United States: California Supreme Court Holds Insurers Are Subject To Unfair Competition Claims In Zhang Case

On August 1, the California Supreme Court issued its highly-anticipated decision in Zhang v. Superior Court, holding that the California Unfair Insurance Practices Act (Ins. Code §790 et seq.) does not necessarily preempt an action against an insurer under the California Unfair Competition Law (Bus. & Prof. Code §17200 - the "UCL"). The decision greatly expands an insurer's potential exposure in California to private actions arising from conduct that, for over twenty five years, had been considered to be subject solely to the California insurance law (which does not provide for a private right of action).

In Zhang, the plaintiff sued her insurer, California Capital Insurance, over a dispute arising from a fire at her business. Zhang contended that the insurer's claim handling had been inadequate, in violation of the California Unfair Insurance Practices Act. However, recognizing that the Unfair Insurance Practices Act does not authorize a private right of action, Zhang's complaint, alleged that the insurer's advertising (in which it promised timely and proper payment of insurance claims), was "false advertising" potentially actionable under the California UCL. Before the California Supreme Court, California Capital Insurance (as well as several amici) maintained that the plaintiff's action was, in essence, a claims handling dispute, and that the court's 1988 decision in Moradi-Shalel v. Fireman's Fund acted as a bar to any private cause of action for conduct that is also covered by the Unfair Insurance Practices Act. However, the court rejected that argument, holding that "Moradi-Shalel does not preclude first party UCL actions based on grounds independent from section 790.03, even when the insurer's conduct also violates section 790.03." The court continued: [W]hile a plaintiff may not use the UCL to 'plead around' an absolute bar to relief, the [Insurance law] does not immunize insurers from UCL liability for conduct that violates other laws in addition to the [Insurance law]." In reaching this decision, the California Supreme Court further noted that Moradi-Shalel had been intended to protect against the adverse consequences of permitting a broad implied right of action for damages under the Insurance law, and that this concern should not apply because UCL remedies are more limited in scope (generally extending only to injunctive relief and restitution.)

Whether the limited remedies afforded by the UCL noted by the Court will temper plaintiff interest in bringing UCL claims against insurers remains to be seen, particularly given that UCL claims can give rise to punitive damages and, in some circumstances, an award of attorney fees to a prevailing plaintiff (under a "private attorney general" theory). Time will tell; these "limited" remedies do not seem to have had any significant chilling effect on UCL actions against other entities. For now, what is clear is that plaintiff Yanting Zhang's false advertising based UCL claim returns to the trial court for further proceedings, and that future plaintiffs have just been granted a new avenue for challenging insurer conduct in the California courts.

BLUES GET BIG EARLY VICTORY IN ANTITRUST MDL PROCEEDING

By James M. Burns

Round one of the In re Blue Cross Blue Shield Antitrust Litigation (MDL 2406), a multi-district antitrust action brought against 38 Blue Cross & Blue Shield entities and the Blue Cross Blue Shield Association that is currently pending in Birmingham, Alabama, before District Judge David Proctor, has gone to the Blues, courtesy of a ruling from another District Court Judge more than 800 miles from Birmingham. Specifically, on August 22, Judge Frederico Moreno, District Court Judge for the Southern District of Florida, held that a series of settlement agreements between the Blues and over 600,000 doctors that resolved a prior litigation over which Judge Moreno had presided (In re Managed Care Litigation), barred the doctors from asserting their antitrust claims in the new MDL proceeding.

The prior case, In re Managed Care Litigation, which was commenced in 2000, concerned a challenge by a group of physicians to the level of reimbursements they received from managed care companies, including the Blues, for covered medical services. The litigation was ultimately resolved through a series of settlements reached by the parties from 2005-2007. As Judge Moreno noted in his recent decision (Musselman v. Blue Cross Blue Shield of Alabama), to settle that litigation the defendants "agreed to make substantial payments to the class members and their counsel and to implement numerous business practice initiatives" and, in exchange, the defendants "received broad releases from the plaintiffs and an injunction from the Court barring releasing parties from bringing released claims" in the future.

Recognizing that these releases presented a possible obstacle to plaintiffs' claims in the In re Blue Cross Blue Shield Antitrust Litigation, earlier this year the physician plaintiffs filed a declaratory judgment action in Miami, before Judge Moreno, requesting that he find that their antitrust claims were not released by their earlier settlement (or that the decision should await further discovery, and then be decided by Judge Proctor in Birmingham). In support of their position, the plaintiffs maintained that the claims in the new case were materially different than those in the earlier case, with the earlier case focusing on whether the managed care companies had engaged in business practices that had delayed or reduced their reimbursements, while the new case involves a claim that the Blues' trademark licensing agreements act as an unlawful agreement among the Blues not to compete with one another, thus reducing the reimbursement levels received by the physicians for their services. Defendants responded to plaintiffs' action by filing a motion to dismiss the complaint, maintaining that the earlier settlements barred plaintiffs from asserting the claims in their new action.

Siding with the Blues, Judge Moreno rejected plaintiffs' arguments in all respects, ruling that (1) the issue was properly before him, because he had retained jurisdiction in the earlier matter to hear any dispute about the interpretation, administration and consummation of the settlement agreement and (2) that plaintiffs' new claims "share the same operative nucleus of fact" with those previously raised by plaintiffs, and thus fell within the scope of the plaintiffs' release. In addition, Judge Moreno noted that the plaintiffs had agreed to release any claim that involved "any aspect of any fee for service claim," and held that plaintiffs' new antitrust claims were covered under this provision of the release as well. Finally, Judge Moreno also rejected plaintiffs' argument that, because their claims also involved post settlement conduct, the release was ineffective, stating that "Both this Court and the 11th Circuit Court of Appeals have consistently rejected the argument that claims involving post-settlement conduct cannot be enjoined by the settlement agreements."

In light of Judge Moreno's ruling, the size and scope of the In re Blue Cross Blue Shield Antitrust Litigation - a potentially massive piece of litigation that is still in its earliest stages - has been materially reduced, with the claims of over 600,000 potential physician class members being resolved in favor of the Blues. Notwithstanding this significant development, however, the new case will undoubtedly continue, at least for now, because Judge Moreno's ruling has no apparent impact on the claims asserted by the hospital provider plaintiffs in the new case or those of the subscribers/insured class. Accordingly, the case now returns to Birmingham, and Judge Proctor, presumably for a ruling on defendants' expected motions to dismiss the claims asserted by these plaintiffs, which are expected to be filed early this fall and likely decided closer to year's end, or early next year. Stay tuned.

IN RE INSURANCE BROKERAGE ANTITRUST LITIGATION FINALLY CONCLUDES

By James M. Burns

After almost nine years of litigation, on August 1, New Jersey District Court Judge Claire Cecchi finally brought to a close one of the highest profile antitrust cases of the new millennium - In re Insurance Brokerage Litigation - with her approval of the final settlement in the action.

The case, a consolidated multi-district litigation commenced in 2005 against insurance broker Marsh & McLennan and approximately two dozen of the nation's largest insurers and brokers, was the outgrowth of an action brought by then-New York Attorney General Eliot Spitzer against Marsh for allegedly soliciting payments from the insurers to steer business from their clients to those insurers. Shortly after Marsh announced a settlement of the matter with the State (which included the elimination of undisclosed "contingent commissions"), numerous private actions were filed, all ultimately consolidated in the District of New Jersey before District Judge Faith Hochberg. As Judge Cecchi, who was the third district court judge to handle the matter, observed in approving the settlement, during the case class counsel had reviewed over 60 million pages of documents and taken over 300 depositions, and the matter had generated over 2400 docket entries. The case had also gone up to the Third Circuit Court of Appeals (on plaintiffs' appeal of an earlier dismissal of the case granted by Judge Garrett Brown), where it had been reversed by the appellate court and returned for further proceedings.

While the final settling defendants, which included Ace, Chubb and Munich Re, agreed to pay $10.5 million to resolve the case (with over $3 million going to plaintiffs' counsel), prior settlements in the case with Marsh, Zurich Insurance, AIG and several other insurers had netted plaintiffs over $250 million, with plaintiffs' counsel receiving over $50 million in attorneys' fees in those settlements. In approving both the settlement and the award of counsel fees, Judge Cecchi noted that she had not received any objections to the proposed settlement from any class members, and that had the case continued to trial, plaintiffs faced a significant hurdle in establishing damages that would likely result in the case becoming a "battle of the experts."

CONNECTICUT SUPREME COURT HOLDS THAT INSURER LIABILITY FOR VIOLATIONS OF THE CONNECTICUT UNFAIR TRADE PRACTICES ACT ARE LIMITED BY THE CONNECTICUT UNFAIR INSURANCE PRACTICES ACT

By James M. Burns

On August 27, the Connecticut Supreme Court issued a ruling in State v. Acordia, Inc., reversing a lower court decision that had held insurance broker Acordia liable for violating the Connecticut Unfair Trade Practices Act. The action was brought by the Connecticut AG's office, which had accused Acordia of entering into agreements with several insurers (Travelers, Hartford, Chubb, Atlantic Mutual and Royal & Sun Alliance) to steer Acordia's broker clients to these insurers in return for the insurers' payment of 1% of the premium amount to Acordia. At trial, the State alleged that Acordia's failure to inform its insured clients that it was receiving the additional commission from the insurers was a breach of its fiduciary duty, which the State maintained violated "public policy" and thus constituted unlawful conduct under the Connecticut Unfair Trade Practices Act (the "UTPA"). The State also alleged that Acordia's conduct violated the Connecticut Unfair Insurance Practices Act (the "UIPA"), arguing that it constituted "misleading conduct" on the part of the broker, which the UIPA expressly prohibits. The trial court ruled for the State on both claims, and Acordia appealed.

In a ruling likely to be applauded by insurers everywhere, the Connecticut Supreme Court reversed the lower court decision, holding that a UTPA claim against an entity subject to the UIPA (generally insurers and brokers) must be based upon conduct that constitutes a violation of the UIPA. Thus, because the State had failed to establish that Acordia's breach of fiduciary duty also constituted a violation of the UIPA (as opposed to the UTPA), the State's UTPA claim failed as a matter of law. (Notably, this ruling by the Connecticut Supreme Court differs considerably from the recent ruling by the California Supreme Court in Zhang v. Superior Court, which took a more expansive view and held that, under California law, an unfair competition law claim can be asserted against an insurer independently from, and without regard to, whether such conduct also violates the California insurance law.)

Moreover, the Connecticut Supreme Court also held that the State's UIPA claim was insufficient as well, because the evidence presented at trial failed to show that the Acordia employees that had dealt with the broker clients were aware that Acordia had negotiated the additional payment from the insurers and thus there was no basis to conclude that their conduct was influenced by the additional payments. Accordingly, for all of these reasons, the Connecticut Supreme Court reversed the lower court decision in all respects, and directed that judgment be entered for Acordia in the case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions