Insurance Companies in False Advertising and Bad Faith Lawsuit

Our Palm Beach insurance lawyers followed with interest a recent case heard by a state Supreme Court- Zheng v. Superior Court of San Bernadino County. The case was heard on May 8 and is about whether insurance policyholders can use the Unfair Competition Law to hold insurance companies liable for false advertising.

Yanting Zheng filed a lawsuit against the California Capital Insurance Co., claiming the company refused to pay under her policy when a fire broke out at her business. She claims that California Capital advertised claiming that they would “timely pay proper coverage in the event the insured suffers a covered loss” which turned out not to be true. In October 2009, the Court of Appeal ruled that private individuals may sue insurance companies under the Unfair Competition Law for false advertising. The Supreme Court agreed to hear this case in 2010.

In the pleadings before the Supreme Court, the insurance company said that this Court of Appeal ruling violates a California Supreme Court ruling from 1988 in Moradi-Shalal v. Fireman’s Fund Insurance Co., which found that private individuals cannot sue insurance companies under the Unfair Insurance Practices Act. They claimed that this case bars any action by private individuals for conduct covered by the Unfair Insurance Practices Act, and it only allows action by the Insurance Commissioner. Ms. Zheng claimed that Moradi-Shalal does not preclude a civil action by a private individual under the Unfair Competition Law, and is supported by the Court of Appeal ruling that said that the prior case does not apply to conduct explicitly banned in the Unfair Competition Law.

If the Supreme Court upholds the Court of Appeal ruling in Ms. Zheng’s favor, the court system would likely see numerous lawsuits of bad faith and false advertising like Ms. Zheng’s. Under the Unfair Competition Law, there is no provision for compensation for plaintiffs, but the policyholder could get injunctive relief and restitution for what is owed to them.

Whether the Supreme Court is likely to rule in Ms. Zheng’s favor or not is unclear, but the judgment should be issued sometime before the beginning of August. In recent cases related to the Unfair Competition Law, the various California courts have limited the law’s scope to those plaintiffs entitled to restitution. The Supreme Court ruled in 2011 that injunctive relief is possible for plaintiffs, but reaffirmed that the only available monetary relief would be in the form of specific restitution. Therefore, the general trend in the jurisprudence has been to limit the applicability of the Unfair Competition Law. But those interested in the insurance law implications of Zheng v. Superior Court will have to wait the next months to see what the Supreme Court decides, which could have a big impact on future cases against insurance companies in California.

Florida Insurance Attorneys
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