Judge Kerry Bensinger, Case Number: 24STCV09388, Date: 2024-10-10 Tentative Ruling

This action arises from the denial of an insurance claim. A residence owned by Charles and Laverne Swenson (Plaintiffs) sustained damage from wind-driven rain which entered the structure through a wind-created opening. Plaintiffs had a homeowners insurance policy issued by defendant Crestbook Insurance Company (Crestbrook). Plaintiffs submitted timely a claim. Crestbrook retained defendant Insight Forensics LLC (Insight) and Insight engineer, Blake R. Lander (Lander). Insight and Lander submitted reports regarding the damage to Plaintiffs’ residence. As Plaintiffs allege, Crestbrook denied substantial portions of Plaintiffs’ claims based on those reports. Plaintiffs further allege the reports contained false and misleading information regarding the cause of the loss and the damage.

On April 15, 2024, Plaintiffs commenced this action against Crestbrook, Insight, and Lander, alleging causes of action for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) violation of Business and Professions Code section 17200, et seq. The first and second causes of action are asserted against Crestbrook. The third cause of action is asserted against Insight and Lander.

On July 30 and 31, 2024, Insight and Lander (hereafter, Defendants) filed demurrers to the third cause of action.

Because Defendants filed identical demurrers, the court addresses them together.

A demurrer for sufficiency tests whether the complaint states a cause of action.¿ (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)¿ When considering demurrers, courts read the allegations liberally and in context, accepting the alleged facts as true.¿ (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.)¿ “Because a demurrer challenges defects on the face of the complaint, it can only refer to matters outside the pleading that are subject to judicial notice.”¿ (Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 556.)

Defendants argue the third cause of action for violation of the Unfair Competition Law (UCL) fails for three general reasons: (1) consultants of insurance companies cannot be liable for violating the UCL; (2) their actions did not cause injury to Plaintiffs; and (3) the request for injunctive relief is defective.

Defendants’ first argument is premised on the proposition that agents of an insurance company are not subject to bad faith liability because they do not enter into contracts with policyholders that promise to pay covered claims. In support of the foregoing proposition, Defendants cite Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 (Gruenberg) and Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249 (Sanchez). In Gruenberg, the California Supreme Court stated that the non-insurer defendants, which included an adjusting company, an individual adjuster, the outside coverage law firm, and the individual coverage attorney, “were not parties to the agreements for insurance; therefore, they are not … subject to an implied duty of good faith and fair dealing.” (Gruenberg, at p. 576.) The Sanchez court likewise noted “California courts have refused to extend liability for bad faith, the predominant insurer tort, to agents and employees of the insurer.” (Sanchez, at pp. 254-255.) Based on this authority, Defendants correctly state an insurance company’s agents cannot be liable for bad faith because only the insurance company, as the issuer of and signatory to the policy, has a duty of good faith.

Gruenberg and Sanchez are inapposite for at least two reasons. First, this authority forecloses only breach of contract and breach of implied covenant claims. Neither case dealt with whether an insurance company’s agent or consultant may be liable for a UCL violation.

Second, Defendants argue the UCL claim fails because Plaintiffs don’t allege the breach of a duty owed to Plaintiffs. The argument is misguided. Duty is not an element of a UCL violation. Moreover, the UCL claim is not premised on Defendants’ breach of duties arising from contract. Instead, it is premised on violation of Penal Code section 550, subdivisions (b)(1) and (b)(2).

A review of the elements of a UCL cause of action, and the Plaintiffs allegations proves the point. The UCL is codified at Business and Professions Code, section 17200 et seq.¿ Section 17204 of the UCL states that a private person “who has suffered injury in fact and has lost money or property as a result of the unfair competition” may bring a 17200 action.¿ (Bus. & Prof. Code, § 17204.)¿ There must be a causal link between the defendant’s conduct and the plaintiff’s injury. (Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 855.) “To bring a UCL claim, a plaintiff must show either an (1) unlawful, unfair, or fraudulent business act or practice, or (2) unfair, deceptive, untrue or misleading advertising. [Citation.]¿ Because the UCL is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.”¿ (Adhav v. Midway Rent A Car, Inc. (2019) 37 Cal.App.5th 954, 970, citations and quotations omitted.)¿ A UCL claim that is based on the “unlawful” prong of the statute “borrows” violations of other laws and make those unlawful practices separately actionable through the UCL. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.)

Here, as alleged in the Complaint, Crestbrook retained Insight and Lander to investigate the claim and to prepare reports detailing both the cause of loss and the cost of repairing the damage. (Complaint, ¶ 27.) Insight and Lander purposely failed to conduct a full and fair investigation and intentionally refused to examine evidence submitted to them by Plaintiffs and their public adjuster. (Id., ¶ 29.) Lander refused to climb up on the roof of the residence and conduct a visual inspection of the damage. (Ibid.) Lander failed to thoroughly inspect the interior of the residence and failed to conduct any testing to assess the condition of the interior walls and framing. (Ibid.) Insight and Lander then submitted false and misleading reports to Crestbrook. (Complaint, ¶ 29.) Their reports falsely and fraudulently stated that the damage to the residence was not the result of rain penetrating the structure through wind-created openings (a covered cause of loss), but rather resulted from faulty construction, repairs or maintenance (non-covered causes of loss). (Ibid.) Crestbrook used the reports presented by Insight and Lander to deny large portions of Plaintiffs’ claim. (Ibid.) Insight and Lander submitted their reports to Crestbrook with full knowledge of the misleading nature and falsity of the reports, thereby violating various California laws, including Penal Code section 550 subdivisions (b)(1) and (b)(2). (Complaint, ¶ 30.) The acts and omissions of Insight and Lander constitute ongoing business practices and were intended to unfairly minimize the claim liability of Crestbrook to the detriment of legitimate claimants such as Plaintiffs. (Id., ¶ 31.) Crestbrook used the reports presented by Insight and Lander to deny large portions of Plaintiffs’ claim, causing direct injury to Plaintiffs. (Complaint, ¶¶ 29, 32.) Plaintiffs are informed and believe that many other insureds of Crestbrook, whose claims have been or are being investigated by Insight and Lander have or will suffer similar injury as a result of the ongoing unfair competition of Insight and Lander. (Id., ¶ 32.) Plaintiffs seek injunctive relief against Insight and Lander. (Id., ¶ 33.)

In short, Plaintiffs allege (1) an injury (the denial of their claim due to Defendants’ false/fraudulent report); and (2) a business practice (Defendants providing false reports to Crestbrook to minimize claim liability), which is (3) unlawful (violation of Penal Code section 550, subdivisions (b)(1) and (b)(2)[1]).[2] Plaintiffs state a UCL claim.

Several of Defendants remaining arguments gain little traction. First, Defendants argue Plaintiffs fail to cite authority that confirms the proposition that a plaintiff can bring a UCL claim against an insurance adjuster. True, Plaintiff does not meet Defendants’ challenge. By the same token, however, Defendants fail to cite authority for the proposition that a plaintiff cannot sue a claims adjuster based under the UCL.[3] On its face, as discussed above, the UCL statute provides a legal basis to bring such a suit.

Next, Defendants argue the demurrer should be sustained because Plaintiffs fail to establish a causal link between the alleged misconduct (submitting false reports) and Plaintiffs’ harm (denial of their claim). Defendants believe their liability is legally severed because Crestbrook, as the insurer, is directly and solely responsible for Plaintiffs’ harm. Defendants misconstrue “causal link” to mean “direct link.” Defendants provide no authority to support such an interpretation.

Defendants also argue Plaintiffs do not allege an economic injury and thus do not have standing to bring a UCL claim. In support, Defendants focus on Crestbrook’s conduct. As Defendants explain, Crestbrook denied or underpaid the claim. Insight is not the party that withheld policy benefits. Thus, Plaintiffs’ economic injury, if any, flows from Crestbrook’s conduct. This, however, is a variation of the “direct link” argument that the court considered and rejected. Simply because Defendants did not ultimately decide the merits of Plaintiffs’ insurance claim does not mean they were not a substantial factor in causing such harm. Moreover, the court has determined Plaintiffs have suffered an economic injury. Plaintiffs have standing.

Defendants rally, however, when they point out that Plaintiffs’ injunction request is unworkable and disfavored because it amounts to an order to “obey the law.”[4] Defendants also make a good point when they state the injunctive relief requested is based, in part, upon harm to an unspecified class of people. Such a request may be improper here because Plaintiffs have not pled a class action. Plaintiffs do not address either argument. These points are well taken and should be addressed by Plaintiffs. The court will hear from counsel and may order further briefing on these topics.

[1] Subdivisions (b)(1) and (b)(2) of Penal Code section 550 state: “It is unlawful to do, or to knowingly assist or conspire with any person to do, any of the following:

(1) Present or cause to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy, knowing that the statement contains any false or misleading information concerning any material fact.

(2) Prepare or make any written or oral statement that is intended to be presented to any insurer or any insurance claimant in connection with, or in support of or opposition to, any claim or payment or other benefit pursuant to an insurance policy, knowing that the statement contains any false or misleading information concerning any material fact.”

[2] In reply, Defendants argue that Penal Code section 550, subdivisions (b)(1) and (b)(2) does not apply to a consultant who provides a neutral professional opinion rather than a statement in support of or opposition to an insurance claim. Defendants do not cite any authority in support of that proposition. Moreover, even if Defendants’ position were correct, Plaintiffs do not allege Defendants provided “professional opinions.” Rather, Plaintiffs allege Defendants provided “false and fraudulent reports” which Crestrbook relied on in denying portions of Plaintiffs’ insurance claim.

[3] Defendants cite Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061. In Textron, the trial court sustained a demurrer without leave to amend to a UCL claim brought against an insurer and its claims adjuster based on the rule in that where an insured's UCL cause of action is based on common law claims amounting to the type of activities covered by the Unfair Insurance Practices Act, it is barred by Moradi–Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287. Textron is unavailing. This portion of Textron has been expressly disapproved by the California Supreme Court’s decision in Zhang v. Superior Court (2013) 57 Cal.4th 364, 380 (“Thus, our cases do not support the Textron court's view that UCL actions may not be brought for “the type of activities covered by the UIPA.”). In other words, Textron does not foreclose a UCL claim against an insurer’s agent or consultant for allegedly providing false or fraudulent reports concerning an insurance claim.

[4] In support of the foregoing proposition, Defendants cite Von Staich v. Schwarzenegger (E.D. Cal. May 14, 2009, No. CIV S-05-1235 GEB GGH P) 2009 WL 1390791 and Brady v. United of Omaha Life Ins. Co. (N.D. Cal. 2012) 902 F.Supp.2d 1274. Neither case concerned injunctive relief in the context of a UCL claim.