Summary
following the holding of Myers under comparable circumstances
Summary of this case from eU nify Inc. v. Anthony M. Serra CPA Inc.Opinion
No. 1 CA-CV 14-0355
08-11-2015
ENTERPRISING SOLUTIONS, INC. dba SUNWEST EMPLOYER SERVICES, a Nevada corporation, Plaintiff/Appellant, v. STACY ELLIS and HAL ELLIS, wife and husband; and SUNWEST INSURANCE LTD., an Arizona corporation, Defendants/Appellees.
COUNSEL Dioguardi Flynn LLP, Scottsdale By John P. Flynn, Peter J. Moolenaar Counsel for Plaintiff/Appellant Raymond, Greer & Sassaman, P.C., Phoenix By Daniel W. McCarthy, Michael J. Raymond Counsel for Defendant/Appellee
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2013-050340
The Honorable Thomas L. LeClaire, Judge (Retired)
REVERSED AND REMANDED
COUNSEL Dioguardi Flynn LLP, Scottsdale
By John P. Flynn, Peter J. Moolenaar
Counsel for Plaintiff/Appellant
Raymond, Greer & Sassaman, P.C., Phoenix
By Daniel W. McCarthy, Michael J. Raymond
Counsel for Defendant/Appellee
MEMORANDUM DECISION
Acting Presiding Judge Samuel A. Thumma delivered the decision of the Court, in which Judge Donn Kessler and Judge Diane M. Johnsen joined. THUMMA, Judge:
¶1 Plaintiff Enterprising Solutions, Inc. (ESI) appeals from the grant of summary judgment in favor of defendants Stacy and Hal Ellis and Sunwest Insurance Ltd. (collectively Sunwest) dismissing ESI's negligence-based claims as time-barred. Because Sunwest has not shown that ESI's claims were time-barred as a matter of law, and because ESI has not shown that its claims were timely as a matter of law, the order granting summary judgment against ESI and the resulting judgment are vacated and this matter is remanded for further proceedings not inconsistent with this decision.
FACTS AND PROCEDURAL HISTORY
This court views "the evidence and reasonable inferences in the light most favorable to" ESI, "the party opposing the motion" for summary judgment. Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12, 69 P.3d 7, 11 (2003) (citation omitted).
¶2 ESI administered an employee health benefit plan for its employer-clients. The plan was funded by contributions from employer-clients and participating employees, with the funding designed to cover plan costs. ESI was responsible for determining the contribution amounts. ESI purchased insurance from National Union Fire Insurance Company of Pittsburg, P.A. (National Union) through its agent Sunwest. ESI alleges it asked Sunwest to secure coverage for any exposure under the plan, and that it understood Sunwest procured such coverage in the National Union policies ESI purchased.
¶3 In 2008 and 2009, contributions did not cover plan costs and ESI received claims demanding payment for benefits provided to plan participants that exceeded those contributions. Beginning in July 2009, ESI tendered those claims to National Union, seeking defense and indemnity under National Union policies ESI purchased through Sunwest. In a March 1, 2010 letter, National Union stated it was "unable to provide a definitive coverage response at this time due to insufficient information," requested additional information to make that decision and expressly reserved its rights.
¶4 In May 2010, ESI sued National Union seeking a declaratory judgment establishing coverage (to defend and indemnify for the tendered claims) as well as asserting breach of contract/good faith/fair dealing claims. ESI sought a declaration that it "is afforded insurance coverage for the claims . . . and that National Union has the obligation to immediately investigate those claims and provide ESI with a defense to those claims." On its damages claims, ESI sought "compensatory damages of no less than $970,000."
¶5 On July 6, 2010, National Union sent ESI a letter noting "substantial questions" about whether certain tendered claims were covered but stating National Union would defend ESI "[u]ntil a final coverage determination is made," subject to a reservation of rights. On July 14, 2010, after removing the case to federal court, National Union filed an answer admitting that there was a dispute between the parties "regarding National Union's obligations, if any" under the insurance policies but denying ESI's contract claims. ESI and National Union then filed cross-motions for summary judgment on ESI's declaratory judgment count. In July 2011, the federal court denied those motions, stating it was "unpersuaded that either party is entitled to judgment as a matter of law."
¶6 In August 2010, after filing its answer in the federal action, National Union sent ESI additional letters stating it was defending ESI for certain claims subject to a reservation of rights. In November 2010, National Union sent ESI a similar letter, stating it was defending ESI subject to a reservation of rights "[u]ntil a final coverage determination is made." Along with defending ESI, National Union also paid claims tendered by ESI during this time. Over time, National Union paid nearly $440,000 to resolve claims tendered by ESI, with its last payment made in June 2012.
¶7 In the federal action, the parties filed renewed cross-motions for summary judgment on ESI's declaratory judgment count. On September 11, 2012, more than two years after ESI sued National Union, the federal court denied ESI's motion for summary judgment and granted National Union's motion for summary judgment. In a detailed 12-page decision, the federal court concluded that ESI's "failure to properly calculate the contributions necessary" to cover plan costs resulted in the tendered claims and "was, consequently, subject to [Employee Retirement Income Security Act] fiduciary standards. Consequently, [ESI's] conduct was excluded from coverage" under the National Union insurance policies ESI purchased through Sunwest. On September 18, 2012, National Union sent ESI a letter "superced[ing]" its original March 1, 2010 reservation of rights, adding that the September 18, 2012 letter "provides National Union's present coverage position." After summarizing the federal court's ruling, the September 18, 2012 letter stated, "National Union will no longer be paying any claims asserted against ESI."
¶8 On March 8, 2013, ESI brought this action, alleging Sunwest failed to act with reasonable care in representing to ESI that it had procured insurance from National Union that would cover the tendered claims. Sunwest moved for summary judgment, arguing ESI's claims were time-barred by a two-year limitations period. After briefing and oral argument, the superior court granted Sunwest's motion. ESI then unsuccessfully moved for a new trial, and the court entered judgment for Sunwest. This court has jurisdiction over ESI's timely appeal pursuant to the Arizona Constitution, Article 6, Section 9, and Arizona Revised Statutes (A.R.S.) sections 12-2101(A)(1) and -120.21(A)(1) (2015).
Absent material revisions after the relevant dates, statutes and rules cited refer to the current version unless otherwise indicated.
DISCUSSION
¶9 ESI was required to file its claims against Sunwest "within two years after the cause of action accrues, and not afterward," A.R.S. § 12-542, a limitations period subject to the discovery rule, see Anson v. Am. Motors Corp., 155 Ariz. 420, 423, 747 P.2d 581, 584 (App. 1987). Because ESI filed this case on March 8, 2013, in granting Sunwest summary judgment, the superior court necessarily determined that, as a matter of law, ESI's claims accrued before March 8, 2011. ESI argues its claims did not accrue until National Union's September 18, 2012 letter denied coverage, which ESI claims was "the first and only coverage denial from National Union to ESI." Sunwest counters that ESI's claims accrued by July 14, 2010, at the latest, when National Union's answer in the federal action "denied liability and again confirmed that the policies did not" provide coverage.
¶10 Summary judgment is proper "if the moving party shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a). This court "determine[s] de novo whether a genuine issue of material fact exists," Federico v. Maric, 224 Ariz. 34, 36 ¶ 7, 226 P.3d 403, 405 (App. 2010) (citation omitted), and "independently review[s] questions of law relating to the statute of limitations defense," Logerquist v. Danforth, 188 Ariz. 16, 18, 932 P.2d 281, 283 (App. 1996) (citations omitted).
¶11 Under the discovery rule, as applicable here, a claim accrues "when the plaintiff knows, or in the exercise of reasonable diligence should have known, of the defendant's negligent conduct," Sato v. Van Denburgh, 123 Ariz. 225, 227, 599 P.2d 181, 183 (1979) (citation omitted), and has suffered damages, DeBoer v. Brown, 138 Ariz. 168, 170-71, 673 P.2d 912, 914-15 (1983). "'[T]he discovery rule applies not only to the discovery of negligence, but also to discovery of causation and damage.'" Keonjian v. Olcott, 216 Ariz. 563, 565 ¶ 9, 169 P.3d 927, 929 (App. 2007) (citation omitted). "'[T]he core question' as to when a cause of action accrues is when a 'reasonable person would have been on notice' to investigate." Little v. State, 225 Ariz. 466, 470 ¶ 13, 240 P.3d 861, 865 (App. 2010) (quoting Walk v. Ring, 202 Ariz. 310, 316 ¶ 24, 44 P.3d 990, 996 (2002)). ESI has the burden to show the application of the discovery rule. Logerquist, 188 Ariz. at 19, 932 P.2d at 284. The Arizona Supreme Court has directed that "[w]hen discovery occurs and a cause of action accrues are usually and necessarily questions of fact for the jury." Doe v. Roe, 191 Ariz. 313, 323 ¶ 32, 955 P.2d 951, 961 (1998) (citing Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 591, 898 P.2d 964, 969 (1995)).
¶12 Case law defining the contours of the discovery rule in Arizona has arisen in a variety of different contexts involving different relationships, different legal claims and significantly different facts, all of which has led to some uncertainty as to the applicable legal standard. As noted by the Arizona Supreme Court, "[o]ne can find support for almost any position by reading the numerous statute of limitations cases decided by this court and the court of appeals. Different facts often lead to different results, depending on which facts are considered to be important or determinative." Doe, 191 Ariz. at 330 ¶ 54, 955 P.2d at 968.
¶13 Moreover, the parties have cited, and the court has found, no Arizona case squarely addressing the precise issue presented here. The issue of when claims like ESI's against Sunwest accrue "has received diverse treatment nationwide." Stephens v. Worden Ins. Agency, LLC, 859 N.W.2d 723, 733 (Mich. Ct. App. 2014).
[1] Some jurisdictions have held that the "wrong" occurs when the insurance agent commits his negligence by procuring deficient coverage. [2] Other jurisdictions delay the dateId. (citations omitted).
of the injury because "[i]f no accident produces a claim, the failure will have been negligence in the abstract." Therefore, some jurisdictions have held that the claim accrues when the insured experiences the event for which no coverage is available. [3] Others assert that the claim accrues when insurance coverage is ultimately denied. [4] Still others wait until the underlying coverage dispute has been resolved by litigation before starting the clock on a negligent-procurement claim.
¶14 Notwithstanding the fact-intensive nature of the inquiry, Sunwest and ESI both argue their position should prevail as a matter of law. ESI argues Commercial Union Ins. Co. v. Lewis & Roca shows that its claims against Sunwest did not accrue until National Union finally denied coverage in September 2012. See 183 Ariz. 250, 254, 902 P.2d 1354, 1358 (App. 1995) (finding attorney malpractice claim did not accrue until court in underlying litigation rejected attorney's position). Sunwest questions the applicability of Commercial Union and other attorney malpractice cases, arguing ESI was damaged long before the federal court entered summary judgment against ESI in September 2012. Sunwest argues that by the time it filed the federal action in May 2010, "ESI had: (1) received less insurance coverage than it requested; (2) sustained at least $970,000 in damages; and (3) incurred attorneys' fees, costs, and expenses trying to establish coverage."
¶15 Although involving an attorney malpractice claim, the Commercial Union analysis applies to ESI's claims against Sunwest. See CDT, Inc. v. Addison, Roberts & Ludwig, C.P.A., P.C., 198 Ariz. 173, 176 ¶ 10, 182 ¶ 32, 7 P.3d 979, 982, 988 (App. 2000) (noting Commercial Union "principle applies to any negligence claim against professionals;" holding accountancy malpractice claim did not accrue until issuance of administrative notice of tax liability). Moreover, as to Sunwest's first and second points, ESI claimed damages of "no less than $970,000" in the federal action alleging it had received less insurance coverage than it purchased from National Union, not that it had received less insurance coverage than it had asked Sunwest to procure. Arizona cases reject the notion that ESI's claims against Sunwest accrued when ESI incurred attorneys' fees, costs and other litigation expenses in the federal action. See, e.g., id. at 181 ¶ 29, 7 P.3d at 987 ("Under circumstances comparable to those presented here, this court stated in Myers [v. Wood, 174 Ariz. 434, 435, 850 P.2d 672, 673 (App. 1992)] that the 'minor damage' of retaining and paying an attorney, although clearly related to the subsequent malpractice action, did not cause the action to accrue at that time."); Toy v. Katz, 192 Ariz. 73, 89, 961 P.2d 1021, 1037 (App. 1997) (acknowledging that, although plaintiff "incurred attorneys' fees and suffered other damages before" resolution of underlying litigation, it was only when court ruled against plaintiffs in the underlying litigation that their subsequent professional negligence claim accrued); Commercial Union, 183 Ariz. at 257, 902 P.2d at 1361 (similar).
¶16 Relying on Doe v. Roe and CDT, Sunwest argues ESI's claims are barred as a matter of law because the discovery rule does not require certainty, adding "a cause of action accrues even if the plaintiff does not yet know all the facts and has not yet suffered all, or even most, of the damage." Although the discovery rule does not require certainty for a claim to accrue, these cases do not show that ESI's claims are time-barred as a matter of law. Doe vacated summary judgment because there were disputed issues of material fact, stating accrual is generally an issue of fact for the jury to decide. See Doe, 191 Ariz. at 323 ¶ 32, 331 ¶55, 955 P.2d at 961, 969. CDT similarly found the superior court erred in finding plaintiffs' claim was time-barred and in granting summary judgment. 198 Ariz. at 182 ¶ 32, 7 P.3d at 988.
¶17 Sunwest next argues that, as a matter of law, ESI "knew -- when it sued National Union [in May 2010] -- that it was either National Union or Sunwest" that "was responsible for its deficient insurance coverage and resulting damages" and, at that point, "ESI had a duty to investigate" and act "against all those potentially responsible," and could not "litigate its claims piecemeal." The determination that ESI had "deficient insurance coverage," however, did not occur until September 2012, when the federal court granted National Union summary judgment and National Union then expressly denied coverage. Nor has Sunwest shown as a matter of law how National Union's answer in the federal action admitting a dispute "regarding National Union's obligations, if any" under the insurance policies but denying the damage claims is like the definitive counterclaim "set[ting] forth facts sufficient to put" the plaintiff on notice of a fraud claim as in Desruisseau v. Cameron, the primary authority Sunwest cites. See 125 Ariz. 511, 512, 611 P.2d 98, 99 (App. 1980). Although Sunwest correctly cites Desruisseau for the proposition that "tactical considerations do not delay" accrual, unlike this case, Desruisseau involved a plaintiff who was damaged at the time he paid for land, not when adverse ownership was established years later. See 125 Ariz. at 512-13, 611 P.2d at 99-100. And Sunwest has not shown that this case turns on ESI's failure to properly exercise due diligence to discover its claims, as in Cooney v. Phoenix Newspapers, Inc., the other case Sunwest cites for this argument. 160 Ariz. 139, 140-41, 770 P.2d 1185, 1186-87 (App. 1989) (finding claim time-barred where plaintiff failed to demonstrate exercise of due diligence in discovering existence of cause of action).
¶18 Sunwest also argues the insurance policies ESI purchased "plainly and in more than one place excluded the very coverage that ESI expected and needed" for the tendered claims, thereby putting ESI on notice of its claims against Sunwest as a matter of law. However, the issue of whether the claims ESI tendered were covered by insurance purchased from National Union was the subject of months of pre-litigation correspondence and more than two years of litigation in the federal action before that court issued a definitive ruling in September 2012. Until that ruling, National Union provided a defense for ESI and paid claims under a reservation of rights. Moreover, the record before the superior court indicates that National Union's letter to ESI later in September 2012 "was the first and only coverage denial from National Union to ESI."
¶19 In a related argument, Sunwest asserts that "in several pre-litigation letters and again in its answer" in the federal action, National Union "repeatedly emphasized" exclusions of coverage, meaning that by National Union's July 2010 answer (at the latest), ESI had a definitive response from National Union that the tendered claims were not covered. Both before and after filing its answer in federal court, however, National Union provided a defense for ESI and paid claims under a reservation of rights. National Union continued to do so until June 2012, nearly two years after filing its July 2010 answer. This action by National Union supports ESI's argument that it did not have reason to know of its claims against Sunwest before mid-2012. Furthermore, Sunwest has not shown as a matter of law that ESI's claims accrued at the time that National Union provided notice of its reservation of rights. See W. Cas. & Sur. Co. v. Evans, 130 Ariz. 333, 336-37, 636 P.2d 111, 114-15 (App. 1981) ("the measuring of the period within which the action had to have been brought did not begin to run until [the insurer] actually denied that coverage existed," not earlier "notice it was defending under a reservation of right") (citation omitted).
¶20 That Sunwest was not entitled to judgment as a matter of law on the timeliness of ESI's claims does not support the contrary legal conclusion that ESI's claims against Sunwest are timely. On the record presented, ESI has not shown as a matter of law that its claims against Sunwest were timely. Although ESI argues its damages were speculative and it had "no reason to suspect" Sunwest was negligent until mid-2012 because National Union paid claims totaling $440,000 by that time, ESI alleged in May 2010 that it had sustained $970,000 in damages. ESI's own allegations certainly could be viewed by a fact finder as an acknowledgment that ESI had actual knowledge of the fact of damage in May 2010. See CDT, 198 Ariz. at 176 ¶ 11, 7 P.3d 979, 982 (noting damage prong of "accrual requires only actual or constructive knowledge of the fact of damage"). Moreover, the record contains evidence that (1) Sunwest communicated with ESI about pricing for the coverage at issue when ESI purchased insurance from National Union and (2) ESI declined to purchase such coverage, the plain terms of which (as noted by the district court in the federal action) "belie [ESI's] argument that its reasonable expectation was that" the tendered claims were covered by the insurance purchased from National Union. Such evidence, as a factual matter, implicates when ESI may have been "on notice to investigate" its claims against Sunwest. See Walk, 202 Ariz. at 316 ¶ 22, 44 P.3d at 996; see also Commercial Union, 183 Ariz. at 256, 902 P.2d at 1360 (noting "controlling issue" is when plaintiff "became aware or should have become aware of the cause of its harm"). Because these fact-intensive issues "involve[] questions of reasonableness and knowledge, . . . this court is particularly wary of deciding [them] as a matter of law." Long v. Buckley, 129 Ariz. 141, 144, 629 P.2d 557, 560 (App. 1981).
¶21 ESI cites Commercial Union for the proposition that, as a matter of law, it could not have become "aware of the cause of its harm" until after September 2012, when the federal court issued its ruling and National Union denied coverage. See 183 Ariz. at 256, 902 P.2d at 1360. Given the nature of the inquiry, however, ESI has not shown how that issue can be resolved on this record as a matter of law, particularly given the Arizona Supreme Court's directive to generally treat the issue as one of fact to be decided by the jury. See Walk, 202 Ariz. at 316 ¶ 23, 44 P.3d at 996; Doe, 191 Ariz. at 323 ¶ 32, 955 P.2d at 961 (citing Gust, Rosenfeld & Henderson, 182 Ariz. at 591, 898 P.2d at 969).
¶22 Although ESI relies on Stacy Ellis' deposition testimony in the federal action, that testimony is more equivocal than ESI suggests. In any event, ESI has not shown how Ellis' deposition testimony that she believed the tendered claims may have been covered by the National Union polices (which the federal court determined was not the case) means ESI's claims against Sunwest are timely as a matter of law. See Little, 225 Ariz. at 470 ¶ 13, 240 P.3d at 865 (noting accrual occurs "when a 'reasonable person would have been on notice' to investigate") (citation omitted).
¶23 "The applicability of the statute of limitations is usually a question of fact for the jury." Marquette Venture Partners II, L.P. v. Leonesio, 227 Ariz. 179, 184 ¶ 19, 254 P.3d 418, 423 (App. 2011) (citations omitted). As noted above, Sunwest has offered evidence (including statements by National Union to ESI and communication between Sunwest and ESI) indicating that ESI's claims are time-barred because they accrued before March 8, 2011. ESI, by contrast, has offered evidence (including representations by National Union to ESI and National Union's actions) indicating that ESI's claims are timely because they accrued in September 2012. On this record, neither party has shown as a matter of law that ESI's claims are, or are not, timely. Accordingly, the entry of summary judgment cannot stand and the issue must be resolved by the finder of fact.
Although the parties argue on appeal the merits of ESI's claims and issue preclusion, because those issues were not presented to the superior court and because the summary judgment ruling is vacated and the matter remanded, this court does not address those issues on appeal. --------
CONCLUSION
¶24 Because Sunwest has not shown as a matter of law that ESI's claims were time-barred, and because ESI has not shown as a matter of law that its claims are timely, the order granting summary judgment against ESI and resulting judgment are vacated and this matter is remanded for further proceedings not inconsistent with this decision.