Supreme Court of California Justia
Citation 57 Cal.4th 364; 159 Cal.Rptr.3d 672; 304 P.3d 163; 13 Cal. Daily Op. Serv. 8265; 2013 Daily Journal D.A.R. 10,174

Zhang v. Super. Ct.


Filed 8/1/13

IN THE SUPREME COURT OF CALIFORNIA

YANTING ZHANG,
Petitioner,
S178542
v.
Ct.App. 4/2 E047207
THE SUPERIOR COURT OF
SAN BERNARDINO COUNTY,
San Bernardino County
Respondent;
Super. Ct. No. CIVVS701287
CALIFORNIA CAPITAL INSURANCE
COMPANY,
Real Party in Interest.

This case arises at the intersection of the Unfair Competition Law (UCL;
Bus. & Prof. Code, § 17200 et seq.) and the Unfair Insurance Practices Act (UIPA;
Ins. Code, § 790 et seq.). The question is whether insurance practices that violate
the UIPA can support a UCL action. In Moradi-Shalal v. Fireman’s Fund Ins.
Companies (1988) 46 Cal.3d 287, 304 (Moradi-Shalal) we held that when the
Legislature enacted the UIPA, it did not intend to create a private cause of action
for commission of the various unfair practices listed in Insurance Code section
790.03, subdivision (h).1 In the wake of Moradi-Shalal, a split has developed in

1
Further unspecified statutory references are to the Insurance Code. Section
790.03, subdivision (h) will be designated “section 790.03(h).”
1


the Courts of Appeal regarding the viability of UCL claims based on insurer
conduct covered by section 790.03.
We hold that Moradi-Shalal does not preclude first party UCL actions
based on grounds independent from section 790.03, even when the insurer‟s
conduct also violates section 790.03.2 We have made it clear that while a plaintiff
may not use the UCL to “plead around” an absolute bar to relief, the UIPA does
not immunize insurers from UCL liability for conduct that violates other laws in
addition to the UIPA. (Manufacturers Life Ins. Co. v. Superior Court (1995) 10
Cal.4th 257, 283-284 (Manufacturers Life); see also Cel-Tech Communications,
Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182-183 (Cel-
Tech); Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 43
(Quelimane); Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th
553, 565 (Stop Youth Addiction).)
Here, plaintiff alleges causes of action for false advertising and insurance
bad faith, both of which provide grounds for a UCL claim independent from the
UIPA. Allowing her also to sue under the UCL does no harm to the rule
established in Moradi-Shalal. The Moradi-Shalal court made it plain that while
violations of section 790.03(h) are themselves not actionable, insureds retain other
causes of action against insurers, including common law bad faith claims.
Furthermore, UCL actions by private parties are equitable proceedings, with

2
A first party claim is one brought by the insured against the insurer. Claims
by injured parties against a liable party‟s insurer are third party claims. (See
Zephyr Park v. Superior Court (1989) 213 Cal.App.3d 833, 835, fn. 2.) Our
holding here is confined to the first party context. Third party claims raise distinct
analytical and policy issues, which are not involved in this case. (See Moradi-
Shalal, supra, 46 Cal.3d at pp. 301-304.)
2


limited remedies. They are thus quite distinct from the claims for damages with
which Moradi-Shalal was concerned.
I. BACKGROUND
Plaintiff Yanting Zhang bought a comprehensive general liability policy
from California Capital Insurance Company (California Capital). She sued
California Capital in a dispute over coverage for fire damage to her commercial
property. The complaint included causes of action for breach of contract, breach
of the implied covenant of good faith and fair dealing, and violation of the UCL.
In her UCL claim, Zhang alleged that California Capital had “engaged in unfair,
deceptive, untrue, and/or misleading advertising” by promising to provide timely
coverage in the event of a compensable loss, when it had no intention of paying
the true value of its insureds‟ covered claims.
California Capital demurred to the UCL claim, contending it was an
impermissible attempt to plead around Moradi-Shalal‟s bar against private actions
for unfair insurance practices under section 790.03.3 The trial court agreed, and
sustained the demurrer without leave to amend. The Court of Appeal reversed,
holding that Zhang‟s false advertising claim was a viable basis for her UCL cause
of action. California Capital sought review.
II. DISCUSSION
“The rules by which the sufficiency of a complaint is tested against a
general demurrer are well settled. We not only treat the demurrer as admitting all
material facts properly pleaded, but also „give the complaint a reasonable

3
Defendant noted that the unfair insurance practices prohibited by section
790.03 include false advertising (§ 790.03, subd. (b)), failing to promptly respond
to a claim (§ 790.03(h)(2)), and not attempting to settle a claim in good faith
(§ 790.03(h)(5)).
3


interpretation, reading it as a whole and its parts in their context. . . .‟ [Citation.]
[¶] If the complaint states a cause of action under any theory, regardless of the
title under which the factual basis for relief is stated, that aspect of the complaint is
good against a demurrer. „[W]e are not limited to plaintiffs‟ theory of recovery in
testing the sufficiency of their complaint against a demurrer, but instead must
determine if the factual allegations of the complaint are adequate to state a cause
of action under any legal theory. . . .‟ [Citations.]” (Quelimane, supra, 19 Cal.4th
at pp. 38-39.)
A. Overview of the UCL
The UCL defines “unfair competition” as “any unlawful, unfair or
fraudulent business act or practice and unfair, deceptive, untrue or misleading
advertising.” (Bus. & Prof. Code, § 17200.) By proscribing “any unlawful”
business act or practice (ibid.), the UCL “ „borrows‟ ” rules set out in other laws
and makes violations of those rules independently actionable. (Cel-Tech, supra,
20 Cal.4th at p. 180.) However, a practice may violate the UCL even if it is not
prohibited by another statute. Unfair and fraudulent practices are alternate
grounds for relief. (Ibid.) False advertising is included in the “fraudulent”
category of prohibited practices. (In re Tobacco II Cases (2009) 46 Cal.4th 298,
311-312; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950-951.)
We have made it clear that “an action under the UCL „is not an all-purpose
substitute for a tort or contract action.‟ [Citation.] Instead, the act provides an
equitable means through which both public prosecutors and private individuals can
bring suit to prevent unfair business practices and restore money or property to
victims of these practices. As we have said, the „overarching legislative concern
[was] to provide a streamlined procedure for the prevention of ongoing or
threatened acts of unfair competition.‟ [Citation.] Because of this objective, the
remedies provided are limited.” (Korea Supply Co. v. Lockheed Martin Corp.
4


(2003) 29 Cal.4th 1134, 1150.) Accordingly, while UCL remedies are
“cumulative . . . to the remedies or penalties available under all other laws of this
state” (Bus. & Prof. Code, § 17205), they are narrow in scope.
“Prevailing plaintiffs are generally limited to injunctive relief and
restitution. [Citations.] Plaintiffs may not receive damages . . . or attorney fees.”4
(Cel-Tech, supra, 20 Cal.4th at p. 179.) “Restitution under [Business and
Professions Code] section 17203 is confined to restoration of any interest in
„money or property, real or personal, which may have been acquired by means of
such unfair competition.‟ (Italics added.) A restitution order against a defendant
thus requires both that money or property have been lost by a plaintiff, on the one
hand, and that it have been acquired by a defendant, on the other.” (Kwikset Corp.
v. Superior Court (2011) 51 Cal.4th 310, 336.) “[C]ompensatory damages are not
recoverable as restitution.” (Pineda v. Bank of America, N.A. (2010) 50 Cal.4th
1389, 1402, fn. 14.)
We have also emphasized that the equitable remedies of the UCL are
subject to the broad discretion of the trial court. (Cortez v. Purolator Air
Filtration Products Co. (2000) 23 Cal.4th 163, 179.) The UCL does not require
“restitutionary or injunctive relief when an unfair business practice has been
shown. Rather, it provides that the court „may make such orders or judgments . . .
as may be necessary to prevent the use or employment . . . of any practice which
constitutes unfair competition . . . or as may be necessary to restore . . . money or
property.‟ ” (Cortez, at p. 180, quoting Bus. & Prof. Code, § 17203.) “[I]n

4
Although the UCL does not provide for attorney fees, a prevailing plaintiff
may seek attorney fees as a private attorney general under Code of Civil Procedure
section 1021.5. (Davis v. Ford Motor Credit Co. LLC (2009) 179 Cal.App.4th
581, 600.)
5


addition to those defenses which might be asserted to a charge of violation of the
statute that underlies a UCL action, a UCL defendant may assert equitable
considerations. In deciding whether to grant the remedy or remedies sought by a
UCL plaintiff . . . consideration of the equities between the parties is necessary to
ensure an equitable result.” (Cortez, at pp. 180-181.)
The voters restricted private enforcement of the UCL in 2004, by approving
Proposition 64. Standing under the UCL is now limited to those who have
“suffered injury in fact and [have] lost money or property as a result of . . . unfair
competition.” (Bus. & Prof. Code, § 17204.) Accordingly, to bring a UCL action,
a private plaintiff must be able to show economic injury caused by unfair
competition. (Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at p. 326.)
Proposition 64 also required that representative actions by private parties must
“compl[y] with Section 382 of the Code of Civil Procedure.” (Bus. & Prof. Code,
§ 17203; see Californians for Disability Rights v. Mervyn’s, LLC (2006) 39
Cal.4th 223, 232.) Therefore, a private plaintiff must file a class action in order to
represent the interests of others. (Arias v. Superior Court (2009) 46 Cal.4th 969,
980.)
B. Moradi-Shalal
The question before us is the extent to which relief under the UCL is
limited by the holding in Moradi-Shalal, supra, 46 Cal.3d 287. There, we
reconsidered and abolished a UIPA cause of action that had been approved by
Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 (Royal Globe). The
Royal Globe plaintiff was a third party claimant who sued the insurer of property
where she was injured. (Royal Globe, at p. 884.) She contended the insurer had
violated section 790.03(h)(5) by failing to settle her claim promptly and fairly, and
section 790.03(h)(14) by advising her not to obtain the services of an attorney.
(Royal Globe, at p. 884.) The Royal Globe court decided that section 790.03(h),
6


enacted in 1959 as part of a comprehensive regulation of the insurance business,
permitted third party plaintiffs to sue insurers for unfair acts or practices
proscribed by the statute. (Royal Globe, at pp. 884-885.)
We overruled Royal Globe in Moradi-Shalal, supra, 46 Cal.3d at page 292.
The Moradi-Shalal court noted that Royal Globe was decided by a bare majority.
(Moradi-Shalal, at p. 294.) Its decision to permit third party statutory bad faith
actions had not been followed by other state courts. (Id. at pp. 297-298.) It had
been criticized by legal commentators, and was inconsistent with the drafting
history of the Model Unfair Claims Practices Act, from which section 790.03(h)
was drawn. (Moradi-Shalal, at pp. 298-299.) Moreover, parts of the legislative
history of section 790.03 itself, unmentioned in Royal Globe, indicated that only
administrative enforcement by the Insurance Commissioner had been
contemplated. (Moradi-Shalal, at p. 300.) Moradi-Shalal also noted that Royal
Globe had spawned proliferating litigation, escalating insurance costs, conflicts of
interest, complex practical problems, and various analytical difficulties. (Id. at pp.
301-303.)
Significant for our purposes is Moradi-Shalal‟s observation that the
abrogation of Royal Globe left intact not only administrative remedies, but also
traditional common law theories of private recovery against insurers. These
include “fraud, infliction of emotional distress, and (as to the insured) either
breach of contract or breach of the implied covenant of good faith and fair
dealing.” (Moradi-Shalal, 46 Cal.3d at p. 305.) Thus, first party bad faith actions
were unaffected by Moradi-Shalal.
In Zephyr Park v. Superior Court, supra, 213 Cal.App.3d 833, the court
held that Moradi-Shalal‟s bar against actions under section 790.03(h) applied to
insureds as well as third party claimants. But it noted that insureds retain the
common law cause of action for bad faith settlement practices. (Zephyr Park, at
7


pp. 837-838.) “There is simply no need, therefore, to perpetuate the availability of
section 790.03(h) as the basis for first party causes of action.” (Zephyr Park, at p.
838; accord, Tricor California, Inc. v. Superior Court (1990) 220 Cal.App.3d 880,
888.) We cited Zephyr Park with approval in Waller v. Truck Ins. Exchange, Inc.
(1995) 11 Cal.4th 1, 35.
C. Opinions Construing Moradi-Shalal and the UCL
After Moradi-Shalal, the law regarding UCL claims against insurers went
through a rather complicated evolution, in a variety of contexts. First, a series of
Court of Appeal decisions rejected attempts to state UCL causes of action against
insurers in bad faith cases. (Industrial Indemnity Co. v. Superior Court (1989) 209
Cal.App.3d 1093, 1097 (Industrial Indemnity) [Moradi-Shalal barred third party
claim for damages under UCL]; Safeco Ins. Co. v. Superior Court (1990) 216
Cal.App.3d 1491, 1494 (Safeco) [third party action; UCL “provides no toehold for
scaling the barrier of Moradi-Shalal”]; Maler v. Superior Court (1990) 220
Cal.App.3d 1592, 1598 (Maler) [first party action; “plaintiffs cannot circumvent
[Moradi-Shalal‟s] ban by bootstrapping an alleged violation of section 790.03
onto Business and Professions Code section 17200 so as to state a cause of action
under section 1861.03”5].)
In Rubin v. Green (1993) 4 Cal.4th 1187 (Rubin), we relied by way of
analogy on these Court of Appeal opinions. At issue in Rubin was whether
injunctive relief was available under the UCL for conduct protected by the
litigation privilege (Civ. Code, § 47, subd. (b)). (Rubin, at p. 1193.) We decided

5
Section 1861.03, added in 1988 by Proposition 103, provides in relevant
part: “The business of insurance shall be subject to the laws of California
applicable to any other business, including, but not limited to, the . . . unfair
business practices laws.” (§ 1861.03, subd. (a).)
8


it was not, given the absolute nature of that privilege. We referred to Industrial
Indemnity, Safeco, and Maler as cases where “implied private rights of action
alleging bad faith claims against insurers, barred by our opinion in Moradi-Shalal,
were not resurrected by casting the action as one for relief under the unfair
competition statute.” (Rubin, at p. 1202.)
However, in the seminal case of Manufacturers Life, we distinguished
Rubin and made it plain that the UIPA does not generally exempt insurers from
UCL liability. Rather, we held, the remedies provided in the UCL are cumulative
to those available to the Insurance Commissioner under the UIPA.
(Manufacturers Life, supra, 10 Cal.4th at p. 263.) The Manufacturers Life
plaintiff was an insurance agency. It alleged a conspiracy by other elements of the
insurance industry to retaliate against it for its practice of disclosing to attorneys
the actual costs of settlement annuities. The complaint asserted violations of the
UIPA and the Cartwright Act, California‟s antitrust statute (Bus. & Prof. Code,
§ 16700 et seq.). The plaintiff also sought UCL remedies based on the UIPA and
Cartwright Act violations. (Manufacturers Life, at pp. 263-265.)
The Manufacturers Life defendants argued that permitting a UCL action for
an unfair insurance practice prohibited by the UIPA would seriously compromise
Moradi-Shalal‟s bar against private causes of action for violations of section
790.03, even if the practice also violated the Cartwright Act.6 (Manufacturers
Life, supra, 10 Cal.4th at p. 268.) We were not persuaded. We noted that the
Court of Appeal, relying on Rubin, had held the plaintiff could not plead around

6
Section 790.03, subdivision (c) broadly prohibits agreements or concerted
action tending to restrain the business of insurance. Thus, the UIPA substantially
overlaps with the Cartwright Act. (See Manufacturers Life, supra, 10 Cal.4th at
pp. 274, 280.)
9


Moradi-Shalal by basing a UCL cause of action on conduct violating only the
UIPA, but that a UCL claim was supported when the insurer‟s conduct
independently violated the Cartwright Act. (Manufacturers Life, at p. 283.)
We explained that Rubin had “analogized” an attempt to plead around the
litigation privilege “to the attempts to avoid the bar to „implied‟ private causes of
action under section 790.03, which several Courts of Appeal had held could not be
avoided by characterizing the claim as one under the [UCL]. [Citations.]”
(Manufacturers Life, supra, 10 Cal.4th at p. 283.) “[H]owever, a cause of action
for unfair competition based on conduct made unlawful by the Cartwright Act is
not an „implied‟ cause of action which Moradi-Shalal held could not be found in
the UIPA. There is no attempt to use the [UCL] to confer private standing to
enforce a provision of the UIPA. Nor is the cause of action based on conduct
which is absolutely privileged or immunized by another statute, such as the
litigation privilege of Civil Code section 47, subdivision (b).” (Manufacturers
Life, at p. 284.)
“This conclusion does not compromise the rule of Moradi-Shalal in any
way. The court concluded there that the Legislature did not intend to create new
causes of action when it described unlawful insurance business practices in section
790.03, and therefore that section did not create a private cause of action under the
UIPA. The court did not hold that by identifying practices that are unlawful in the
insurance industry . . . the Legislature intended to bar Cartwright Act causes of
action based on those practices. Nothing in the UIPA would support such a
conclusion. The UIPA nowhere reflects legislative intent to repeal the Cartwright
Act insofar as it applies to the insurance industry, and the Legislature has clearly
stated its intent that the remedies and penalties under the [UCL] are cumulative to
other remedies and penalties.” (Manufacturers Life, supra, 10 Cal.4th at p. 284.)
10


Manufacturers Life had an impact in State Farm Fire & Casualty Co. v.
Superior Court (1996) 45 Cal.App.4th 1093 (State Farm), a first party bad faith
action. Insured homeowners sought damages for breach of the implied covenant
of good faith, breach of contract, professional negligence, and fraud, based on
State Farm‟s alleged surreptitious alteration of their earthquake insurance
coverage. They also pursued UCL remedies. (State Farm, at pp. 1099, 1101.)
State Farm‟s demurrer was overruled and it sought writ relief, contending the UCL
claim was an improper attempt to plead around Moradi-Shalal‟s bar against
private actions under section 790.03. (State Farm, at p. 1101.)
The State Farm court denied the writ. Relying on Manufacturers Life, it
acknowledged that the insureds could not borrow the provisions of section 790.03
to establish an unlawful business practice. (State Farm, supra, 45 Cal.App.4th at
p. 1103.) However, it held that the UCL cause of action was supported by the
insureds‟ allegations of fraud and common law bad faith, which included
examples of all three varieties of prohibited business practices: unlawful, unfair,
and fraudulent. (State Farm, at p. 1107.) In particular, the State Farm court found
that the fraud and bad faith claims were “independent bases for plaintiffs‟ [UCL]
cause of action [that] are not distinguishable from the independent Cartwright Act
violation which the Supreme Court recently held was sufficient to support a claim
for relief under the [UCL], notwithstanding that the acts complained of also
violated section 790.03.” (State Farm, at p. 1108, citing Manufacturers Life,
supra, 10 Cal.4th at p. 284.)
The State Farm court noted that unlike the plaintiffs in Industrial
Indemnity, Safeco, and Maler, these insureds had pleaded a proper UCL cause of
action seeking only injunctive and restitutive relief. (State Farm, supra, 45
Cal.App.4th at pp. 1108-1109.) “Nothing in Moradi-Shalal suggests that it was
11


addressing anything other than the viability of an implied right of action for
damages.” (Id. at p. 1109.)
State Farm argued that recognizing a right of action under the UCL for
conduct proscribed by section 790.03 “would revive what the Supreme Court
called the „undesirable social and economic effects of the [Royal Globe] decision
(i.e., multiple litigation, unwarranted bad faith claims, coercive settlements,
excessive jury awards, and escalating insurance, legal and other “transaction”
costs).‟ (Moradi-Shalal, supra, 46 Cal.3d at p. 299.)” (State Farm, supra, 45
Cal.App.4th at pp. 1109-1110.) The court disagreed: “[W]e believe that this
concern is overblown. The injunctive and restitutive remedies authorized under
the [UCL] . . . are of very limited utility. They are designed to prevent unfair
business practices and to require disgorgement of money or property obtained by
means of such practices. Damages are not available under Business and
Professions Code section 17203. [Citation.] That means that no claim for
compensatory or punitive damages can be recovered in a [UCL] action. It is
therefore not at all clear to us how our application of the very clear language of the
[UCL] will necessarily resurrect any of the perceived evils of Royal Globe.”
(State Farm, at p. 1110.)
In Stop Youth Addiction, supra, 17 Cal.4th 553, this court discussed the
holdings in Rubin, Manufacturers Life, and the Safeco line of cases, without
mentioning State Farm. The defendant in Stop Youth Addiction argued that,
because Penal Code section 308 provides no private cause of action for violations
of its prohibition against selling cigarettes to minors, UCL remedies for that
conduct were unavailable. (Stop Youth Addiction, at p. 561.) The defendant
claimed Rubin had endorsed the Safeco court‟s view that a UCL claim cannot be
based on a statute that does not authorize an independent cause of action. (Safeco,
supra, 216 Cal.App.3d at p. 1494; see Stop Youth Addiction, at pp. 561-562.) We
12


disagreed, noting that Manufacturers Life had limited Rubin‟s holding to the
absolute bar to relief created by the litigation privilege. (Stop Youth Addiction, at
p. 564.)
We added: “Neither from our discussion nor from the authorities we cited
in Manufacturers Life . . . does it follow that a private plaintiff lacks UCL standing
whenever the conduct alleged to constitute unfair competition violates a statute for
the direct enforcement of which there is no private right of action. To the
contrary, . . . in Manufacturers Life we permitted a UCL claim based on the
Cartwright Act to go forward, even while recognizing that the conduct alleged as
unfair competition also violated the UIPA, for the direct enforcement of which,
following Moradi-Shalal, there is no private right of action. . . . [¶] In
Manufacturers Life, moreover, we explained that Moradi-Shalal was not meant to
impose sweeping limitations on private antitrust or unfair competition actions.”
(Stop Youth Addiction, supra, 17 Cal.4th at p. 565.) “As relevant here, Safeco and
similar cases on which [the defendant] relies, such as [Maler], supra, 220
Cal.App.3d 1592, and [Rubin], supra, 4 Cal.4th 1187, stand at most for the
proposition the UCL cannot be used to state a cause of action the gist of which is
absolutely barred under some other principle of law.” (Stop Youth Addiction, at p.
566.)
We again reaffirmed Manufacturers Life in Quelimane, supra, 19 Cal.4th
26, where the plaintiff claimed that title companies had conspired to withhold title
insurance for property purchased at tax sales. We noted that Manufacturers Life
had established the viability of Cartwright Act violations as the predicate for a
UCL action. (Quelimane, at pp. 42-44.) We further held that the plaintiffs had
stated a UCL claim based on the defendants‟ allegedly false advertising, which
consisted of promising to issue title insurance for any property with good title.
(Id. at pp. 51, 54-55.)
13


In Cel-Tech, supra, 20 Cal.4th 163, we revisited the rule of Manufacturers
Life, as follows: “If the Legislature has permitted certain conduct or considered a
situation and concluded no action should lie, courts may not override that
determination. When specific legislation provides a „safe harbor,‟ plaintiffs may
not use the general unfair competition law to assault that harbor.” (Cel-Tech, at p.
182.) “[Rubin], supra, 4 Cal.4th 1187, illustrates this principle. In that case, the
plaintiff relied on the unfair competition law to pursue an action that the litigation
privilege of Civil Code section 47, subdivision (b), otherwise prohibited. We
„rejected the claim that a plaintiff may, in effect, “plead around” absolute barriers
to relief by relabeling the nature of the action as one brought under the unfair
competition statute.‟ ([Rubin], supra, 4 Cal.4th at p. 1201.)” (Cel-Tech, at p.
182.)
“A plaintiff may thus not „plead around‟ an „absolute bar to relief‟ simply
„by recasting the cause of action as one for unfair competition.‟ (Manufacturers
Life[, supra,] 10 Cal.4th 257, 283.) The rule does not, however, prohibit an action
under the [UCL] merely because some other statute on the subject does not, itself,
provide for the action or prohibit the challenged conduct. To forestall an action
under the [UCL], another provision must actually „bar‟ the action or clearly
permit the conduct.” (Cel-Tech, supra, 20 Cal.4th at pp. 182-183.)
After Cel-Tech, a split in Court of Appeal opinion was created by Textron
Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061
(Textron), which disagreed with State Farm, supra, 45 Cal.App.4th 1093. Textron
held a security interest in a bus insured by the defendant. It submitted a claim
after the bus was damaged in an accident. The claim was denied, and Textron
sued the insurer for breach of contract, fraud, and bad faith. It also included a
UCL claim for injunctive relief and restitution. The trial court sustained a
demurrer to the UCL claim. Textron prevailed on its other claims at trial, but filed
14


an appeal challenging the demurrer ruling. (Textron, at pp. 1067-1070.) The
Court of Appeal affirmed, reasoning that the unfair practices alleged in the
complaint were “the type of activities covered by the UIPA,” and that “merely
alleging these purported acts constitute unfair business practices under the unfair
competition law is insufficient to overcome Moradi-Shalal.” (Id. at pp. 1070-
1071.)
“While insurance companies are subject to California laws generally
applicable to other businesses, including laws governing unfair business practices
(. . . § 1861.03, subd. (a)), parties cannot plead around Moradi-Shalal‟s holding by
merely relabeling their cause of action as one for unfair competition.” (Textron,
supra, 118 Cal.App.4th at p. 1070, citing Manufacturers Life, supra, 10 Cal.4th at
pp. 283-284, Maler, supra, 220 Cal.App.3d at p. 1598, and Safeco, supra, 216
Cal.App.3d at page 1494.) “The persuasiveness of [State Farm] has been undercut
by the Supreme Court‟s subsequent disapproval of its definition of „unfair‟
business practices.” (Textron, at p. 1071; see Cel-Tech, supra, 20 Cal.4th at pp.
184-185 [disapproving definition of “unfair” business acts or practices quoted in
State Farm].) The Textron court concluded: “[G]iven the Supreme Court‟s
disapproval of State Farm‟s „amorphous‟ definition of „unfair‟ practices and its
focus on legislatively declared public policy, reliance on general common law
principles to support a cause of action for unfair competition is unavailing.”
(Textron, at p. 1072.)
In the case at bench, the Court of Appeal disagreed with Textron, believing
it “focused too narrowly on the „unfair‟ prong of potential liability under the
UCL.” The court endorsed the proposition, which it drew from State Farm, that
an insurer is not protected from UCL liability simply because its claims handling
practices may be prohibited by section 790.03. It decided that Zhang‟s false
advertising claim supported her UCL cause of action, a result it deemed consistent
15


with Moradi-Shalal and Manufacturers Life. For reasons set forth below, we
conclude the Court of Appeal correctly followed State Farm instead of Textron.
D. The Viability of Zhang’s UCL Claim
As noted, Zhang‟s UCL claim is premised on allegations of false
advertising. She contends California Capital misleadingly advertised that it would
timely pay the true value of covered claims. She asserts that its treatment of her
claim demonstrated it had no intention of honoring that promise. California
Capital‟s demurrer was based on Textron‟s rule that a UCL claim may not be
brought for settlement practices prohibited by the UIPA. (Textron, supra, 118
Cal.App.4th at pp. 1070-1071.) California Capital argued that the crux of the
UCL claim was improper claims handling, and the allegations of unfair
competition and false advertising were nothing more than an attempt to plead
around the bar of Moradi-Shalal.
In this court, California Capital maintains its insistence that Zhang‟s UCL
claim is actually directed at its claims handling, not its advertising. It argues that
any bad faith claim might be turned into a false advertising suit, because all
insurers at least impliedly promise to pay what they owe under their policies.
California Capital urges us to follow Textron and the Safeco line of cases, and to
disapprove State Farm.7 However, we hold State Farm consistent, and Textron
inconsistent, with our decisions on the scope of UCL liability.

7
The first argument presented in California Capital‟s brief is that no UCL
cause of action may be based on an insurer‟s handling of a fire loss claim, because
the exclusive remedy in disputes over such claims is the appraisal process
provided in section 2071. This sweeping proposition, which would bar not only
UCL actions but also the first party fraud and bad faith actions left untouched by
Moradi-Shalal, was not raised in the trial court, the Court of Appeal, or the
petition for review. We decline to consider it for the first time at this late stage.
(See Cal. Rules of Court, rules 8.504(b)(1), 8.516(b), 8.520(b)(2)(B), (3).)
16


In Manufacturers Life, we held that the UIPA does not exempt insurers
from liability for anticompetitive conduct, and therefore acts violating both the
UIPA and the Cartwright Act could give rise to a UCL claim. (Manufacturers
Life, supra, 10 Cal.4th at pp. 279-280, 283-284.) The State Farm court correctly
recognized that this reasoning supports claims for UCL relief based on conduct
proscribed by the UIPA, if it is independently actionable under the common law of
insurance bad faith. (State Farm, supra, 45 Cal.App.4th at p. 1108.)8 In Stop
Youth Addiction and Cel-Tech, we explained that to bar a UCL action, another
statute must absolutely preclude private causes of action or clearly permit the
defendant‟s conduct. (Stop Youth Addiction, supra, 17 Cal.4th at pp. 565-566;
Cel-Tech, supra, 20 Cal.4th at pp. 182-183.) Moradi-Shalal itself established that
while violations of section 790.03 are themselves not actionable, there is no bar to

8
As the State Farm court also discerned, Manufacturers Life made it clear
that after Moradi-Shalal, the provisions of section 790.03 may not be borrowed to
serve as a basis for a UCL action, even though section 1861.03 specifies that the
“business of insurance” is subject to the provisions of the UCL. (State Farm,
supra, 45 Cal.App.4th at p. 1103.)

The concurring opinion rejects this proposition, arguing that neither
Manufacturers Life nor Moradi-Shalal preclude UCL claims based on UIPA
violations. However, were that the case, in Manufacturers Life we would not have
limited the grounds for the UCL cause of action to the plaintiff‟s Cartwright Act
claims. Our exclusion of the UIPA claims from the analysis was no oversight.
(Manufacturers Life, supra, 10 Cal.4th at pp. 283-284.) And in Moradi-Shalal, we
identified administrative remedies and traditional common law actions as viable
avenues for restraining unfair insurance practices, without mentioning the UCL.
(Moradi-Shalal, supra, 46 Cal.3d at pp. 304-305.) We approved the reasoning of
Justice Richardson‟s Royal Globe dissent, holding that the UIPA contemplates
only administrative sanctions for practices amounting to a pattern of misconduct.
(Moradi-Shalal, at pp. 295-296, 303-304.) It is clear from Moradi-Shalal that
when the UIPA was enacted, “the Legislature . . . considered a situation and
concluded no action should lie” on behalf of private parties, and therefore “courts
may not override that determination” by entertaining UCL actions predicated on
UIPA violations. (Cel-Tech, supra, 20 Cal.4th at p. 182.)
17


common law fraud and bad faith actions. (Moradi-Shalal, supra, 46 Cal.3d at pp.
304-305.) Thus, our cases do not support the Textron court‟s view that UCL
actions may not be brought for “the type of activities covered by the UIPA.”
(Textron, supra, 118 Cal.App.4th at p. 1070.)
As noted in State Farm, bad faith insurance practices may qualify as any of
the three statutory forms of unfair competition. (State Farm, supra, 45
Cal.App.4th at p. 1107.) They are unlawful; the insurer‟s obligation to act fairly
and in good faith to meet its contractual responsibilities is imposed by the
common law, as well as by statute. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d
566, 574; Benavides v. State Farm General Ins. Co. (2006) 136 Cal.App.4th 1241,
1249.) They are unfair to the insured; unfairness lies at the heart of a bad faith
cause of action.9 (Gruenberg, at pp. 573-574; State Farm, supra, 45 Cal.App.4th
at pp. 1104-1105.) They may also qualify as fraudulent business practices. Under
the UCL, it is necessary only to show that the plaintiff was likely to be deceived,
and suffered economic injury as a result of the deception. (Kwikset Corp. v

9
The standard for determining what business acts or practices are “unfair” in
consumer actions under the UCL is currently unsettled. (See Aleksick v. 7-Eleven,
Inc. (2012) 205 Cal.App.4th 1176, 1192 [public policy that is predicate for action
must be tethered to specific constitutional, statutory or regulatory provisions];
Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th
528, 539 [applying balancing test, but also examining whether practice offends
established public policy or is immoral, unethical, oppressive, unscrupulous or
substantially injurious to consumers]; Camacho v. Automobile Club of Southern
California (2006) 142 Cal.App.4th 1394, 1403 [consumer injury must be
substantial, and neither outweighed by countervailing benefits nor avoidable by
consumers]; Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th
263, 285 [impact of the act or practice on victim is balanced against reasons,
justifications and motives of the alleged wrongdoer].) The parties here do not
address this question, nor do we.
18


Superior Court, supra, 51 Cal.4th at p. 322; In re Tobacco II Cases, supra, 46
Cal.4th at p. 312.)
Textron‟s criticisms of State Farm do not withstand examination. The
Textron court reasoned that State Farm had been undermined by Cel-Tech‟s
disapproval of the “unfairness” standard applied in State Farm. (Textron, supra,
118 Cal.App.4th at pp. 1071-1072.) However, our disapproval of that standard
was expressly limited to actions between business competitors alleging
anticompetitive practices. We declared: “Nothing we say relates to actions by
consumers or by competitors alleging other kinds of violations of the unfair
competition law such as „fraudulent‟ or „unlawful‟ business practices or „unfair,
deceptive, untrue or misleading advertising.‟ ” (Cel-Tech, supra, 20 Cal.4th at p.
187, fn. 12.) Therefore, for purposes of consumer actions, Cel-Tech did not
disapprove the unfairness test set out in State Farm. Furthermore, any implied
disapproval on that point would have had no effect on the State Farm court‟s
ruling that common law bad faith claims provide a viable basis for a UCL action.
The Textron court relied on Safeco, supra, 216 Cal.App.3d at page 1494,
for the proposition that the UCL “ „provides no toehold for scaling the barrier of
Moradi-Shalal.‟ ” (Textron, supra, 118 Cal.App.4th at p. 1070; and see id. p.
1072.) Safeco, however, was a third party action in which the plaintiff had no
common law claim against the insurer. Moreover, in Stop Youth Addiction we
noted that the Safeco line of cases “stand[s] at most for the proposition the UCL
cannot be used to state a cause of action the gist of which is absolutely barred
under some other principle of law.” (Stop Youth Addiction, supra, 17 Cal.4th at p.
566.) Because Moradi-Shalal barred only claims brought under section 790.03,
and expressly allowed first party bad faith actions, it preserved the gist of first
party UCL claims based on allegations of bad faith. Moradi-Shalal imposed a
formidable barrier, but not an insurmountable one.
19


Textron distinguished Manufacturers Life and Quelimane on the ground
that those UCL claims rested on Cartwright Act violations. (Textron, supra, 118
Cal.App.4th at p. 1072.) However, nothing in Manufacturers Life or Quelimane
suggests the Cartwright Act is the only avenue for asserting a UCL claim against
an insurer. “In Manufacturers Life . . . we explained that Moradi-Shalal was not
meant to impose sweeping limitations on private . . . unfair competition actions.”
(Stop Youth Addiction, supra, 17 Cal.4th at p. 565.) Manufacturers Life stands for
the proposition that a cause of action neither barred by Moradi-Shalal nor
absolutely precluded by other law may serve as the basis for a UCL claim.
(Manufacturers Life, supra, 10 Cal.4th at p. 284; see also Cel-Tech, supra, 20
Cal.4th at pp. 182-183.) Textron‟s holding that Moradi-Shalal precludes UCL
causes of action based on allegations of bad faith claims handling practices is
contrary to the reasoning of Manufacturers Life, Stop Youth Addiction, and Cel-
Tech.
As the State Farm court observed, Moradi-Shalal was concerned with the
adverse effects of recognizing an implied right of action for damages under
section 790.03, whereas UCL remedies are limited in scope, generally extending
only to injunctive relief and restitution.10 (State Farm, supra, 45 Cal.App.4th at

10
California Capital objects that neither restitution nor an injunction is a
feasible remedy in a bad faith claims handling case. It argues that it would be
improper to award a plaintiff both compensatory damages for breach of the
insurance contract and restitution of premiums paid. (See Alder v. Drudis (1947)
30 Cal.2d 372, 383.) The trial court, however, has discretion to withhold
restitutionary relief if equity so requires. (Cortez v. Purolator Air Filtration
Products Co., supra, 23 Cal.4th at p. 180.) California Capital also contends it
would be problematic to formulate and enforce an injunction in such cases. This
argument is speculative and premature. Depending on proof of the nature and
extent of the insurer‟s claims handling practices, the trial court must determine
whether injunctive relief would be appropriate. (See Venice Town Council, Inc. v.
(Footnote continued on next page.)
20


pp. 1108-1110.) A UCL claim does not duplicate the contract and tort causes of
action involved in bad faith litigation, where damages are central. (See Korea
Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at p. 1150.)
Indeed, since State Farm was decided the scope of the UCL has been
further restricted by the passage of Proposition 64 in 2004. Private plaintiffs must
demonstrate economic injury caused by the alleged unfair competition, and may
not represent the interests of others without meeting the requirements for a class
action. (Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at p. 326; Arias v.
Superior Court, supra, 46 Cal.4th at p. 980.) Thus, there is additional support for
State Farm‟s conclusion that allowing UCL claims in common law bad faith cases
is unlikely to resurrect the problems caused by Royal Globe. (State Farm, supra,
45 Cal.App.4th at p. 1110.) We note as well that those problems stemmed from
the recognition of third party claims under section 790.03, not from claims by
insureds against their insurers.
For all the above reasons, we disapprove Textron Financial Corp. v.
National Union Fire Ins. Co., supra, 118 Cal.App.4th 1061, to the extent it is
inconsistent with this opinion. Our ruling does not affect the opinions in third
party cases such as Industrial Indemnity, supra, 209 Cal.App.3d 1093, and Safeco,
supra, 216 Cal.App.3d 1491. In Moradi-Shalal, we identified numerous adverse
consequences of third party bad faith claims, including proliferating litigation,
unwarranted settlement demands, escalating insurance costs, conflicts of interest,
practical difficulties with the scope and nature of the third party cause of action,

(Footnote continued from previous page.)

City of Los Angeles (1996) 47 Cal.App.4th 1547, 1562 [“a demurrer tests the
sufficiency of the factual allegations of the complaint rather than the relief
suggested in the prayer”].)
21


and potential constitutional issues. (Moradi-Shalal, supra, 46 Cal.3d at pp. 301-
302.) Whether similar concerns weigh against recognizing a right of third parties
to pursue UCL claims is a matter beyond the scope of this case.
Our resolution of the conflict between State Farm and Textron disposes of
the bulk of California Capital‟s arguments. With regard to Zhang‟s particular
claim, California Capital asserts that no statutory or decisional law other than the
UIPA imposes liability on insurers for the conduct alleged in Zhang‟s UCL cause
of action, which California Capital characterizes as “a general practice of
underpaying fire claims.” Reasonably interpreted in the context of the complaint
as a whole, however (Quelimane, supra, 19 Cal.4th at p. 38), the UCL cause of
action seeks to recover for California Capital‟s allegedly false advertising as it
affected Zhang. California Capital acknowledges that in Quelimane, at pages 54-
55, we upheld a UCL cause of action based on a claim of false advertising. It
attempts to distinguish Quelimane on the basis that the false claim there involved a
promise to issue insurance, not the underpayment of a claim. This distinction is
insignificant, given our conclusion that UCL claims may be based on claims
handling practices, as long as they do not rest exclusively on UIPA violations.
California Capital contends the litigation of Zhang‟s UCL cause of action
will be unmanageable, requiring the examination of its claims handling practices
in thousands of cases. However, a UCL claim may be based on a single instance
of unfair business practice. (Stop Youth Addiction, supra, 17 Cal.4th at p. 570;
United Farm Workers of America v. Dutra Farms (2000) 83 Cal.App.4th 1146,
1163.) Were Zhang to attempt to recover on behalf of other insureds, she would
be required to certify a class action. (Arias v. Superior Court, supra, 46 Cal.4th at
p. 980.) Furthermore, we are not concerned at the pleading stage with how Zhang
might go about proving her claim. As we have noted in other UCL cases, the
possible difficulty of proving the plaintiff‟s allegations is not a relevant
22


consideration on review of a demurrer ruling. (Quelimane, supra, 19 Cal.4th at p.
47; Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35
Cal.3d 197, 213-214.)
Finally, on demurrer review we may consider the sufficiency of the
plaintiff‟s allegations to state a cause of action under any legal theory.
(Quelimane, supra, 19 Cal.4th at p. 38.) In light of our approval of the State Farm
analysis, we observe that a UCL cause of action is supported by Zhang‟s bad faith
claims, as well as her false advertising claim. She alleges a litany of bad faith
practices by California Capital, including unreasonable delays causing
deterioration of her property; withholding of policy benefits; refusal to consider
cost estimates; misinforming her as to the right to an appraisal; and falsely telling
her mortgage holder that she did not intend to repair the property, resulting in
foreclosure proceedings. These allegations are sufficient to support a claim of
unlawful business practices. (See Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d
566, 574; Benavides v. State Farm General Ins. Co., supra, 136 Cal.App.4th 1241,
1249.)11
E. Summary
When the Legislature enacted the UIPA, it contemplated only
administrative enforcement by the Insurance Commissioner. (Moradi-Shalal,
supra, 46 Cal.3d at p. 300.) Private UIPA actions are absolutely barred; a litigant
may not rely on the proscriptions of section 790.03 as the basis for a UCL claim.
(Cel-Tech, supra, 20 Cal.4th at pp. 182-183; Manufacturers Life, supra, 10 Cal.4th
at pp. 283-284; Moradi-Shalal, at p. 304.) However, when insurers engage in

11
California Capital‟s alleged conduct might also be “unfair” for UCL
purposes. (Bus. & Prof. Code, § 17200.) Because the standard for “unfairness” is
unsettled, however (see fn. 9, ante), we express no view on this point.
23


conduct that violates both the UIPA and obligations imposed by other statutes or
the common law, a UCL action may lie. The Legislature did not intend the UIPA
to operate as a shield against any civil liability. (Moradi-Shalal, at pp. 304-305.)
III. DISPOSITION
We affirm the Court of Appeal‟s judgment.
CORRIGAN, J.

WE CONCUR:
CANTIL-SAKAUYE, C. J.
KENNARD, J.
BAXTER, J.
CHIN, J.
24

CONCURRING OPINION BY WERDEGAR, J.

Yanting Zhang has pleaded conduct by California Capital Insurance
Company that contravenes long-standing common law prohibitions against bad
faith insurance practices and false advertising. Under settled precedent, such
common law breaches may provide the predicate for claims under the unfair
competition law (UCL). (Bus. & Prof. Code, § 17200 et seq.; Committee on
Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 209-
214; State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th
1093, 1105.) That such conduct may also be statutorily proscribed by the unfair
insurance practices act (Act) (Ins. Code, § 790 et seq.)1 does not foreclose Zhang‟s
UCL claim; the Legislature, in enacting protections for insureds, did not thereby
intend to make it more difficult for those same insureds to obtain relief. I thus
concur fully in the majority opinion‟s conclusion that the Court of Appeal was
right to allow this case to proceed and the trial court wrong to sustain a demurrer.
I write separately, however, because the majority goes further and asserts
no UCL claim can ever be based on violations of the Act. (Maj. opn., ante, at
p. 17, fn. 8 & p. 23.) Given Zhang‟s conscious decision not to predicate a UCL
claim directly on such transgressions, this assertion is unnecessary dictum.

1
All further unlabeled statutory references are to the Insurance Code.
1


Moreover, it is wrong: it misreads our own precedent and imposes on the UCL
limits never contemplated by the Legislature.
Our understanding of this point must begin with Royal Globe Ins. Co. v.
Superior Court (1979) 23 Cal.3d 880 (Royal Globe). In Royal Globe, a slip-and-
fall plaintiff sued both a supermarket and the supermarket‟s insurer. Her claim
against the insurer alleged it had breached its statutory duty under a provision of
the Act by failing to “attempt in good faith to effectuate a prompt, fair, and
equitable settlement[]” of a claim where “liability ha[d] become reasonably clear.”
(§ 790.03, subd. (h)(5).) Interpreting the text of the Act, a 4 to 3 majority rejected
the insurer‟s argument that only the Insurance Commissioner could enforce its
provisions and concluded instead that “the [A]ct affords a private party, including
a third party claimant, a right to sue an insurer for violating subdivision (h).”
(Royal Globe, at p. 891.)
Nine years later, Moradi-Shalal v. Fireman’s Fund Ins. Co. (1988) 46
Cal.3d 287 (Moradi-Shalal) overruled Royal Globe. The Moradi-Shalal majority
embraced as “irrefutable” the position of the Royal Globe dissent: “Neither
section 790.03 nor section 790.09 was intended to create a private civil cause of
action against an insurer that commits one of the various acts listed in section
790.03, subdivision (h).” (Moradi-Shalal, at p. 304.) But Moradi-Shalal did no
more than that. To forestall any implication of “an invitation to the insurance
industry to commit the unfair practices proscribed by the Insurance Code” (ibid.),
the majority stressed the continuing availability of both Insurance Commissioner
sanctions for violations of the Act and suits for fraud, bad faith, and the like as
2


checks on insurers (id. at pp. 304-305).2 Whether private suits indirectly
predicated on the requirements of the Act might also be available to deter
misconduct was not addressed; Moradi-Shalal confined itself to succinctly
repudiating Royal Globe‟s discernment of a private right of action in the four
corners of the Act itself. (Moradi-Shalal, at p. 292.)3
In the wake of Moradi-Shalal, numerous plaintiffs sought to recoup the
same compensatory and punitive damages previously afforded under a Royal
Globe claim by suing under the UCL. The Courts of Appeal uniformly rejected
these suits, typically without detailing their reasoning. (See, e.g., Maler v.
Superior Court (1990) 220 Cal.App.3d 1592, 1597-1598; Safeco Ins. Co. v.
Superior Court (1990) 216 Cal.App.3d 1491, 1494; Industrial Indemnity Co. v.
Superior Court (1989) 209 Cal.App.3d 1093, 1097.) In retrospect, it is apparent
these decisions were entirely correct, albeit not because Moradi-Shalal necessarily
foreclosed suits under the UCL. Rather, in 1992 we made clear what previously
had been uncertain, that damages are unavailable under the UCL. (Bank of the
West v. Superior Court (1992) 2 Cal.4th 1254, 1266.) Thus, the UCL could not,
and cannot, serve as a substitute for a Royal Globe private action seeking damages
for violations of the Act.

2
While it is true, as the majority notes, that we did not list the UCL by name,
our description of the remedies available as alternatives to a direct action under the
Act did not purport to be exhaustive.
3
In the course of arriving at its conclusion, Moradi-Shalal noted legislative
history describing the Act as “contemplating only administrative enforcement by
the Insurance Commissioner” (Moradi-Shalal, supra, 46 Cal.3d at p. 300), but we
drew from this “somewhat inconclusive” history (id. at p. 301) only a further
reason to doubt Royal Globe‟s holding that the Legislature had intended to create
in the Act itself a private civil remedy, not a global conclusion that the Legislature
had intended to bar use of the Act as a predicate for claims under existing laws.
3


Twice in the first half of the 1990s we had occasion to discuss these post-
Moradi-Shalal Court of Appeal decisions. In Rubin v. Green (1993) 4 Cal.4th
1187, 1202, we considered whether a party could sue under the UCL for conduct
immunized from suit by Civil Code section 47, subdivision (b), and concluded he
could not. (Rubin, at pp. 1200-1203.) Rubin foreshadowed (and indeed was relied
upon by) our later decision in Cel-Tech Communications, Inc. v. Los Angeles
Cellular Telephone Co. (1999) 20 Cal.4th 163, 182-184, which clarified that UCL
suits are precluded when the Legislature immunizes particular conduct from suit.
In Rubin, we cited by analogy the Court of Appeal decisions rejecting UCL
actions in the wake of Moradi-Shalal. In doing so, we simply assumed, but had no
occasion to decide, that the situation they dealt with was analogous—that Moradi-
Shalal involved an “absolute barrier[] to relief” just as Rubin itself did. (Rubin, at
p. 1201.)
Two years later, in Manufacturers Life Ins. Co. v. Superior Court (1995) 10
Cal.4th 257, an antitrust case, we considered and rejected the argument that the
Act “supersede[s] or displace[s] insurance-industry-related claims” under the
Cartwright Act and the UCL. (Manufacturers Life, at p. 263.) Instead, “the
Legislature intended that rights and remedies available under those statutes were
to be cumulative to the powers the Legislature granted to the Insurance
Commissioner” to enforce the Act. (Manufacturers Life, at p. 263.) Moradi-
Shalal stood as no bar; because “[w]hether statutory causes of action under the
Cartwright Act and the UC[L] may be stated against an insurance company was
not an issue” there, Moradi-Shalal‟s repudiation of a right of action under the Act
itself did not preclude a right of action under the UCL. (Manufacturers Life, at
p. 280.)
The Court of Appeal in Manufacturers Life had distinguished the earlier
Court of Appeal decisions rejecting damages suits under the UCL for violations of
4


the Act by concluding that, even if one could not predicate a UCL claim on
violation of the Act, one could still predicate a UCL claim on violations of the
Cartwright Act, which was not superseded by the Act. We approved that
distinction, agreeing that a UCL claim could be based on Cartwright Act
violations. (Manufacturers Life, supra, 10 Cal.4th at pp. 267, 283-284.) Notably,
however, we had no occasion to decide definitively whether the distinction was
necessary, that is, whether in fact one could not base a UCL claim on violations of
the Act. Nor did Rubin v. Green, supra, 4 Cal.4th 1187, or any Court of Appeal
decision have cause to consider whether Moradi-Shalal held not only that the
Legislature failed to create a private right of action in the Act itself, but also that
the Legislature intended to preclude a private right of action, even indirectly,
under other statutes.4 This omission is understandable for two reasons: it was not
material to the issues raised in these cases, and the distinction between declining to
create a right of action and precluding a right of action was not one we highlighted
as material to the UCL until several years later, in Stop Youth Addiction, Inc. v.
Lucky Stores, Inc. (1998) 17 Cal.4th 553 (Stop Youth Addiction) and Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co., supra, 20 Cal.4th
163.
To be sure, as early as 1983 it had been established that whether a private
cause of action could be implied under a predicate statute was immaterial to the
availability of a UCL claim because the UCL allowed redress of unlawful business
practices whether or not the underlying statute was privately enforceable.

4
As discussed ante at pages 2-3, in overruling Royal Globe, supra, 23 Cal.3d
880, Moradi-Shalal, supra, 46 Cal.3d 287, repudiated Royal Globe‟s conclusion
that the Legislature created a private right of action in the Act itself, but did not
announce that the Legislature had any such further, broader intent.
5


(Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35
Cal.3d at pp. 210-211.) In Stop Youth Addiction, however, we directly confronted
the contention that the omission of a private right of action to enforce particular
statutory requirements sufficed to preclude suit under the UCL. We rejected the
argument that Rubin v. Green, supra, 4 Cal.4th 1187, Manufacturers Life, supra,
10 Cal.4th 257, and the post-Moradi-Shalal Court of Appeal cases established that
point. Instead, we confined them to supporting “the proposition the UCL cannot
be used to state a cause of action the gist of which is absolutely barred under some
other principle of law” (Stop Youth Addiction, supra, 17 Cal.4th at p. 566),
without, of course, revisiting whether Moradi-Shalal, supra, 46 Cal.3d 287,
actually contained such an absolute bar. And because nothing in the history
surrounding the statute there sued upon, Penal Code section 308, indicated the
Legislature had intended to foreclose suit under other statutes, we concluded a
UCL claim could go forward. (Stop Youth Addiction, at pp. 573-574.)
To similar effect in Cel-Tech Communications, Inc. v. Los Angeles Cellular
Telephone Co., supra, 20 Cal.4th 163, we offered our clearest articulation of the
governing principle: “A plaintiff may thus not „plead around‟ an „absolute bar to
relief‟ simply „by recasting the cause of action as one for unfair competition.‟
(Manufacturers Life Ins. Co. v. Superior Court[, supra,] 10 Cal.4th [at p.] 283.)
The rule does not, however, prohibit an action under the unfair competition law
merely because some other statute on the subject does not, itself, provide for the
action or prohibit the challenged conduct. To forestall an action under the unfair
competition law, another provision must actually „bar‟ the action or clearly permit
the conduct. There is a difference between (1) not making an activity unlawful,
and (2) making that activity lawful.” (Cel-Tech, at pp. 182-183.)
Even legislative repudiation of a private right of action under a statute need
not foreclose a UCL claim based on violations of that statute. As we unanimously
6


explain in another case today, a UCL claim may be based on a federal statute
notwithstanding the congressional repeal of a previously existing private right of
action under that statute. (Rose v. Bank of America, N.A. (Aug. 1, 2013, S199074)
__ Cal.4th __, ___ [pp. 1, 7-8].)
Collectively, these cases stand for the proposition that a UCL cause of
action will not lie to enforce violation of a particular statute only if the Legislature
affirmatively intended to preclude such indirect enforcement. It is not enough that
the Legislature in drafting the predicate statute simply failed to “provide for the
action.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.,
supra, 20 Cal.4th at p. 183.)
From these precedents, it is apparent that UCL “unlawful” prong claims
predicated on violations of the Act are, in fact, permissible. First, Moradi-Shalal,
supra, 46 Cal.3d 287, held only that the Legislature did not create a right of action
in the Act, not that it intended to foreclose any private right of action. Second, it
follows from Stop Youth Addiction, supra, 17 Cal.4th at pages 561-567, 573-574,
and Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., supra,
20 Cal.4th at pages 182-184, that such an omission is insufficient to preclude suit.
Third, any contrary language in our cases suggesting a broader reading of Moradi-
Shalal was dicta that failed to account for the distinction later drawn in Stop Youth
Addiction and other cases between failing to create a right of action and
foreclosing one. (See Manufacturers Life Ins. Co. v. Superior Court, supra, 10
Cal.4th at pp. 266, 283-284; Rubin v. Green, supra, 4 Cal.4th at pp. 1201-1202.)
And fourth, the concern expressed in Court of Appeal cases decided in the
immediate aftermath of Moradi-Shalal that plaintiffs should not be able to
resurrect a Royal Globe damages action is addressed by our subsequent conclusion
that damages are unavailable under the UCL. (Bank of the West v. Superior Court,
supra, 2 Cal.4th at p. 1266.) Thus, to allow a UCL “unlawful” claim predicated
7


on a violation of the Act would not contravene Moradi-Shalal; Moradi-Shalal still
bars a direct action and compensatory and punitive damages, while the UCL
permits only the far more limited relief of an injunction and restitution.
WERDEGAR, J.
I CONCUR:
LIU, J.
8


See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Zhang v. Superior Court __________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 178 Cal.app.4th 1081
Rehearing Granted

__________________________________________________________________________________

Opinion No. S178542
Date Filed: August 1, 2013
__________________________________________________________________________________

Court: Superior
County: San Bernardino
Judge: Joseph R. Brisco

__________________________________________________________________________________

Counsel:
Viau & Kwasniewski, Gary K. Kwasniewski and Jeanette L. Viau for Petitioner.

Steven W. Murray for Italian Marble & Tile as Amicus Curiae on behalf of Petitioner.

No appearance for Respondent.

Horvitz & Levy, Peter Abrahams, Mitchell C. Tilner; Grant, Genovese & Baratta, Lance D. Orloff and
Aaron J. Mortensen for Real Party in Interest.
Lewis Brisbois Bisgaard & Smith and Raul L. Martinez for American Insurance Association as Amicus
Curiae on behalf of Real Party in Interest.
Garrett & Tully, Ryan C. Squire and Alexander Levy for California Land Title Association as Amicus
Curiae on behalf of Real Party in Interest.

Michelman & Robinson and William L. Gausewitz for the Association of California Insurance Companies,
the Pacific Association of Domestic Insurance Companies and the Personal Insurance Federation of
California as Amici Curiae on behalf of Respondent and Real Party in Interest.

Counsel who argued in Supreme Court (not intended for publication with opinion):
Gary K. Kwasniewski
Viau & Kwasniewski
601 West Fifth Street, Eighth Floor
Los Angeles, CA 90071-2004
(213) 225-5855

Peter Abrahams
Horvitz & Levy
15760 Ventura Boulevard, 18th Floor
Encino, CA 91436-3000
(818) 995-0800

Petition for review after the Court of Appeal granted a petition for peremptory writ of mandate. This case presents the following issues: (1) Can an insured bring a cause of action against its insurer under the unfair competition law (Bus. & Prof. Code, § 17200) based on allegations that the insurer misrepresents and falsely advertises that it will promptly and properly pay covered claims when it has no intention of doing so? (2) Does Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287 bar such an action?

Opinion Information
Date:Citation:Docket Number:
Thu, 08/01/201357 Cal.4th 364; 159 Cal.Rptr.3d 672; 304 P.3d 163; 13 Cal. Daily Op. Serv. 8265; 2013 Daily Journal D.A.R. 10,174S178542

Opinion Authors
OpinionJustice Carol A. Corrigan
ConcurJustice Kathryn M. Werdegar

Brief Downloads
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Opening Brief on the Merits.pdf (1386436 bytes)
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Reply Brief on the Merits.pdf (894133 bytes)
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Answer Brief on the Merits.pdf (16092 bytes)
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Petition for Review.pdf (1544699 bytes)
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Answer to Petition for Review.pdf (748999 bytes)
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Reply to Answer to Petition for Review.pdf (579494 bytes)
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Jun 1, 2014
Annotated by Florence Wang

Facts:

Plaintiff Yanting Zhang had purchased a comprehensive general liability policy from California Capital Insurance Company (California Capital). She sued the insurance company in a dispute over the handling of her claim for fire damage to her commercial property. Zhang’s suit named three causes of action, or legal theories against California Capital —breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Unfair Competition Law (UCL; Bus. & Prof.Code, § 17200 et seq.) Under the UCL claim, Zhang alleged that the insurance company had engaged in false and/or unfair advertising in its promise to provide timely coverage for a compensable loss, when it had no intention of paying the true value of its insureds’ covered claims.

Procedural History:

The trial court, Superior Court of San Bernadino County, sustained or granted the insurance company’s motion to dismiss Zhang’s UCL cause of action without leave to amend. Zhang filed petition for writ of mandate, requesting that the higher Court of Appeal review the trial court’s decision. The Court of Appeal granted the petition and reversed the trial court’s decision, allowing the case to proceed. The Supreme Court of California granted review.

Issues:

1. Whether insurance practices that violate the Unfair Insurance Practices Act (UIPA; Ins.Code, § 790 et seq.) can support a UCL action.

Holding:

The Supreme Court of California held that although the UIPA does not create a private cause of action for commission of various unfair practices listed under the UIPA, that the UIPA does not immunize insurers from UCL liability for conduct that violates other laws in addition to the UIPA.

Analysis:

Majority Opinion

The Supreme Court of California granted review of this case to resolve a split that had developed in the Courts of Appeal regarding the viability of UCL claims based on insurer conduct covered by section 790.03 of the UIPA.

The split arose after the seminal case, Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 304, 250 Cal.Rptr. 116, 758 P.2d 58 (Moradi-Shalal), in which the Supreme Court held that the legislative intent in drafting the UIPA did not include an intent to create a private cause of action for the commission of various unfair practices listed in Insurance Code section 790.03 (h).

The Court of Appeals followed Moradi-Shalal, but also held that the insured’s allegations of fraud and common law bad faith were “independent bases for plaintiffs’ [UCL] cause of action…notwithstanding that the acts complained of also violated” the UIPA. (State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 53 Cal.Rptr.2d 229.)

A split in Court of Appeal opinion was later created in Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, 13 Cal.Rptr.3d 586. The Textron court stated that State Farm’s reliance on common law principles to support a cause of action under the UCL was “unavailing.” (Textron, at p. 1072, 13 Cal.Rptr.3d 586). It also reasoned that the unfair practices alleged in Textron were covered by the UIPA, and so merely alleging that these acts constituted unfair business practices under the UCL was insufficient to overcome the ban on private causes of action under Moradi-Shalal. (Id. at p. 1070-1071, 13 Cal.Rptr.3d 586.)

The Supreme Court’s holding in the case at bench resolves the split by clarifying that when insurers engage in conduct that violates both the UIPA and obligations imposed by other statutes or the common law, a cause of action under the UCL is permitted. The Supreme Court reiterated that private UIPA actions are absolutely barred, and that a litigant may not rely solely on violations listed in section 790.03 of the UIPA as the basis for a UCL claim. However, the UIPA cannot operate as a shield against any civil liability.

Concurring Opinion

Concurring opinion counters the majority’s opinion that no UCL claim can ever be based on violations of the UIPA. Concurring opinion asserts that UCL claims predicated on violations of the UIPA are permissible. Moradi-Shalal bars direct action and compensatory and punitive damages, while the UCL cause of action seeks only the limited relief of an injunction and restitution. Thus, UCL claims based on violations of the UIPA do not contravene Moradi-Shalal.

Tags:

Unfair Competition Law, UCL, antitrust, Unfair Insurance Practices Act, UIPA, insurance law, private cause of action, unfair business practice, claims handling, bad faith, breach of contract, common law, cause of action, false advertising, insurance policies, equitable, fraud, business act, demurrer, motion to dismiss, California business code, California insurance code, covenant of good faith and fair dealing, contract law, legislative intent, general liability policy

by Florence Wang