Restriction Suits Against Insurers Under Consumer Rights Laws

The Supreme Court of California and Colorado have made recent decisions that limit more avenues of consumers that try to file a suit against their insurers for suspected unfair competition or unfair business practices.  In the case of Fairbanks v. Superior Court of Los Angeles County, plaintiffs alleged that the marketing and administration of Farmers had been involved in deceiving and unfair practices through its flexible premium life insurance policies. Plaintiffs asserted a claim for violation of California’s Consumer Legal Act. The Supreme Court of California held that life insurance is not qualified as a “good” or “service” according to the provisions of the CLRA. On the other hand, insurance counsel claims that the decision provides life insurance companies with a guaranteed security against the actions of the CLRA. Many of the consumers view this decision as “effectively eliminating” their protection laws as an avenue to hold insurance companies accountable for alleged unfair practices. However, the California Supreme Court’s ruling does not prevent consumers from having to deal with unfair practices under the state’s Unfair Competition Law.

Also, in the recent Colorado Supreme Court decision, the Farmers Insurance Exchange v. Benzing has been viewed by many consumers as cutting off their avenue of relief and making it more complicated to file any class action suits against an insurance company. Plaintiffs had filed a class action suit, alleging that Farmers had committed “fraud on the market” by failing to inform their clientele that purchasing uninsured motorist coverage for one vehicle covered additional vehicles on the same policy. The plaintiff also alleged that this fraud was a material misrepresentation which affected the price as a whole. The Colorado Supreme court held that the “fraud on that market” speculation could not be applied to maintain an insurance class action brought under the Colorado Consumer Protection Act.

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