Insurance and Unfair Business Practices

California’s Unfair Business Practices Law Is Applied to the Insurance Industry: Earthquake Claimants v. Homeowners Carrier (Allegro)

THE LAW FIRM of Shernoff Bidart Echeverria set legal precedent on behalf of victims of the 1994 Northridge earthquake when it was established for the first time that California’s Unfair Business Practices Act can be applied to the insurance industry.

At issue was the insurance company’s failure to notify policyholders of a reduction in coverage it implemented in 1985. Prior to that year, policyholders paid a premium for earthquake coverage in the form of a policy rider. But in 1985 the company began offering earthquake coverage through a separate policy – without the knowledge or approval of its policyholders.

Attorneys Michael Bidart and William Shernoff recognized that this behavior constituted not only multiple breaches of good faith but also a violation of California’s Unfair Business Practices Act. They wanted to hold the insurer accountable for its unfair business practices.

The Superior Court handed down a decision, subsequently upheld by the California Appellate Court, proclaiming that California’s unfair business practices law indeed could be applied to insurance companies.

The ruling brought the insurance company in this case to the bargaining table. Bidart was able to gain for all claimants of the lawsuit full restitution for damages they incurred from the Northridge earthquake. The settlement, which was confidential, was nonetheless reported by the Los Angeles Times as reaching approximately $100 million.