Chu v. Old Republic Home Protection Company, Inc. ( 2021 )

Filed 1/29/21
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
GINA CHU et al., B302792
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No.
v. 19STCV26689)
OLD REPUBLIC HOME
PROTECTION COMPANY,
INC.,
Defendant and
Respondent.
APPEAL from a judgment of the Superior Court of the
County of Los Angeles, Michelle Williams Court, Judge.
Affirmed.
Hee Sung Yoon, self-represented litigant and for Gina Chu,
Plaintiffs and Appellants.
Claytor Law Group, James D. Claytor for Defendant and
Respondent.
* Pursuant to California Rules of Court, rules 8.1100 and
8.1110, this opinion is certified for publication with the exception
of Discussion Parts C.3 through D.
1
I. INTRODUCTION
Plaintiffs1 appeal from the trial court’s order dismissing
with prejudice their claims against defendant2 for breach of the
implied covenant of good faith and fair dealing (bad faith claim)
and violation of the Unfair Competition Law (Bus. & Prof. Code,
§ 17200 et seq. (UCL claim)). According to plaintiffs, because the
contract on which they sued is regulated under the Insurance
Code,3 including the Unfair Insurance Practices Act (§ 790 et
seq.), it should be considered insurance for purposes of tort
liability and their complaint thus adequately stated a bad faith
claim. Plaintiffs also argue that the alleged violations of the
regulations promulgated under section 790.03 were sufficient to
state a UCL claim. We affirm.
II. FACTUAL BACKGROUND4
Plaintiffs owned a condominium in Los Angeles. On an
unspecified date, defendant issued to plaintiffs a “Home
Protection Plan” pursuant to which defendant agreed to “provide
1 Plaintiff Hee Sung Yoon is an attorney who appeared as a
self-represented litigant and on behalf of plaintiff Gina Chu in
the trial court.
2 Defendant is Old Republic Home Protection Company, Inc.
3 All further statutory references are to the Insurance Code,
unless otherwise indicated.
4 The facts are taken from the operative first amended
complaint.
2
service for covered systems and appliances [within the
condominium] reported as malfunctioning during the term of the
[contract] . . . .”5
During the effective period of the contract,6 the
condominium’s heating, ventilation, and air-conditioning (HVAC)
system became inoperable. Plaintiffs notified defendant of the
problem, but defendant would “not allow [p]laintiffs to retain
their own contractor to repair the HVAC [s]ystem.” Instead,
defendant engaged its own licensed HVAC contractor to perform
the repairs. That contractor replaced the air condenser on the
roof, but failed to inform plaintiffs about the cause of the problem
or the repairs that were needed. As a result, plaintiffs were
unaware that defendant’s contractor had replaced the air
condenser with a system that was incompatible with the air
handler inside the condominium. The “mis-matched” air
condenser “caused physical damage to the air handler,” resulting
in freon leaks.
In December 2017, plaintiffs discovered that their repaired
HVAC system was not properly heating their condominium.
They called defendant’s contractor who informed them that the
system needed freon. In June 2018, plaintiffs noticed that the
HVAC system was not properly cooling their condominium. They
5 As explained below, defendant is licensed and regulated
under the Insurance Code as a “home protection company” and
the warranty contract that it issued to plaintiffs is referred to as
a “home protection contract.” (§ 12740, subds. (a) & (b).)
6 The effective date and duration of the contract were not
specified in the first amended complaint.
3
once again called defendant’s contractor who informed them that
the system needed additional freon due to a leak.
After plaintiffs first made a claim under their homeowner’s
insurance policy7 for the breakdown of their HVAC system, they
retained their own contractor who confirmed that there was a
leak in the HVAC system. In July 2019, plaintiffs retained a
second contractor who agreed that the system had a leak and
further advised that the entire system needed to be replaced.
The replacement cost of the HVAC system was $8,984.
III. PROCEDURAL BACKGROUND
In August 2019, plaintiffs filed the operative first amended
complaint that asserted four causes of action against defendant:
the fourth cause of action for breach of contract; the fifth cause of
action, the bad faith claim;8 the sixth cause of action, the UCL
claim; and the seventh cause of action for negligence.
Defendant demurred to each of the four causes of action
asserted against it. In support of its demurrer to the bad faith
claim, defendant argued that it was licensed only as a home
protection company—not as an insurance company—and
therefore could not be sued in tort for bad faith. As to the UCL
claim, defendant argued that it was based on alleged violations of
7 In addition to suing defendant, plaintiffs also sued the
company that issued their homeowner’s insurance policy.
8 Plaintiffs erroneously alleged two “fourth” causes of action.
We will refer to the second of the “fourth” causes of action, the
bad faith claim, as the fifth cause of action.
4
regulations promulgated under section 790.03 which did not
apply to home protection companies.
The trial court conducted a hearing on November 1, 2019,
and following arguments, took the matter under submission. The
court then issued a written ruling that overruled the demurrer to
the fourth and seventh causes of action for breach of contract and
negligence. On the fifth cause of action, the bad faith claim, the
court concluded that a home protection contract is not an
insurance policy and thus sustained the demurrer without leave
to amend.
On the sixth cause of action, the UCL claim, the trial court
ruled: “The unfair business practices alleged are violations of
regulations which apply to insurers. Defendant is not an insurer.
The demurrer is sustained. Leave to amend will not be granted
unless plaintiff can establish that facts exist sufficient to state a
cause of action. [Citation.] Plaintiff[s have] the burden of
establishing in what manner it would be possible to amend the
complaint. [Citation.]”
On November 5, 2019, plaintiffs filed a request for
dismissal without prejudice of the fourth and seventh causes of
action for breach of contract and negligence, and the dismissal of
those claims was entered the following day. On
December 3, 2019, at plaintiffs’ request, the trial court ordered
the fifth and sixth causes of action for bad faith and violation of
the UCL dismissed with prejudice.
On December 5, 2019, plaintiffs filed a notice of appeal
from the judgment of dismissal entered after the order sustaining
the demurrer.
5
IV. DISCUSSION
A. Standard of Review
“In reviewing the sufficiency of a complaint against a
general demurrer, we are guided by long-settled rules. ‘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.’ (Serrano v. Priest (1971) 5 Cal.3d 584, 591 . . . .)
Further, we give the complaint a reasonable interpretation,
reading it as a whole and its parts in their context. (Speegle v.
Board of Fire Underwriters (1946) 29 Cal.2d 34, 42 . . . .) When a
demurrer is sustained, we determine whether the complaint
states facts sufficient to constitute a cause of action. (See Hill v.
Miller (1966) 64 Cal.2d 757, 759 . . . .)” (Blank v. Kirwan (1985)
39 Cal.3d 311, 318.)
B. Statutory Scheme Regulating Home Protection Companies
In the mid-1970s, companies in California began marketing
contracts to service and repair certain components or systems of
residential structures, usually in conjunction with real estate
brokers. (Legis. Counsel’s Dig., Sen. Bill No. 2222 (1977–1978
Reg. Sess.); Sen. Bill No. 2222 (1977–1978 Reg. Sess.), Ch. 1203,
Legis. Findings; Cal. Dept. of Ins., Enrolled Bill Rep. on Sen. Bill
No. 2222 (1977–1978 Reg. Sess.).) “The vast majority of such
contracts [had] not been executed as insurance contracts and the
overwhelming majority of companies offering such contracts [had]
been doing business in a capacity other than, and [had] been
6
qualified other than, as admitted insurers.” (Sen. Bill No. 2222
(1977–1978 Reg. Sess.), Ch. 1203, Legis. Findings.) But “[n]o
specific form of state regulation of this evolving industry” existed
in California. (Ibid.)
“On May 3, 1978, the Attorney General issued an opinion
that companies offering such contracts were transacting
insurance, and the issuance of that opinion . . . produced
uncertainty for the beneficiaries of such existing contracts and for
those engaged in or related to this industry.” (Sen. Bill No. 2222
(1977–1978 Reg. Sess.), Ch. 1203, Legis. Findings.) Because
there were more than 100,000 contracts to provide such repair
services in force at the time of the Attorney General’s opinion, the
Legislature deemed it necessary to enact a new regulatory
scheme within the Department of Insurance “for the
qualification, control and functioning” of the industry. (Ibid.)
The initial draft of the senate bill that would enact that
regulatory scheme stated that it would provide for the regulation
of persons engaged in the sale of home maintenance contracts “as
insurers, subject to specified provisions of the Insurance Code.
Specifically, [the bill] would (1) define home protection insurance
as a class of insurance authorized to be transacted in this state
. . . .” (Sen. Bill No. 2222 (1977–1978 Reg. Sess.) as introduced
June 7, 1978, italics added.) That initial version also amended
section 100—which specified the classes of insurance in the
state—to include a class of “[h]ome protection” insurance. (Sen.
Bill No. 2222 (1977–1978 Reg. Sess.) as introduced June 7, 1978.)
It also defined home protection insurance as “insurance against
the cost of repair or replacement of structural components or
appliances of a home necessitated by wear and tear or inherent
defect of any such structural component or appliance, or
7
necessitated by the failure of an inspection to detect the
likelihood of any such loss, but shall not include insurance
against consequential damages arising from the failure of any
structural component or appliance of a home.” (Ibid., italics
added.)
The final version of the bill, Senate Bill No. 2222 (1977–
1978 Reg. Sess.) (Senate Bill No. 2222), however, deleted the
references to insurers and insurance, and instead referred to
home maintenance or warranty contracts as “home protection
contracts.” (Sen. Bill No. 2222, approved and filed Sept. 26, 1978,
Sen. Final Hist. (1977–1978 Reg. Sess.) p. 994.) The final version
also added Part 7 to Division 2 of the Insurance Code,
commencing with section 12740. (Sen. Bill No. 2222, approved
and filed Sept. 26, 1978, Sen. Final Hist. (1977–1978 Reg. Sess.)
p. 994.) That new section defined a home protection contract as
“any contract or agreement whereby, for a predetermined fee, a
person undertakes for a specified period of time, to repair or
replace all or any part of any component, system or appliance of a
home necessitated by wear and tear, deterioration or inherent
defect, or by the failure of any inspection to detect the likelihood
of any such loss. [¶] Such contract shall provide for a system of
service for effectuating such repair or replacement and shall not
include protection against consequential damage from the failure
of any component, system or appliance.” (§ 12740.) The section
also defined a “home protection company” as “any person licensed
pursuant to this part which issues home protection contracts.”
(Ibid.)
Newly enacted section 12742 provided that “[h]ome
protection contracts and home protection companies, and all
matters incident to or concerned with such contracts and
8
companies, shall be exclusively subject to and regulated by the
provisions of this part [namely, Part 7, “Home Protection”] and,
except as provided in [s]ection 12743, shall not be governed by
any other provision of this code.” Newly enacted section 12743
specified the provisions of the Insurance Code applicable to home
protection contracts and companies, including section 790
“relating to [u]nfair [p]ractices.” Section 12743 further explained
that the term “‘Insurer’” means a “home protection company” and
“‘Policy’ or ‘insurance’ [means a] home protection contract.”
(§ 12743, subd. (j).)
The enrolled bill report on Senate Bill No. 2222 issued by
the Department of Insurance recommended that the governor
sign the final version of the bill. (Cal. Dept. of Ins., Enrolled Bill
Rep. for Sen. Bill No. 2222 (1977–1978 Reg. Sess.) p. 2.) Among
other things, the report explained that Senate Bill No. 2222
“would create a regulatory scheme for home warranty contracts,
and would specify that they are not considered to be ‘insurance’
and that they are subject only to certain other provisions of the
Insurance Code.” (Cal. Dept. of Ins., Enrolled Bill Rep. for Sen.
Bill No. 2222 (1977–1978 Reg. Sess.) p. 1.)
C. Bad Faith Claim
1. Legal Principles Re: Insurance Bad Faith
“[I]t is well established that a covenant of good faith and
fair dealing is implicit in every contract. [Citations.] The essence
of the implied covenant is that neither party to a contract will do
anything to injure the right of the other to receive the benefits of
the contract. [Citations.] [¶] Because the covenant of good faith
9
and fair dealing essentially is a contract term that aims to
effectuate the contractual intentions of the parties, ‘compensation
for its breach has almost always been limited to contract rather
than tort remedies.’ [Citations.] At present, this court recognizes
only one exception to that general rule: tort remedies are
available for a breach of the covenant in cases involving
insurance policies. [Citations.] In the insurance policy setting,
an insured may recover damages not otherwise available in a
contract action, such as emotional distress damages resulting
from the insurer’s bad faith conduct [citation] and punitive
damages if there has been oppression, fraud, or malice by the
insurer [citation].” (Cates Construction, Inc. v. Talbot Partners
(1999) 21 Cal.4th 28, 43–44 (Cates).)
2. Analogy to Insurance
Plaintiffs contend that because home protection contracts
fall within the Insurance Code’s definition of insurance, and
companies that issue insurance can be liable in tort for breach of
the implied covenant, their fifth cause of action stated a claim for
insurance bad faith. In support of that conclusion, they cite the
Attorney General’s 1978 opinion that home protection contracts
qualify as insurance under the Code, thereby suggesting that the
Code’s definition controls the issue of whether home protection
companies are liable for tortious breach of the implied covenant.
As an initial matter, the Attorney General’s 1978 opinion
was subsequently addressed—and effectively superseded—by the
statutory scheme enacted in response to it. As the history of that
scheme shows, the Legislature purposely refrained from
categorizing home protection contracts as traditional insurance
10
and provided that only certain of the regulatory provisions of the
Insurance Code would apply to such contracts. Thus, plaintiffs’
reliance on the Attorney General’s opinion to show that home
protection contracts are insurance is misplaced.
Moreover, as plaintiffs acknowledge, whether a contract
qualifies as insurance under the Insurance Code for regulatory
purposes is not dispositive of the tort liability issue. As the court
in Cates, supra, 21 Cal.4th 28 observed, “the inclusion of a
particular contract in the Insurance Code for regulatory purposes
does not require its classification as insurance for other
purposes.” (Id. at p. 51.) Instead, when analyzing whether a
given type of contract constitutes insurance for purposes of tort
liability, courts “must evaluate whether policy considerations
recognized in common law support the availability of tort
remedies in the context of [that type of contract].” (Id. at p. 52.)
The court in Cates explained that “tort recovery is considered
appropriate in the insurance policy setting because such
contracts are characterized by elements of adhesion and unequal
bargaining power, public interest and fiduciary responsibility.”
(Ibid.)
Here, an evaluation of the policy considerations underlying
tort liability in the traditional insurance context demonstrates
that home protection contracts are not sufficiently analogous to
insurance to support the imposition of tort liability.
a. Adhesion and Unequal Bargaining Power
There is nothing in the record to suggest that sellers and
buyers of residential property who enter into home protection
contracts lack meaningful bargaining power. To the contrary, the
11
statutory scheme that regulates home protection contracts
indicates that they “have in most instances been concluded in
relation to the transfer of residential properties . . . .” (Sen. Bill
No. 2222 (1977–1978 Reg. Sess.), Ch. 1203, Legis. Findings,
p. 981.)9 As such, they are incidental to the negotiation of a sales
contract in which the buyer and seller are ordinarily bargaining
at arms-length with relatively equal bargaining power. Further,
parties to a residential sales negotiation can conclude that
transaction without also entering into a home protection contract.
As a result, such contracts do not appear to be the product of
disparate bargaining power that would otherwise support the
imposition of tort remedies.
b. Fiduciary Responsibility and Public Interest
As acknowledged by the court in Cates, supra, 21 Cal.4th
28, “a principal basis for recognizing tort liability in the context of
liability insurance [is] the insurer’s assumption of the insured’s
defense and settlement negotiations of third party claims
[citations] . . . ,” which responsibilities give rise to fiduciary or
quasi-fiduciary obligations on the part of the insurer. (Id. at
p. 56.) In the context of home protection contracts, those types of
responsibilities do not arise on the part of the companies that
issue them. Home protection companies do not undertake the
9 Prior to 1978, home protection contracts had “largely been
sold to sellers of residential properties for the benefit of the
purchasers,” a practice which suggests that those contracts were
intended to enhance the marketability of the seller’s property.
(Cal. Dept. of Ins., Enrolled Bill Rep. on Sen. Bill 2222 (1977–
1978 Reg. Sess.) p. 2.)
12
quasi-fiduciary responsibilities of defending homeowners or
settling claims against them; instead, their duties to homeowners
are limited to the repair, or if necessary, the replacement of
specifically covered home systems or appliances. The absence of
such quasi-fiduciary policy considerations also supports the
conclusion that home protection companies should not be subject
to additional tort remedies for breaches of their repair and
replacement obligations under home protection contracts.
In Cates, supra, 21 Cal.4th 28, the court also explained that
tort remedies are available in the insurance policy context
because they further the public interest. The court observed that
“insurance is a ‘quasi-public’ service” (id. at p. 54) because
insureds seek “protection against calamity,” not mere commercial
advantage (id. at p. 53 [“the typical insurance policy protects an
insured against accidental and generally unforeseeable losses
caused by a calamitous or catastrophic event such as disability,
death, fire, or flood”]). They therefore purchase insurance
protection against such events primarily for peace of mind and
security. (Id. at p. 44.)
Unlike insurance policies that protect against calamity or
catastrophe, the home protection contracts at issue promise to
repair or replace covered home systems, such as plaintiffs’ HVAC
system, or appliances, such as refrigerators, ovens, or water
heaters. Although, by obtaining the benefits of such a contract as
part of a home purchase, a homeowner may procure a degree of
economic protection against repair or replacement costs, it is not
the same protection against the economic dilemma an insured
faces after a catastrophic loss or accident. In the latter scenario,
the imposition of tort remedies is necessary to induce the
insurer’s performance of its defense and indemnity obligations or
13
to compensate fully the insured for an insurer’s bad faith breach
of the implied covenant. By contrast, if a home protection
company breaches its contractual duty to repair or replace a
covered system or appliance that malfunctions, contract damages
would seem to compensate the homeowner adequately for the
type of damages contemplated by the parties at the time of
contracting—in other words—repair or replacement costs.
c. Consequences of Allowing Tort Recovery
In Cates, supra, 21 Cal.4th 28, the court, in evaluating
whether tort liability should be imposed upon a commercial
surety company, also considered the practical consequences of
imposing tort remedies in the context of those types of surety
contracts. (Id. at pp. 57–59.) As defendant notes, consideration
of such consequences in the context of home protection contracts
demonstrates that treating home protection companies as
insurers—liable in tort as well as contract—could have adverse
financial consequences similar to those the Legislature sought to
avoid in 1978.
In response to the Attorney General’s opinion that home
protection companies should be treated as insurers, the
Department of Insurance expressed concern about the financial
impact of licensing such companies as regulated insurers. It
estimated that the financial requirements that would be imposed
on such companies as insurers would drive the majority of them
out of business. Plaintiffs nevertheless urge us to impose
additional tort liability on these companies. We decline and
instead conclude that home protection companies are not
14
sufficiently analogous to traditional insurers to warrant tort
remedies.
3. Violations of Section 790 as Bad Faith
Plaintiffs argue that because home protection companies
are subject to section 790 and some of the regulations
promulgated thereunder, they should be subject to bad faith tort
liability for violations of those regulations. But, as we explain
above, the fact that the Insurance Code may regulate a company
is not dispositive of whether that company should be subject to
the same tort liability as traditional insurance companies.
Rather, that issue is determined based on the policy
considerations set forth in Cates, supra, 21 Cal.4th 28 and
regardless of whether home protection companies are subject to
certain Insurance Code regulations.
4. Judicial Estoppel
Plaintiffs next contend that defendant is barred under the
doctrine of judicial estoppel from denying that home protection
contracts constitute insurance for purpose of bad faith liability.
According to plaintiffs, in Campion v. Old Republic Home
Protection Co., Inc. (S.D. Cal. 2012) 861 F.Supp.2d 1139(Campion), defendant successfully advocated the position that its
home protection contracts were consistent with the concept of
insurance. Plaintiffs therefore conclude that, because defendant
benefitted from that position in the Campion case, it cannot take
an inconsistent position on the insurance issue in this action.
15
a. Background
In opposition to the demurrer, plaintiffs cited the federal
district court ruling in Campion, supra, 861 F.Supp.2d 1139 and
argued that the court in that case “reached the same conclusion
[that] the Attorney General” reached in 1978, i.e., home
protection contracts are insurance. In its reply, defendant
distinguished Campion and argued that “the issue of whether a
[h]ome [p]rotection [p]lan was ‘[i]nsurance’ was not before the
[c]ourt in Campion; rather, the issue was whether a [h]ome
[p]rotection [p]lan was a ‘good’ or ‘service’ within the meaning of
[the Consumers Legal Remedies Act (Civil Code section 1750 et
seq. (the Act))],” such that home protection companies were
subject to liability for alleged violations of that Act.
At oral argument, following a colloquy regarding the legal
sufficiency of plaintiffs’ bad faith claim, their counsel asserted as
follows: “Now, what’s interesting about [Campion] is, in [that
case, defendant] was sued under [the Act], and there [is] a line of
cases, including some Supreme Court authority, that [has] held
that insurance is neither a good nor service. So [insurance
policies are] not subject to [the Act]. And, in [Campion,
defendant] argued, ‘We’re not subject to the [the Act] because
what we essentially issue[] are . . . insurance policies.’ So we
have a situation where [defendant], in one case, saying ‘We issue
insurance policies,’ and now in this case, they [are] saying, ‘Just
kidding. What we issue[] [are] not insurance policies at all,’ and I
do have [defendant’s] brief in [the Campion] case where
[defendant] said, ‘Hey, [defendant is] an insurance [company]
under . . . section 22, and the Attorney General agreed with
[defendant] . . . ,’ and now [defendant] take[s] a completely
16
inconsistent position, and I can provide further briefing on that
[judicial estoppel issue] if the court would like.”
In response, the trial court indicated that it did not need
further briefing. Defendant’s counsel then stated “if [plaintiffs’
counsel is] arguing judicial estoppel in this case, I [have] not seen
that before and would, therefore, have some difficulty with
replying on the fly as to that argument, and [to] the brief that
[plaintiffs’ counsel represents] was before the court [in Campion]
and [counsel is also] making representations about things outside
of the record.”
Following those comments, the trial court took the matter
under submission without further argument or briefing. The
court then issued its final ruling on the demurrer without
expressly addressing plaintiffs’ belated claim of judicial estoppel.
b. Forfeiture
Defendant maintains that plaintiffs forfeited their judicial
estoppel argument by failing to timely or adequately raise it in
opposition to the demurrer. We agree.
“The forfeiture rule generally applies in all civil and
criminal proceedings. [Citations.] The rule is designed to
advance efficiency and deter gamesmanship. As we explained in
People v. Simon (2001) 25 Cal.4th 1082 . . . : ‘“‘“The purpose of
the general doctrine of waiver [or forfeiture] is to encourage a
defendant to bring errors to the attention of the trial court, so
that they may be corrected or avoided and a fair trial had . . . .”’
[Citation.] ‘“No procedural principle is more familiar to this
Court than that a constitutional right,” or a right of any other
sort, “may be forfeited in criminal as well as civil cases by the
17
failure to make timely assertion of the right before a tribunal
having jurisdiction to determine it.” . . .’ [Citation.] [¶] ‘The
rationale for this rule was aptly explained in Sommer v. Martin
(1921) 55 Cal.App. 603 at page 610 . . . : “‘In the hurry of the trial
many things may be, and are, overlooked which would readily
have been rectified had attention been called to them. The law
casts upon the party the duty of looking after his legal rights and
of calling the judge’s attention to any infringement of them. If
any other rule were to obtain, the party would in most cases be
careful to be silent as to his objections until it would be too late to
obviate them, and the result would be that few judgments would
stand the test of an appeal.’”’ [Citation.]” (Fn. omitted;
[citations].)’ [Citation.]” (Keener v. Jeld-Wen, Inc. (2009) 46
Cal.4th 247, 264.)
Plaintiffs cited and argued the decision in Campion, supra,
861 F.Supp.2d 1139 in their opposition, but did not make any
argument based on the doctrine of judicial estoppel. It was not
until the end of oral argument that they raised the issue, based
in part on documents outside the record on the demurrer. And,
although plaintiffs sought leave to brief the issue, the trial court
denied leave and did not consider the estoppel issue in its final
ruling. Moreover, defendant objected to the timing of the judicial
estoppel argument and claimed prejudice from the late notice of
the contention, including the fact that plaintiffs were relying on
documents that had not been served or filed with the court.
Under these circumstances, neither the trial court nor
defendant’s counsel had an adequate opportunity to consider or
address the estoppel argument. And, plaintiffs make no attempt
to excuse their delay in raising the issue or otherwise address the
prejudice that would have resulted from the belated disclosure.
18
We therefore conclude that they have forfeited the contention on
appeal.
D. UCL Claim
1. Legal Principles
The UCL “defines ‘unfair competition’ to include ‘any
unlawful, unfair or fraudulent business act or practice.’ ([Bus. &
Prof. Code] § 17200.) Its coverage is ‘sweeping, embracing
“‘anything that can properly be called a business practice and
that at the same time is forbidden by law.’”’ [Citations.] It
governs ‘anti-competitive business practices’ as well as injuries to
consumers, and has as a major purpose ‘the preservation of fair
business competition.’ [Citations.] By proscribing ‘any unlawful’
business practice, ‘[Business and Professions Code] section 17200
“borrows” violations of other laws and treats them as unlawful
practices’ that the unfair competition law makes independently
actionable. [Citations.]
“However, the law does more than just borrow. The
statutory language referring to ‘any unlawful, unfair or
fraudulent’ practice (italics added) makes clear that a practice
may be deemed unfair even if not specifically proscribed by some
other law. ‘Because Business and Professions Code section 17200
is written in the disjunctive, it establishes three varieties of
unfair competition—acts or practices which are unlawful, or
unfair, or fraudulent. “In other words, a practice is prohibited as
‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa.”’
[Citations.]” (Cel-Tech Communications, Inc. v. Los Angeles
Cellular Telephone Company (1999) 20 Cal.4th 163, 180.)
19
2. Analysis
Relying on Zhang v. Superior Court (2013) 57 Cal.4th 364,
plaintiffs contend that because violations of section 790.03 and
the regulations promulgated thereunder can be the basis of an
unlawful business practice under the UCL, the sixth cause of
action stated a claim for relief. Plaintiffs generally alleged in the
sixth cause of action that defendant’s “business practices of
processing claims in violation of [section 790 et seq.] and [the]
regulations promulgated thereunder constitute[d] an unlawful
and unfair business practice[] in violation of [the UCL].” The
only specific regulatory violations mentioned in the complaint,
however, were in connection with the fifth cause of action for bad
faith, which alleged that defendant violated various provisions of
California Code of Regulations, title 10, section 2695.9
(regulation 2695.9). We thus consider whether regulation 2695.9
applies to defendant such that a violation of its provisions
constitutes an unfair business practice.
“‘Generally, the same rules of construction and
interpretation which apply to statutes govern the interpretation
of rules and regulations of administrative agencies.’ [Citation.]
‘The fundamental rule of interpretation is to ascertain the intent
of the agency issuing the regulation so as to effectuate the
purpose of the law.’ [Citation.] ‘In order that legislative intent be
given effect,’ a regulation, like a statute, ‘should be construed
with due regard for the ordinary meaning of the language used
and in harmony with the whole system of law of which it is a
part.’ [Citation.]” (Hoffman v. Smithwoods RV Park, LLC (2009)
179 Cal.App.4th 390, 399.)
20
As we discuss above, section 12743 specified the provisions
of the Insurance Code applicable to home protection contracts
and companies, including section 790. The Insurance
Commissioner has promulgated regulations at Code of
Regulations, Title 10, Chapter 5, Subchapter 7.5, that apply to
the “handling or settlement of all claims.” (Cal. Code Regs.,
tit. 10, § 2695.1, subd. (b).) These regulations purport to apply to
home protection contracts and home protection companies. (Cal.
Code Regs., tit. 10, § 2695.1.) Indeed, California Code of
Regulations, title 10, sections 2695.3 to 2695.7 regulate the
conduct of all regulated insurers and licensees, including home
protection companies.10 California Code of Regulations, title 10,
sections 2695.8 to 2695.11, however, by their express terms,
apply only to particular classes of insurance. (Cal. Code Regs.,
tit. 10, §§ 2695.81–2695.85.) For example, California Code of
Regulations, title 10, section 2695.8 sets forth “Additional
Standards Applicable to Automobile Insurance” and the
regulations that follow, sections 2695.81 to 2695.85, have no
apparent applicability to home protection contracts.11 (Cal. Code
10 California Code of Regulations, title 10, section 2695.3 is
entitled “File and Record Documentation;” section 2695.4 is
entitled “Representation of Policy Provisions and Benefits;”
section 2695.5 is entitled “Duties upon Receipt of
Communications;” section 2695.6 is entitled “Training and
Certification;” and section 2695.7 is entitled “Standards for
Prompt, Fair and Equitable Settlements.”
11 For instance, California Code of Regulations, title 10,
section 2695.85 requires that “[e]very insurer that issues
automobile liability or collision insurance policies shall provide
21
Regs., tit. 10, §§ 2695.81–2695.85.) Thus, the organization of
these regulations suggests that regulation 2695.9 does not apply
to all insurers and licensees under the Insurance Code. (Upland
Police Officers Assn. v. City of Upland (2003) 111 Cal.App.4th
1294, 1304 [“‘[W]e do not construe statutes in isolation, but
rather read every statute “with reference to the entire scheme of
law of which it is part so that the whole may be harmonized and
retain effectiveness.” [Citation.]’”].)
Regulation 2695.9 is entitled “Additional Standards
Applicable to First Party Residential and Commercial Property
Insurance Policies” and subdivision (a) provides: “When a
residential or commercial property insurance policy provides for
the adjustment and settlement of first party losses based on
replacement cost, the following standards apply: . . . .” (Cal.
Code Regs., tit. 10, § 2695.9, subd. (a), italics added.) The term
“property insurance policy” is not defined in California Code of
Regulations, title 10, section 2695.2. Section 10087, subdivision
(a) provides: “As used in this chapter [Chapter 8.5, Earthquake
Insurance], ‘policy of residential property insurance’ shall mean a
policy insuring individually owned residential structures [and]
individually owned condominium units . . . . A policy that does
not include any of the perils insured against in a standard fire
policy shall not be included in the definition of ‘policy of
residential property insurance.’” Section 2071 sets forth the
standard form for fire insurance, and provides that the policy
shall insure “against all LOSS BY FIRE, LIGHTNING AND BY
REMOVAL FROM PREMISES ENDANGERED BY THE
PERILS INSURED AGAINST IN THIS POLICY, EXCEPT AS
the named insured(s) with an Auto Body Repair Consumer Bill of
Rights . . . .”
22
HEREINAFTER PROVIDED . . . .” By contrast, section 12762
lists the required contents of a “home protection contract,” and
lists no specific perils associated with the contract. Although the
definition for property insurance policy set forth at section 10087
is limited to its use in chapter 8.5, other provisions of the
Insurance Code also refer to section 10087’s definition of “‘policy
of residential property insurance.’” (See, e.g., §§ 396, subd. (f),
790.031, 1625.5, 1763.1, 10104, subd. (a).) We thus conclude that
a home protection contract is not a “property insurance policy.”
Because a home protection contract is not a “property
insurance policy,” regulation 2695.9 does not apply to defendant.
Further, because plaintiffs’ UCL claim is premised on their
contention that defendant violated various subparts of regulation
2695.9, that claim fails as a matter of law.
23
V. DISPOSITION
The judgment is affirmed. Defendant is awarded costs on
appeal.
KIM, J.
We concur:
RUBIN, P. J.
BAKER, J.
24
Chu et al. v. Old Republic Home Protection Company
B302792
RUBIN, P. J., Concurring:
I agree with the majority decision, which I have signed. I
write separately for a limited reason.
The court’s opinion discusses a number of policy
considerations and market factors that may have supported the
Legislature’s decision to amend the Insurance Code in 1978. Our
present analysis of the statutory scheme primarily relies on
legislative, administrative and judicial precedents that are for
the most part over 20 years old, some much older. For example,
the Attorney General’s opinion was issued in 1978. The
Legislature’s response was to enact in the same year Insurance
Code section 12740 et seq. Two of the substantive provisions of
that law are sections 12742 and 12743. The former has never
been amended; the latter was last amended in 1981. Our opinion
also relies on a 1999 commercial surety bond case, Cates
Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28. It may
be time for the Legislature to consider the relationship between
insurance and home warranty contracts in light of present day
economic realities and the manner in which home warranty
contracts are currently marketed and utilized.
RUBIN, P. J.
1