Troyk v. Farmers Group, Inc.
90 Cal. Rptr. 3d 589, 2009 Cal. App. LEXIS 306, 171 Cal. App. 4th 1305 (2009)
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Rule of Law:
A mandatory service charge that an insured is required to pay to obtain and pay for a specific term of insurance coverage constitutes part of the 'premium' under California Insurance Code § 381(f) and must be stated in the policy, even if the charge is collected by a third-party affiliate of the insurer.
Facts:
- In 1991, Thomas E. Troyk purchased an automobile insurance policy from Farmers Insurance Exchange (FIE).
- FIE offered policy terms of either six months or one month.
- To obtain a one-month policy, FIE required insureds to enter into an agreement with Prematic Service Corporation (Prematic), an affiliate of FIE's management company, Farmers Group, Inc. (FGI).
- This 'Prematic Agreement' mandated that the insured pay a monthly service charge to Prematic in addition to the stated monthly premium cost.
- Troyk chose the one-month policy option and entered into the required Prematic Agreement.
- FIE issued Troyk a policy with a 'Monthly Payment Agreement' endorsement that amended the policy term to one month.
- Troyk’s policy declarations page did not state the amount of the monthly service charge, and the space for 'fees' was left blank.
- Since 1991, Troyk received monthly bills from Prematic for the stated premium plus the service charge and paid these amounts.
Procedural Posture:
- Thomas E. Troyk filed a class action lawsuit against Farmers Group, Inc. and Farmers Insurance Exchange in a California trial court, alleging breach of contract and violation of the Unfair Competition Law.
- The trial court granted Troyk's motion for class certification.
- Both Troyk and Farmers filed cross-motions for summary judgment.
- The trial court granted Troyk’s motion for summary judgment and denied Farmers' motion.
- The trial court entered a judgment against Farmers, awarding the class $115,556,827 in restitution for the collected service charges.
- Farmers Group, Inc. and Farmers Insurance Exchange appealed the judgment to the California Court of Appeal.
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Issue:
Does a mandatory service charge, required to obtain a one-month term insurance policy and collected by an insurer's affiliate, constitute part of the 'premium' that must be disclosed in the policy under California Insurance Code section 381, subdivision (f)?
Opinions:
Majority - McDonald, J.
Yes, a mandatory service charge required to obtain a one-month term insurance policy constitutes part of the 'premium' that must be disclosed in the policy under California Insurance Code section 381(f). The term 'premium' must be interpreted from the perspective of the consumer as the total amount required to be paid for a certain period of coverage. Because insureds could not obtain the one-month term policy without paying the service charge, that charge is part of the premium. The court distinguished this situation from optional installment fees for a longer-term policy, noting that the endorsement here amended the policy to a one-month term, for which full payment was required. The fact that an affiliate, Prematic, collected the fee is irrelevant because it was a mandatory condition imposed by FIE, and Prematic was acting as FIE's agent. However, the court reversed the summary judgment granted to Troyk because he failed to produce evidence of causation required for standing under the Unfair Competition Law (UCL); he did not show that he lost money 'as a result of' the non-disclosure by proving he would have acted differently had the charge been properly disclosed in the policy.
Analysis:
This decision clarifies that the definition of 'premium' under California insurance law is viewed from the consumer's perspective, encompassing all mandatory costs required to obtain coverage. It serves as a warning to insurers that they cannot use affiliated entities to charge undisclosed fees, as courts will apply a substance-over-form analysis. The ruling also underscores the heightened standing requirements for plaintiffs under the UCL following Proposition 64. A plaintiff must not only prove a statutory violation and a loss of money but also establish a causal link showing the loss was a result of the defendant's unlawful conduct.
