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Court Erodes Moradi-Shalal And Permits Insured’s Unfair Competition Action Based On Violation Of Insurance Code


The California Court of Appeal in Hughes v. Progressive Direct Ins. Co., 196 Cal.App.4th 754 (6/15/11) limited a significant defense available to insurers facing unfair competition lawsuits from policyholders based upon alleged violations of the Insurance Code.

In Hughes, the insured was covered by an automobile liability policy issued by Progressive. After the insured was involved in an accident, he advised Progressive that he wanted his vehicle to be repaired by a particular shop.  Progressive guided him toward a repair shop that participated in Progressive’s repair program, but did not inform the insured of his right under California Insurance Code § 758.5 to select the facility of his choice. The insured’s vehicle was repaired at the shop Progressive had suggested, but not to his satisfaction.
The insured sued Progressive for unfair business practices under California’s Unfair Competition Law (“UCL”), Business & Professions Code § 17200, et seq., predicated upon Progressive’s violation of Insurance Code § 758.5. Progressive moved to dismiss the lawsuit based on the California Supreme Court’s longstanding decision in Moradi-Shalal v. Firemen’s Fund Ins. Co., 46 Cal.3d 287 (1988), which held there was no private right of action under the California Unfair Insurance Practices Act, Ins. Code § 790, et seq. (“UIPA”), against insurers that commit unfair practices enumerated in that statute. Progressive also argued that Moradi-Shalal’s progeny does not permit an action for violation of the UIPA to be recast as one under the UCL. The trial court agreed, but the Court of Appeal rejected Progressive’s position.
The Court noted that although Insurance Code § 758.5 does not create a private right of action, the UCL “comprehensively prohibits ‘any practices forbidden by law’” and that “a private right of action under the predicate statute is not necessary in order to state a cause of action under the UCL for violation based on that statute.”
While the Court acknowledged that Moradi-Shalal prohibits a lawsuit for UIPA violations and for unfair competition claims based upon such violations, the Court observed that the lawsuit against Progressive was for violation of a non-UIPA portion of the Insurance Code. Although the alleged misconduct could also be found to be a violation of the UIPA, the Court held that “UCL actions may be maintained against an insurer when the alleged conduct, even though violating the UIPA, also violates other statutes applicable to insurers.” Therefore, the UCL claim based upon violation of the Insurance Code was allowed to proceed against Progressive.


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