Court to Decide Whether Insurance is a “Service”
Santa Monica, CA — Consumer Watchdog today urged the California Supreme Court to subject insurance companies to one of the state’s main consumer protection laws.
In a “friend of the court” brief, Consumer Watchdog urged the court to overturn a ruling last summer by the Court of Appeal in Los Angeles. That court decided that insurance companies that break the law cannot be sued under the Consumers Legal Remedies Act (CLRA) because, the court said, insurance is neither a “good” nor a “service” and thus the CLRA does not apply.
Consumer Watchdog urged the Supreme Court to ignore the lower court’s view that the best public policy would be to allow only the Insurance Commissioner to hear complaints against unlawful or unfair practices by insurance companies. The non-profit advocacy group said that the court’s public policy beliefs did not comport with experience under Proposition 103, which requires that insurers be subject to lawsuits when they break the law, and were irrelevant in any case.
“Insurance is a big part of the $115 billion financial services marketplace in California,” said Harvey Rosenfield, author of Proposition 103, who wrote the brief filed by Consumer Watchdog today. “There is no basis in the law to give the insurance industry a special exemption from the CLRA’s protections, and this is especially true since the voters directed that the insurance industry be subject to all the laws that are applicable to other businesses.”
Consumer Sued Farmers for Fraud
The case was brought by a consumer who bought a life insurance policy from Farmers Insurance after being told that paying the premium would keep the policy in force indefinitely. In fact, that was not true.
The consumer sued Farmers, charging a violation of the Consumers Legal Remedies Act (CLRA), which bars fraud and other unlawful conduct in a “transaction intended to result or which did result in the sale or lease of goods or services to any consumer.” Farmers argued that insurance was neither a “good” nor a “service,” and thus the law did not apply. A decision by Division 3 of the Second District Court of Appeal, authored by Justice Walter Croskey, agreed with the insurance company.
“Consumers are increasingly beleaguered by misleading advertising, fraud and other trickery in the marketplace,” said Rosenfield. “If insurance is not a ‘good’ or a ‘service,’ what is it? The decision places insurance companies beyond the law. Moreover, this is the second time in the last two years that this same court panel has issued a decision incorrectly barring the right of a consumer to sue an insurance company. This court has refused to respect the laws passed by the voters,” Rosenfield concluded.
In the previous case, Consumer Watchdog had sued Safeco Insurance Co. for violation of a provision of insurance reform Proposition 103 – section 1861.02(a) of the state insurance code – that bars insurance companies from overcharging motorists who apply for insurance for the first time. Farmers was also sued for the same violation. Proposition 103, approved by voters in 1988, authorizes “any person” to “enforce” its requirements. Despite this clear language, in a March, 2006, ruling, Justice Croskey agreed with Safeco and Farmers’ argument that consumers could not go to court to “enforce” the statute against insurance companies when they violate Proposition 103. Consumer Watchdog continues to pursue the case and consumers who believe they were illegally overcharged by Safeco can contact the group by clicking here.
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Consumer Watchdog (formerly the Foundation for Taxpayer and Consumer Rights) is a nonpartisan, nonprofit consumer advocacy organization. Learn more at www.ConsumerWatchdog.org