Edd King v. National General Insurance Company

Background

The plaintiffs brought a proposed class action alleging that National General Insurance Company and six related insurers overcharged automobile-insurance policyholders in violation of California law. California’s “Lowest Rates Rule” requires an agent or representative for insurers under common ownership, management, or control to offer an eligible good driver a good-driver-discount policy from the insurer in that group offering the lowest rate for the coverage. The law provides an exemption for insurers meeting the conditions of a “Super Group Exemption.”

The plaintiffs alleged that they and proposed class members qualified as good drivers, held policies issued by insurers in the defendants’ control group, and were not offered the lowest available good-driver-discount premiums. They asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory and injunctive relief, fraud and misrepresentation, and violations of California’s Unfair Competition Law.

The court had previously dismissed two earlier complaints and later stayed the case while the California Department of Insurance investigated the Super Group Exemption status of National General Assurance Company (NGAC) and Personal Express Insurance Company (PEIC). The Department concluded that NGAC’s recreational-vehicle program was not subject to the Lowest Rates Rule and found no evidence establishing that PEIC had operated inconsistently with its exemption criteria, while leaving open the possibility of future administrative review.

Motion to Dismiss

The court held that NGAC and PEIC were not subject to the cross-offer requirement after their respective Super Group Exemptions were approved. But the Department of Insurance had not decided whether either insurer violated the Lowest Rates Rule before receiving its exemption. The court therefore denied dismissal of NGAC and PEIC altogether, while limiting the plaintiffs’ claims against them to alleged violations occurring before the exemptions were approved. The court also rejected the plaintiffs’ attempt to relitigate issues referred to the Department and found the allegation that PEIC later lost its exemption speculative.

The court found that the fourth amended complaint adequately alleged that the defendants’ agents and representatives, rather than insurance brokers, failed to offer the lowest rates. It also held that the complaint sufficiently alleged how the insurers could be responsible through their agency relationships and through the alleged coordinated conduct of the control group. The court rejected arguments that the plaintiffs had to plead that every policyholder would have accepted a lower rate or that an insurer had refused to sell a policy that was never offered. It also declined to dismiss insurers that allegedly did not themselves have the lowest-rate policies and rejected the argument that group insurance plans were exempt from the cross-offer requirement.

The breach-of-contract claim was dismissed because the policy language requiring compliance with financial-responsibility laws did not plausibly promise compliance with all applicable laws or specifically with the Lowest Rates Rule. The claim for breach of the implied covenant of good faith and fair dealing survived. The court held that the alleged conduct could involve an ongoing duty and that this claim does not require a separate breach of an express contract term. The claim for declaratory and injunctive relief also survived because the plaintiffs plausibly alleged a Lowest Rates Rule violation.

The fraud claim was dismissed. The plaintiffs had not identified specific misrepresentations in the defendants’ rate filings, and the complaint did not allege that the plaintiffs knew of or relied on statements made to the Department of Insurance. The claims under California’s Unfair Competition Law survived to the extent they relied on the adequately pleaded Lowest Rates Rule allegations, but the seventh claim, based on fraudulent business practices and the same insufficient fraud allegations, was dismissed.

Motion to Strike and Disposition

The court denied the motion to strike in its entirety. It declined to strike an email from a Department of Insurance official because the legal conclusions in the email did not control the court’s legal analysis. It also rejected the argument that the proposed class was an impermissible “fail-safe” class, reasoning that class membership did not depend solely on proving the defendants’ liability. The court denied the request to strike the class allegations because such issues were better addressed at the class-certification stage, and denied the request to narrow the class period under the motion-to-strike rule.

The court stated that the defendants’ motion to dismiss was granted in part and denied in part. It was granted as to claims alleging that NGAC and PEIC violated the Lowest Rates Rule after receiving their exemptions, and as to the breach-of-contract, fraud, and fraudulent-business-practice claims. Those three types of claims were dismissed with prejudice because the plaintiffs had already had two prior opportunities to amend. The motion to dismiss was otherwise denied. The motion to strike was denied. The defendants were ordered to answer the surviving claims by July 2, 2021, and the discovery stay was lifted. Judge Donna M. Ryu also scheduled a further case-management conference for August 4, 2021.