BEATTY v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

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Court of Appeal, Second District, Division 4, California.

James Andrew BEATTY, etc., Plaintiff and Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Respondent.

No. B038845.

Decided: August 22, 1989

Richard S. MacNaughton, for plaintiff and appellant. Spray, Gould & Bowers, James S. Link and Robert M. Dean, Los Angeles, for defendant and respondent.

Respondent State Farm Mutual Automobile Insurance Company (State Farm) brought a motion for judgment on the pleadings seeking dismissal of appellant James Beatty's (Beatty) class action against it.   The motion was granted.   Beatty appeals the ensuing judgment.

The relevant facts, as abstracted from Beatty's complaint, are as follows: 1

In February 1987, Beatty was involved in a car accident with another motorist whom State Farm insured.   Beatty's car was damaged, requiring him to seek repairs and obtain a rental car.   After some initial skirmishing, State Farm agreed to pay the cost of a rental car but refused Beatty's request that it also pay for the collision damage waiver (CDW).

The CDW refers to the daily charge that rental car agencies charge customers who wish to avoid liability for the deductible should the rental car be damaged while in their possession.   Beatty alleged that the CDW reflected the unique and unavoidable risk associated with renting a replacement vehicle.   The risk was unique because “the customer is deprived of any choice in the event the rented vehicle is damaged.”   Specifically, (1) “[h]e cannot elect not to repair the vehicle and thereby save the cost of the deductible [nor];”  (2) can he “elect to postpone the repairs until he can collect funds from any third party who caused the damage;”  (3) he cannot obtain reimbursement from the rental company for the cost of the deductible should the company recover from a third party;  and (4) he does not obtain any benefit from the repair of the vehicle.   Additionally, “the owner of the vehicle bears no risk of financial loss in the event of property damage to the vehicle;  instead, all risk is borne by the customer.”   The risk is unavoidable because the customer must rent a replacement vehicle while his own vehicle is damaged or being repaired.

In Beatty's case, the CDW totalled $140.   State Farm again refused to pay the CDW, to reimburse Beatty for it, or to provide a legal basis for its refusal to pay.

On November 2, 1987, Beatty filed the instant action, a class action complaint alleging, inter alia, that State Farm's refusal to pay the CDW was an unfair business practice as defined by Business and Professions Code section 17200 et seq.   He alleged that the practice violated both Civil Code section 3333 and Vehicle Code section 17150.2

State Farm demurred to the complaint.   The demurrer was overruled and State Farm's subsequent petition for writ of mandate to this court was denied.3  State Farm then moved for judgment on the pleadings.   It made two arguments.   First, as it had on demurrer, State Farm maintained that the provisions of Business and Professions Code section 17200 et seq., were inapplicable to the insurance industry.   Second, State Farm contended that, under the recent decision of Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, a conclusive judicial determination of its insured's liability was a necessary prerequisite to Beatty's action.   Apparently agreeing with State Farm on this second point, the court below granted the motion.   Judgment was entered.   Beatty appeals.   We reverse.

I

 Initially, State Farm contends that Business and Professions Code section 17200's proscription of unlawful, unfair or fraudulent business practices is inapplicable to the insurance industry.

To respond to this contention we begin with an overview of the relevant provisions of the Business and Professions Code.4  Section 17200 governs “unfair competition” which is defined in part as “unlawful, unfair or fraudulent business practice․”  Section 17203 permits an action for the injunction of such practices and other necessary relief which, under section 17204, may be brought by the named public officials, or “any person acting for the interests of itself, its members or the general public.”   Under section 17205 “[u]nless otherwise expressly provided, the remedies or penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of this state.”

Despite the statutory reference to “unfair competition,” section 17200 has long been interpreted as a consumer protection statute.  (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 109, 101 Cal.Rptr. 745, 496 P.2d 817.)   In Barquis the Supreme Court took an expansive view of the applicability of the unfair competition statute and this view has continued to characterize judicial interpretation of it.

Barquis was a class action by debtors who alleged that defendant collection agency had engaged in the practice of deliberately filing actions in courts of improper venue in order to obtain default judgments.   Defendant argued that the unfair competition statute required injury to a competitor, and could not, therefore, provide a basis for plaintiffs' action.

The court responded that the adoption of the unfair competition statute by the Legislature reflected an expansion of common-law notions of unfair competition.  “[T]he Legislature, by adopting [Civil Code] section 3369, broadened the scope of legal protection against wrongful business practices generally, and in so doing extended to the entire consuming public the protection once afforded only to business competitors.”  (Id. at p. 109, 101 Cal.Rptr. 745, 496 P.2d 817.)5  The court went on to note that the statute “explicitly extends to any ‘unlawful, unfair or deceptive business practice’;  the Legislature, in our view, intended by this sweeping language to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur.”  (Id., at p. 111, 101 Cal.Rptr. 745, 496 P.2d 817, fn. omitted.)   To achieve this end, the court observed:  “ ‘[A] court of equity is not impotent to frustrate its consummation because the scheme is an original one.   There is a maxim as old as law that there can be no right without a remedy, and in searching for a precise precedent, an equity court must not lose sight, not only of its power, but of its duty to arrive at a just solution of the problem.’ ”  (Id., at p. 110, 101 Cal.Rptr. 745, 496 P.2d 817, quoting American Philatelic Soc. v. Claibourne (1935) 3 Cal.2d 689, 692, 46 P.2d 135.)

The Barquis court's interpretation of the applicability of the unfair competition statute has been illustrated and emphasized in other decisions interpreting various statutory provisions.   For example, the conduct which the statute proscribes has been read broadly to include not only conduct which constitutes a business practice and is, at the same time, forbidden by law (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at p. 113, 101 Cal.Rptr. 745, 496 P.2d 817), but also any “unfair and unreasonable [business] practice” (Bondanza v. Peninsula Hospital & Medical Center (1979) 23 Cal.3d 260, 267, 152 Cal.Rptr. 446, 590 P.2d 22;  Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735, 739–740, 162 Cal.Rptr. 543;  Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d 432, 449–450, 249 Cal.Rptr. 872), as well as a “fraudulent business practice․”  (§ 17200.)

The statute's standing provision, section 17204, also evinces the Legislature's intention that the statute be widely applicable.   The Barquis court was the first to remark on the statute's broad standing provision.   In connection with its view that the statute extended the common law definition of unfair competition, the court said:  “[T]he section demonstrates a clear design to protect consumers as well as competitors by its final clause, permitting inter alia, any member of the public to sue on his own behalf or on behalf of the public generally.   If the Legislature had been solely concerned with protection against the evil of unfair competitive advantage, it would certainly have more narrowly circumscribed the class of persons permitted to institute such actions.”  (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at 110, 101 Cal.Rptr. 745, 496 P.2d 817, fn. omitted.)

In Hernandez v. Atlantic Finance Co. (1980) 105 Cal.App.3d 65, 72, 164 Cal.Rptr. 279, this court rejected the argument that a plaintiff had to have sustained personal damage in order to bring an action under the unfair competition statute.  “[W]e read the statute as expressly authorizing the institution of action by any person on behalf of the general public.   The Legislature has provided that suit may be brought by any person acting in his own behalf or on behalf of the general public.”  (Ibid., original emphasis;  Consumers Union of United States, Inc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433, 1441–1442, 257 Cal.Rptr. 151.)

Finally, the statute's broad scope is also emphasized by the cumulative nature of its remedies.   In People v. McKale (1979) 25 Cal.3d 626, 159 Cal.Rptr. 811, 602 P.2d 731, a district attorney sought injunctive relief under section 17200 for alleged violations of the Mobilehome Parks Act (Health & Saf.Code, § 18200 et seq.).   The latter statute did not authorize injunctive action by the district attorney but delegated enforcement of its provisions to the Commissioner of Housing and Commercial Development.   The trial court sustained a demurrer to the district attorney's complaint.

The Supreme Court reversed, agreeing with the prosecutor's position that “even though a specific statutory enforcement scheme exists, a parallel action for unfair competition is proper pursuant to applicable provisions of the Business and Professions Code.”  (People v. McKale, supra, 25 Cal.3d at p. 632, 159 Cal.Rptr. 811, 602 P.2d 731.)   Noting that section 17205 provides that its remedies and penalties are cumulative to other “remedies and penalties available under other state laws, unless otherwise expressly provided,” the court went on to observe “[n]either the Mobilehome Parks Act nor any other statute expressly provides that violation of the Mobilehome Parks Act may not be prosecuted as acts of unfair competition.”  (People v. McKale, supra, at p. 633, 159 Cal.Rptr. 811, 602 P.2d 731.   See also Committee on Children's Television, Inc. v. General Food Corp. (1983) 35 Cal.3d 197, 210–211, 197 Cal.Rptr. 783, 673 P.2d 660.)

As our discussion demonstrates, the unfair competition statute is broadly inclusive as to the practices which it proscribes, those who may bring an action under it, and its compatibility with other statutes that may provide parallel regulatory schemes.   With this interpretation of the statute, and in the absence of specific authority to the contrary, we necessarily conclude that the statute is applicable to the insurance industry.   We are not otherwise persuaded by State Farm's arguments that the insurance industry is exempt because they rely largely on an incorrect interpretation of a single case, Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 70 Cal.Rptr. 849, 444 P.2d 481.

The Chicago Title decision did not involve the business practices proscribed by section 17200 which, indeed, were not even contained in the Business and Professions Code at the time Chicago Title was decided.6  Instead, Chicago Title arose from an action based in part on alleged violations of the state antitrust trust law, the Cartwright Act (Bus. & Prof.Code, §§ 16700–16800), by title insurers and title companies.   Among its causes of action the appellant, Chicago Title Insurance Company, alleged that certain of the respondents had engaged in pricing practices that violated the Cartwright Act.

In affirming the judgment of the lower court which had sustained respondents' demurrer to Chicago Title's complaint, the Supreme Court observed:  “These statutes [the antitrust statutes] and the common law which once constituted the ‘protection of the public against combinations in restraint of the insurance trade’ (Speegle v. Board of Fire Underwriters, 29 Cal.2d 34, 35 [172 P.2d 867] ) are now expressly superseded and contravened by the specific provisions of the Insurance Code.   Counts three (secret rebate), four (discriminatory pricing) and seven (unlawful rebate) clearly concern the regulation of rates charged by title insurers and title companies, and rate regulation has traditionally commanded administrative expertise applied to controlled industries.  [Citations.]”  (Chicago Title Ins. Co. v. Great Western Financial Corp., supra, 69 Cal.2d at pp. 322–323, 70 Cal.Rptr. 849, 444 P.2d 481.)

Clearly, Chicago Title did not involve either expressly or by implication the applicability of the unfair competition statute to the insurance industry, and is not authority for that proposition one way or the other.  (Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2, 39 Cal.Rptr. 377, 393 P.2d 689 [“[A]n opinion is not authority for a proposition not therein considered.   [Citation.]”].)

 State Farm's subsidiary arguments are no more availing.   First, State Farm maintains that the recent adoption by the electorate of Insurance Code section 1861.03, which now makes the antitrust laws applicable to the insurance industry, is evidence that prior to its adoption the unfair competition statute was not applicable.7

Insurance Code section 1861.03 was submitted to the electorate as Proposition 103.   The Legislative Analyst's analysis of Proposition 103 stated that it would “make[ ] insurance companies subject to the state's antitrust laws.”  (Ballot Pamp., Analysis of Prop. 103 by Legislative Analyst, as presented to the voters, Gen. Elec. (Nov.1988) p. 140;  emphasis added.)   The proponent's argument makes the same point:  “103 eliminates the insurance industry's unfair exemption from the antitrust laws.”  (Ballot Pamp., Argument in Favor of Prop. 103 as presented to the voters, Gen. Elec. (Nov.1988) p. 101.)   To the extent that such statements are relevant to ascertaining the meaning of the measure (In re Lance W. (1985) 37 Cal.3d 873, 888, fn. 8, 210 Cal.Rptr. 631, 694 P.2d 744), they indicate that any change of law contemplated by adoption of Proposition 103 was solely related to the applicability of the antitrust law.

Second, State Farm argues that because the cumulative remedy provision of the unfair competition statute was in effect when Chicago Title allegedly held the statute inapplicable to the insurance industry, the statute is not cumulative to any relevant remedies or penalties in the Insurance Code.   Since, however, Chicago Title did not hold the unfair competition statute inapplicable to the insurance industry, the argument is without merit.   Actually, the cumulative nature of the penalties and remedies provided by the unfair competition statute is additional reason to apply it to the insurance industry.

 Finally, seizing upon the language of section 17205, that the penalties and remedies are cumulative “[u]nless otherwise expressly provided,” State Farm purportedly finds such an expression in Insurance Code section 790.   That section provides:  “The purpose of this article is to regulate trade practices in the business of insurance in accordance with the intent of the Congress ․ by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.”   State Farm maintains that use of the phrase “all such practices” evinces a legislative intent that Insurance Code regulations of unfair business practices in the insurance industry supersede any other regulation.   We disagree.

We first note that this provision concerns the identification of proscribed practices, not enforcement.   It falls far short of expressly stating that unfair business practices in the insurance industry cannot be prosecuted under the unfair competition statute.   In the absence of such explicit language, the remedies and penalties of the unfair competition statute are cumulative to any such provisions in the Insurance Code.8  (See, e.g., People v. McKale, supra, 25 Cal.3d at p. 633, 159 Cal.Rptr. 811, 602 P.2d 731.)   In an analogous situation involving the question of whether the specific standing provision in the Unruh Act took precedence over the more general standing provision of the unfair competition statute, it was held:  “The Unruh Act ․ simply contains an express grant of standing to some persons without any provision restricting others from proceeding under the unfair competition statute.”  (Consumers Union of United States, Inc. v. Fisher Development, Inc., supra, 208 Cal.App.3d at p. 1441, 257 Cal.Rptr. 151, fn. omitted.)

As we have seen, the unfair competition statute is a broad act, the purpose of which is to ferret out unfair business practices wherever they may occur and in whatever guise human ingenuity can devise.   Absent explicit authority exempting a particular industry from the statute's provisions, it would be totally inconsistent, with past judicial decisions expansively interpreting the act, to imply such an exemption or fabricate one out of whole cloth.   Accordingly, we reject State Farm's position that the insurance industry is exempt from the statute.

II

State Farm also contends that the CDW is not recoverable against its insured in any event.   Since this argument was not made in the proceedings below we would not usually consider it.   Recognizing this, State Farm maintains that we should entertain the argument as it represents a correct decision of the lower court, which is ordinarily affirmed even when the court's reasoning was incorrect.   This principle is inapplicable here, because the decision was incorrect.

 Before this court, State Farm also argued that the recoverability argument is properly before us pursuant to Code of Civil Procedure section 430.80, subdivision (a).   Under this section a party against whom a complaint has been filed, who fails to object by way of demurrer or answer, is deemed to have waived the objection unless it pertains to jurisdiction or the failure to “state facts sufficient to constitute a cause of action.”  (Code Civ.Proc., § 340.80, subd. (a).)  State Farm seeks to lodge its belated objection under the latter rubric.   The cases, however, make clear that section 430.80 goes only to basic and fundamental defects such as the applicability of a governmental immunity to a complaint (Buford v. State of California (1980) 104 Cal.App.3d 811, 826, 164 Cal.Rptr. 264), a plaintiff's lack of standing (McKinny v. Board of Trustees (1982) 31 Cal.3d 79, 90, 181 Cal.Rptr. 549, 642 P.2d 460;  Tinsley v. Palo Alto Unified School Dist. (1979) 91 Cal.App.3d 871, 883, 154 Cal.Rptr. 591) or a plaintiff's failure to comply with a mandatory claims requirement (Halbert v. Berlinger (1954) 127 Cal.App.2d 6, 14–15, 273 P.2d 274).   That section is, by its own terms, an exception to the rule of waiver and does not provide carte blanche to a defendant to belatedly raise any and all eleventh hour objections to a pleading.

 Moreover, even if we were to consider the argument we would reject it.   As State Farm concedes, but for the negligence of its insured neither appellant nor others similarly situated would incur the cost of the CDW.   It is, therefore, an item of damages recoverable against the insured.  (Civ.Code, § 3333 [“For the breach of an obligation not arising from contract, the measure of damages ․ is the amount which will compensate for all the detriment proximately caused thereby․”  (Emphasis added.) ].)  State Farm's assertion to the contrary is not supported by its reliance on either Owens v. Pyeatt (1967) 248 Cal.App.2d 840, 57 Cal.Rptr. 100, or Truta v. Avis Rent A Car System, Inc. (1987) 193 Cal.App.3d 802, 238 Cal.Rptr. 806.   State Farm's remaining, related arguments are equally unpersuasive.

III

 State Farm's final argument pertains to the recent decision of the Supreme Court in Moradi–Shalal v. Fireman's Fund Ins. Companies, supra, 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.   In Moradi–Shalal, the Supreme Court overruled its prior decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329.  Royal Globe had held that Insurance Code section 790.03, subdivision (h), created a private right of action against insurers who committed the unfair practices enumerated in that section.   Further, this right of action was available to third party claimants, as well as the insurer's insureds, subject to the limitation that “the third party's suit may not be brought until the action between the injured party and the insured is concluded.”  (Royal Globe Ins. Co. v. Superior Court, supra, at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329.)

Moradi–Shalal abolished such actions but was made “prospective only, that is, applicable only to cases filed after the date our opinion herein becomes final.”  (46 Cal.3d at p. 292, 250 Cal.Rptr. 116, 758 P.2d 58.)   Surviving Royal Globe actions, however, became subject to the further requirement that “there must be a conclusive judicial determination of the insured's liability before the third party can succeed in an action against the insurer under section 790.03.”  (Moradi–Shalal v. Fireman's Fund Ins. Companies, supra, 46 Cal.3d at p. 306, 250 Cal.Rptr. 116, 758 P.2d 58.)

In the case before us, State Farm maintains that a conclusive judicial determination of their insured's liability is a necessary prerequisite to Beatty's action under Business and Professions Code section 17200.9  They offer two reasons, neither of which is persuasive.

First, State Farm argues that Beatty's claim that its refusal to pay the CDW is an unlawful practice necessarily implicates Insurance Code section 790.03 which identifies unfair claim practices.   State Farm then concludes that because Insurance Code section 790.03 is involved, a final judicial determination of its insured's liability is required.

This argument ignores the fact that Beatty's allegations of unlawfulness are not based on claimed violations by State Farm of section 790.03 but, rather, of Civil Code section 3333 and Vehicle Code section 17150, both of which pertain to liability for damages.   Accordingly, section 790.03 is not directly involved in this action and the prerequisites to maintaining an action under that statute are not applicable here.

State Farm's argues even more vigorously that Beatty's action is in actuality a thinly veiled Royal Globe action as to which Moradi–Shalal's requirement of a final judicial determination of liability should apply whether or not section 790.03 is directly invoked.   We find, however, that this contention cannot survive our analysis in part I of this opinion which sets forth the purpose and scope of the unfair competition statute.

The purpose of actions brought under section 17200's proscription of unlawful, unfair or fraudulent business practices is to protect consumers.   Section 17200 does not even require that the plaintiff who brings the action be one damaged by the complained of practice.  (Hernandez v. Atlantic Finance Co., supra, 105 Cal.App.3d at p. 72, 164 Cal.Rptr. 279.)   Also reflecting this broad protective function is the fact that a practice subject to the statute need not necessarily be unlawful.  (See, e.g., Allied Grape Growers v. Bronco Wine Co., supra, 203 Cal.App.3d at pp. 449–450, 249 Cal.Rptr. 872 [“The test under section 17200 is that a practice merely be unfair.   [Citations.]”];  § 17205.)   State Farm's proposal that actions under section 17200 be limited by Moradi–Shalal is fundamentally incompatible with this broad protective function.   Certainly, it is directly contrary to the standing provision.   Moreover, as we have seen, nothing in either the unfair competition statute or Insurance Code section 790 et seq. demonstrate any legislative intent to exempt the insurance industry from the unfair competition statute or to otherwise limit the statute's applicability.

To the extent that Moradi–Shalal has any bearing at all on the issue, it appears to support our conclusion.   For while Moradi–Shalal abolished third party claimant bad faith actions under Insurance Code section 790.03, it recognized the continued validity of “administrative remedies” and “appropriate common law actions” against insurers as, for instance, “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 v. Fireman's Fund Insurance Companies, supra, 46 Cal.3d at pp. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)   We take this list to be illustrative rather than exhaustive and to that list we add an action under the provisions of the unfair competition statute.

The judgment is reversed.   Appellant to have his costs.

FOOTNOTES

1.   As with a demurrer, on a motion for judgment on the pleadings the plaintiff's allegations are accepted as true.  (6 Witkin, Cal.Procedure (3d ed. 1985) Proceedings Without Trial, § 263, p. 564.)

2.   Civil Code section 3333 provides:  “For the breach of an obligation not arising from contract, the measure of damages ․ is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.”  Vehicle Code section 17150, misidentified in Beatty's complaint as Insurance Code section 17150, provides:  “Every owner of a motor vehicle is liable and responsible for death or injury to person or property resulting from a negligent or wrongful act or omission in the operation of the motor vehicle, in the business of the owner or otherwise, by any person using or operating the same with the permission, express or implied, of the owner.”

3.   We take judicial notice of the earlier proceeding, State Farm Mutual Automobile Insurance Company v. Superior Court (B033700).

FN4. All statutory references, unless otherwise identified, are to the Business and Professions Code.  Section 17200 et seq. is also referred to, collectively, as the unfair competition statute..  FN4. All statutory references, unless otherwise identified, are to the Business and Professions Code.  Section 17200 et seq. is also referred to, collectively, as the unfair competition statute.

5.   Until 1977, the unfair competition statute was located in Civil Code section 3369, at which time it was substantially re-enacted in its present form and location in Business and Professions Code.

6.   See footnote number 5.

7.   Insurance Code section 1861.03 provides, in part:  “The business of insurance shall be subject to the laws of California applicable to any other business, including, but not limited to, ․ the antitrust and unfair business practices laws (Parts 2 and 3 commencing with section 16600 of Division 7, of the Business and Professions Code.)”

8.   Indeed, the Insurance Code itself contemplates the existence of other forms of “civil liability” which may “aris[e] out of the methods, acts or practices found unfair or deceptive [under the Insurance Code].”  (Ins.Code, § 790.09.)

9.   Beatty's complaint alleged Royal Globe causes of action but, on appeal, he abandons them because there was no judicial determination of the insured's liability.

ARLEIGH M. WOODS, Presiding Justice.

McCLOSKY and GOERTZEN, JJ., concur.

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