FREE DOWNLOAD: California Supreme Court Holds That The Consumer Legal Remedies Act Does Not Apply To The Sale Of Life Insurance
Dowload a free copy of Fairbanks v. Superior Court, 46 Cal. 4th 56 (Cal. 2009)
In a recent highly anticipated decision, the California Supreme Court unanimously held that life insurance is neither a "good" nor a "service" within the meaning of California's Consumer Legal Remedies Act ("CLRA" or the "Act"). Fairbanks v. Superior Court of Los Angeles, No. S157001.
The CLRA provides consumers (individually and on a class-wide basis) with significant damage and other remedies for a wide range of unfair and deceptive acts and practices that may occur in transactions "intended to result or which results in the sale or lease of goods or services to any consumer." (Cal Civ Code § 1770(a).) The Act defines "goods" as "tangible chattels bought or leased for use primarily for personal, family, or household purposes," and "services" as "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods." (Id., section 1761(a), (b).)
At issue in Fairbanks was whether plaintiffs could maintain a CLRA class action against Farmers Group, Inc. and Farmers New World Life Insurance Company arising from alleged deceptive and unfair practices in connection with the marketing and administration of universal life insurance and flexible premium universal life policies. Both the trial court and the Court of Appeal had held that plaintiffs could not maintain their CLRA claim because life insurance policies were neither "goods" nor "services" as defined in the Act.
On review, the Supreme Court affirmed. In doing so, the Court stated that "[l]ife insurance is a contract of indemnity under which, in exchange for the payment of premiums, the insurer promises to pay a sum of money to the designated beneficiary upon the death of the named insured." (Slip Op. at 3.) Because life insurance is not a "tangible chattel," the Court held that life insurance is not a good as that term is defined in the CLRA. (Cal. Civ. Code section 1761(a).) The Court also held that life insurance is not a "service" either because it "is not work or labor, nor is it related to the sale or repair of any tangible chattel." (Slip Op. at 4.)
Because of the CLRA's unambiguous language, there was no need to consider legislative history. Nevertheless, out of "an abundance of caution," the Court did so, noting that the legislative history also confirmed its conclusion that CLRA does not apply to life insurance. (Id.)
Despite its narrow holding, the Fairbanks decision should be useful to all insurance companies doing business in California. Significantly, the Court's analysis of the Act's unambiguous language and legislative history should apply with equal force to support dismissal of CLRA claims challenging practices related to other types of insurance policies beyond just life insurance policies.
If you would like to learn more about the Fairbanks decision and how it may impact your current or future litigation strategies, please contact Gayle Athanacio (415.882.5077 or gathanacio@sonnenschein.com), Steve Frankel (415.882.2410 or sfrankel@sonnenschein.com), Ron Kent (213.892.5030 or rkent@sonnenschein.com) or your regular Sonnenschein attorney.
These materials should not be considered as, or as a substitute for, legal advice and they are not intended to nor do they create an attorney-client relationship. Because the materials included here are general, they may not apply to your individual legal or factual circumstances. You should not take (or refrain from taking) any action based on the information you obtain from this document without first obtaining professional counsel and you should not send us confidential information without first speaking to one of our attorneys and receiving explicit authorization to do so.