In Fairbanks v. Superior Court 2007 Daily Journal D.A.R 12788, the Second Appellate District of the California Court of Appeal held that insurance is neither a “good” nor a “service” within the meaning of the Consumer Legal Remedies Act (Civ. Code, §§ 1750 et seq. [“CLRA”]), a pro-consumer statute intended to protect low-income consumers from deceptive or unfair business practices that prohibits specific deceptive or unfair acts in the sale or lease of goods and services.
Pauline Fairbanks purchased from Farmers New World Life Insurance Company (“Farmers”) a Flexible Premium Universal Life policy. The Flexible Premium Universal Life policies sold by Farmers were represented to be permanent insurance. When she was sold such a policy, Fairbanks was informed that she could keep the policy in full force indefinitely by paying a stated premium amount. In reality, this premium amount was insufficient to keep the policy in force to maturity. Fairbanks alleged in her complaint that Farmers’ policies were misrepresented and that Farmers engaged in deceptive and unfair practices in the design and marketing of the policies.
Fairbanks, on behalf of herself and others similarly situated, sued Farmers in November of 2003. Farmers moved for a dismissal of the CLRA cause of action, arguing that it had no merit because insurance is neither a “good” nor a “service” within the meaning of the CLRA. The superior court granted the motion. The Court of Appeal denied plaintiffs’ petition for writ of mandate.
The court observed that the CLRA is a statute that regulates any “transaction intended to result or which results in the sale or lease of goods or services to any consumer.” (Civ. Code, § 1770 subd. (a).) It lists 23 “proscribed practices,” a few of which “could conceivably apply to insurance. For instance, ‘[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have’ is prohibited under this act. (Civ. Code, § 1770 subd. (a)(5).) Additionally, ‘[r]epresenting that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another’ is prohibited. (Civ. Code, § 1770, subd. (a)(7).) ‘Representing that the subject of a transaction has been supplied in accordance with a previous representation when it has not,’ (Civ. Code, § 1770 subd. (a)(16)), and ‘[i]nserting an unconscionable provision in the contract,’ (Civ. Code, § 1770, subd. (a)(19)), are additional acts proscribed by the CLRA that could arguably relate to insurance. . . .”
The court pointed out that portions of the Insurance Code also regulate unfair and deceptive practices in the business of insurance. The Unfair Insurance Practices Act (“UIPA”) prohibits the making, issuance or circulation of “any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received. . . .” (Ins. Code, § 790.03, subd. (a)). In addition, the UIPA proscribes the knowing misrepresentation of “pertinent facts or insurance policy provisions relating to any coverages at issue,” (Ins. Code, § 790.03 subd. (h)(1)), and any attempts “to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.” (Ins. Code, § 790.03, subd. (h)(7)). “We here consider whether the generally-applicable provisions of the CLRA override the insurance-specific provisions of the UIPA, and provide for a private right of action where the UIPA provides only for administrative enforcement.” The court concluded that it does not.
The court first found that the plain language of the CLRA indicates that insurance is not a “good.” “Goods” are defined as tangible chattels bought or leased for personal, family or household use. (Civ. Code, § 1761, subd. (a).) “Insurance is not a tangible item. Thus it cannot be a ‘good.’ It follows that the pertinent issue here is whether insurance can be considered a ‘service’ under the CLRA.”
The CLRA defines “Services” as “work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods.” Insurance is defined by the Insurance Code as “a contract, whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” (Ins. Code, § 22). “Obviously, insurance contracts are not work or labor. Nor can these indemnification agreements easily be described as personal services or services ‘furnished in connection with the sale or repair of goods.’ . . .”
The court pointed out that, in an analogous decision, one court held that issuance of a credit card is not a “service” under the CLRA. (Berry v. American Express Publishing, Inc. (2007) 147 Cal.App.4th 224, 229-230). “The Berry court reasoned that the extension of credit is not a ‘service,’ especially when it is an extension of credit unconnected to a specific sale or lease transaction. A similar analysis applies to insurance, which is an essentially financial transaction, completely unrelated to the sale or lease of any identifiable consumer good or service.”
Further, in determining whether the CLRA applied to credit cards, the Berry court found significant the exclusion of the words “money” and “credit” from the definition of “consumer” in the CLRA. “Similarly, . . . although ‘insurance’ was indisputably a part of the model rule on which the CLRA was based, insurance was not included in the final draft of the act.” “The legislative history of the CLRA indicated that it was adapted in large part from provisions contained in the National Consumer Act (‘NCA’), a model rule proposed by the National Consumer Law Center at Boston College. The NCA’s definition of ‘services’ specifically includes insurance. . . . Yet, when the California Legislature adapted the NCA to enact the CLRA, it omitted insurance from the definition of ‘services.’ The obvious conclusion is that the Legislature intentionally omitted insurance because it did not intend for the CLRA to apply to insurance. . . .”
“Policy considerations” also confirmed the court’s conclusion. “In a practical sense, allowing for a CLRA remedy for insurance fraud would wreak havoc on the established code and decades of case history. Although, at one time, private actions were considered permissible under Insurance Code section 790.03, subdivision (h) (Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880), the California Supreme Court held in 1988 that the enforcement of section 790.03(h) was limited to administrative sanctions by the Insurance Commissioner, and that the Legislature had never intended, by its enactment of the UIPA, to create a private right of action. (Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 303-304.)”
It is clear that, if insurance were considered a “service” under the CLRA, many of the unfair and deceptive practices prohibited by the UIPA would also constitute “proscribed practices” under the CLRA. . . . Thus, allowing a private right of action under the CLRA would, in effect, undermine the holding in Moradi-Shalal and allow a private right of action for UIPA violations. This private right of action would be based not on any express grant of the right in clear, understandable, unmistakable terms, but on a conclusion that, although the CLRA was silent on the matter of insurance, it was intended to create a private right of action for insurance practices already regulated elsewhere. Indeed, interpreting the CLRA to apply to insurance would, in effect, swallow the UIPA whole by allowing a private right of action where the courts have explicitly held that a private right of action under that statute was never intended.
----Andrea Lynn Rice
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