Insurance Not a “Good or Service,” So Fraud Claim Against Farmers Insurance Cannot Proceed
Santa Monica, CA — Insurance companies that break the law cannot be sued under a key state consumer protection law because the law does not apply to insurance companies, a court of appeal panel ruled late yesterday.
The case, Fairbanks v. SCLA, 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 Consumer 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 panel of the Second District Court of Appeal, led by Justice Walter Croskey, agreed.
“This decision is incorrect on the law and a serious setback for consumers, who are increasingly beleaguered by misleading advertising, fraud and other trickery in the marketplace,” said Harvey Rosenfield, founder of the non-profit advocacy group The Foundation for Taxpayer and Consumer Rights. (FTCR did not participate in the litigation.) “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. We are deeply concerned about this trend,” Rosenfield concluded.
In the previous case, FTCR had sued Safeco Insurance Co. for violation of a provision of insurance reform Proposition 103 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 Insurance’s argument that consumers could not go to court to “enforce” the law against insurance companies when they violate Proposition 103.
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The Foundation for Taxpayer and Consumer Rights (FTCR) is the state’s leading consumer watchdog group. For more information, visit us on the web at: www.ConsumerWatchdog.org.