Progressive West Insurance v. Superior Court

Opinion

Progressive West Insurance Company filed an action against Simon H. Preciado to recover money it paid to Preciado under a first-party medical payments provision of his automobile insurance policy. In response,

As to Preciado’s specific claims related to his insurance contract, we shall reverse the trial court’s order overruling the demurrer as to the causes of action for breach of contract and breach of the covenant of good faith and fan-dealing and direct the court to sustain the demurrer as to those causes of action without leave to amend. On Preciado’s broader claims related to Progressive’s handling of this issue generally, we shall affirm the court’s order overruling the demurrer as to the cause of action for unfair business practices.

FACTUAL AND PROCEDURAL BACKGROUND

Our review of the trial court’s ruling on the demurrer is governed by well-settled principles. A general demurrer challenges only the legal sufficiency of a complaint, not the truth or the accuracy of its factual allegations or the plaintiff’s ability to prove those allegations. (Ball v. GTE Mobilnet of California (2000) 81 Cal.App.4th 529 , 534-535 [ 96 Cal.Rptr.2d 801 ].) “ 1 “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]’ ” (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112 , 1126 [ 119 Cal.Rptr.2d 709 , 45 P.3d 1171 ].) Our review of the legal sufficiency of the complaint is de novo, “i.e., we exercise our independent judgment about whether the complaint states a cause of action as a matter of law. [Citation.]” (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th 784 , 790 [ 90 Cal.Rptr.2d 598 ].)

Here, Progressive sued Preciado for reimbursement of Progressive’s payment of medical payments to Preciado after Preciado recovered damages from the person who injured him in a car accident. In response, Preciado filed

Progressive filed a general demurrer to the cross-complaint. The trial court overruled Progressive’s demurrer to these three causes of action. Progressive filed a petition for writ of mandate. We issued an alternative writ.

DISCUSSION

The Made-whole Rule and the Common-fund Doctrine

A

Made-whole Rule

When an insurance company pays out a claim on a first-party insurance policy to its insured, the insurance company is subrogated to the rights of its insured against any tortfeasor who is liable to the insured for the insured’s damages. (See, e.g., Plut v. Fireman’s Fund Ins. Co. (2000) 85 Cal.App.4th 98 , 104 [ 102 Cal.Rptr.2d 36 ] [“ ‘Subrogation is the insurer’s right to be put in the position of the insured, in order to recover from third parties who are legally responsible to the insured for a loss paid by the insurer. [Citation.]’ [Citation.]”]; Hodge v. Kirkpatrick Dev., Inc. (2005) 130 Cal.App.4th 540 , 548 [ 30 Cal.Rptr.3d 303 ].) Subrogation has its source in equity and arises by operation of law (legal or equitable subrogation). (Sapiano v. Williamsburg Nat. Ins. Co. (1994) 28 Cal.App.4th 533 , 537, fn. 1 [ 33 Cal.Rptr.2d 659 ].) It can also arise out of the contractual language of the insurance policy (conventional subrogation). (Ibid.) The subrogation provisions of most insurance contracts typically are general and add nothing to the rights of subrogation that arise as a matter of law. (Id. at p. 538.)

Subrogation places the insurer in the shoes of its insured to the extent of its payment. (Hodge v. Kirkpatrick Dev., Inc., supra, 130 Cal.App.4th at p. 548.) In personal injury actions, however, the insurance company may not assert its subrogation claim directly against the third party tortfeasor on its own behalf. (Fifield Manor v. Finston (1960) 54 Cal.2d 632 , 639-640, 643 [ 7 Cal.Rptr. 377 , 354 P.2d 1073 ].) Moreover, the insurance company may not

Where the insurance company does not interplead itself into the underlying action, the insurance company’s rights to recover any payments received by its insured are limited. Under the made-whole rule, “[w]hen an insurer does not participate in the insured’s action against a tortfeasor, despite knowledge of that action, the insurer cannot recover any funds obtained through settlement of the action unless the full amount received exceeds the insured’s actual loss. [Citation.] Furthermore, the insured need not account to the nonparticipating insurer ‘for more than the surplus remaining in his hands, after satisfying his loss in full and his reasonable expenses incurred in the recovery.’ [Citation.] Thus, when an insurer elects not to participate in the insured’s action against a tortfeasor, the insurer is entitled to subrogation only after the insured has recouped his loss and some' or all of his litigation expenses incurred in the action against the tortfeasor.” (Plut v. Fireman’s Fund Ins. Co., supra, 85 Cal.App.4th at pp. 104-105; see also Hodge v. Kirkpatrick Dev., Inc., supra, 130 Cal.App.4th at pp. 552-553.)

Progressive argues the made-whole rule does not apply here because it is seeking “reimbursement” from its insured, not “subrogation” from the party who injured Preciado. As explained by a leading commentator on insurance law, there is a technical difference between subrogation and reimbursement. (16 Couch, Insurance (3d ed. 2000) § 222:2, pp. 222-10 through 222-14.) Subrogation refers to the right of the insurance company to step into the shoes of the insured and assert the insured’s rights against the third party. (Id. at p. 222-11.) Reimbursement refers to the right to receive payment back of what has been expended by the insurance company. (Ibid.) That same commentator, however, acknowledges that those terms are often used interchangeably in the cases. (Ibid.) In California, both the subrogation rights and reimbursement rights of the insurance company fall within the rubric of subrogation. (See Plut v. Fireman’s Fund Ins. Co., supra, 85 Cal.App.4th at pp. 104-105; Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 , 1077 [ 13 Cal.Rptr.3d 586 ]; Hodge v. Kirkpatrick Development, Inc., supra, 130 Cal.App.4th at p. 553.) Thus, both of those rights are limited by the made-whole rule.

“ ‘It is a general equitable principle of insurance law that, absent an agreement to the contrary, an insurance company may not enforce a right to subrogation until the insured has been fully compensated for [his or] her injuries, that is, has been made whole. [Citations.]’ [Citations.]” (Plut v. Fireman’s Fund Ins. Co., supra, 85 Cal.App.4th at p. 104, italics added.) There is authority that language in an insurance policy that grants the insurance company “all rights of recovery to the extent of its payment” overrides the common law made-whole rule. (See, e.g., Barnes v. Independent Auto. Dealers of California (9th Cir. 1995) 64 F.3d 1389 , 1393, 1396.) Indeed, in Travelers Indem. Co. v. Ingebretsen (1974) 38 Cal.App.3d 858 , 865 [ 113 Cal.Rptr. 679 ], the parties executed a specific subrogation agreement which provided: “ ‘In consideration of and to the extent of said payment the undersigned hereby assigns and transfers to the said Company all rights, claims, demands and interest which the undersigned may have against any party through the occurrence of such loss and authorizes said Company to sue, compromise or settle in the name of the undersigned or otherwise all such claims and to execute and sign releases and acquittances in the name of the undersigned.’ ” The appellate court concluded the insured’s assignment to the insurance company of “all rights” “to the extent of payment” gave the insurance company priority to any recovery obtained by the insured. (Id. at pp. 865-866.)

The more recent cases, however, require that the contractual provision that intends to vitiate this rule must “clearly and specifically [give] the insurer a priority out of proceeds from the tortfeasor regardless whether the insured was first made whole.” (Sapiano v. Williamsburg Nat. Ins. Co., supra, 28 Cal.App.4th at pp. 538-539.) Thus, in Sapiano, the relevant provision of the insurance policy stated, “[i]f any person or organization to or for whom we make payment under this Coverage Form has rights to recover damages from another, those rights are transferred to us.” (Id. at pp. 535-536.) That provision was not sufficient to overcome the made-whole rule. (Id. at pp. 538-539.) The Sapiano court concluded the language of the insurance contract at issue in Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284 , 1289-1290 [ 22 Cal.Rptr.2d 20 ], however, provided a good example of the language necessary to abrogate the made-whole rule. (Sapiano v. Williamsburg Nat. Ins. Co., supra, 28 Cal.App.4th at p. 538.) The language in the Kaiser agreement provided, “ ‘Health Plan (or its designee) shall be entitled to the payment, reimbursement, and subrogation as provided in this Section C(1) regardless of whether the total amount of the recovery of the Member (or his or her estate, parent or legal guardian) on account of the

Here, the policy states Progressive “is entitled to all the rights of recovery that the insured person to whom payment was made has against another.” In a separate paragraph of the policy, the policy states, “When an insured person has been paid by us under this policy and also recovers from another person, entity, or organization, the amount recovered will be held by the insured person in trust for [Progressive] and reimbursed to [Progressive] to the extent of our payment.” These two provisions, individually or taken together do not clearly indicate that Progressive’s rights are first in priority. In addition, these two provisions do not explain that Progressive may seek reimbursement regardless of whether the insured was made whole by his recovery from the third party. Furthermore, unlike the provision in Travelers Indem. Co. v. Ingebretsen, supra, 38 Cal.App.3d 858 , 865, these provisions do not assign or transfer all rights to the insurer to the extent of the insurance company’s payment. Thus, we conclude the made-whole rule is not vitiated by this policy language.

B

Common-fund Doctrine

Progressive does not argue the common-fund doctrine does not apply here and thus, we provide a brief summary of that rule here. The common-fund doctrine is a second limitation on an insurance company’s ability to recover fimds from its insured where the insured obtains a judgment or settlement from the third party tortfeasor. Under the common-fimd rule, “ ‘[W]hen a number of persons are entitled in common to a specific fund, and an action brought by a plaintiff or plaintiffs for the benefit of all results in the creation or preservation of that fund, such plaintiff or plaintiffs may be awarded attorney’s fees out of the fund.’ ” (Lee v. State Farm Mut. Auto. Ins. Co. (1976) 57 Cal.App.3d 458 , 467 [ 129 Cal.Rptr. 271 ].) “‘The bases of the equitable rule which permits surcharging a common fund with the expenses of its protection or recovery, including counsel fees, appear to be these: fairness to the successful litigant, who might otherwise receive no benefit because his recovery might be consumed by the expenses; correlative prevention of an unfair advantage to the others who are entitled to share in the fund and who should bear their share of the burden of its recovery; encouragement of the attorney for the successful litigant, who will be more willing to undertake and diligently prosecute proper litigation for the protection or recovery of the fund if he is assured that he will be promptly and directly compensated should his efforts be successful.’ ” (Id. at pp. 467-468.) Under

n

Preciado Has Not Stated a Cause of Action for Breach of the Covenant of Good Faith and Fair Dealing

Progressive argues that Preciado failed to state a cause of action for breach of the implied covenant of good faith and fair dealing because he has not alleged and cannot allege that benefits are due under the policy. We agree.

In his cross-complaint, Preciado alleges Progressive breached the covenant of good faith and fair dealing by: “a) unreasonably and in bad faith failing to investigate PRECIADO’s claim properly; b) unreasonably and in bad faith failing and refusing to acknowledge the controlling law as it relates to insurance reimbursement in general, and med-pay reimbursement in particular; c) unreasonably and in bad [faith] failing and refusing to provide adequate, and informed communication as between an insurer and an insured/med-pay recipient; d) unreasonably and in bad faith failing and refusing to promptly and adequately explain the policy coverages; e) unreasonably and in bad faith misleading PRECIADO regarding his true obligations owed, if any to PROGRESSIVE; f) unreasonably and in bad faith misrepresenting to PRECIADO material facts concerning his claims and the valid and proper amount of benefits due under the Policy; g) unreasonably and in bad faith attempting to collect, through intimidation and coercion, amounts to which PROGRESSIVE is not entitled; and h) unreasonably and in bad faith failing and refusing to provide timely and full and complete benefits to PRECIADO.” Each of these allegations must be read in the context of the general allegations plead in the complaint which detail that each of these claimed breaches arises out of Progressive’s demand for more money in reimbursement than it was entitled under the common-fund doctrine and/or the made-whole rule. When read in that context, this pleading fails to state a cause of action.

“Every contract imposes on each party an implied duty of good faith and fair dealing. [Citation.] Simply stated, the burden imposed is 1 “that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.’ ” [Citations.] Or, to put it another way,

“Insurance contracts are unique in nature and purpose. [Citation.] An insured does not enter an insurance contract seeking profit, but instead seeks security and peace of mind through protection against calamity. [Citation.] The bargained-for peace of mind comes from the assurance that the insured will receive prompt payment of money in times of need. [Citation.] Because peace of mind and security are the principal benefits for the insured, the courts have imposed special obligations, consonant with these special purposes, seeking to encourage insurers promptly to process and pay claims. Thus, an insurer must investigate claims thoroughly [citation]; it may not deny coverage based on either unduly restrictive policy interpretations [citation] or standards known to be improper [citation]; it may not unreasonably delay in processing or paying claims [citation].” (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136 , 1148 [ 271 Cal.Rptr. 246 ] (Love), italics added.) “These special duties, at least to the extent breaches thereof give rise to tort liability, find no counterpart in the obligations owed by parties to ordinary commercial contracts. The rationale for the difference in obligations is apparent. If an insurer were free of such special duties and could deny or delay payment of clearly owed debts with impunity, the insured would be deprived of the precise benefit the contract was designed to secure (i.e., peace of mind) and would suffer the precise harm (i.e., lack of funds in times of crisis) the contract was designed to prevent. [Citation.] To avoid or discourage conduct which would thus frustrate realization of the contract’s principal benefit (i.e., peace of mind), special and heightened implied duties of good faith are imposed on insurers and made enforceable in tort. While these ‘special’ duties are akin to, and often resemble, duties which are also owed by fiduciaries, the fiduciary-like duties arise because of the unique nature of the insurance contract, not because an insurer is a fiduciary.” (Ibid.)

In Love, the insureds sought to estop the insurance company from asserting the statute of limitations because the insurance company had an obligation to

The Love court explained, “there are at least two separate requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause.” (Love, supra, 221 Cal.App.3d at p. 1151.) As a result, where no benefits are withheld or delayed, there is no cause of action for the breach of the covenant of good faith and fair dealing. (Id. at p. 1152.)

In Jonathan Neil & Assoc., Inc. v. Jones (2004) 33 Cal.4th 917 , 923 [ 16 Cal.Rptr.3d 849 , 94 P.3d 1055 ], the insureds defended a collection action against them by their insurance company and filed a cross-complaint against the company for breach of the covenant of good faith and fair dealing when the insurance company “retroactively and knowingly charged [them] a substantially higher premium than was actually owed.” Our Supreme Court

Here, these rules dictate that Preciado has not stated a cause of action against Progressive for the breach of the covenant of good faith and fair dealing. By pleading that Progressive is seeking reimbursement under the policy, Preciado acknowledges Progressive paid him what was due under that policy. No factual allegation in the cross-complaint suggests that Progressive unduly delayed in paying these benefits, or that it failed to properly investigate the claim in a manner that delayed the payment of those benefits to the detriment of its insured. Because the essence of the tort of the implied covenant of good faith and fair dealing is focused on the prompt payment of benefits due under the insurance policy, there is no cause of action for breach of the covenant of good faith and fair dealing when no benefits are due.

Moreover, each of the three factors enumerated in Jonathan Neil & Assoc., Inc. v. Jones, supra, 33 Cal.4th at page 939, supports the conclusion that the bad faith assertion of Progressive that it was entitled to the return of all of the money it paid to Preciado did not violate the covenant of good faith and fair dealing. First, as we have noted, Progressive did not deny Preciado the benefits of the insurance policy. Rather, it promptly paid those funds to Preciado. Second, the instant dispute did not require Preciado to sue the insurer to enforce its rights, as is the case of bad faith claims and settlement practices. Third, Preciado retains the traditional tort remedy of malicious prosecution in the event that Progressive’s conduct was indeed malicious.

Preciado offers the rejoinder that Progressive withheld “policy benefits” when it “sought to take back benefits from Preciado that were lawfully his.” We reject Preciado’s characterization. Progressive’s demand for return of the benefits it paid to Preciado, even to the extent that demand in bad faith exceeded the amount to which Progressive was entitled, does not constitute a withholding of the benefits at the critical time. Nor does it go to the heart of the policy reason behind the covenant of good faith and fair dealing—that is the prompt payment of benefits to the insured. Rather, this case is no different than any other garden variety contractual dispute between two parties to a contract. The covenant of good faith and fair dealing does not extend this far.

In Schwartz, the insurer paid out the full benefits of the policy in a manner that favored one insured to the detriment of a second insured for the same benefits. (Schwartz v. State Farm Fire & Casualty Co., supra, 88 Cal.App.4th at pp. 1333-1334.) The court concluded that “even an insurer that pays the full limits of its policy may be liable for breach of the implied covenant, if improper claims handling causes detriment to the insured.” (Id. at p. 1339.) Here, this dispute about whether Progressive is entitled to less than all of the money it paid to Preciado cannot be properly characterized as “improper claims handling [that] cause[d] detriment to” Preciado.

In Johansen, the court concluded that the insurer breached the covenant of good faith and fair dealing when it refused to promptly accept a reasonable settlement offer that was within the policy limits. (Johansen v. California State Auto. Assn. Inter-Ins. Bureau, supra, 15 Cal.3d at p. 19.) In Neal v. Farmers Ins. Exchange, the insurance company refused to accept offers of settlement, and subsequently submitted the matter to its attorney for an opinion, all as a part of a conscious course of conduct designed to force a settlement more favorable to the company than the facts would have otherwise warranted. (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at pp. 922-923.) These facts do not come close to those at bar and offer no helpful analogy.

Lastly, in Brizuela v. CalFarm Ins. Co. (2004) 116 Cal.App.4th 578 , 592 [ 10 Cal.Rptr.3d 661 ], the court stated, “The gravamen of a claim for breach of the covenant of good faith and fair dealing, which sounds in both contract and tort, is the insurer’s refusal, without proper cause, to compensate the insured for a loss covered by the policy.” In rejecting the insured’s claim of breach of this covenant, the court stated, “Some authorities have suggested hypothetical circumstances in which an insurance company might be liable for bad faith despite the insured’s lack of a contract right to benefits under the insurance policy. (Ashley, Bad Faith Actions Liability and Damages (2d ed. 1997), § 5A:02, p. 5A-10 [insurer might be liable for bad faith if, instead of investigating a non-covered claim, insurer embarked on campaign to intimidate insured into settling]; see, e.g., Murray v. State Farm Fire & Casualty Co. (1990) 219 Cal.App.3d 58 , 65-66 [ 268 Cal.Rptr. 33 ] [insurance company might be liable if it unreasonably delayed investigating an [szc] noncovered claim].)” (Id. at p. 594.)

We will therefore issue a writ of mandate directing the trial court to sustain the demurrer without leave to amend as to the cause of action for breach of the covenant of good faith and fair dealing.

m

Preciado Has Not Stated a Cause of Action for Breach of Contract

Progressive argues that Preciado has not alleged a breach of contract against it. We agree.

The allegations of the complaint are that Progressive breached the contract by “failing to engage in any analysis or discussion as to whether PRECIADO was Made Whole prior to instituting its improper collection efforts; [and] fraudulently seeking full reimbursement of its expended funds even though, as a matter of law, PROGRESSIVE must reduce the amount claimed pursuant to the Common Fund Theory.”

Preciado pleads no provision of the contract which places the burden on Progressive of engaging in analysis or discussion of whether Preciado was made whole, or determining if the common-fund doctrine applies. It is true the made-whole rule and the common-fund doctrine are incorporated into the contract as the common law of the State of California. Nothing in the cases that discuss those doctrines, however, places the burden on the insurance company to investigate or determine all of the facts required to ascertain the extent to which these rules might constitute a defense to the insurance company’s right of reimbursement.

The provisions of an insurance policy must be read in conjunction with the existing law. “The interpretation of the language in an insurance policy is a question of law. In resolving such a question courts look first to the plain meaning of the disputed term to ascertain the mutual intention of the parties. [Citation.] As a general rule of construction, the parties are presumed to know and to have had in mind all applicable laws extant when an agreement is made. These existing laws are considered part of the contract just as if they were expressly referred to and incorporated.” (Miracle Auto Center v. Superior Court (1998) 68 Cal.App.4th 818 , 821 [ 80 Cal.Rptr.2d 587 ].) Existing law includes the common law of the state. (In re Retirement Cases (2003) 110 Cal.App.4th 426 , 447 [ 1 Cal.Rptr.3d 790 ].) Thus, the

Progressive argues the trial court erred when it concluded Preciado stated a cause of action for unfair business practices. It is here we part company with Progressive.

In his cross complaint, Preciado alleges Progressive has a “pattern and practice of seeking med-pay reimbursement even though it never engaged in any discussion, analysis or conclusion that the injured party has in fact been made whole” and “continues to seek[] sums it is not entitled to as a matter of law to further its unlawful scheme.” Further, Preciado alleges that Progressive has a “pattern and practice of ignoring California Law by seeking 100% reimbursement for the amounts paid under its med-pay provision. This systematic scheme is contrary to law, and is nothing more than a sharp, illicit business practice.” Based on these key allegations, Preciado alleges Progressive fails to investigate claims, fails to properly explain policy benefits, misled Preciado and misrepresented material facts pertaining to his claim, imposes unacceptably high reimbursement amounts, and forced Preciado to retain an attorney and incur economic damages in order to receive proper benefits under the policy.

These practices, to the extent they are more general than the allegations of the breach of contract and breach of the covenant of good faith and fair dealing causes of action, state a cause of action. It may be that Preciado may not be able to adduce evidence as to this “pattern and practice” of activities. At this stage of the proceedings, however, we must affirm the overruling of Progressive’s demurrer as to this cause of action.

Section 17200 provides: “[a]s used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” This statute “establishes three separate types of unfair competition. The statute prohibits practices that are either ‘unfair,’ or ‘unlawful,’ or ‘fraudulent.’ [Citation.]” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490 , 1496 [ 6 Cal.Rptr.3d 148 ].)

“ ‘Section 17200 “is not confined to anticompetitive business practices, but is also directed toward the public’s right to protection from fraud, deceit, and unlawful conduct. [Citation.]” ’ ” Community Assisting Recovery, Inc. v. Aegis Security Ins. Co. (2001) 92 Cal.App.4th 886 , 891 [ 112

A

Fraudulent Business Practices

A fraudulent business practice under section 17200 “is not based upon proof of the common law tort of deceit or deception, but is instead premised on whether the public is likely to be deceived.” (Pastoria v. Nationwide Ins., supra, 112 Cal.App.4th at p. 1498.) Stated another way, “In order to state a cause of action under the fraud prong of [section 17200] a plaintiff need not show that he or others were actually deceived or confused by the conduct or business practice in question. ‘The “fraud” prong of [section 17200] is unlike common law fraud or deception. A violation can be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained any damage. Instead, it is only necessary to show that members of the public are likely to be deceived.’ [Citations.]” (Schnall v. Hertz Corp. (2000) 78 Cal.App.4th 1144 , 1167-1168 [ 93 Cal.Rptr.2d 439 ].)

Thus, the court concluded the plaintiffs in Pastoria v. Nationwide Ins., supra, 112 Cal.App.4th at pages 1496-1497, stated a claim for a fraudulent business practice that was likely to confuse consumers when they alleged the insurance company knew that it had decided to make material changes to its insurance policies, but refused to. tell policyholders of those imminent changes until after it sold the policies to the customers.

In People v. McKale (1979) 25 Cal.3d 626 , 630-631 [ 159 Cal.Rptr. 811 , 602 P.2d 731 ], the state sued the owners of a mobilehome park for unfair business practices. One of the alleged offending business practices was that the owners required the tenants to sign a copy of the park’s rules and regulations that contained provisions that the owners were barred from enforcing as a matter of law. (Id. at p. 635.) The Supreme Court had no trouble concluding that these allegations were sufficient to state an actionable fraudulent business practice. (Ibid.) The owners’ assertion of contract rights the owners did not have was likely to deceive the tenants who were forced to sign those documents. (Ibid.)

Here, Preciado alleges that Progressive engages in the pattern and practice of asserting its rights to 100 percent recovery of all moneys it pays to its insureds regardless of whether that reimbursement should be denied altogether or partially due to the made-whole rule and the common-fund doctrine.

The Courts of Appeal have struggled with which test should apply in the wake of Cel-Tech. In Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700 , 717-719 [ 113 Cal.Rptr.2d 399 ], the court used the original balancing test in a consumer action, concluding that the Supreme Court meant it when it said it was expressing no opinion on the application of the Cel-Tech test to consumer actions. In Schnall v. Hertz Corp., supra, 78 Cal.App.4th at pages 1166-1167, the appellate court adopted the Cel-Tech test in a consumer action concluding that an unfair business practice claim must be tethered to some “ ‘legislatively declared policy.’ ” Still other courts have failed to take a stance concluding that the unfair business practices before them offended either test. (Pastoria v. Nationwide Ins., supra, 112 Cal.App.4th at p. 1497.)

We conclude that the balancing test should continue to apply in consumer cases. In Cel-Tech, the Supreme Court declined to extend its more narrow test to consumer cases. Moreover, it has yet to do so in the six years since that decision was announced. In addition, we believe section 17200’s “unfair” prong should be read more broadly in consumer cases because consumers are more vulnerable to unfair business practices than businesses and without the necessary resources to protect themselves from sharp practices. One of the major purposes of section 17200 is to protect consumers from nefarious business practices.

Here, the allegations of the complaint are that Progressive has a pattern and practice of demanding 100 percent of any moneys it pays out to its policyholders under the med-pay coverage without regard to the company’s obligations under the made-whole rule or the common-fund doctrine. Further, Preciado alleges that Progressive misleads its policyholders and makes misrepresentations in connection with these activities. This alleged generalized practice fits the language often used in conjunction with unfair business practices as “ ‘immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’ [Citation.]” (Smith v. State Farm Mutual Automobile Ins. Co., supra, 93 Cal.App.4th at p. 719.)

C

Unlawful Business Practices

An unlawful business practice under section 17200 is “ ‘an act or practice, committed pursuant to business activity, that is at the same time forbidden by law. [Citation.]’ ” (Bernardo v. Planned Parenthood Federation of America (2004) 115 Cal.App.4th 322 , 351 [ 9 Cal.Rptr.3d 197 ].)

Here, Preciado asserts his cross-complaint alleges a violation of Penal Code section 550, subdivision (b)(3). That section states, “(b) It is unlawful to do, or to knowingly assist or conspire with any person to do, any of the following: [][]... [f] (3) Conceal, or knowingly fail to disclose the occurrence of, an event that affects any person’s initial or continued right or entitlement to any insurance benefit or payment, or the amount of any benefit or payment to which the person is entitled.'” (Italics added.)

Preciado’s cross-complaint does not allege that Progressive concealed the amount of benefits to which Preciado was entitled. It alleges that Progressive demanded more back from Preciado than it was entitled because of the operation of two separate equitable defenses. As we have explained, Progressive paid all of the benefits to Preciado to which he was entitled. Thus, the conduct alleged in the cross-complaint cannot be construed as concealing the amount of the benefits to which Preciado is entitled. No violation of this statute is pled in the cross-complaint.

Preciado further contends that his cross-complaint alleges that Progressive generally violates the court-made law of the common-fund doctrine and the requirements of the covenant of good faith and fair dealing. While this conduct may constitute fraudulent or unfair business practices, as framed by this cross-complaint, it does not rise to the level of an unlawful business practice. As we have already concluded, Preciado has not stated a cause of action for breach of the covenant of good faith and fair dealing against Progressive. Further, to the extent that these two common law doctrines apply

DISPOSITION

The petition is granted in part and denied in part. The alternative writ, having served its purpose, is discharged. Let a writ of mandate issue commanding the superior court to vacate its order overruling the demurrer and in its place enter a new order sustaining the demurrer without leave to amend as to the first and second causes of action and overruling it as to the third cause of action. The parties shall bear their own costs. (Cal. Rules of Court, rule 56(1)(2).)

Blease, Acting P. J., and Sims, J., concurred.

A petition for a rehearing was denied January 17, 2006, and petitioner’s petition for review by the Supreme Court was denied April 12, 2006, S140990. Werdegar, J., did not participate therein. Chin, J., was of the opinion that the petition should be granted.