Insurance

• Can an Unfair Insurance Practices Act violation support a private civil cause of action under the Unfair Competition Law?

Zhang v. Superior Court of San Bernardino County 4th Appellate District
Case No. E047207 (2009 DJDAR 15454) October 30, 2009

An insured sustained a fire loss sued her insurer for alleged delay in authorizing adequate payment for repair and restoration of the burned premises.  In addition to Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing claims, the insured asserted a cause of action for breach of the “Unfair Competition Law” alleging that the carrier engaged in unfair and deceptive advertising by promising its insureds that it would timely pay benefits in the event of a covered loss.  The trial court sustained the carrier's demurrer to the Unfair Competition Law cause of action relying on Moradi-Shalal v. Firemans Fund Insurance Cos. (1988) 46 Cal.3d 287, as well as Textron Financial Corp. v. National Union Fire Insurance Co. (2004) 118 Cal.App.4th 106, for the proposition that the Unfair Insurance Practices Act does not give rise to private civil causes of action in its own name or under other statutes. 

The Fourth District Court of Appeal disagreed with the trial court's decision and remanded the matter with the order that the Unfair Competition Law cause of action be reinstated.  In so doing, the Fourth District acknowledged a split of authority within the appellate districts in the State of California perhaps setting up review by the California Supreme Court to once and for all answer whether the Unfair Insurance Practices Act can give rise to a private civil cause of action in a first party context.

The Fourth District's decision is notable for its distinction of those first party cases which give credence to the Moradi-Shalal prohibition of private causes of action based on the Unfair Insurance Practices Act.  In noting this distinction, the Appellate Court stated:  A[t]here is no reason to treat insurers differently from other businesses when it comes to actions under the UCL except as required by Moradi-Shalal.  Moradi-Shalal prohibited a private cause of action for alleged violation of Unfair Insurance Practices Act in a third party context only.  Therefore, to the extent that other appellate courts have extended Moradi-Shalal into the first party setting via the Unfair Competition Law, this appellate court disagreed with that extension.  While the Unfair Insurance Practices Act does not provide a private cause of action, that same limitation should not be read into the Unfair Competition Law which has provided a private cause of action albeit for equitable remedies only.

It will be interesting to know if and how the California Supreme Court will weigh in on the issue.  Will it allow insureds to utilize the Unfair Claims Practices Act to generate Unfair Competition claims under Business & Professions Code '17200, et seq.?  In doing so, it will yield a new claim to plaintiffs in bad faith litigation allowing additional opportunity to obtain injunctive and equitable remedies as well as attorneys' fees.  While the injunctive and equitable remedies may be limited by the circumstances of the case, attorneys' fees will not.

• Medical Insurer's Negotiated Rate Differential Between the Full Amount of the Medical Provider’s Bills and the Lesser Amount Paid by the Private Health Care Insurer is Subject to Collateral Source

(Howell v. Hamilton Meats & Provisions, Inc., November 23, 2009, 4th Appellate District, Divsion 1, 2009 DJDAR 16478)

A car versus commercial truck motor vehicle accident caused the car driver significant personal injuries resulting in two spinal fusion surgeries.  The plaintiff was insured by PacifiCare PPO which paid $59,691.73 of her $189,978.63 medical bills.  The remainder was written off and permanently adjusted pursuant to the PacifiCare contract with her health care providers.

At trial, the defense sought a post-trial reduction of plaintiff’s medical special damages from $189,978.63 to the amount paid by her health care provider, $59,691.73.  The trial court granted the post-trial motion, but the Fourth Appellate District overturned the trial court allowing the plaintiff to obtain the full amount of her medical expenses, though a significantly lesser sum was actually paid in full satisfaction of the billing.

The Appellate Court started with California Civil Code §3333 which states that in negligence cases, the measure of damages is the amount which compensates for all detriment proximately caused by the injury-producing event.  California courts have held that the special damages a plaintiff may recover in a personal injury action for past medical expenses are limited to the reasonable amount paid or incurred, whether by the plaintiff or a collateral source.  This analysis set up a dispute as to whether the amount incurred (the full amount billed) versus the amount actually paid (the lesser amount paid by PacifiCare) was recoverable by this plaintiff.  This court answered the question by applying the collateral source rule that provides that where an injured party receives some compensation for his injuries from a source independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.  Extending this protective doctrine in favor of the injured plaintiff, the court allowed her to recover the full amount of medical billings, though her health insurance carrier paid but a fraction of them in full satisfaction of all of her bills.  The court called upon the legislature to weigh in on a plaintiff’s recovery of full medical billings versus amounts paid by private health insurers.

This case will very likely be reviewed by the California Supreme Court which should once and for all weigh in on the proper measure of medical special damages when a private health care insurer has paid a fraction of the billings pursuant to health care provider contract, and the damages are fully satisfied without further contribution by the injured plaintiff.

Our firm has very strong feelings about the proper way to present this issue to a trial judge and on appeal.  Rather than focus on the medical bills, defense attorneys should focus on the CACI jury instructions which provide that the reasonable amount of medical bills is a question of fact for the jury’s determination.  That reasonable value can be established any number of ways including but not limited to amounts paid and accepted in full for the services as well as expert testimony utilizing private health care insurance contracts to set the basis for the reasonable value of service.