Opinion
NOT TO BE PUBLISHED
APPEAL from judgments and orders of the Superior Court of Los Angeles County, Victoria Chaney, Judge, Ct. Nos. BC335146, BC335147, BC335099, BC315099
Shernoff Bidart Darras, William M. Shernoff, Michael J. Bidart and Joel A. Cohen for Plaintiffs and Appellants.
Luce, Forward, Hamilton & Scripps and John T. Books for Defendant and Respondent Allstate Insurance Company.
Barger & Wolen and Gregory O. Eisenreich for Defendant and Respondent Safeco Insurance Company.
Robie & Matthai and Natalie A. Kouyoumdjian for Defendant and Respondent State Farm General Insurance Company.
ZELON, J.
After the 2003 wild fires destroyed the dwellings of homeowners, they filed claims under their homeowners’ policies. Their insurers later offered to renew their policies for the same coverage limits and premiums, even though the homes were total losses and the homeowners had not rebuilt them. After paying their premiums, the homeowners filed class actions against their insurers alleging the full premiums charged for their nonexistent dwellings violated California’s Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) (the UCL). The trial court sustained the insurers’ demurrers and dismissed the actions. We affirm.
All statutory references are to the Business and Professions Code unless otherwise indicated.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Plaintiffs and appellants are homeowners Pamela Gardner, Robert Fine and Lavonne Luscombe-Schwab (jointly “the homeowners”). Their respective homeowners’ insurers are defendants and respondents Allstate Insurance Company (Allstate), Safeco Insurance Company (Safeco), and State Farm General Insurance Company (State Farm) (jointly “the insurers”). Among other things, the homeowners’ policies include coverage for dwelling, personal property, loss of use, personal liability, medical payments to others, and workers’ compensation and employers’ liability coverage for residential employees.
Pursuant to Evidence Code section 459, we grant in full the insurers’ unopposed request for judicial notice of the parties’ homeowners insurance policies, which constitute governing contracts. (Ascherman v. General Reinsurance Corp. (1986) 183 Cal.App.3d 307, 310-311.)
On October 25, 2003, the Southern California wild fires destroyed Gardner’s home. Shortly afterwards, she filed a claim with Allstate for dwelling, contents, and loss-of-use coverage under her homeowners’ policy. On March 3, 2004, Allstate sent Gardner a renewal certificate and charged a full premium for her homeowners’ policy, even though her dwelling was a total loss and had not been replaced. Gardner fully paid the premium for the coverage.
On October 25, 2003, the same wild fires demolished Fine’s home. Within a short time, Fine also filed a claim with Safeco for dwelling, personal property and loss-of-use coverage. On March 31, 2004, Safeco sent Fine a renewal notice charging him the full premium, despite the fact that his dwelling had suffered a total loss and had not been replaced. Fine likewise paid the full premium.
On October 29, 2003, the wild fires similarly razed Luscombe-Schwab’s home. She soon filed a claim with State Farm for dwelling, contents and loss of use coverage. On December 12, 2003, State Farm sent Luscombe-Schwab a renewal notice and charged the full premium, although her dwelling was a total loss and had not been replaced. Luscombe-Schwab also paid the premium in full.
Subsequently, the homeowners individually and jointly filed class action complaints against Allstate, Safeco and State Farm for violation of the UCL. The insurers demurred to the complaints. The court sustained the demurrer as to Fine without leave to amend and entered judgment in favor of Safeco. The court sustained the demurrers as to Gardner and Luscombe-Schwab with leave to amend. When Gardner and Luscombe-Schwab elected not to amend their complaints, the court entered judgment in favor of Allstate and State Farm.
Luscombe-Schwab v. State Farm General Insurance Co. (Super. Ct. L.A. County, 2004, No. BC315099) complaint filed May 5, 2004, second amended complaint filed June 16, 2005; Fine v. Safeco Insurance Co. (Super. Ct. L.A. County, 2005, No. BC335147) complaint filed June 16, 2005; Gardner v. Allstate Insurance Company (Super. Ct. L.A. County, 2005, No. BC335146) complaint filed November 21, 2005.
Gardner, Fine and Luscombe-Schwab timely appealed from the orders sustaining the demurrers and the judgments entered.
DISCUSSION
I. STANDARD OF REVIEW
“In determining whether plaintiffs properly stated a claim for relief, our standard of review is clear: ‘“We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.’ [Citations.]” (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)
II. THE COMPLAINT FAILED TO STATE A CLAIM UNDER THE UCL
The homeowners alleged that charging a premium for a nonexistent dwelling violates the UCL, because the practice is unlawful, unfair and fraudulent.
Under the UCL, “unfair competition” includes “any unlawful, unfair or fraudulent business act or practice.” (§ 17200; see Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 803.) “[T]he Legislature . . . intended by this sweeping language to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur. Indeed . . . the section was intentionally framed in its broad, sweeping language, precisely to enable judicial tribunals to deal with the innumerable ‘“new schemes which the fertility of man’s invention would contrive.”’ [Citation.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 181 (Cel-Tech).) However, the scope of the law is not unlimited; the court may not override a legislative determination that the conduct is not actionable. Where such a “safe harbor” exists, a claim does not lie. (Id. at p. 182.)
A. The Homeowners Failed to Adequately Allege an Unfair Business Practice
The Supreme Court in Cel-Tech thus devised a two-part test for an unfair business practice under the UCL: first, whether the Legislature has provided a safe harbor for the conduct; and second, if it has not, whether the subject conduct is unfair. (Cel-Tech, supra, 20 Cal.4th at p. 187.)
1. Safe Harbor
Applying the Cel-Tech test, we find that during the relevant period in 2003 and 2004, the Legislature had not enacted any provision that permitted insurers to charge a full premium on renewal of a homeowners’ policy if there had been a total loss to the insured structure. Existing law required insurers only to deliver or mail to the named insured an offer of renewal of the policy contingent upon payment of premium as stated in the offer, stating any reduction of limits or elimination of coverage if any. (Former Ins. Code, § 678, subd. (a); Ins. Code, § 678, subd. (a)(1).) Therefore, no explicit safe harbor was created for the challenged conduct. Where, as here, “no statute provides a safe harbor, a court must determine whether the challenged conduct is unfair within the meaning of the unfair competition law.” (Cel-Tech, supra, 20 Cal.4th at p. 184.)
2. Unfair Conduct
To determine what is unfair within the meaning of the UCL, the Supreme Court in Cel-Tech turned for guidance to jurisprudence arising under section 5 of the Federal Trade Commission Act (15 U.S.C. § 45(a)) (section 5). (Cel-Tech, supra, 20 Cal.4th at p. 185.) Under the section 5 test, codified in title 15 United State Code section 45(n), the factors that define unfairness are: “(1) The consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided. (Orkin Exterminating Co. v. F.T.C. (11th Cir. 1988) 849 F.2d 1354, 1364.) . . . . This definition of ‘unfair’ is on its face geared to consumers and is for that reason appropriate in consumer cases. It is also suitably broad and is therefore in keeping with the ‘sweeping’ nature [fn. omitted] of section 17200.” (Camacho v. Automobile Club of So. California (2006) 142 Cal.App.4th 1394, 1403.)
a. Substantial Injury is Adequately Pled
The substantial injury prong can be satisfied if the homeowners “establish that consumers were injured by a practice for which they did not bargain.” (F.T.C. v. J.K. Publications, Inc. (C.D.Cal. 2000) 99 F.Supp.2d 1176, 1201; see Orkin Exterminating Co. v. F.T.C., supra, 849 F.2d at pp. 1364-1365; F.T.C. v. Windward Marketing, Inc. (N.D.Ga. 1997) 1997 U.S. Dist. LEXIS 17114, *31.) “Injury may be sufficiently substantial if it causes a small harm to a large class of people. (FTC v. Windward Marketing, supra, at *31-32, citing American Financial Services v. FTC (D.C. Cir. 1985) 767 F.2d 957, 992.)
“‘The renewal of a policy is a new contract of insurance as regards the requirements of mutual assent, offer and acceptance, and new consideration. . . .’ [Citation.]” (Borders v. Great Falls Yosemite Ins. Co. (1977) 72 Cal.App.3d 86, 94.) The homeowners essentially claim that the contract lacked mutual assent, because full premiums were charged on renewal for dwellings that were now total losses. Thus, the homeowners’ pleadings are sufficient to allege injury by a practice for which they did not bargain.
The element of injury to a large class of people is also met, because the homeowners pleaded that “the issues this case addresses are of common interest to hundreds of Defendants’ policy-holders.”
b. The Pleadings Sufficiently Allege that the Injury is not Outweighed by any Countervailing Benefits to Consumers or Competition
“As for the second prong of the unfairness standard, certain practices can create a mixture of both beneficial and adverse consequences. However, when a practice produces clear adverse consequences for consumers that are not accompanied by an increase in services or benefits to consumers or by benefits to competition, the unfairness of the practice is not outweighed. [Citation.]” (F.T.C. v. Windward Marketing, Inc., supra, 1997 U.S. Dist. LEXIS 17114, at *32.) Here, the pleadings are sufficient to allege that payment of full premiums where adjustments may be warranted is not outweighed by any countervailing benefits to consumers or competition.
c. The Pleadings do not Allege that the Homeowners Could Not Have Reasonably Avoided the Injury
However, the homeowners cannot satisfy the final prong of unfairness that the injury was one that the homeowners themselves “could not reasonably have avoided.” (Orkin Exterminating Co. v. F.T.C., supra, 849 F.2d at p. 1364.)
Here, the renewal notices advised the homeowners that they should communicate with their insurers about any questions or changes regarding the terms of the policy. In the renewal notice to Gardner, Allstate’s agent included the following statements: “As you read these materials, it would be a good idea to consider whether anything needs updating. I’d be happy to help you make sure that your insurance keeps up with any changes in your life;” and “[p]lease carefully check your Policy Declarations to make sure it accurately reflects your information and the choices you’ve made. Get in touch with me right away if there’s anything you’d like to change.” Allstate’s policy renewal declaration additionally provided: “Important Notice [¶] . . . [¶] Making changes to your policy [¶] If you need to make a change to any of the information listed on your Policy Declarations, please notify your Allstate representative of the change as soon as possible. . . .”
Similarly, in renewing Fine’s policy, Safeco included the following statement: “READ YOUR POLICY CAREFULLY. If you do not understand any part of it or have questions about what it covers, contact your insurance agent or company. You may also call the California Department of Insurance consumer information line at 1-800-927-4357.”
Likewise, State Farm’s renewal notice to Luscombe-Schwab provided: “Please read your entire policy carefully . . . If you have any questions about your new policy, contact your State Farm agent.”
Although Gardner, Fine and Luscombe-Schwab were free to request premium adjustments, to cancel the policy or to demand a refund upon receipt of the renewal notice, they did not do so. Instead, the homeowners paid their premiums in full to the insurers and failed to reasonably avoid the claimed injury.
Accordingly, because the homeowners did not, and cannot plead that they satisfied all three prongs of the section 5 test, they failed to allege the insurers’ conduct was unfair under the UCL.
B. The Homeowners Failed to Adequately Allege an Unlawful Business Practice
1. The Pleadings Do Not Allege a Statutory Violation
During the relevant time periods in 2003 and 2004, the challenged business practice by the insurers was not unlawful. Indeed, the homeowners concede that they cannot state a statutory violation. .
Prior to January 1, 2005, the Legislature did not require insurers to adjust premiums for total loss of an insured structure upon a policy renewal. Insurance Code section 675.1, added by Statutes of 2004, chapter 605, section 1, now provides: “In the case of a total loss to the primary insured structure under a residential policy subject to Section 675, the following provisions apply: [¶] (a) If reconstruction of the primary insured structure has not been completed by the time of policy renewal, the insurer, prior to or at the time of renewal, and after consultation by the insurer or its representative with the insured as to what limits and coverages might or might not be needed, shall adjust the limits and coverages, write an additional policy, or attach an endorsement to the policy that reflects the change, if any, in the insured’s exposure to loss. The insurer shall adjust the premium charged to reflect any change in coverage.” (Ins. Code, § 675.1, subd. (a).)
Because the conduct complained of was not prohibited by statute during the relevant period, we find no statutory violation.
2. The Pleadings Demonstrate Insurable Interest
The homeowners contend that the insurers’ conduct in charging full premiums was unlawful, because there was no insurable interest in the dwelling portion of their policies after suffering total loss. Insurance Code section 280 provides a contract for insurance is void if the insured has no insurable interest. “No person may recover on a policy of insurance unless that person has an insurable interest in the property insured. Insurable interest is defined as: ‘Every interest in property, or any relation thereto, or liability in respect thereof, of such a nature that a contemplated peril might directly damnify the insured . . . .’ (Ins. Code, § 281.) Simply phrased, an insurable interest exists when ‘the insured has a direct pecuniary interest in the preservation of the property and . . . will suffer a pecuniary loss as an immediate and proximate result of this destruction . . . . [Citation.]’ [Citation.]” (California Food Service Corp. v. Great American Ins. Co. (1982) 130 Cal.App.3d 892, 897.) Section 286 of the same code provides that an interest in the property insured must exist when the insurance takes effect and when the loss occurs.
Here, the policies’ dwelling protection covered insurable interest beyond the physical structures themselves, including: trees, shrubs, plants or lawns; structures attached to the dwellings; foundations, floor slabs and footings; and materials and supplies on or adjacent to the residences for use in the construction or repair of the dwellings.
Allstate’s dwelling protection included “loss to trees, shrubs, plants and lawns at the address of the residence premises.” State Farm’s dwelling protection included: “structures attached to the dwelling;” “materials and supplies located on or adjacent to the residence premises for use in the construction, alteration or repair of the dwelling or other structures on the residence premises;” “foundation, floor slab and footings supporting the dwelling;” and “trees, shrubs, plants or lawns, on the residence premises.” Safeco’s dwelling protection included: “structures attached to the dwelling;” “materials or supplies located on or next to the residence premises used to construct, alter or repair the dwelling or other structures on the residence premises;” and “trees, shrubs, plants or lawns.”
The complaints pleaded that the dwellings or houses sustained total losses, but did not plead that any of the remaining insurable interest ceased to exist when the loss occurred. Unless all these other items of coverage were also destroyed by fire, an insurable interest remained under the dwelling portion of the homeowners’ policies. As the dwellings had not yet been rebuilt, there was an expectation that materials and supplies on or adjacent to the residences would be used in the construction or repair of the dwellings.
3. The Homeowners have Standing
Allstate, State Farm and Safeco contend that the homeowners have no standing, because the insurer is the only party who can raise the question of insurable interest.
“To have standing to assert a claim under the UCL, a plaintiff must have ‘suffered injury in fact and [have] lost money or property as a result of such unfair competition.’ (Bus. & Prof. Code, § 17204; see also Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 227 [holding that Proposition 64 applies to pending cases].)” (Aron v. U-Haul Co. of California, supra, 143 Cal.App.4th 796, 802.) The homeowners allege “injury in fact” in that they suffered economic loss by paying full premiums on renewal of their homeowners’ policies, even though their dwellings had suffered total losses. Because the allegation sets forth a basis for a claim of actual economic injury as a result of a claimed unfair and illegal business practice, the homeowners have standing.
The insurers have not cited any authority in support of their contention that insureds cannot challenge insurable interest. Instead, they rely on a line of cases holding only that third parties have no standing. (See, e.g., Jenkins v. Hill (1939) 35 Cal.App.2d 521, 524 [the administrator lacked standing to question the beneficiary’s insurable interest]; In re Marriage of Bratton (1994) 28 Cal.App.4th 791, 793 [ex-husband lacked standing to challenge either the legality or enforceability of the policy of insurance his ex-wife held on his life]; Countrywide Home Loans, Inc. v. Tutungi (1998) 66 Cal.App.4th 727, 732 [borrowers were not entitled to contest the insurability of a condominium association’s interest]; North American Co. for Life & Health Ins. v. Dzina (9th Cir. 2003) 64 Fed. Appx. 15, *17 [ex-wife defrauded by her ex-husband of her ownership in a life insurance policy cannot raise the issue of an insurable interest]; Doty v. Allstate Ins. Co. (9th Cir. 1991) 1991 U.S. Dist. LEXIS 16229, *11 [ex-husband of insured whose name remained on the policy cannot raise the issue of an insurable interest].)
The logic of excluding a non-party from the determination of whether an insured has a protected interest, and an insured has a resultant obligation, does not lead us to conclude that the alleged holder of that interest may not litigate the issue. To the contrary, we find the homeowners as insureds have standing to challenge the existence of the insurable interest.
C. The Pleadings Do Not Establish a Fraudulent Business Practice
Gardner, Fink and Luscombe-Schwab contend that homeowners are likely to be deceived by renewal notices asking them to continue paying for a nonexistent risk. They assert that ordinary people cannot be presumed to analyze their renewal notices like lawyers or be aware of issues regarding the premiums.
“‘Fraudulent, ’ as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public ‘“are likely to be deceived.”’ (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267.)” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 839.) The “reasonable consumer standard” applies to actions involving claims under the UCL for unfair or deceptive business practices. (Consumer Advocates v. Echostar Satellite Corp. (2003) 113 Cal.App.4th 1351, 1360.)
Under the policies’ dwelling protection, coverage explicitly included the dwellings; trees, shrubs, plants or lawns; structures attached to the dwellings; foundations, floor slabs and footings; and materials and supplies on or adjacent to the residences for use in the construction or repair of the dwellings. The Allstate and Safeco policy declarations contained in the record show a breakdown of the premium coverages, including the amount charged for the insured dwelling. As discussed above, the renewal notices advised in laypersons’ language that the homeowners should carefully read their policies, and that they should communicate with their insurers about any questions or changes. Under these conditions, a reasonable consumer was not likely to be deceived by the renewal notices.
Accordingly, although the homeowners have standing to sue under the UCL, we find that they failed to state a claim. The trial court did not err.
Alternatively, the insurers contend that the homeowners’ suit is barred because no private action may be brought under Insurance Code section 790.03. (Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 313.) Having found the homeowners may sue under the UCL, we need not reach this issue. Safeco additionally contends that Fine willingly accepted Safeco’s offer of coverage with full knowledge of the facts. This distinction does not require a different result in light of our analysis.
DISPOSITION
The judgments and orders are affirmed. Respondents shall recover their costs on appeal.
We concur: JOHNSON, Acting P.J., WOODS, J.