Monday, June 23, 2008
Consumer May Enforce Policy Issued by Unlicensed Insurer—C.A.
By a MetNews Staff Writer
A consumer who innocently purchased an insurance policy from a company unlicensed in California may still enforce that contract, the Fourth Circuit Court of Appeal held on Friday.
Affirming the dismissal of Pedro Medina’s complaint against an unlicensed insurer, Div. Three concluded the policy was not void as a matter of law, and that Media’s tendering of payment for the policy was therefore not a loss under the Unfair Competition Law.
Medina purchased a new 2006 BMW from Crevier Motors in Santa Ana. He also purchased a tire and wheel service contract from Safe-Guard Products International as part of the deal.
Under Insurance Code Sec.12815(a), sellers of service contracts in California must be licensed by the state Insurance Commissioner, and at the time Medina bought his contract, Safe-Guard was not licensed.
The insurance commissioner proceeded against Safe-Guard and Safe-Guard paid a $200,000 penalty. Medina also filed suit under the Unfair Competition law seeking restitution of monies paid for the service contract.
His proposed class action was predicated on the idea that he bought an absolutely void contract, could not enforce it, and had lost the money he paid for the contract, having received nothing for it in return.
However, he did not allege that Safe-Guard had ever denied any claim he brought to it under the tire and wheel service contract, or given him inferior service or products as a result of the contract.
No Injury, Judge Says
Orange Superior Court Judge Ronald L. Bauer determined that Medina had neither suffered “injury in fact” nor suffered a loss as a result of the unfair competition and sustained Safe-Guard’s demurrer.
On appeal, Medina contended that the fact of his payment for the contract, by itself, was sufficient to show “injury in fact” because the very fact that Safe-Guard was doing business in California while unlicensed was unlawful.
Writing for the appellate court, Presiding Justice David G. Sills disagreed with the premise underlying Medina’s complaint that the contract was not enforceable.
“California law most certainly does not leave consumers in the lurch when they inadvertently purchase an insurance policy from an unlicensed insurer,” he wrote.
While violations of the Insurance Code’s licensing requirement can be punished by imprisonment and/or fine, Sills noted, “[c]onspicuously missing…from the listed penalties and remedies in the statute is the automatic voiding of any insurance contracts already issued by the unlicensed insurer.”
Finding an insurance contract void because the insurer was unlicensed would be “about the worst possible remedy for the illegality of the insurer’s unlicensed status,” Sills wrote.
“To do so would be incredibly harmful to consumers who unknowingly purchased insurance from unlicensed insurers, and who, all of a sudden, would find themselves stuck with a loss which they thought they validly insured against,” he explained.
Thus, he reasoned, “in the insurance context, not to enforce the contract would be to reward the violation of law.”
Sills also disagreed with Medina’s claim that Medina had not received any benefit from his bargain under the contract because “Medina has already enjoyed a certain amount of time in which his tires and wheels were covered, and in which he had a thoroughly enforceable contract,” Sills wrote.
Furthermore, Sills reasoned, Safe-Guard’s unlicensed status did not cause Medina to part with the money paid for the service contract noting that Medina did not deny wanting the wheel and tire coverage in the first place or that he paid more for the coverage than it was worth because of Safe-Guard’s unlicensed status.
Justices Eileen C. Moore and Ricahrd M. Aronson joined Sills in his opinion.
The case is Medina v. Safe-Guard Products International Inc. 08 S.O.S. 3652.
Copyright 2008, Metropolitan News Company