Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

On June 29, 2009, the California Supreme Court issued two decisions that restrict the use of California Business & Professions Code section 17200, otherwise known as the Unfair Competition Law (UCL). Both cases addressed aspects of the UCL as it now exists since the passage of Proposition 64, which occurred in November 2004. 

In one case, the Court, relying on the ballot materials that accompanied the proposition, confirmed that a private party may only pursue a representative claim under the UCL if that party complies with class action requirements. In the other case, the Court held that a labor union, which itself has not suffered actual injury, may not bring a UCL claim on behalf of its members, even if such members have assigned their rights to the union or if those rights are based on the doctrine of “associational standing.” These two nearly unanimous decisions come just weeks after the Court, in a divided 4-3 decision, In Re Tobacco II Cases (decided May 18, 2009), found that following Proposition 64 only the class representatives (and not the absent class members) need to meet the “actual injury” standing requirement of the UCL.

The first decision, Arias v. Superior Court (Angelo Dairy) (pdf), involved a dairy employee who sued his former employer and others for a variety of California Labor Code violations and other labor regulatory violations. He also brought claims under the UCL on behalf of himself and other current and former employees of the defendants. The trial court struck the UCL claims on the grounds that plaintiff had failed to satisfy the pleading requirements for a class action.  The Court of Appeal agreed, and the Supreme Court accepted review. In affirming the judgment below, the Court reviewed the Proposition 64 portion of the Voter Information Guide prepared by the Secretary of State issued in connection with the November 2, 2004 election, observing that there is “no doubt” that “one purpose of Proposition 64 was to impose class action requirements on private plaintiffs’ representative actions brought under the” UCL. In California, those class action requirements arise out of California Code of Civil Procedure section 382.

The second decision, Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.) (pdf), also addressed another aspect of the UCL modified by the passage of Proposition 64, specifically the standing requirement under Business & Professions Code section 17203 that a private party claim may only be brought by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”

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In Kearns v. Ford Motor Company, --- F.3d ----, 2009 WL 1578535 (9thCir. June 8, 2009), plaintiff William Kearn sued Ford for alleged violations of California’s Consumers Legal Remedies Act (“CLRA”) and California’s Unfair Competition Law (“UCL”) arising out of Ford’s Certified Pre-Owned (“CPO”) vehicle program. Kearn’s complaint generically alleged that Ford had made false and misleading statements concerning the safety and reliability of its CPO vehicles (without identifying who made the statements, the specific content of the statements, or when and how Kearn was exposed to such statements), and failed to disclose to consumers Ford’s lack of actual oversight in determining whether used vehicles qualify for the CPO program.  Kearn alleged that he was harmed by the foregoing conduct because he had paid a higher price for a CPO vehicle then he would have paid for a non-CPO vehicle, even though there was no difference between the two. While Kearn alleged that Ford’s conduct constitutes an unfair business practice under California law, he did not assert any claims for fraud in the complaint.

In the district court, Ford brought a motion to dismiss Kearn’s complaint for failure to comply with the heightened pleading standards of Federal Rule of Civil Procedure 9(b). The district court granted the motion and Kearn appealed, principally arguing that Rule 9(b) does not apply to California’s consumer protection statutes because California courts have not applied Rule 9(b) to such statutes, and that Rule 9(b) does not apply to his CLRA and UCL claims because they are not grounded in fraud. 

In rejecting Kearn’s arguments, the Ninth Circuit held that it is well established that the Federal Rules of Civil Procedure – including Rule 9(b) – apply in federal court, “irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal.” The Court further noted that while a federal court examines state law to determine whether the elements of fraud have been sufficiently pled to state a cause of action, the Rule 9(b) requirement that fraud be pled with specificity is a federally imposed rule. The Court also held that, while fraud is not a necessary element of a claim under the CLRA or UCL, if the plaintiff nevertheless alleges a unified course of fraudulent conduct and relies entirely on that course of conduct as the basis of the CLRA or UCL claim, the CLRA or UCL claim is considered to be “grounded in fraud” or sounding in fraud such that the complaint as a whole must satisfy the particularity requirement of Rule 9(b).

Get a copy of the opinion here.

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The Supreme Court in Travelers Indemnity Company v. Bailey, 57 U.S. ___ (2009) last week reversed a Second Circuit opinion that could have caused insurance companies concerns when contributing to a settlement fund to resolve mass tort claims in Bankruptcy Court. 

More than 20 years ago, in 1986, a federal bankruptcy court issued an order that discharged one of the largest producers of products containing asbestos, Johns-Manville Corporation, and each of its insurers from all future tort liability arising under the company’s indemnity policies. Johns-Manville’s primary indemnity insurer, Travelers, deposited $80 million (the full value of their policies) into a settlement trust for all potential claimants, which was intended to cut-off all of Travelers’ future liability due to relationship with the company. 

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How does one insurer get another insurer to contribute to the defense costs of a common insured? Until now, the issue under California law was murky. That murkiness dissipated with the June 24, 2009, decision of the California Court of Appeal in OneBeacon America Insurance Company v. Fireman’s Fund Insurance Company, et al.

In OneBeacon America, the court concluded that one liability insurer’s claim for equitable contribution for defense costs against another liability insurer arises once notice is provided to the latter insurer which, upon diligent inquiry by that latter insurer, reveals the potential for exposure to a claim for equitable contribution and provides the insurer the opportunity to investigate and participate in the defense in the underlying litigation.

The case arises out of an underlying lawsuit for environmental contamination involving a number of related insureds (a corporation and several individuals) filed in 1998. In 1999, certain of those insureds sent notice of the underlying action to OneBeacon America Insurance Company, which began defending the insureds at that time. Fireman’s Fund Insurance Company and Insurance Company of the West (ICW) also provided insurance coverage to one or more of the insureds, and in early 1999, counsel for certain of the insureds, began sending notice letters and other correspondence to Fireman’s Fund and ICW.

Neither insurer agreed to participate in the defense of any of the insureds at that time, but ultimately in 2002 or 2003 they agreed to share in the defense of the insureds with OneBeacon, but only from 2002 forward. OneBeacon filed an action for equitable subrogation in 2005, seeking to recover from Fireman’s Fund and ICW a “time-on-the-risk” allocation of the defense costs OneBeacon paid for alone between 1999 and 2002.

While the precise facts involving “notice” and the communications with each insurer were convoluted and somewhat distinct, essentially Fireman’s Fund and ICW contended that they did not have actual or constructive adequate notice that they has issued policies to the insureds providing coverage. The trial court found in favor of Fireman’s Fund and ICW, but the Court of Appeal reversed.

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