Plaintiff and class representative Eric E. Ortega had a restricted policy of automobile insurance in which the insurer, defendant Topa Insurance Company (Topa), provided two tiers of physical damage coverage, paying all of the reasonable costs incurred at the insurer's preferred repair facility (PRF), but only 80 percent of the reasonable costs incurred at an unapproved repair facility selected by the insured. Ortega filed a class action complaint against Topa arising from the two-tier coverage alleging two statutory violations: Topa's payment practice is unlawful under Insurance Code section 758.5, subdivision (d)(2) and the application for insurance did not prominently disclose the limited physical damage coverage in violation of subdivision (d)(1).
In what appears to be an issue of first impression, we conclude the insurance application meets the statutory disclosure requirement and "prominently discloses" to the applicant that the auto insurance policy he or she applied for includes a contract provision suggesting or recommending a particular automotive repair facility. The Topa application states "this is a restricted policy," and contains a separate section entitled "certification of the applicant," explaining the limited physical damage coverage and asking the applicant to certify his or her understanding of the restricted policy.
We also conclude the limited physical damage coverage provision in the policy does not violate section 758.5, subdivision (d)(2), and agree with Maystruk v. Infinity Ins. Co. (2009) 175 Cal.App.4th 881 [96 Cal.Rptr.3d 494] (Maystruk). To the extent that policyholders used a PRF to repair their
Topa's application for auto liability and physical damage insurance states in bold lettering on the first page: "
Topa issued the restricted policy to the Ortegas. The payment of loss provision states: "At our option we may: [¶] ... [¶] (f) require that repair or replacement be effected by a `Preferred Repair Facility'. [sic] `Preferred Repair Facility' means an organization that meets and maintains repair and replacement standards required by us and which ensures quality repair and replacement services on all business that we direct to them. If you decide to have repairs or replacement services performed by other than a `Preferred Replacement Facility,' [sic] we will pay only eighty percent (80%), less any applicable deductible, of the amount necessary to repair or replace the damaged or stolen property."
The payment of loss provision further states that in determining the amount necessary to restore damaged property to its preloss condition, the estimate will be based upon the prevailing competitive labor rates and "the cost of
Ortega's 2003 Mercedes Benz E320 was a covered vehicle under this policy.
The complaint alleges that Ortega filed a claim under the policy when Ortega's Mercedes was vandalized. Ortega intended to select a repair facility, but Topa's third party claims administrator informed him in writing of the limited physical damage coverage in his policy.
Ortega took his car to a PRF, but he allegedly was dissatisfied with the repairs and reported additional damages. Ortega alleged the PRF repairs did not restore his car to its preloss condition because the PRF replaced the damaged parts with nonoriginal equipment or manufacturer (non-OEM) parts.
Ortega filed a class action complaint against Topa arising from the two tiers of physical damage coverage. Ortega alleged the limited physical damage coverage provision in the policy violates section 758.5, subdivision (d)(2). Ortega also alleged the insurance application violates the disclosure requirement of section 758.5, subdivision (d)(1). Ortega sought to represent three putative classes.
"Class A" is described as the "Discounted Claimant Class," and consists of Topa policyholders who chose to take their vehicles to non-PRF's and were "subjected to an unlawful discount."
"Class B," referred to as the "Steered Claimant Class," is defined in the complaint as those policyholders who took their vehicles to PRF's for repairs and had non-OEM parts used in the repair that disrupted the warranty by
"Class C" is the "Policyholder Class," which includes policyholders who were subject to the "stated general business practice of requiring claimants to use a PRF or incur a twenty percent (20%) discount for using a non-PRF of the policyholder's choice."
Ortega, individually, and on behalf of the putative classes, asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.) and the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.).
Thebreach of contract and breach of the implied covenant of good faith and fair dealing causes of action were brought on behalf of the Discounted Claimant Class (Class A) and Steered Claimant Class (Class B), alleging in exchange for the payment of premiums, the putative classes had a right to choose their own vehicle repair facility without having to incur an unlawful discount, and also had a right to have their covered vehicle restored to preloss condition. Further, the insurance policy contained a provision that the policy must conform to state law, and these provisions violated California's antisteering law. The breach of implied covenant cause of action also alleged the Topa application for insurance did not meet the statutory disclosure requirement.
Before class certification, the parties agreed to brief certain threshold legal issues.
The parties asked the trial court to determine the following legal issues: (1) whether the complaint states sufficient facts to maintain the class action; (2) whether the complaint states a cause of action for breach of contract and breach of the implied covenant of good faith and fair dealing; and (3) whether the Topa policy violates section 758.5.
Employing the requirements of Code of Civil Procedure section 382, the trial court determined the Discounted Claimant Class (Class A) and the Policyholder Class (Class C) could not maintain a class action lawsuit because the complaint failed to allege common questions of fact and law, and these classes were not ascertainable.
As for the Steered Claimant Class (Class B), the trial court determined the redefined class was ascertainable. Citing Lebrilla v. Farmers Group, Inc. (2004) 119 Cal.App.4th 1070 [16 Cal.Rptr.3d 25], the trial court also concluded common questions of law and fact predominated at the pleading stage. Thus, only Class B met the requirements to proceed as a class for "purposes of overcoming a pleading challenge."
The trial court determined Ortega and the putative Steered Claimant Class (Class B) could proceed with their contract and implied breach of covenant
While denying Topa's motion for summary judgment on the contract and breach of implied covenant causes of action, the trial court determined as a matter of law that Topa's application for insurance and the Topa policy did not violate section 758.5. The trial court concluded the application for automobile insurance met the disclosure requirement in subdivision (d)(1). Relying on Maystruk, supra, 175 Cal.App.4th 881, the trial court also concluded the limited physical damage coverage provision did not violate subdivision (d)(2). Thus, Ortega "can no longer premise his complaint on the bare notion that he was damaged solely by Topa's employment of the two-tier benefit structure ...."
In light of these legal determinations, the trial court invited Topa to file a motion to strike the remaining class allegations asserted on behalf of the Steered Claimant Class (Class B).
Topa moved to strike the remaining allegations related to the Steered Claimant Class (Class B) on the ground that Maystruk, supra, 175 Cal.App.4th 881, resolved the issue that neither the limited physical damage coverage provision in the Topa policy nor the use of non-OEM parts for vehicle repairs violated the law. The trial court agreed, striking the class allegations asserted on behalf of Class B. The court's ruling disposed of the remaining contract and breach of the implied covenant causes of action. In its order, the trial court inadvertently referred to the original definition of Class B in the complaint, but in a motion for reconsideration, the court reached the same conclusion as to the redefined class.
Although no final judgment has been entered, the trial court's order struck all the class allegations from the complaint. Ortega timely appealed under the "death knell" doctrine. (Alch v. Superior Court (2004) 122 Cal.App.4th 339, 359-360 [19 Cal.Rptr.3d 29].)
While generally an order granting a motion to strike is not an appealable order, in this case, the trial court's order is effectively a final judgment. The
We independently review the statutory questions presented in this appeal addressing (1) whether the Topa application violates the disclosure requirement in subdivision (d)(1) of section 758.5 and (2) whether the limited physical damage coverage provision in the insurance policy violates subdivision (d)(2) of section 758.5. (Pineda v. Williams-Sonoma Stores, Inc. (2011) 51 Cal.4th 524, 529 [120 Cal.Rptr.3d 531, 246 P.3d 612].)
An appeal from a denial of class certification is subject to an abuse of discretion standard. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327 [17 Cal.Rptr.3d 906, 96 P.3d 194].) When the trial court's order striking the class allegations are akin to a general demurrer, we determine the issues as questions of law after assuming the truth of the factual allegations. (See Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 641 [114 Cal.Rptr.3d 449].) Thus, for purposes of our analysis, we assume the allegations to be true, but we must determine if the allegations are legally sufficient to assert a class action on behalf of the putative classes.
Specifically, Ortega contends the Steered Claimant Class (Class B) and the Policyholder Class (Class C) allegations were sufficient at the pleading stage. We turn to this legal issue mindful of the principle that we may affirm an order sustaining a demurrer on grounds presented by the record whether or not relied on by the trial court (Maystruk, supra, 175 Cal.App.4th at p. 887) or on grounds first raised on appeal (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1396 [89 Cal.Rptr.3d 659] ["`An appellate court may ... consider new theories on appeal from the sustaining of a demurrer to challenge or justify the ruling.'"]; Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 880, fn. 10 [6 Cal.Rptr.2d 151] [appellate "court will still affirm the demurrers even if the trial court relied on an improper ground, whether or not the defendants asserted the proper ground in the trial court"]).
As shall be discussed, we conclude the complaint fails to allege a statutory violation of section 758.5, subdivision (d)(1) and (2). Thus, the breach of contract and breach of the implied covenant causes of action, and the CLRA
Ortega contends our opinion in Malek, supra, 121 Cal.App.4th 44, dictates by parity of reasoning that to meet the statutory disclosure requirement of section 758.5, subdivision (d)(1), the text in the insurance application must be in a different type size and font, in a separately numbered paragraph or section in the application. (Malek, supra, at p. 61.) Ortega's reliance on Malek is misplaced.
Malek, supra, 121 Cal.App.4th 44, addressed, among other things, the prominence requirement of a binding arbitration provision in a health care service plan contract. We concluded the arbitration provision did not meet the prominence requirement of Health and Safety Code section 1363.1, subdivision (b)
Unlike Malek, we are not dealing with a provision involving the waiver of a constitutional right, namely the right to a jury trial, that is unrelated to the subject matter of the contract. The disclosure requirement in section 758.5, subdivision (d)(1) relates to the restricted nature of the applied-for automobile insurance policy. The title of the application puts the applicant on notice that "
We also reject Ortega's additional arguments related to specific formatting requirements, and his contention that the insurer must set forth verbatim the policy language in the application.
Although it is not necessary to consider the legislative history, our review of the limited legislative history confirms our interpretation of the disclosure requirement in section 758.5, subdivision (d)(1). The purpose of the legislation was to strengthen "existing ... sections" of the Fair Claims Settlement Practices Regulations (Cal. Code Regs., tit. 10, § 2695.8), which required written notice if the insurer recommended that an automobile be repaired at a specific shop, but the regulation was silent as to when the written notice must be given to the insured. (Sen. Com. on Insurance, Analysis of Sen. Bill No. 551 (2003-2004 Reg. Sess.) as amended Apr. 28, 2003, pp. 3-4.) The author of the bill recognized that a policyholder should be informed of his or her right to choose a repair shop in a reasonable manner, and the time of greatest need would be after an accident and before arranging for repairs. (Id. at p. 4.) The legislative history provides little insight into why the Legislature ultimately decided that the disclosure to the insured of his or her right to choose a repair shop also should be made at the time the insured applied for the policy. This additional disclosure shows the Legislature also must have intended to inform the insured of his or her rights to choose a repair shop before obtaining a restricted policy. The Topa application stating it is a
Ortega, and the classes he purports to represent, also contend the Topa insurance policy violates section 758.5, subdivision (d)(2), alleging that the limited physical damage coverage provision is unlawful because it steers policyholders by requiring them to use a Topa PRF. There is no statutory violation.
We agree with the Maystruk court's interpretation of section 758.5, subdivision (d)(2). Since the class claims do not allege any other statutory violation arising from a reduced rate of coverage, the complaint fails to assert a statutory violation. Thus, the causes of action based upon a violation of section 758.5, subdivision (d)(2) fail as a matter of law, and no amendment will cure this pleading defect.
In sum, the complaint does not allege a statutory violation. Thus, the causes of action asserting violations of the CLRA and UCL fail. Likewise, the contract and breach of the covenant of good faith and fair dealing causes of action alleging the Topa insurance policy does not comply with applicable law also fail.
In his reply brief, Ortega clarifies that the Steered Claimant Class (Class B) contract causes of action based upon the use of non-OEM parts arise from a violation of the disclosure requirement in the application for insurance. Ortega's reply brief states: "Allegations in the operative complaint referencing defendants' use of non-OEM parts and other inadequate cost saving
Ortega, however, also appears to contend that the Steered Claimant Class members (Class B) have asserted viable causes of action for breach of contract and breach of the implied covenant because (1) they were not given the required notice that the PRF intended to use the non-OEM parts, which we assume is the notice required under the California Code of Regulations, and (2) the use of universally inferior non-OEM parts by the PRF did not restore covered vehicles to preloss condition. Based upon these contentions, the trial court concluded the allegations asserted on behalf of the Steered Claimant Class (Class B) did not plead common questions of law and fact. We find no basis to reverse this order. (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at pp. 326-327.)
Ortega patterns the Steered Claimant Class (Class B) contract causes of action after the plaintiffs in Lebrilla v. Farmers Group, Inc., supra, 119 Cal.App.4th 1070. In Lebrilla, the plaintiffs sought statewide class certification in a suit against an automobile insurer, alleging the installation of sheet metal parts (known as crash parts), which were not manufactured by original equipment manufacturers, resulted in substandard repairs that did not restore their damaged vehicles to preloss condition. (Id. at pp. 1072-1073.) The appellate court considered whether the trial court erred by denying the motion for class certification on the ground that common issues of law and fact did not predominate. The focus of the court's analysis was "whether a class can establish imitation crash parts are uniformly not of like kind and quality as OEM parts." (Id. at p. 1077.) The Lebrilla court agreed with persuasive out-of-state authority that the issue could be decided on a classwide basis. (Id. at pp. 1083-1084.)
Ortega and the putative class also appear to contend that they may proceed on a classwide basis because they did not receive notice from the PRF that the facility intended to use non-OEM aftermarket crash parts. (Bus. & Prof. Code, § 9875.1, subd. (a) ["The written estimate shall clearly identify each such part with the name of its nonoriginal equipment manufacturer or distributor."]; Cal. Code Regs., tit. 10, § 2695.8, subd. (g)(5) ["No insurer shall require the use of non-original equipment manufacture[r] replacement crash parts in the repair of an automobile unless: [¶] ... [¶] (5) the use of non-original equipment manufacturer replacement crash parts is disclosed in accordance with section 9875 of the California Business and Professions Code."].) Assuming, without deciding, that these notice provisions are applicable to some of the putative class as currently defined, whether and when an insured received notice, also is an individual inquiry.
Ortega's own claim illustrates the individual inquiries for the court. He alleges the "door locks" and "headlamp" were replaced with "unacceptable non-OEM parts."
The trial court's order striking the class allegations in the second amended complaint is affirmed. Respondents are entitled to costs on appeal.
Croskey, Acting P. J., and Kitching, J., concurred.
"(1) Prominently disclose the contractual provision in writing to the insured at the time the insurance is applied for and at the time the claim is acknowledged by the insurer. [¶]
"(2) If the claimant elects to have the vehicle repaired at the shop of his or her choice, the insurer shall not limit or discount the reasonable repair costs based on charges that would have been incurred had the vehicle been repaired by the insurer's chosen shop."
Unless otherwise stated, all further statutory references are to the Insurance Code.