Day v. GEICO Casualty Company

Background

Jessica Day alleged that GEICO’s “GEICO Giveback” program provided a 15% credit to new and renewing customers during specified periods in 2020 and 2021. She alleged that pandemic-related reductions in driving and accidents reduced GEICO’s claims and increased its profits, but that GEICO did not pass the full savings to policyholders. Day renewed her policy in August 2020, paid $740.52 after a $130.68 credit, and sought to represent a class of California residents who purchased specified GEICO vehicle insurance covering part of the period beginning March 1, 2020.

She asserted claims for breach of the implied covenant of good faith and fair dealing, unjust enrichment or quasi-contract, frustration of purpose, violation of California’s False Advertising Law, and violations of the unlawful, unfair, and fraudulent prongs of California’s Unfair Competition Law. GEICO moved to dismiss, arguing both that the claims fell within the California Department of Insurance’s exclusive jurisdiction and that each claim had separate pleading defects.

Exclusive jurisdiction

The court denied GEICO’s motion to dismiss on the exclusive-jurisdiction ground. It distinguished between challenges to approved insurance rates or rating factors, which fall within the Insurance Commissioner’s exclusive authority, and challenges to an insurer’s application of an approved rate plan, which may be brought in court. The court concluded that Day challenged the allegedly inadequate application of GEICO’s approved rate plan through the Giveback credits, not the approved rates themselves.

Individual claims

- Implied covenant of good faith and fair dealing: The court rejected GEICO’s arguments that this type of claim can concern only denial or mishandling of insurance benefits and that the absence of a mandatory premium adjustment defeated the claim. But it concluded that the policy’s “Changes” provision concerned information supplied by the policyholder, not general circumstances such as the COVID-19 pandemic. The motion was granted with leave to amend on this claim because Day might be able to plead a claim based on GEICO’s alleged inherent discretion to make voluntary downward premium adjustments. - Unjust enrichment: Because the parties did not dispute the existence or validity of the insurance contract governing the subject matter, the court held that Day could not pursue an unjust-enrichment or quasi-contract claim, even in the alternative. The motion was granted without leave to amend. - Frustration of purpose: The court assumed, without deciding, that Day could pursue frustration of purpose as a standalone claim seeking a declaration. It held that she had not plausibly alleged that the insurance policy became virtually worthless, because the principal purpose of insurance is to obtain coverage, and she did not allege that GEICO’s practices impaired her actual coverage. The motion was granted without leave to amend. - False Advertising Law: Day alleged that GEICO falsely stated it was “passing these savings on” to customers. The court held that she had not alleged that she viewed or relied on that specific statement before renewing her policy. The motion was granted with leave to amend. - Unfair prong of the Unfair Competition Law: The court held that Day adequately alleged at the pleading stage that GEICO’s failure to provide adequate credits caused financial harm and was unfair under both the balancing approach and the approach requiring a connection to public policy. The motion was denied on this claim. - Unlawful prong of the Unfair Competition Law: Day based this claim on the alleged False Advertising Law violation. Because the court dismissed the False Advertising Law claim with leave to amend, it granted with leave to amend the motion as to the UCL unlawful-prong claim. - Fraudulent prong of the Unfair Competition Law: Because this claim also relied on the alleged “passing these savings on” statement and lacked adequate allegations of reliance, the motion was granted with leave to amend.

GEICO entities and amendment

The court declined to dismiss GEICO Indemnity Company or GEICO General Insurance Company at that stage. The complaint did not identify which GEICO entity entered into Day’s policy or provide enough facts about the other entities’ alleged involvement, but dismissing them immediately risked dismissing the wrong defendants. All defendants therefore remained in the case. Day was required to identify the entity that entered into her policy and plead supporting facts concerning the other entities’ alleged joint participation or responsibility.

Order

The motion to dismiss was denied as to GEICO’s argument that all claims were within the Insurance Commissioner’s exclusive jurisdiction; granted with leave to amend as to the implied-covenant claim, the False Advertising Law claim, the UCL unlawful-prong claim, and the UCL fraudulent-prong claim; granted without leave to amend as to unjust enrichment and frustration of purpose; and denied as to the UCL unfair-prong claim. Day was ordered to file an amended complaint within 21 days. The order stated that failure to amend on time or to cure the identified deficiencies would result in dismissal of the deficient claims with prejudice.