Opinion
Rehearing Denied July 21, 1989.
Review Granted Sept. 21, 1989.
Previously published at 224 Cal.App.3d 1507
Ault Deuprey Jones Danielsen & Gorman and David H. Kidd, San Diego, Horvitz and Levy, Barry R. Levy and Mitchell C. Tilner, Encino, for petitioner.
Sobel & Volker, Richard Volker, Ken Sobel and Jeffrey S. Schroer, San Diego, for real party in interest.
HUFFMAN, Associate Justice.
Petitioner Fire Insurance Exchange (Fire) sought summary judgment or adjudication of issues in an insurance bad faith case filed by Diane Marie Johnson, formerly Diane Wrieden (Johnson), after Fire refused to provide coverage under Johnson's homeowner's insurance policy for land subsidence damage to her home. In its motion, Fire contended Johnson's action was barred by her failure to comply with the requirement under the policy to bring any suit on the policy within one year of inception of the loss. The trial court denied the summary judgment motion, finding triable issues of material fact existed as to whether the loss claimed was "continuing," whether the one-year suit limitation applied, whether the insured gave reasonable notice of the claim, and whether coverage should be afforded. No adjudication of issues was ordered as the court found that portion of the motion to be improperly noticed.
Because objectively observable facts put Johnson on notice in December 1984 of a potential defect in her property, the one-year contractual limitations period began to run at that time. Under the applicable "reasonable person" standard, Johnson's claim, made in January 1986 and her action, filed July 9, 1987, were untimely. As applied to these facts, the one-year suit provision is valid and enforceable. Fire thus was under no duty to provide coverage and its motion for summary judgment should have been granted.
FACTUAL AND PROCEDURAL BACKGROUND
Fire issued its homeowner's policy no. 1039-00-25 to Johnson in September 1977. The policy remained in effect from September 16, 1977, until March 30, 1979, when it was cancelled at Johnson's request. It contained a statutorily mandated limitations period for the bringing of an action upon the policy, pursuant to Insurance Code sections 2070 and 2071, as follows:
"Suit. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss."
The "requirements of the policy" included written notice of any loss without unnecessary delay. Among other exclusions, the policy excluded loss caused by earth movement.
At deposition, Johnson testified that while participating in repairing her roof, she noticed in December 1984 the rafters in the attic had become separated from the bridgeboard by about three or four inches. Between February and May 1985, she became aware of cracks in the slab, floor, walls, and ceilings in the house. Her declaration in opposition to the summary judgment motion states she realized in the spring of 1985 the problems were related In the fall of 1985, Fireman's Fund, which had conducted an investigation and reported the house was undergoing soil subsidence distress, notified her the damage was excluded under its policy and referred her to her previous carriers, State Farm, Allstate, and Farmer's (the latter a related entity to Petitioner Fire Insurance Exchange). Johnson then filed a claim with Farmer's (Fire) on January 24, 1986, and later had some difficulty in communicating with Fire about the claim, caused by Fire's representatives' failure to return telephone calls. Fire arranged for further soils testing in August 1986 and eventually denied Johnson's claim on May 12, 1987.
On July 9, 1987, Johnson filed her complaint (since amended) against Fire, State Farm, and other defendants, on theories of breach of duty of good faith and fair dealing, breach of fiduciary duties, breach of statutory duties, fraud, and misrepresentation.
Allstate Insurance, which insured the property before Fire did, paid its policy limits in March 1987 and is not a party defendant to this action.
Fire sought summary judgment and adjudication of unspecified issues under Code of Civil Procedure section 437c, based on its contention Johnson's action was barred by her failure to meet the one-year suit requirement in the policy. In opposition, Johnson argued she did not become aware of the defects until the spring of 1985, and did not understand the defects were related to soil subsidence until Fireman's Fund's report notified her of that probable cause of the damage in October 1985.
The trial court denied the summary judgment motion, ruling triable issues of fact existed as to whether the loss was "continuing," whether the one-year suit limitation in the policy applies to the claim, whether Johnson gave reasonable notice of the claim, and whether coverage should be afforded under the policy. No issues were adjudicated for lack of sufficient notice.
We issued an alternative writ on Fire's petition and on two similar petitions.
Prudential-LMI Commercial Insurance v. Superior Court (Lundberg) (1989) 211 Cal.App.3d 1131, 260 Cal.Rptr. 85; Fire Insurance Exchange v. Superior Court (Kentro) (June 27, 1989) D009003 [nonpub. opn.].
DISCUSSION
To determine whether the trial court correctly concluded triable issues exist on the adequacy of Johnson's compliance with both the policy requirement of notice of loss without unnecessary delay and the one-year suit provision, we are required to examine the facts of her discovery of the property damage. We do so in light of our discussion in Prudential-LMI Commercial Insurance v. Superior Court (Lundberg), supra, 211 Cal.App.3d 1131, 260 Cal.Rptr. 85, of the effect of a one-year suit provision upon allegations the insured was excusably ignorant of a particular loss and thus entitled to a delayed discovery rule for presentation of a claim and filing of an action. We shall not repeat that exposition here except to the extent we outlined the standard which controls the interpretation of contractual limitations clauses (text which follows is quoted from that opinion):
Because each of the theories alleged in the amended pleading is "fundamentally a claim on the policy" (Lawrence v. Western Mutual Ins. Co. (1988) 204 Cal.App.3d 565, 575, 251 Cal.Rptr. 319), the entire action is subject to the contractual claims limitation provision in the policy.
The standard which governs the validity of such a contractual limitations clause or one-year suit provision was set out in C & H. Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1064, 211 Cal.Rptr. 765:
"Such a provision has long been recognized as valid in California. As is stated in Fageol T. & C. Co. v. Pacific Indemnity Co. (1941) 18 Cal.2d 748, 753 [117 Where a clause in an insurance policy is authorized by statute, it is deemed in accordance with public policy of a state as established by the state legislature. (Jensen v. Traders & General Ins. Co. (1959) 52 Cal.2d 786, 794, 345 P.2d 1.) Accordingly, it should be construed so as to implement the Legislature's apparent intentions, rather than strictly construed against the insurer as would be ambiguous or uncertain language. (Ichthys, Inc. v. Guarantee Ins. Co. (1967) 249 Cal.App.2d 555, 558, 57 Cal.Rptr. 734; Interinsurance Exchange v. Marquez (1981) 116 Cal.App.3d 652, 656, 172 Cal.Rptr. 263.)
Numerous cases from other jurisdictions have also upheld the validity of such contractual limitations clauses.[ (See Annot., Validity of Contractual Time Period, Shorter than Statute of Limitations, for Bringing Action (1966) 6 A.L.R.3d 1197; Annot., Property Insurance: Insured's Ignorance of Loss or Casualty, etc. (1969) 24 A.L.R.3d 1007.) For example, in Naghten v. Maryland Casualty Company (1964) 47 Ill.App.2d 74, 197 N.E.2d 489, where the insured failed to bring suit within one year of the time when the claimed loss, a bump in a floor caused by the pressure of underground water, was fully developed and observable, the court commented:
In a footnote at this point the court states: "However, in the following excerpt a leading treatise writer has generally criticized the one-year suit provision in connection with his proposal that insurers be required to give specific notice of the limitations period to any insured who has filed a proof of loss:
"We realize that ascertainment of a loss which has resulted from a progressive latent condition is more difficult than the immediately obvious results of a fire. We do not believe, however, that the time of the discovery of the loss can be left completely to the whimsy of the insured." (Id. 197 N.E.2d at p. 490.)
The court then affirmed the dismissal of the insured's action, based on the one-year suit provision in his policy.
A more lenient approach toward the insured was followed in Zurn Engineers v. Eagle Star Ins. Co. (1976) 61 Cal.App.3d 493, 132 Cal.Rptr. 206. After reviewing the two opposing rules in effect in other jurisdictions (i.e., a strict construction holding that it is the occurrence of the physical event causing the loss that is the loss inception, and a more liberal interpretation construing "inception of the loss" in terms which equate the phrase with accrual of a cause of action against the insurer), the court held:
In a footnote at this point the court states: "The latter stated rule is most widely adopted: 'The most general rule followed by the courts, however, is that the contractual period commences at the time the right to sue accrues, irrespective of the date of loss. [Fn. omitted.]' (20A Appleman, supra, § 11603, p. 461.)"
"California does not follow the strict rule of construction of the phrase 'inception of the loss.' Rather, our law requires that the policy be read as a whole so that, if the right to sue upon an insurance policy is postponed by action that must be taken by the insured as a prerequisite to suit, the limitation period does not commence to run until the insured has an opportunity to comply with the conditions precedent to litigation. [Citations.]
".......... "We thus conclude that 'inception of the loss,' as the phrase is used in Insurance Code section 2071, means the point after a physical loss has occurred when the insured has had a reasonable opportunity to comply with conditions precedent to suit upon the policy in the form of notice to the insurer and the filing of a proof of loss covered by the policy." (Id. at pp. 499-500, 132 Cal.Rptr. 206.)
Although this holding in Zurn was phrased in very broad language, earlier in the opinion the court confined its ruling to "the context of the policy and factual situation which is here involved." (Id. at p. 495, 132 Cal.Rptr. 206.) That context specifically included factors which are not present here; i.e., a lengthy dispute with a third party (which had contracted with the insured for the work leading to the claimed loss) over who would bear the loss for the damage resulting from the work. Until the third party formally denied liability, the insured could not file the sworn proof of loss required for making a claim. Thus, due to the uncertainties the parties had been under as to whether the insured or the third party would ultimately be held responsible for paying for the damage, the court found factual issues remained for trial as to the reasonableness of the insured's delay in filing notice and proof of loss with the insurer. The court also conditioned its holding on an assumed lack of prejudice to the insurer. (Id. at p. 500, 132 Cal.Rptr. 206.)
Applying California law, the federal District Court for the Northern District of California in Stinson v. Home Ins. Co. (N.D.Cal.1988) 690 F.Supp. 882, 884-885, upheld the terms of a one-year suit provision in a homeowner's policy to bar the insured's suit against the insurer where there was no evidence the insureds were prevented from timely bringing their claim within 12 months of the policy's termination. The insureds had noticed soil subsidence damage for several years before and after the three-year period that the policy was in effect, and had not decided the damage was more than normal wear and tear until six years after the policy expired. They then waited more than a year before making their claim, even though no affirmative conduct by the insurer discouraged them from doing so. Hence, their action was barred.
Guided by the authorities cited, we assess the merits of [Johnson's] opposition to [Fire's] motion, that [her] delayed discovery of [her] claim and bringing of [her] action were reasonable and timely. Under these facts and the C & H. holding (supra, 163 Cal.App.3d at p. 1064, 211 Cal.Rptr. 765), the question is whether the policy requirements of notice of loss without unnecessary delay and the consequent initiation of the one-year limitations period are so unreasonable that they may not be enforced here. (End of quotation from Prudential-LMI Commercial Insurance v. Superior Court (Lundberg), supra, 211 Cal.App.3d 1131, 260 Cal.Rptr. 85.)
Returning to the facts of this action, Johnson contends that because this was a "continuing loss", the contractual limitations period does not bar her action. She alleges that although she discovered the separating rafters in December 1984, she did not realize her house had an overall problem until the spring of 1985. She also claims she did not understand the cause of the damage until October 1985, when Fireman's Fund denied her claim, and is thus excused from earlier action to make a claim under her Fire policy. She thus argues her claim filed on January 24, 1986, more than a year after the rafters discovery, and her action filed on July 9, 1987, were timely under a delayed discovery rule.
In similar cases where insureds have arguably been placed on notice of objective facts which would have led a reasonable person to believe there was a possibility of defects in the property, several courts have held the limitations period of a one-year suit provision began to run when such facts became cognizable. In Lawrence v. Western Mutual Ins. Co., supra, 204 Cal.App.3d 565, 573, 251 Cal.Rptr. 319, the insured received a soils report in 1983 that revealed defects in his property dating back to when the lot was first created Similarly, in Abari v. State Farm Fire & Casualty Co. (1988) 205 Cal.App.3d 530, 534-535, 252 Cal.Rptr. 565, the court found an insured had been placed on notice of possible defects to his property, and thus a potential claim to his insurer, when he noticed in 1979 many small cracks in his house in the walls, driveway, counter, and fireplace. After being an absentee landlord for some time, he noticed in 1984 the cracks had worsened and new cracks had appeared. His claim was filed in 1985. The court held that the state of the pleadings, which the insured had failed to improve by amendment, compelled the conclusion that notice of the defects began in 1979, even though the insured argued on appeal no reasonable person would have been placed on notice thereby of a subsidence problem. Citing April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 195 Cal.Rptr. 421, the court found the insured should have discovered the damage earlier and acted accordingly to pursue his rights under the policy. Thus, the contractual limitations period was found to bar the action.
In Home Insurance v. Landmark Ins. Co. (1988) 205 Cal.App.3d 1388, 1396, 253 Cal.Rptr. 277 (citing United States Fidelity & G. Co. v. American Ins. Co. (1976) 169 Ind.App. 1, 345 N.E.2d 267, 272), we suggested but did not adopt a "reasonable person" standard for discovery of a loss; i.e.: When was the damage sufficient to put a reasonable person on notice of the possibility of a defect? In our opinion in Prudential-LMI Commercial Insurance v. Superior Court (Lundberg), supra, --- Cal.App.3d ----, 260 Cal.Rptr. 85, issued this date, we adopted this standard, which we also stated in the alternative: At what time did the "inception of the loss" become appreciable or reasonably observable?
In Johnson's case, a similar approach is appropriate. Under her policy, she was required to give notice of any loss without unnecessary delay as a precondition to timely filing her action on the policy "within twelve months next after inception of the loss." The parting of the roof rafters, discovered in December 1984, was an objectively observable fact which should have placed her on notice of the possibility of defects in the property. The other items of damage, discovered between February and May 1985, are similar "red flags," all of which show she had specialized knowledge between December 1984 and May 1985 of ongoing damage to her property.
Applying a reasonableness standard to these facts, we conclude the December 1984 damage was unusual and severe enough to start the contractual limitations period running. Johnson's observation of this damage gave her the specialized knowledge she needed to place her under a duty to investigate her rights under the policy. These objective facts, not her receipt in October 1985 of the Fireman's Fund rejection of her claim and reference to soil subsidence as the cause of the distress, control the application of the limitations period to her claim. After the required notice of loss was given, any action should thus have been filed within one year of the time the loss became reasonably observable. At the latest, a timely action would have had to have been filed by May 1986 after she observed the cracks and other damage in the spring of 1985.
Although Johnson's second amended complaint does not specifically plead waiver and estoppel to enforce the statute of limitations, she raised that issue in her opposition to the motion for summary judgment or adjudication. Referring mainly to Fire representatives' failure to return telephone calls, she claimed the 16-month period of investigation performed by Fire between January 1986 and May 1987 led to her delayed filing of her action. However, For all of the above reasons, as a matter of law, the trial court had the duty to grant Fire's motion for summary judgment.
DISPOSITION
The alternative writ is hereby discharged. Let a peremptory writ issue directing the superior court to vacate its order denying the motion for summary judgment or adjudication and to enter another order granting the summary judgment relief requested. Each party shall bear its own costs.
WORK, Acting P.J., and BENKE, J., concur.
'Such contractual limitations do, however, present their dangers. In the abstract, it sounds perfectly logical to say that the parties have the right to agree upon any contractual provisions they may desire. But do they, in fact, do so? As a practical matter, they do not. The contracts are prepared by the insurer and delivered, usually in a voluminous printed form (often package), to the applicant. It is doubtful that even attorney-insureds read this mass of small print. They are then unaware, for example, of the fact that an action on a fire policy must be brought within 12 months, instead of the much longer period fixed by statute for actions upon written contracts generally.' (20A Appleman, Insurance Law & Practice (1980) § 11601, p. 435.)"