Real party in interest insurer challenged a judgment from the Court of Appeal, Fourth Appellate District, Division Two (California), which reversed respondent trial court’s order sustaining the insurer’s demurrer to petitioner insured’s claim of unlawful business practices under the Unfair Competition Law (UCL), Bus. & Prof. Code, § 17200 et seq.

Overview

The insured alleged that the insurer had withheld payment in bad faith for fire damage to her commercial property and that the insurer had engaged in false advertising by promising to provide timely coverage in the event of a compensable loss, while not intending to provide such coverage. The insured used a small business attorney. The court found the insured’s allegations sufficient to support a claim of unlawful business practices. Although no private cause of action was permitted for violations of Ins. Code, § 790.03, subd. (h), claims for relief under the UCL could be based on conduct proscribed by the Unfair Insurance Practices Act (UIPA), Ins. Code, § 790 et seq., if independently actionable under the common law of insurance bad faith. The court disapproved Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, to the extent inconsistent. The remedies provided in the UCL were cumulative to those available to the California Insurance Commissioner under the UIPA. Where no absolute bar to relief existed, an action under the UCL was not prohibited merely because another statute on the subject did not itself provide for the action or prohibit the challenged conduct.

Outcome

The court affirmed the judgment of the court of appeal.

Procedural Posture

Appellant challenged a judgment of the Superior Court of Los Angeles County, California, for respondent insurer in appellant’s bad faith action. Appellant had brought a breach of contract suit against a corporation insured by the insurer and its officer. The officer sought a defense from the insurer pursuant to a directors and officers (D&O) liability policy issued in accordance with Corp. Code, § 317, subd. (i). The insurer denied the claim.

Overview

The corporation and the officer settled the underlying suit brought by appellant for the contract price. The appeal raised issues as to whether a D&O liability policy covered a breach of contract claim where an officer entered into a contract without stating that he was acting on behalf of the corporation. The court held that the D&O policy did not cover the corporation’s contractual debt or the officer’s liability for breaching a contract. The breach of the contractual obligation asserted did not give rise to a loss caused by a wrongful act within the meaning of the policy. Rather, the corporation was simply being required to pay an amount it voluntarily contracted to pay. To hold the insurer liable for the contract price would have been tantamount to making it a business partner of the corporation and the officer, which was not the mutual intention of the parties under the policy. Accordingly, under the policy, the insurer was not liable for the underlying settlement or judgment. To hold otherwise would have made it a de facto party to a corporate contract and required it to pay the full contract price (plus interest), letting the corporation completely off the hook.

Outcome

The court affirmed the trial court’s judgment.