Zhang v. Superior Court
57 Cal. 4th 364
| Cal. | 2013Background
- Yanting Zhang, insured under a California Capital Insurance Co. commercial policy, sued after a fire loss alleging breach of contract, insurance bad faith, and a UCL claim based on false advertising and underpayment of claims.
- California Capital demurred to the UCL claim, arguing Zhang sought to plead around Moradi-Shalal’s bar on private actions under the Unfair Insurance Practices Act (UIPA, Ins. Code § 790.03).
- The trial court sustained the demurrer without leave to amend; the Court of Appeal reversed, holding Zhang’s false‑advertising allegation could support a UCL claim.
- The Supreme Court granted review to resolve whether UIPA violations can underpin UCL claims when other independent legal grounds (common‑law bad faith or false advertising) also exist.
- The Court affirmed the Court of Appeal: Moradi‑Shalal bars private causes of action that rely solely on § 790.03, but does not preclude first‑party UCL claims based on independent grounds (e.g., common‑law bad faith or false advertising) even if the same conduct also violates the UIPA.
- The Court disapproved Textron Financial to the extent it conflicted with this holding and emphasized UCL remedies are equitable (injunction, restitution), not damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer practices that violate the UIPA (§ 790.03) can support a private UCL claim | Zhang: UCL claim rests on false advertising and common‑law bad faith independent of § 790.03; UCL may borrow or rely on other laws | California Capital: Allowing UCL here is an attempt to plead around Moradi‑Shalal; UIPA precludes private enforcement | Held: Moradi‑Shalal bars private claims based solely on § 790.03, but does not bar first‑party UCL claims grounded on independent legal theories (false advertising, common‑law bad faith) even if conduct also violates the UIPA |
| Whether a UCL action duplicates barred UIPA remedies and would resurrect Royal Globe‑type harms | Zhang: UCL relief is equitable (injunction, restitution) and limited; Proposition 64 and UCL limits prevent revival of damages‑style harms | California Capital: UCL would reintroduce proliferating litigation, coercive settlements, increased costs | Held: UCL’s limited remedies and standing constraints (Prop. 64) reduce those risks; allowing equitable UCL claims does not undermine Moradi‑Shalal |
| Whether courts should follow Textron (bar UCL claims based on claims‑handling covered by UIPA) or State Farm (allow UCL when independent grounds exist) | Zhang: State Farm consistent with precedent permitting UCL claims based on independent common‑law or other statutory violations | California Capital: Textron and the Safeco line control; UCL cannot be used to evade Moradi‑Shalal | Held: The Court follows State Farm and Manufacturers Life; Textron is disapproved to the extent inconsistent |
| Procedural scope: whether demurrer should be sustained because proof or remedies would be unmanageable | Zhang: Single‑instance UCL claims are permitted; manageability and proof are not resolved on demurrer | California Capital: UCL suit would require broad inquiry into thousands of claims; injunction/restitution impractical | Held: Manageability argument premature on demurrer; allegations suffice to state a UCL claim based on false advertising and bad faith |
Key Cases Cited
- Moradi‑Shalal v. Fireman’s Fund Ins. Cos., 46 Cal.3d 287 (Cal. 1988) (held UIPA did not create a private cause of action under § 790.03(h))
- Manufacturers Life Ins. Co. v. Superior Court, 10 Cal.4th 257 (Cal. 1994) (UIPA does not shield insurers from UCL liability when independent statutory causes exist)
- Cel‑Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163 (Cal. 1999) (UCL cannot be used to plead around an absolute statutory bar; but not every lack of private remedy precludes UCL claims)
- Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal.4th 26 (Cal. 1998) (UCL supports false‑advertising predicate claims against insurers)
- Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal.4th 553 (Cal. 1998) (clarified limits on using UCL to circumvent absolute bars and affirmed UCL may proceed when no clear legislative preclusion exists)
- State Farm Fire & Casualty Co. v. Superior Court, 45 Cal.App.4th 1093 (Cal. Ct. App. 1996) (first‑party bad‑faith allegations can furnish an independent predicate for a UCL claim)
- Royal Globe Ins. Co. v. Superior Court, 23 Cal.3d 880 (Cal. 1979) (originally recognized private UIPA actions; later overruled by Moradi‑Shalal)
- Rubin v. Green, 4 Cal.4th 1187 (Cal. 1993) (UCL cannot overcome absolute privileges such as the litigation privilege)
- Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566 (Cal. 1973) (recognizes insurer’s common‑law duty of good faith; foundation for bad‑faith claims)