Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: Failure to Show Public Deception Results in Dismissal of Insurance Company’s California UCL Claim Against Developer, (Jun 3, 2013)

By Tobias J. Gillett, J.D., LL.M.

An insurance company failed to state a claim under California’s Unfair Competition Law (UCL) against a real estate developer, a law firm, and a third-party administrator over the defendants’ allegedly fraudulent misrepresentations regarding the firm’s rates, the scope of the developer’s tenders, and the participation of other insurance companies in the developer’s defense, the federal district court in San Francisco has ruled (Travelers Property Casualty Co. of America v. Centex Homes, May 30, 2013, Conti, S.). The insurance company did not show how the allegedly fraudulent conduct could mislead the public, as required by the UCL, in the court’s view.

Centex Homes has agreements with contractors to build residential communities in California. The general liability insurance policies those contractors obtain name Centex as an additional insured. Centex retained Newmeyer & Dillion to represent it in various construction defect lawsuits, and Travelers Property Casualty Company of America agreed to defend Centex in some of them. Newmeyer used RGL Inc. as a third-party administrator to send bills to insurance carriers, including Travelers.

According to Travelers’ complaint, Centex, Newmeyer, and RGL overbilled Travelers by fraudulently misrepresenting Newmeyer’s hourly rates, the scope of Centex’s tenders, and other carriers’ agreements to participate in Centex’s defense. Centex and Newmeyer allegedly had an agreement under which Newmeyer would charge Centex certain rates until an insurance company agreed to provide a defense, at which point Newmeyer would begin charging much higher rates. As to the scope of the tenders, wrap insurance carriers (carriers with policies covering the owner, general contractors, and subcontractors on a project) agreed to pay only 75 percent of the defense costs for homes they covered, but Newmeyer allegedly instructed RGL to charge the remaining 25 percent to non-wrap carriers such as Travelers. Finally, Centex, “by and through RGL,” allegedly concealed from Travelers that certain insurance carriers were participating in Centex’s defense, thus misrepresenting the percentage of fees paid by each carrier and causing Centex and Newmeyer to receive payments in excess of 100 percent of the actual fees and costs incurred in Centex’s defense.

Travelers asserted a claim under the UCL against Centex, Newmeyer, and RGL, among other claims. The defendants moved to dismiss.

The court granted the motion to dismiss, concluding that Travelers had failed to state a claim, but granted Travelers leave to amend. The court explained that the UCL prohibits “unlawful, unfair or fraudulent business act[s].” Although Travelers appeared to be asserting a claim under the “fraudulent” prong, it “failed to allege as much.” Moreover, the court observed that “[f]or the purposes of the UCL, a fraudulent business practice is one that is likely to deceive members of the public.” Since Travelers had not shown how the defendants’ alleged fraudulent practices, “which relate[d] to a single private commercial insurance transaction, could possibly mislead the public.”

The case is No. 13-0088-SC.

Attorneys: A. Eric Aguilera (The Aguilera Law Group, APLC) for Travelers Indemnity Co. of Connecticut; Jeffrey Michael Hayes (Payne & Fears LLP) for Centex Homes.

Companies: Travelers Property Casualty Co. of America; Centex Homes; Newmeyer & Dillion; RGL Inc.; RGL Forensics

Cases: StateUnfairTradePractices CaliforniaNews