Calif. Consumer Law Applies To Insurers, Group Argues

The Consumer Watchdog group filed papers yesterday with the California Supreme Court arguing that the state's Consumer Legal Remedies Act should apply to insurance companies.

In a "friend of the court" brief, the organization 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 called on the high court to ignore the lower court's view that the best public policy would be to allow only the state insurance commissioner to hear complaints against unlawful or unfair practices by insurance companies.

The non-profit advocacy group, formerly the Foundation for Taxpayer and Consumer Rights, said that the court's public policy beliefs were irrelevant and did not follow Proposition 103, the public initiative approved in 1988 which requires that insurers be subject to lawsuits when they break the law.

Harvey Rosenfield, author of Proposition 103, who wrote the brief filed by Consumer Watchdog today, said, "Insurance is a big part of the $115 billion financial services marketplace in California. 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."

The case being heard by the Supreme Court Pauline Fairbanks v. Farmers New World Life Insurance Co. was brought by a consumer who bought a life insurance policy from Farmers Insurance after being told that paying the premium would keep her policy in force indefinitely. In fact, that was not true.

In 2003, Ms. Fairbanks sued Los Angeles-based 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.

Farmers did not immediately respond when asked for comment on the Watchdog group's filing.

Mr. Rosenfield said in a statement that "consumers are increasingly beleaguered by misleading advertising, fraud and other trickery in the marketplace."

"If insurance is not a 'good' or a 'service,' what is it?" he asked.

The decision, he added, "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."