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

In the recently issued decision Princess Cruise Lines, LTD v. Superior Court, plaintiffs sued Princess Cruise Lines, Ltd. (“Princess”) over charges added to the price of shore excursions taken during a cruise. They alleged causes of action for violation of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), Consumers Legal Remedies Act (CLRA) and common law fraud and negligent misrepresentation.

Princess moved for summary judgment and summary adjudication. The trial court granted summary adjudication on the fraud and negligent misrepresentation claims because plaintiffs could not show they relied on Princess’ alleged misrepresentations. It denied summary judgment because it concluded that on the UCL, FAL and CLRA causes of action, plaintiffs did not have to show that they relied on Princess’ alleged misrepresentations.

Princess took a writ of mandate to the Court of Appeal. Citing to the recent California Supreme Court decision in In Re Tobacco II Cases, the Court of Appeal confirmed that

a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.

Relying further on language from Tobacco II, the Court of Appeal specified that reliance must be proven only in situations where a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. It further held that the Tobacco II’s analysis of the phrase “as a result” in the UCL was equally applicable to identical language in the CLRA statute.

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A common perception in class action litigation is that, where damages are individualized, this will not usually mean that a class action cannot be certified. However, in certain cases, where individualized questions of damages exist – and indeed predominate over one or more common issues – a trial court may deny class certification and that denial should be upheld on appeal. The recent decision in Evans v. Lasco Bathware, Inc. presents such a case.

In Evans, the plaintiff brought suit against Lasco claiming that the shower pans that had been installed in thousands of residential showers were defectively designed, resulting in water leakage and consequential damages to adjacent components of the homes’ shower system. The plaintiff sought to certify a class alleging claims for strict products liability and negligence, and asserted that its expert had concluded that the shower pan design was defective (a common issue) and that damage could be resolved by calculating some formula to estimate the average cost to replace the shower pan with a new generation of shower pan and thereby avoid the need for class members to submit the individualized damage estimates.

The trial court denied class certification, holding that the need for individualized proof of the amount of damages for removing and replacing the shower pans predominated over the common questions. The Court of Appeal affirmed, explaining that while

a trial court has discretion to permit a class action to proceed where the damages recoverable by the class must necessarily be based on estimations, the trial court equally has discretion to deny certification when it concludes the fact and extent of each member’s injury requires individualized inquiries that defeat predominance.

On this basis, it asserted that the trial court did not abuse its discretion in declining to certify the class as to common issues of liability and causation since those issues required individualized proof from each class member.

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Insurance Commissioner Steve Poizner today once again rejected a rate application from the Workers’ Compensation Insurance Rating Bureau (WCIRB) to raise the Workers’ Compensation Claims Cost Benchmark. After rejecting a slightly larger increase request in July of this year, the Commissioner this time rejected a proposed hike of 22.8% in the cost benchmark.  This was yet another blow to the hopes of workers’ compensation insurers for an increased cost benchmark anytime soon.

The Commissioner explained:

One in eight Californians is unemployed. Countless others are also suffering and have either given up looking because they cannot find work or have taken part-time jobs while they seek full-time work. Any increase in costs for employers will only make our already dire economic situation worse.

Given these harsh economic realities, I refuse to rubber stamp double-digit increases to the Workers Compensation Claims Cost Benchmark, especially when I see clear evidence that the cost control reforms from 2003-2004 have yet to be fully implemented,”

…

These increases requested by the WCIRB give insurers an excuse to raise rates in concert without fully utilizing all of their cost containment tools or increasing efficiency. I will not consider an increase in the Claims Cost Benchmark until I see substantial efforts being made by insurers to use all available tools to constrain costs and improve efficiency.

With regard to the controlling of costs, in the Commissioner’s prior July denial of a request by the WCIRB to raise the Workers’ Compensation Claims Cost Benchmark, the Commissioner issued a 27 point outline of means in which costs can be trimmed by workers’ compensation insurers. Commissioner Poizner’s remarks seemed to indicate that he was disappointed by insurers’ efforts to curb costs. More specifically, the Commissioner stated, “I will not consider an increase in the Claims Cost Benchmark until I see substantial efforts being made by insurers to use all available tools to constrain costs and improve efficiency.”

This denial of the cost benchmark is the latest in a long string of decisions by the Commissioner that have been stringent in their treatment of the cost benchmark, despite the WCIRB’s repeated requests for significant increases. We expect Commissioner Poizner to continue to reject any attempt to raise the cost benchmark until there is significant improvement in California’s unemployment rate (as of last check unemployment in California is a stifling 12.2%, 4th highest among states in the country).

November 9, 2009 WC Benchmark Decision and Order

November 9, 2009 Department Press Release

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A California Court of Appeal decision published on October 28, 2009, analyzes whether UCL “standing” rules announced by the California Supreme Court in In re Tobacco II Cases, 46 Cal. 4th 298 (2009), carry over when a trial court considers the requisite elements to certify a class action. The answer, at least from the Eighth Appellate District, is that they do not. 

In Cohen v. DIRECTV, Inc., the plaintiff sued the satellite television company under both the Unfair Competition Law or “UCL” (Business & Professions Code sections 17200 et seq.) and the Consumers Legal Remedies Act or “CLRA” (Civil Code sections 1750 et seq.), claiming that the company falsely advertised the quality of the High Definition (“HD”) resolution that it was transmitting to its customers. Cohen sought to certify a nationwide class. In opposition to a motion for class certification, DIRECTV presented a number of declarations from its customers that explained that their individual decisions to purchase the HD upgraded system were not based on seeing any advertising or promotional materials from the company, but rather on word of mouth, lower prices, or just because they bought an HDTV. On those facts, the trial court denied certification, finding that common legal and factual issues did not predominate.

On appeal, the court first found that no common legal issues predominated, agreeing with the trial court that the subscribers’ legal rights would vary from state to state and that subscribers outside of California may not be protected by the UCL or the CLRA. It also rejected the plaintiff’s attempt to redefine the class to include only California residents, reasoning that, even with a California-only class, plaintiff still could not show that common factual issues would predominate over individual factual issues.

As for whether common issues predominated, the court concluded that there were myriad reasons why subscribers had purchased the HD upgrade that were far removed from the alleged misleading advertisements as to resolution of the HD transmission. More particularly, the court found commonality lacking since actual reliance would need to be shown for an award of damages under the CLRA and for restitution/injunctive relief under the UCL. As for the decision in Tobacco II, the court explained that the Supreme Court in that case had been concerned with the issue of standing under the UCL and that, in the context of standing, only the class representative needed to satisfy the requirement and that there was no need for the class members to show actual reliance.

However, at the time of considering class certification, the Cohen court found “Tobacco II to be irrelevant because the issue of ‘standing’ simply is not the same thing as the issue of ‘commonality.’” Rather, at the time of considering class certification, the trial court was concerned that the UCL and CLRA claims alleged by plaintiff and the other class members “would involve factual questions associated with their reliance on DIRECTV’s alleged false representation,” which was a proper criterion to consider for commonality – “even after Tobacco II.”

Cohen is the second case published last week that affirmed the denial of class certification of a UCL claim and addressed the impact, or, more correctly, the lack of impact, of the decision in Tobacco II. The other decision is Kaldenbach v. Mutual of Omaha et al., published October 26, 2009, a decision in which Barger & Wolen represented the defendant, and is discussed in the Life, Health and Disability Insurance Law blog.

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Effective immediately, insurers may offer a verified actual mileage option instead of, or in addition to, the estimated mileage program that traditionally has been used in determining automobile insurance premiums in California.

Specifically, for purposes of determining the number of miles driven annually by the insured, as required under the Second Mandatory Rating Factor, insurers can either: (a) switch to the new program; (b) offer both the verified actual mileage program and the traditional estimated mileage program; or (c) stick with the traditional program. Insurers that offer both programs must make participation in the verified actual mileage program voluntary. 

The underlying impetus behind the new regulations is the Commissioner's environmental push to reduce CO² emissions and gasoline consumption by incentivizing drivers to drive less. "The Commissioner finds that basing the Second Mandatory Rating Factor on verified actual miles driven, rather than on estimated miles driven, may enable policyholders to reduce their premiums by driving less and create incentives for innovation in insurance rating in California with numerous attendant benefits." 10 CCR, § 2632.5(c)(2)(F); ("Commissioner Poizner Announces Final Approval of Pay-As-You Drive Regulations.")

Under the new option, an insurer may require an insured who chooses the verified actual mileage option for one vehicle to choose that option for all vehicles insured under the same policy.

The new option allows for a variety of different verification methods.  An insurer may select one or more of the following:

1. odometer readings which are read by the insurer or its agent or insurer's third-party vendor;
2. odometer readings read by auto repair dealer in servicing the vehicle or by a vendor retained by the insurer;
3. odometer readings obtained by government licensed smog check stations or any other government agency that maintains public records of odometer readings;
4. odometer readings reported to the insurer by the insured or the insured's agent;
5. by a technological device provided by the insurer or otherwise made available to the insured that accurately collects vehicle mileage information. Such a device can only be used by the insurer to collect information for determining actual miles driven and not to collect or store information about the location of the insured vehicle, with the following caveat: "nothing in this section shall prevent a motor club or insurer from using a technological device to collect information about the location of the insured vehicle as part of an emergency road service, theft service, map service or travel service."
6. any other method approved by the Commissioner.

The verification methods selected by the insurer must be made available to all insureds equally. For example, if the insurer permits its insureds to self-report odometer readings, it must uniformly offer that verification method to the public.

In addition, by utilizing the new program, insurers are permitted to do the following: 

• retroactively or prospectively adjust premiums based on actual miles driven provided the insurer gives notice to the policyholder prior to the effective date of the policy;
• where both a mileage estimation program and a verified actual mileage program are offered, the insurer may provide a discount to a policyholder who participates in the verified actual mileage program. Such a discount, however, must be actuarially supported. Specifically, in order to use the discount, the insurer must demonstrate "cost savings or actuarial accuracy associated with obtaining and using actual miles driven rather than estimated mileage." In addition, the discount must be applied to all policyholders in the verified actual mileage program, regardless of the method of verification used.
• offer the option to purchase coverage for a specified price per mile – "Price Per Mile Option." The regulation, however, offers no guidance in setting that "price per mile," other than making it subject to compliance "with all applicable laws." (This provision of the new regulation will likely require further clarification by the Commissioner or the courts).
• combine Percent Use, Academic Standing, Gender, Marital Status, and Driver Training with the Second Mandatory Rating Factor. If so, the insurer must demonstrate in its class plan that the rating factors used in combination, when considered individually, comply with the weight ordering requirements of 10 CCR § 2632.8.

Lastly, where an insurer utilizes both programs, they must be included in one class plan.

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A recent ruling by the California Court of Appeal in a UCL action will likely lead to a showdown in the California Supreme Court over the reach of Moradi-Shalal v. Fireman’s Fund Ins. Cos., 46 Cal. 3d 287 (1988), the ruling that barred private actions seeking to enforce California’s Unfair Insurance Practices Act, namely, Insurance Code Section 790.03, et seq. (“Section 790.03”). 

For years plaintiffs’ lawyers and insurers have grappled over the question of whether causes of action for violation of California’s “Unfair Competition Law” (Business and Professions Code Section 17200, et seq., or “UCL”) may allege conduct that violates Section 790.03. Insurers have generally prevailed in demonstrating that to allow a UCL suit to include thinly-disguised Section 790.03 violations would be an impermissible circumvention or end run around Moradi-Shalal. The California Court of Appeal supported the insurers’ position on this issue in Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal. App. 4th 1061 (2004).

Now, the Fourth Appellate District, in Zhang v. Superior Court (October 29, 2009), has rejected Textron, and held that because the UCL allows a plaintiff to allege unfair, unlawful, and misleading conduct against businesses generally (including insurers), the fact a plaintiff asserts what appear to be violations of Section 790.03 is not necessarily an end run around Moradi-Shalal.

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