CALIFORNIA COURT OF APPEAL HOLDS CONSUMER LEGAL REMEDIES ACT INAPPLICABLE TO INSURERS

A new decision from the Second District Court of Appeal (Fairbanks v. Superior Court (New World Life Ins. Co.)) holds that insurance is not a "good" or "service" within the meaning of the California Consumer Legal Remedies Act (CLRA).

The CLRA is a consumer protection statute that regulates any "transaction intended to result or which results in the sale or lease of goods or services to any consumer." It prohibits 23 "proscribed practices," a few of which could, in the words of the court, "conceivably apply to insurance," such as "[r]epresenting that goods or services have . . . benefits, or quantities which they do not have" or "[r]epresenting that goods or services are of a particular standard, quality,or grade." The CLRA offers a broad range of remedies, including restitution, injunctive relief, compensatory and punitive damages, and attorney fees. In contrast, the Unfair Insurance Practices Act (UIPA) more narrowly defines the scope of actionable insurance sales practices, and offers only administrative remedies imposed by the Insurance Commissioner.

The plaintiff in this case charged that the defendant's practices in selling life insurance policies were deceptive, and that they fell within the proscriptions of the CLRA. In its August 22 decision, the court explained that the plain language of the statute, legislative history, and public policy all dictate that a CLRA action cannot be brought based on allegedly deceptive insurance sales practices because the financial transaction resulting in an insurance contract is neither a "good" (i.e., a "tangible item") nor a "service" (i.e., a "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods"). The court emphasized that consumers may seek remedies under the UIPA instead.

To read the court's opinion, click here.

For additional information, contact Lisa Perrochet or Mitch Tilner at (818) 995-0800 or lperrochet@horvitzlevy.com or mtilner@horvitzlevy.com.

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