State Farm Fire & Casualty Co. v. Superior Court

Decision Date23 May 1996
Docket NumberNo. B096075,B096075
Citation45 Cal.App.4th 1093,53 Cal.Rptr.2d 229
CourtCalifornia Court of Appeals Court of Appeals
Parties, 96 Cal. Daily Op. Serv. 3713, 96 Daily Journal D.A.R. 5973 STATE FARM FIRE AND CASUALTY COMPANY et al., Petitioners, v. The SUPERIOR COURT of the State of California For The County of Los Angeles, Respondent. IRENE ALLEGRO et al., Real Parties in Interest.

Robie & Matthai, James R. Robie, Michael J. O'Neill and Pamela E. Dunn, Los Angeles, for Petitioners.

Chapman, Popik & White, Susan M. Popik, San Francisco, Horvitz & Levy, David M. Axelrad, Lisa Perrochet and Andrea M. Gauthier, Encino, as Amici Curiae on behalf of Petitioners.

No Appearance by Respondent

Shernoff, Bidart & Darras, Michael J. Bidart and Sharon J. Arkin, Claremont, for Real Parties in Interest.

CROSKEY, Associate Justice.

Petitioners State Farm Fire and Casualty Company and State Farm Mutual Automobile Company (collectively "State Farm") are defendants in an action filed by 165 individual plaintiffs who were insured by petitioners and allege a number of claims relating to the Northridge earthquake on January 17, 1994. State Farm filed a demurrer to plaintiffs' first amended complaint on three grounds which are relevant here: (1) plaintiffs' fifth cause of action, based on an alleged violation of Business and Professions Code section 17200, failed to state sufficient facts to constitute a cause of action; (2) the court lacks primary jurisdiction over the subject matter of the action until plaintiffs' complaints are first presented to and addressed by the Insurance Commissioner; and (3) there is a misjoinder of plaintiffs. 1 The demurrer was overruled in its entirety and State Farm has petitioned this court for a writ of mandate.

We find that a cause of action limited to a request for injunctive or restitutive relief can be prosecuted under Business and Professions Code section 17200 based upon an insurer's alleged fraudulent misconduct and breach of the covenant of good faith implied in every policy of insurance; that such alleged acts might also violate the provisions of Insurance Code section 790.03 ("section 790.03") does not justify application of the bar against statutory bad faith claims announced in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 ("Moradi-Shalal"). We therefore conclude that State Farm's demurrer to plaintiffs' fifth cause of action was correctly overruled. We also reject State Farm's arguments based upon the primary jurisdiction doctrine and its claim that there was a misjoinder of plaintiffs. We therefore deny the requested writ relief.

FACTUAL AND PROCEDURAL BACKGROUND

The facts upon which this case must turn are those alleged in plaintiffs' complaint, which, under the usual appellate standard, we accept as true.

On April 17, 1995, plaintiffs filed their first amended complaint against State Farm and 85 separately named individual defendants alleged to be the agents of State Farm who marketed and sold to plaintiffs the several policies of homeowner insurance at issue in this case. Plaintiffs allege that each of them were sold policies of homeowner insurance issued by State Farm which covered real and personal property owned by them. While plaintiffs allege that each of them suffered damage in the Northridge earthquake, the amount of such damage differs with respect to each plaintiff.

Prior to 1985, State Farm provided earthquake coverage as an endorsement to its homeowner policies but, in that year, began providing such coverage by "a separate policy covering only the peril of earthquake." Plaintiffs allege that this was done without their consent and without adequate notice of the significant reduction in coverage which they claim was the object and result of this tactic. 2 Because the premium for the pre- 1985 earthquake endorsement was the same as for the post 1985 separate policy, plaintiffs were "duped" into believing that they would receive the same coverage. Plaintiffs allege that they did not in fact receive the same coverage and that State Farm engaged in this restructuring of its homeowner policies in order to reduce its exposure while earning the same premium income and thereby increasing its profits.

Plaintiffs allege that this amounted to a false, fraudulent and unfair plan or scheme to "limit its risk of losses arising from the peril of earthquake while maximizing profits." Plaintiffs then alleged some fifteen different types of "improper claims handling processes" which were engaged in by State Farm. Plaintiff alleges that State Farm "systematically, methodically and generally" engaged in these "improper, unfair and unreasonable claims practices." 3 These allegations of fraudulent misrepresentations and unfair and unreasonable claims practices also serve as the basis for plaintiffs' fifth cause of action for relief under Business and Professions Code section 17200 et seq., the Unfair Competition Act (hereafter the "UCA.")

In order to seek redress for State Farm's alleged fraudulent, unfair and unlawful practices, plaintiffs asserted claims for (1) breach of the implied covenant of good faith (i.e., common law "bad faith"), (2) breach of contract, (3) professional negligence, (4) fraud, (5) violation of the UCA and (6) reformation.

State Farm filed a demurrer and a motion to strike to the entire complaint which were overruled and denied, respectively. State Farm was given 30 days to answer the complaint. 4 Instead, State Farm has petitioned this court for a writ of mandate in which it seeks to overturn the trial court's ruling as to (1) the fifth cause of action (brought under the UCA), (2) the request for a stay of the entire action pending investigation and review of State Farm's marketing practices by the Insurance Commissioner and (3) the demurrer for misjoinder of plaintiffs.

On October 25, 1995, we issued an alternative writ, stayed all further proceedings in the trial court and set this matter for hearing.

CONTENTIONS OF THE PARTIES

State Farm asserts three basic contentions: (1) plaintiffs' attempt in their fifth cause of action to allege a claim under the UCA is an improper attempt to plead around the bar against statutory bad faith actions announced in Moradi-Shalal, and therefore State Farm's demurrer should have been sustained as to that cause of action; (2) plaintiffs' complaint, in effect, challenges the way State Farm packages and prices earthquake insurance and this involves an industry-wide issue which is regulated by the Insurance Commissioner; under the primary jurisdiction doctrine (see Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 6 Cal.Rptr.2d 487, 826 P.2d 730), the entire action should be stayed until the Commissioner has investigated and acted upon plaintiffs' complaints; and (3) plaintiffs are 165 separate individuals with disparate claims who have been improperly joined together in this action without a common occurrence or common question of law or fact; thus, State Farm's demurrer for misjoinder should have been sustained.

Plaintiffs dispute each of these contentions and argue that: (1) they are not seeking to recover under section 790.03 and therefore their fifth cause of action in no way implicates the bar announced in Moradi-Shalal; (2) they are seeking to recover on recognized principles of common law liability and are not raising issues which require the courts to defer to the primary jurisdiction of the Insurance Commissioner; and (3) joinder of the plaintiffs was proper in this case.

DISCUSSION
1. The Demurrer To The Fifth Cause Of Action Was Properly Overruled
a. Nature Of An Action Under The Unfair Competition Act

The statutory scheme of the UCA is straightforward. In section 17200 of the Business and Professions Code ("section 17200") any "unlawful," "unfair" or "fraudulent" business act or practice is deemed to be unfair competition. Under the UCA, injunctive relief to prevent such conduct, and/or restitution (i.e., disgorgement) of money or property wrongfully obtained "by means of such unfair competition," are authorized. (Bus. & Prof.Code, § 17203; 5 Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266, 10 Cal.Rptr.2d 538, 833 P.2d 545.)

The statute imposes strict liability. It is not necessary to show that the defendant intended to injure anyone. (People ex rel. Van de Kamp v. Cappuccio, Inc. (1988) 204 Cal.App.3d 750, 760-761, 251 Cal.Rptr. 657.) Because section 17200's definition is disjunctive, a "business act or practice" is prohibited if it is "unfair" or "unlawful" or "fraudulent." In other words, a practice is prohibited as "unfair" or "deceptive" even if not "unlawful" and vice versa. (Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735, 740, fn. 2, 162 Cal.Rptr. 543.) Virtually any law--federal, state or local--can serve as a predicate for a section 17200 action. (People v. E.W.A.P., Inc. (1980) 106 Cal.App.3d 315, 319, 165 Cal.Rptr. 73.)

As the California Supreme Court recently wrote, section 17200 "borrows" violations of other laws and treats them as unlawful practices independently actionable under the UCA. (Farmers Ins. Exchange v. Superior Court, supra, 2 Cal.4th at p. 383, 6 Cal.Rptr.2d 487, 826 P.2d 730.) The "unlawful business activity" which is proscribed by section 17200 includes "anything that can properly be called a business practice and that at the same time is forbidden by law." (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 113, 101 Cal.Rptr. 745, 496 P.2d 817 [decided under section 17200's predecessor, subdivision 3 of former Civil Code section 3369], italics added.) Most reported cases involving "unlawful business practices," however, have been predicated on state law violations. Laws that have been enforced under section 17200's "unlawful" prong include state antidiscrimination laws (Consumers Union of United States,...

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