In California, Division 2 of the Insurance Code defines a multitude of different “classes” of insurance. However, there is one particular contract that is not insurance, but still subject to certain provisions of the Insurance Code: Home Protection Contracts. A Home Protection Contract is sometimes referred to as a “home warranty” and is designed to assist homeowners with the financial burdens of repairing or replacing appliances and systems in their home. The question of whether these home protection contracts are insurance contracts for the purpose of bringing a claim of bad faith was recently before the court in Chu v. Old Republic Home Protection Company, Inc..
Plaintiffs contracted with Defendant Home Protection Company (“Defendant”) to provide repair and replacement of systems and appliances in their Los Angeles condominium. When the heating, ventilation, and air-conditioning (“HVAC”) system stopped working, Defendant enlisted a contractor who replaced the air condenser with a unit that was incompatible with Plaintiffs’ air handler. The replacement caused damage to the system resulting in a freon leak, which in turn led Plaintiffs to contact Defendant’s contractor two more times before he informed them of the leak. Plaintiffs then filed a complaint against the Defendant alleging, among other things, bad faith and violation of the Unfair Competition Law (“UCL”), which Defendant demurred. The trial court sustained Defendant’s demurrer as to those two causes of action and Plaintiffs appealed.
Defendant’s demurrer relied on one key fact, that it was not licensed as an insurance company and therefore Insurance Code Section 790.03(h)(5), upon which Plaintiff’s claim of bad faith arises, does not apply. Furthermore, Defendant argued that Plaintiffs’ subsequent claim for violation of the UCL through acts made unlawful by said section, must fail. In reviewing the application of tort remedies for breaching the covenant of good faith and fair dealing with respect to a home protection contract, the court discusses whether such contracts are “sufficiently analogous to insurance”. In support of its decision rejecting Plaintiffs’ claim of bad faith, the court considered: (1) the presence of adhesion and unequal bargaining power; (2) whether a home protection company has fiduciary responsibilities and the public interest; and (3) the perceived consequences of allowing tort remedies. The court’s discussion on the final factor concluded that “the financial requirements that would be imposed on such [home protection] companies as insurers would drive the majority of them out of business.”
In their last cry for relief in the appeal, Plaintiffs’ rely on the doctrine of judicial estoppel. Specifically, Plaintiffs’ contend that Defendant is prohibited from arguing that home protection contracts are not insurance because of the Defendant’s contention in a prior proceeding that such contracts “are analogous to insurance[.]” Despite the validity of Plaintiffs’ argument that Defendant benefitted from one position in an earlier proceeding and is now benefiting from an adverse position, the court found that Plaintiffs’ forfeited said argument when they failed to raise it in opposition to the demurrer at the trial court. Accordingly, the court held in favor of Defendant and awarded them costs on appeal. So, has Defendant effectively made a mockery of the judicial system by speaking out of both sides of its mouth, and winning in both instances?