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Quelimane Company, Inc. et al. v. Stewart Title Guaranty Company et al.

Supreme Court of California
77 Cal. Rptr. 2d 709, 960 P.2d 513, 19 Cal. 4th 26 (1998)
ELI5:

Rule of Law:

The California Insurance Code's exclusive regulatory provisions for title insurers are limited to rate-setting and do not displace the Unfair Competition Law (UCL) or Cartwright Act for other anticompetitive conduct, such as an alleged conspiracy to refuse to issue policies.


Facts:

  • Plaintiffs, including Quelimane Company, Inc., and Western Land Bank, Inc., are businesses engaged in buying and selling real property, some of which was acquired at tax sales.
  • First American Title Insurance Co., Stewart Title, and Placer Title were the only companies offering title insurance in El Dorado County.
  • Plaintiff Western Land Bank sold a tax-deeded property to the Rahmans, who were then unable to secure title insurance from Placer Title and Stewart Title because those companies refused to issue a policy.
  • Plaintiff Western Land Bank also sold two tax-deeded lots to SAR, and Placer Title and Stewart Title again refused to issue title insurance, informing SAR the lots were uninsurable.
  • Plaintiff Western Land Bank contracted to sell a Fresno County property acquired by tax deed to Robert Constant.
  • First American issued a commitment for title insurance to Constant but conditioned it on the commencement of a quiet title action.
  • Because First American refused to issue a policy without this condition, Constant did not complete the purchase of the property.
  • The defendant title insurers had engaged in marketing programs stressing the necessity of title insurance and had represented to the public that they would insure any real estate that had good title.

Procedural Posture:

  • Plaintiffs sued First American and other title insurers in California superior court (the court of first instance).
  • First American filed a demurrer, arguing the complaint failed to state a valid cause of action.
  • The superior court sustained First American's demurrer without leave to amend and entered a judgment of dismissal.
  • Plaintiffs, as appellants, appealed the dismissal to the California Court of Appeal.
  • The Court of Appeal affirmed the judgment of the superior court, holding that the Insurance Code displaced the UCL and that plaintiffs failed to state their other causes of action.
  • Plaintiffs then petitioned for review by the Supreme Court of California.

Locked

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Issue:

Does the California Insurance Code displace the Unfair Competition Law and provide the exclusive remedy for an alleged conspiracy among title insurers to refuse to sell title insurance on real property acquired at a tax sale?


Opinions:

Majority - Baxter, J.

No, the Insurance Code does not displace the UCL except as to title insurance company activities related to rate setting. The specific preemption provisions within the Insurance Code, sections 12414.26 and 12414.29, are expressly limited in scope to rate-making activities and do not grant title insurers a general exemption from other state laws like the UCL or the Cartwright Act. The legislative history of section 12414.29 further indicates that its purpose was to preempt local ordinances, not other state laws. Therefore, a violation of the Cartwright Act, such as the alleged conspiracy to refuse to issue insurance on tax-deeded properties (a group boycott), can serve as the predicate 'unlawful' act for a UCL claim. The complaint also sufficiently states a cause of action for intentional interference with an existing contract, which, unlike interference with prospective economic advantage, does not require the defendant's conduct to be wrongful apart from the interference itself. However, the negligence claim fails because an insurer has no general common law duty to issue a policy to any applicant.


Dissenting - Brown, J.

Yes, this claim should not be allowed to proceed. The lawsuit is a 'sham' and a 'fishing expedition' because plaintiffs' counsel conceded at oral argument that they currently have no evidence of a conspiracy. The refusal to insure historically risky tax titles is a legitimate business judgment based on prudent risk assessment, not an unlawful act. Furthermore, under the doctrine of primary jurisdiction, this complex issue of industry-wide insurance practice is better suited for the Department of Insurance, not the courts. Finally, even a claim for interference with contract requires 'improper' conduct, and a refusal to insure based on economically rational considerations is not improper.



Analysis:

This decision significantly reinforces the broad scope of California's Unfair Competition Law (UCL), clarifying that specific industry regulations do not create wholesale immunity from general antitrust and consumer protection laws unless the legislature's preemptive intent is explicit and narrowly defined. The ruling confirms that while an individual insurer's underwriting decision is protected business judgment, a concerted refusal to deal by competitors can be an actionable antitrust violation under the Cartwright Act. The case also provides an important clarification of business torts by distinguishing the elements for interference with an existing contract (where the interference itself is the wrong) from interference with prospective economic advantage (which requires an independently wrongful act).

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