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Life Insurance Not a ‘Good’ or ‘Service’ Subject to California Consumer Legal Remedies Act
Insurance Law Update
California Supreme Court
In Fairbanks v. Superior Court, 46 Cal.4th 56 (March 20, 2009), the California Supreme Court ruled that neither life insurance policies nor an insurer’s provision of ancillary services to actual or prospective purchasers are “goods” or “services” subject to the California Consumer Legal Remedies Act (CLRA).
Pauline Fairbanks filed a putative class action suit against Farmers Group, Inc., and Farmers New World Life Insurance Company alleging a violation of the CLRA in the marketing and administration of life insurance policies. The CLRA prohibits unfair and deceptive acts and practices in a “transaction intended to result or which results in the sale or lease of goods or services to any consumer.” It defines “goods” as “tangible chattels bought or leased for use primarily for personal, family or household purposes . . . .” It defines “services” as “work, labor and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods.”
The lower courts concluded that Fairbanks could not proceed on her CLRA claim because insurance was not a “good” or a “service” under the Act, and the Supreme Court agreed. The Court described life insurance as “a contract of indemnity under which, in exchange for the payment of premiums, the insurer promises to pay a sum of money to the designated beneficiary upon the death of the named insured.” The Court then ruled that life insurance is not a “good” because it is not a “tangible chattel,” and it is not a “service” because “[a]n insurer’s contractual obligation to pay money under a life insurance policy is not work or labor, nor is it related to the sale or repair of any tangible chattel.” The Court also held “the ancillary services that insurers provide to actual and prospective purchasers of life insurance do not bring the policies within the coverage” of the CLRA, because this would defeat legislative intent limiting “goods” to “tangible chattel.”
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