2d 399

93 Cal.App.4th 700

Elizabeth SMITH et al., Plaintiffs and Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Defendants and Respondents.

No. B136688.

Court of Appeal, Second District, Division 3.

November 2, 2001.

As Modified November 20, 2001.

Mark P. Robinson, Los Angeles, and Cheong, Denove, Rowell, Antablin & Bennett, John D. Rowell, for Plaintiffs and Appellants.

LeBoeuf, Lamb, Greene & MacRae, Los Angeles, Sanford Kingsley and Thomas E. McDonald, San Francisco, for Defendant and Respondent United Services Automobile Association.

Thelen Reid & Priest, LLP, Los Angeles, Gary L. Fontana, and Hilary N. Rowen, San Francisco, for Defendant and Respondent 20th Century Insurance Company.

Heller Ehrman White & McAuliffe, LLP, La Jolla, Paul Alexander, Vanessa Wells, and James R. Knox, Palo Alto, for Defendants and Respondents State Farm Mutual Automobile Insurance Company, Allstate Insurance Company, Allstate Indemnity Company and California Casualty Insurance Company.

Barger & Wolen, LLP, Irvine, Kent Keller, Steven H. Weinstein and John C. Holmes, Los Angeles, for Defendant and Respondent California State Automobile Association Inter-Insurance Bureau.

Morrison & Foerster, LLP, John P. Olson, Los Angeles; Skadden, Arps, Slate, Meagher & Flom and Raoul D. Kennedy, San Francisco, for Defendants and Respondents Farmers Insurance Exchange, and Safeco Insurance Company of America.

Sonnenschein Nath & Rosenthal, Paul E.B. Glad, San Francisco, and John L. Williams, for Defendants and Respondents Colonial Penn Auto Insurance and Colonial Penn Madison Insurance Company.

Robert M. Wright, Costa Mesa, William J. Moran, Mission Hills, and John K. Beckley, Newport Beach, for Defendant and Respondent Interinsurance Exchange of the Automobile Club of Southern California.

CROSKEY, J.

In this class action, the representative plaintiffs¹ allege that the defendant insurers² conspired together to require their customers, who sought liability coverage on multiple vehicles, to either purchase uninsured motorist coverage for each vehicle or waive it as to all vehicles. Plaintiffs alleged that the defendant insurers claimed that this result was compelled by applicable law. The defendant insurers repeatedly demurred to the plaintiffs' complaint. Finally, the trial court concluded that the third amended complaint failed sufficiently to allege a conspiracy by or among the defendant insurers to engage in any unlawful or unfair conduct with respect to their insureds, including the plaintiffs. Concluding that the defendant insurers had done nothing that was not compelled by the relevant uninsured motorist provisions of the Insurance Code, the trial court sustained the demurrer to the third amended complaint without leave to amend.

After a careful review of the allegation of plaintiffs' complaint and the applicable law, we are persuaded that the trial court correctly sustained the demurrer without leave to amend as to certain of the insurer defendants, but as to others it should have been sustained with leave to amend. The defendant insurers are correct in their contentions with respect to those insurers marketing a single liability policy covering two or more vehicles. The relevant statute requires the very action about which the plaintiffs complain. Thus, they can be liable under neither the unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.)³ nor the Cartwright Act. (Bus. & Prof.Code, § 16700 et seq.) However, as to those insurers marketing individual policies for each vehicle, a different conclusion is warranted. The trial court did not address the argument raised by some of the defendant insurers that plaintiffs were required, and failed, to exhaust their administrative remedies. That issue, and the related issue of the possible application of the primary jurisdiction doctrine, will have to be addressed upon remand. We therefore will affirm in part and reverse in part.

FACTUAL AND PROCEDURAL BACKGROUND⁴

In their complaint, plaintiffs allege that, during the four years immediately preceding February 19, 1998 (the date the plaintiffs filed their original complaint), the defendant insurers were responsible for providing approximately 80 percent of the automobile liability insurance sold in California. During that period, there were approximately 4,700,000 insured automobile owners who owned and operated two or more vehicles in the same household. Included in this group were the plaintiffs, and others, who desired to purchase uninsured motorist coverage for only one, or at least less than all, of their multiple vehicles. The defendant insurers, however, required that the plaintiffs and other insureds either purchase uninsured motorist coverage for all of their vehicles or have no uninsured motorist coverage on any vehicle.

According to plaintiffs' allegations, this "business position" was enforced by each and everyone of the defendant insurers, whether the insurer (1) sold separate policies for each one of an insured's multiple vehicles (this was the practice followed by State Farm, Farmers and Allstate) or (2) sold a single policy covering all of an insured's vehicles (this was the practice of all the remaining defendant insurers-see fn. 2, ante). Plaintiffs allege that the defendant insurers, and each of them, agreed together to enforce such an "all or nothing" policy in order to require insureds who owned multiple vehicles to purchase more uninsured motorist insurance than they needed or desired.⁵ Plaintiffs allege that this unlawful agreement forced some insureds to pay more than they otherwise would have paid for necessary uninsured motorist coverage or, in the case of those who could not afford to purchase such coverage for all vehicles, to go without any uninsured motorist insurance.⁶ The defendant insurers allegedly justified this business practice by stating that they were compelled by law to provide uninsured motorist coverage in this manner; since their marketing practice was compelled by the relevant statutes, there could be no violation of law or an unlawful conspiracy.

Insurance Code, section 11580.2,⁷ the code section that gives insureds a right to obtain uninsured motorist insurance establishes very specific requirements concerning the manner in which such coverage is to be offered to automobile policyholders and the forms of coverage waiver that may be used. To ensure that uninsured motorist coverage is widely written, the Legislature requires that it be offered to all California policyholders. The mandatory offer provision is contained in the first sentence of section 11580.2, subdivision (a)(1), which states: "No policy of bodily injury liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle, ... shall be issued or delivered in this state, ... unless the policy contains, or has added to it by endorsement, a provision with coverage limits at least equal to the limits specified in subdivision (m)⁸ and in no case less than the financial responsibility requirements specified in Section 16056 of the Vehicle Code insuring the insured, the insured's heirs or legal representative for all sums within the limits which he, she, or they, as the case may be, shall be legally entitled to recover as damages for bodily injury or wrongful death from the owner or operator of an uninsured motor vehicle."

The next sentence of section 11580.2, subdivision (a)(1), identifies the three circumstances by which the coverage can be waived or modified through the agreement of the insurer and policyholder. It provides: "The insurer and any named insured, prior to or subsequent to the issuance or renewal of a policy, may, by agreement in writing, in the form specified in paragraph (2) or paragraph (3), (1) delete the provision covering damage caused by an uninsured motor vehicle completely, or (2) delete the coverage when a motor vehicle is operated by a natural person or persons designated by name, or (3) agree to provide the coverage in an amount less than that required by subdivision (m) but not less than the financial responsibility requirements specified in Section 16056 of the Vehicle Code."

Section 11580.2, subdivision (a), thus authorizes three-and only three-means by which uninsured motorist coverage can be entirely waived, deleted, or modified and mandates the specific language that is to be used in any written agreement providing for such waiver or modification. (§ 11580.2, subd. (a)(2), (a)(3).)⁹ In sum the statute permits (1) deletion of all coverage under the policy; (2) deletion of coverage for specifically-named individuals; and (3) an agreement to provide coverage in an amount less than the bodily injury liability limits in the underlying policy.

According to plaintiffs, since at least February 1994, the defendant insurers have participated in a civil conspiracy or combination to sell uninsured motorist insurance pursuant to an alleged "business policy" that decrees that any particular automobile owner seeking such insurance must purchase additional coverage at an additional price. Plaintiffs further allege that in some cases, this additional price is equal to approximately 80 percent of the initial policy price applied to each vehicle that the owner seeks to insure for liability coverage under the financial responsibility requirements of Vehicle Code section 16056.

Plaintiffs allege that additional uninsured motorist insurance covering more than one vehicle is both unnecessary and wasteful. Because of that, and because there can be no stacking of the insurance limits of multiple policies (see § 11580.2, subd. (d)), plaintiffs claim that they should have the right to purchase coverage on less than all of their vehicles. But, due to the aforesaid "business practice" of the defendant insurers, plaintiffs were coerced into purchasing coverage on all owned vehicles, under threat of otherwise having no...