ALAN WAYNE, Plaintiff and Appellant, v. STAPLES, INC., Defendant and Respondent.
No. B178160
Second Dist., Div. Seven
Jan. 4, 2006
135 Cal. App. 4th 466
The Rossbacher Firm, Henry H. Rossbacher, James S. Cahill, Talin Khachaturian; Hagens Berman, Amanda L. Horn and Craig R. Spiegel for Plaintiff and Appellant.
Fulbright & Jaworski, Robert W. Fischer, Jr., and Eric A. Herzog for Defendant and Respondent.
OPINION
PERLUSS, P. J.—Alan Wayne appeals from the judgment entered after an order granting summary judgment in favor of Staples, Inc. in this putative class action filed by Wayne alleging that, in selling “declared value coverage” for packages shipped at its retail stores, Staples violated the Consumers Legal Remedies Act,
FACTUAL AND PROCEDURAL BACKGROUND
1. Staples‘s Package Shipping Business and the Sale of Declared Value Coverage
The fundamental facts underlying Wayne‘s complaint are essentially undisputed. Staples, a nationwide retailer of office supplies and services, offers package shipping services to its customers through its agreement to serve as an authorized shipping outlet for United Parcel Service (UPS). Staples expressly disclaims any liability for loss or damage to parcels shipped through its stores. The face page of its parcel shipping order form states, “We assume no liability for the delivery of the parcels accepted for shipment nor for loss or damage by any cause to the parcels or their contents while in transit. In the event of loss or damage to any parcels, we will assist you in filing and processing of claims only.”
Staples‘s shipping customers may protect themselves from the risk of loss or damage to their packages by purchasing insurance through UPS—what
The back page of Staples‘s parcel shipping order form refers customers to the UPS service guide for a description of the terms and conditions of the insurance coverage: “You may purchase declared value coverage through the carrier designated on this PSO [(parcel shipping order)] or from an independent company, if available. The declared value terms and conditions for the various carriers can be found in the carriers’ service guide. The declared value terms and conditions for the various carriers and any applicable independent company selected by you are available for review at this Staples Center. Upon request, you may receive a photocopy of such terms and conditions. Please note that we may surcharge the cost of this product as an administrative expense, for services such as processing of potential claims and other related services.”
UPS‘s excess value coverage or excess value insurance is provided through an inland marine basic policy from the National Union Fire Insurance Company of Pittsburgh, Pa. (National Union). Customers who purchase the coverage at Staples or at other UPS shipping sites are additional insureds under the policy. In general, offering insurance coverage is an activity requiring a license and regulated by the Insurance Code. (See, e.g.,
Wayne, a Staples customer who shipped a package from a Staples store after he had purchased declared value coverage, filed a putative class action complaint on behalf of all California residents who had purchased declared value coverage from Staples alleging Staples and its employees solicit and execute contracts for marine inland insurance offered by UPS and keep 50 percent of the premium collected as commission. In his first cause of action Wayne alleged Staples engages in unfair business practices because it is not licensed to sell insurance, charges an excessive insurance premium and does not comply with procedures and regulations established by the Insurance Commissioner for the sale of insurance. In his second cause of action Wayne alleged Staples‘s retail price for declared value coverage, then twice the regular premium charged by UPS, is excessive and unconscionable in violation of the Consumers Legal Remedies Act. His third cause of action alleged Staples‘s parcel shipping order form is deceptive because it fails to properly disclose Staples‘s 100 percent profit or markup on the sale of declared value coverage. The complaint sought compensatory and punitive damages as well as equitable relief.
In its answer, in addition to denying the material allegations of Wayne‘s unverified complaint, Staples asserted as an affirmative defense that the contracts between Staples and its shipping customers are not contracts of insurance or subject to regulation as insurance contracts because the principal object or purpose of each agreement is to ship packages, not to shift or assume liability as would be the case with a contract of insurance. Staples also asserted as a further affirmative defense that all damages sought by Wayne on behalf of the putative class were avoidable because each Staples customer had the option not to purchase declared value coverage after being advised of the charge as well as to ship their packages, with or without declared value coverage, through a competing shipping service.
3. The Motion for Resolution of Key Jury Instructions and Motion In Limine
To permit early determination of legal issues central to the case and with the permission of the court, Staples filed a “motion for resolution of key jury instructions and motion in limine,” which addressed whether the jury should be instructed on the Insurance Code with respect to Wayne‘s first cause of action, whether Staples‘s charge for declared value coverage is unconscionable and whether its parcel shipping order form is deceptive. After discovery, briefing and argument the court ruled in favor of Staples on each question, concluding Wayne‘s transactions with Staples were not governed by
4. Staples‘s Motion for Summary Judgment
Following these rulings Staples filed a motion for summary judgment or in the alternative summary adjudication as to each of the three causes of action asserted by Wayne, reiterating the factual and legal arguments presented in connection with its motion for resolution of key jury instructions and motion in limine. After receipt of opposition and reply papers and oral argument, the trial court granted this motion as well.
As to Wayne‘s first cause of action alleging unfair business practices, the court held, “Staples is not violating the Insurance Code by offering Declared Value Coverage as part of its package shipping transactions, whether or not Declared Value Coverage constitutes insurance. The undisputed facts indicate that the principal object and purpose of these transactions is the shipment of a package.” As to the second cause of action for violation of the Consumers Legal Remedies Act, the court held, “The undisputed facts indicate that Staples‘s markup on Declared Value Coverage is not unconscionable as a matter of law.” As to the third cause of action for untrue and misleading advertising, the court ruled, “The undisputed facts indicate that Staples‘s parcel shipping order form is not deceptive. Staples‘s charge for Declared Value Coverage is clearly disclosed at the time of purchase. The full price of Declared Value Coverage is disclosed to the customer before he or she pays for it. The customer can decline to accept the coverage, or decline to ship the package with Staples. Staples‘s customers are always notified of the charge before they choose to buy the Declared Value Coverage. Furthermore, in connection with the hearing in this case in May 2002, plaintiff argued that the use of the word ‘may’ by Staples was deceptive because, at that point, Staples always did surcharge the cost of UPS Declared Value Coverage. Staples pointed out that its pricing policy could change. In fact, shortly after that hearing, Staples‘s pricing policy did change. Staples does not currently surcharge any of UPS’ shipping charges. The use of the word ‘may’ was and is full, proper disclosure.”
DISCUSSION
1. Standard of Review
We review a grant of summary judgment de novo and decide independently whether the facts not subject to triable dispute warrant judgment for
2. The Trial Court Erred in Granting Summary Judgment as to Wayne‘s Unfair Business Practices Cause of Action on the Ground Staples‘s Offer of Declared Value Coverage Is Not Subject to Regulation Under the Insurance Code
a. Negotiating the sale of insurance, even if not the principal object of a commercial transaction, is subject to regulation under the Insurance Code
The trial court ruled Staples was not violating the Insurance Code by offering shipping customers declared value coverage, a form of inland marine insurance,2 because the offer and sale of that coverage is only incidental to the principal object of the transaction: the shipment of the customer‘s package. The principal-object test is an essential analytic tool to evaluate whether certain contracts that contain risk allocation provisions qualify as “insurance.” (See, e.g., Automotive Funding Group, Inc. v. Garamendi (2003) 114 Cal.App.4th 846, 855-856 [7 Cal.Rptr.3d 912] (AFG); Truta v. Avis Rent A Car System, Inc. (1987) 193 Cal.App.3d 802, 814 [238 Cal.Rptr. 806] (Truta).) Nonetheless, the trial court erred in applying this test to Staples‘s package shipping services to conclude Staples‘s offer and sale of inland marine insurance was not subject to regulation by the Insurance Code or the Department of Insurance.3
The test in Truta, supra, 193 Cal.App.3d 802, and AFG, supra, 114 Cal.App.4th 846, is whether the principal purpose of the transaction is risk allocation and indemnification or something else. An incidental contract provision that, for a fee, shifts risk of loss from the consumer to the provider of the goods or services does not make the agreement an insurance contract subject to regulation under the Insurance Code. (See, e.g., Truta, at p. 811 [the collision damage waiver transaction ” ‘is not a spreading of risk within insurance concepts, but is rather an allocation of risk by contractual agreement’ “].)
Neither Truta, supra, 193 Cal.App.3d 802, nor AFG, supra, 114 Cal.App.4th 846, holds, however, that the sale of insurance coverage as an incidental part of a more extensive transaction is not subject to regulation under the Insurance Code. (See, e.g., Grand Rent A Car Corp. v. 20th Century Ins. Co. (1994) 25 Cal.App.4th 1242, 1251-1252 [31 Cal.Rptr.2d 88] [car rental agreement that contains provision indemnifying renter from liability to third persons resulting from accidents occurring while the rented car is in use constitutes insurance even when the liability insurance/car rental agreement is effectuated by a certificate of self-insurance]; Hertz Corp. v. Home Ins. Co. (1993) 14 Cal.App.4th 1071, 1077 & fn. 5 [18 Cal.Rptr.2d 267] [same, distinguishing Truta].) In other words, while it is true not all contracts allocating risk are insurance contracts subject to statutory regulation, all insurance contracts, even if sold as a secondary or incidental facet of a transaction with another, primary commercial purpose, are regulated by the
Use of the principal-object-and-purpose test to exempt a contract of inland marine insurance from statutory regulation is particularly inappropriate because this class of coverage, expressly regulated by the Insurance Code (see
b. Staples‘s profit on the sale of declared value coverage constitutes a “commission” within the meaning of the Insurance Code
The determinative question as to the viability of Wayne‘s first cause of action, therefore, is not whether a Staples‘s customer‘s principal purpose is shipping his or her package, rather than obtaining insurance against loss or
With respect to the UPS declared or excess value insurance provided to shipping customers at Staples retail stores, there can be no serious dispute Staples is involved principally in selling the product and it calculated its margin or profit as a percentage of the price of the insurance product charged by UPS. Staples argues, however, that the same is essentially true for all items it sells in its stores: It is in the business of selling goods, and it generates profits by marking up the wholesale price to sell at retail. According to Staples, the fact it makes a profit on selling the coverage, as it hopes to do on everything in its stores, does not make that profit a “commission.” Rather, in this context a commission means only a fee paid by UPS (or National Union) to Staples or a fee paid by Staples to its employees each time declared or excess value coverage is sold.
Staples‘s argument, although superficially appealing, fails to give sufficient weight to the actual language used in
Moreover, unlike the office products it purchases at wholesale and then resells in its stores, Staples does not “own” the insurance it makes available to its customers. Rather, it serves as an agent for their acquisition of the direct or excess value insurance offered by UPS, bringing supplier and customer together.5 Although, as Staples notes, UPS does not pay Staples for its role in the transaction, at the very least UPS allows Staples indirectly to impose an additional percentage service fee as part of the gross premium charged to the shipper-insured. As such, the amount collected by Staples in excess of the $0.35 charged by UPS for the coverage is “commission” within the meaning of
In sum, the declared value coverage offered by Staples to its shipping customers is, without question, insurance; and the fact it is offered only as an incidental aspect of a transaction focused on shipping packages does not exempt Staples from insurance licensing requirements. Although Staples‘s current marketing practices (charging its customers only what it is actually charged by UPS for excess value insurance) may well fall within the exemption provided by
Unconscionability is a question of law for the court. (
Unconscionability has both procedural and substantive elements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz); Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1539 [5 Cal.Rptr.3d 835].) Both must appear for a court to invalidate a contract or one of its individual terms (Armendariz, at p. 114; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174 [116 Cal.Rptr.2d 671] (Mercuro)), but need not be present in the same degree: “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, at p. 114.)
Procedural unconscionability focuses on the elements of oppression and surprise. (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160 [30 Cal.Rptr.3d 76, 113 P.3d 1100].) ” ’ “Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice . . . . Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.” ’ ” (Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1165 [22 Cal.Rptr.3d 189]; Mercuro, supra, 96 Cal.App.4th at p. 174 [“procedural unconscionability focuses on the oppressiveness of the stronger party‘s conduct“].)
Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ” ’ “overly harsh” ’ ” or ” ’ “one-sided” ’ results” (Armendariz, supra, 24 Cal.4th at p. 114), that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. (Jones v. Wells Fargo Bank, supra, 112 Cal.App.4th at p. 1539.) To be substantively unconscionable, a contractual provision must shock the conscience. (California Grocers Assn. v. Bank of America (1994) 22 Cal.App.4th 205, 214 [27 Cal.Rptr.2d 396]; Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1330 [83 Cal.Rptr.2d 348] [” ‘Substantive unconscionability’ focuses on the terms of the agreement and whether those terms are ‘so one-sided as to “shock the conscience.“’ [Citations.]“].)
The parties’ agreement as to price, like any other contract provision, may be found unconscionable. (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 926-927 [216 Cal.Rptr. 345, 702 P.2d 503].) “[I]t is clear that the price term, like any other term in a contract, may be unconscionable. [Citations.] Allegations that the price exceeds cost or fair value, standing alone, do not state a cause of action. [Citations.] Instead, plaintiff‘s case will turn upon further allegations and proof setting forth the circumstances of the transaction. [] The courts look to the basis and justification for the price [citation], including ‘the price actually being paid by . . . other similarly situated consumers in a similar transaction.’ [Citation.] . . . While it is unlikely that a court would find a price set by a freely competitive market to be unconscionable [citation], the market price set by an oligopoly should not be immune from scrutiny. Thus courts consider not only the market price, but also the cost of the goods or services to the seller [citations], the inconvenience imposed on the seller [citation], and the true value of the product or service [citation].” (Ibid.)
Wayne‘s theory of price unconscionability is grounded in a 1999 United States Tax Court opinion dealing with the proper tax reporting consequences of UPS‘s sale of declared value coverage. In that opinion, subsequently reversed on appeal, the tax court expressed the view UPS‘s charge of $0.35 per $100 of declared value over $100 was significantly in excess of the actual cost for such insurance on the open market. (United Parcel Service of America, Inc. (1999) [78 T.C.M. (CCH) 262, revd. (11th Cir. 2001) 254 F.3d 1014, 1017-1018.) Extrapolating from that observation, Wayne argues the fee imposed by Staples for UPS‘s declared value coverage, which was twice that charged by UPS itself, was necessarily far in excess of a price that would be determined in a competitive business environment—and therefore unconscionable—because UPS bears all the losses and claims adjustment expenses and Staples does not assume any risk in the transaction.
a. Procedural unconscionability
Wayne‘s assertion of unconscionability suffers from several fatal flaws. First, Staples clearly discloses the price of the declared value coverage, thus negating any contention of procedural unconscionability based on “surprise.” (See Gutierrez v. Autowest, Inc., supra, 114 Cal.App.4th at p. 87. [” ‘Surprise’ is defined as ‘the extent to which the supposedly agreed-upon terms of
Second, Staples gives its customers the option to ship packages without purchasing the coverage, as well as to obtain excess value coverage from other carriers. In addition, potential customers have a wide range of choices other than shipping their packages at Staples, from dealing directly with UPS, Federal Express or the United States Postal Service to patronizing other retail shipping outlets such as Mail Boxes, Etc. or Postal Annex. There can be no oppression establishing procedural unconscionability, even assuming unequal bargaining power and an adhesion contract, when the customer has meaningful choices: “[A]ny claim of ‘oppression’ may be defeated if the complaining party has reasonably available alternative sources of supply from which to obtain the desired goods or services free of the terms claimed to be unconscionable.” (Dean Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758, 768 [259 Cal.Rptr. 789]; see Marin Storage & Trucking, Inc. v. Benco Contracting & Engineering, Inc., supra, 89 Cal.App.4th at p. 1056 [alternative sources rendered procedural unfairness of adhesive contract minimal].) Thus, even assuming some imbalance in the bargaining power between Staples and its shipping customers, neither coercion nor lack of choice, the usual hallmarks of procedural unconscionability, was present in the challenged shipping transactions. (See Woodside Homes of Cal., Inc. v. Superior Court (2003) 107 Cal.App.4th 723, 730 [132 Cal.Rptr.2d 35] [absence of evidence of de facto coercion or lack of choices by buyers supports conclusion there was at most minimal procedural unconscionability].)
b. Substantive unconscionability
In the absence of any evidence of procedural unconscionability in connection with Staples‘s offer and sale of declared value coverage, the mere allegation the price charged for the coverage exceeds cost or fair value is not sufficient to establish substantive unconscionability. (Perdue v. Crocker National Bank, supra, 38 Cal.3d at p. 926; Vance v. Villa Park Mobilehome Estates (1995) 36 Cal.App.4th 698, 710 [42 Cal.Rptr.2d 723].) Wayne does not allege any facts, let alone present evidence, suggesting the market for package shipping services is an oligopoly.6 (Cf. Perdue, at p. 927 [price
To the contrary, in his opposition to Staples‘s motion for summary judgment, Wayne conceded not only that Staples‘s charge for declared value coverage was comparable to the amount charged by other retailers of shipping services, but also that consumers have multiple options available for shipping a package. (Ibid. [“it is unlikely that a court would find a price set by a freely competitive market to be unconscionable“]; see Morris v. Redwood Empire Bancorp, supra, 128 Cal.App.4th at pp. 1323-1324.) In addition, case law supports the general proposition advanced by Staples that a 100 percent markup or profit margin “is wholly within the range of commonly accepted notions of fair profitability. Cases of price unconscionability generally involve much greater price-value disparities. [Citations.]” (California Grocers Assn. v. Bank of America, supra, 22 Cal.App.4th at p. 216 [holding bank‘s assessment of $3 fee for deposited items returned was not unconscionable even assuming administrative costs were only $1.50, resulting in 100 percent markup or profit].)
“The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]” (Morris v. Redwood Empire Bancorp, supra, 128 Cal.App.4th at pp. 1322-1323.) Staples‘s pre-May 2002 charge of $0.70 per $100 of declared value over $100—a 100 percent markup on coverage for which UPS charged only $0.35 per $100—does not shock the conscience as a matter of law.
4. Summary Adjudication Was Properly Granted as to Wayne‘s Cause of Action for Deceptive Marketing of the Declared Value Coverage
Staples‘s parcel shipping order form advises its customers that the declared value coverage being offered will actually be provided through the carrier (that is, UPS), not Staples. The form further states, “Please note that we may surcharge the cost of this product as an administrative expense, for services such as processing of potential claims and related services.” Wayne argues (and Staples does not dispute) that until May 2002 Staples automatically “surcharged” the cost of the coverage provided by UPS without regard to actual administrative expense, and Wayne contended in his third cause of
To state a cause of action under consumer protection statutes designed to protect the public from misleading or deceptive advertising, the plaintiff must demonstrate that ” ‘members of the public are likely to be deceived.’ [Citations.]” (Committee on Children‘s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211 [197 Cal.Rptr. 783, 673 P.2d 660]; Day v. AT & T Corp. (1998) 63 Cal.App.4th 325, 331-332 [74 Cal.Rptr.2d 55].) In light of Staples‘s clear disclosure of the actual price it would charge its customers for declared value coverage prior to any purchase, the trial court properly concluded any ambiguity in the order form as to whether the amount charged includes a “surcharge” or profit for Staples was not misleading or deceptive. (See Searle v. Wyndham Internat., Inc. (2002) 102 Cal.App.4th 1327, 1334-1335 [126 Cal.Rptr.2d 231] [failure to disclose whether clearly stated 17 percent service charge on hotel room service was remitted to hotel employees not unfair or deceptive]; Plotkin v. Sajahtera, Inc. (2003) 106 Cal.App.4th 953, 965-966 [131 Cal.Rptr.2d 303] [unambiguous notice of valet parking charges on parking ticket given to customer sufficient to defeat claims for deceptive business practices as a matter of law notwithstanding failure of parking operators to notify customers of charges in advance; “the public was not likely to be deceived“]; see also Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal.App.4th 1158, 1176-1177 [121 Cal.Rptr.2d 79] [use of word “may” in deed of trust authorized lender to charge inspection fees even though specific fees not disclosed in advance].)
DISPOSITION
The judgment is reversed. On remand the trial court shall enter an order denying Staples‘s motion for summary judgment and its alternative motion for summary adjudication as to Wayne‘s first cause of action and granting the alternative motion as to Wayne‘s second and third causes of action and shall conduct further proceedings not inconsistent with this opinion. Wayne is to recover his costs on appeal.
Johnson, J., concurred.
WOODS, J., Concurring and Dissenting.—I concur in the majority‘s affirmance of the trial court‘s rulings in favor of Staples, Inc. with respect to Wayne‘s second cause of action, alleging the pricing of Staples‘s “declared value coverage” is unconscionable and violates the Consumers Legal Remedies Act,
Staples‘s core contention on appeal centers around its assertion that California follows the “principal object and purpose” test in determining whether a transaction falls under the California Insurance Code and the regulations applicable thereto. Staples maintains that while all insurance contracts allocate risk for mishaps, not all contracts allocating risk are governed by laws regulating insurance. Staples cites the decision of our high court in Title Ins. Co. v. State Bd. of Equalization, supra, 4 Cal.4th 715, 726, 727, for its contention that only those contracts that are primarily for the purpose of allocating risk are characterized as insurance contracts, subject to stringent insurance regulations. I find the instruction given by our high court in Title Ins. Co. pertaining to the principal object and purpose test to be clear and unambiguous. Our high court states at pages 726 and 727 as follows:
“The underwriting agreement does not appear to be a contract of insurance for two reasons. First, it does not appear to distribute the risk of liability for claims among similarly situated persons. Under the contract, the underwritten title company agrees to indemnify the insurer for a portion of its liability. There is no indication that the underwriting agreements distribute the risk among similarly situated title insurers.
“Second, ‘the mere fact that a contract contains these two elements [shifting and distribution of risk of loss] does not necessarily mean that the agreement constitutes an insurance contract for purposes of statutory regulation.’ (Truta v. Avis Rent a Car System, Inc. (1987) 193 Cal.App.3d 802, 812 [Truta].) Rather than simply look to whether the contract involves an assumption of a risk, we will instead ask ’ “whether that [assumption of risk] or something else to which it is related in the particular plan is its principal object and purpose.” ’ (Transportation Guar. Co. v. Jellins (1946) 29 Cal.2d 242, 249 [Jellins]; see also 12 Appleman, Insurance Law and Practice (1981) § 7002, p. 14.)
“Following this reasoning, California courts have held that arrangements similar to those in this case were not illegal contracts of insurance. For instance, a car rental agreement containing an element of insurance was not an illegal contract of insurance because the insurance element was peripheral to the main purpose of the contract. (Truta, supra, 193 Cal.App.3d at p. 814.) Likewise, a truck maintenance contract in which the contractor agreed to insure the vehicles for the owner with an authorized insurance company was held to be not an illegal contract because the main purpose of the contract was to supply labor. (Jellins, supra, 29 Cal.2d at pp. 249, 252-253.) Further, a medical services corporation that provided medical services to low-income patients who paid monthly membership dues did not engage in the business of insurance illegally, because the principal purpose or object of the operation was service rather than indemnity. (California Physicians’ Service v. Garrison (1946) 28 Cal.2d 790, 809–810 [172 P.2d 4].)
“Based on this analysis, we conclude that the underwriting agreements are not illegal contracts of insurance. Their main function is not to require the underwritten title company to provide insurance, either to the title insurer or to the insured, but instead to require the underwritten title company to perform a title search and examination carefully and diligently as well as to carry out the formalities involved in the issuance of a title insurance policy. The indemnification provisions are secondary to the main object and purpose of the underwriting agreements. In fact, the agreements to indemnify appear to be designed, at least in part, to give the underwritten title companies an incentive to perform their title search in a nonnegligent manner, as the title companies are in the best position to eliminate possible risk. Therefore, the title company is not involved in the illegal practice of insurance even if an underwritten title company is deemed to have provided indemnification in connection with the main purpose of its contract with the title insurer.” (Title Ins. Co. v. State Bd. of Equalization, supra, 4 Cal.4th at pp. 726-727.)
Staples places further reliance on a recent decision from Division 8 of this court holding that a contract with risk-shifting principles is not subject to California insurance regulations if the principal object of the contract is something other than insurance. In Automotive Funding Group, Inc. v. Garamendi, supra, 114 Cal.App.4th 846 (AFG), AFG was in the business of buying installment sales contracts from used car dealers and making loans to the car buyers. As a condition of the loan, the buyer had to protect AFG‘s lien on the car, either by obtaining insurance for physical damage to or theft of the car, or by participating in AFG‘s loss damage waiver program wherein the buyer had to report to AFG whenever the car sustained damage of more than $500. AFG used licensed insurance adjusters to determine whether the car was repairable. The court concluded that “[w]e
I find Staples‘s contentions to be persuasive that insurance was merely peripheral to the main object of shipping packages in this instance and the trial court was correct in refusing to instruct the jury on the California Insurance Code and regulations.
If I were in the majority, I would affirm the decision of the trial court in its entirety.
Respondent‘s petition for review by the Supreme Court was denied March 15, 2006, S141078. George, C. J., did not participate therein.