Michael Mai NGUYEN et al., Plaintiffs and Appellants, v. 20th CENTURY INSURANCE COMPANY, Defendant and Respondent.
In this case the trial court sustained a demurrer without leave to amend, on grounds the statute of limitations had expired. The complaint, however, did not show when the statute had started running, or how long it had run before the action was filed. We reverse.
This case involves claims for breach of contract and bad faith involving earthquake insurance. The facts appear in the operative first amended complaint (complaint) and the insurance policy attached to it. We summarize the material allegations, quoting those of principal importance.
Plaintiffs, Michael Mai Nguyen and Kathleen Nguyen, own a home in West Hills, which in 1994 was insured against earthquake damage under a homeowners policy issued by defendant, 20th Century Insurance Company (20th Century).1 The earthquake coverage was subject to 10 percent deductibles, amounting to $9,200 for the dwelling, $920 for other structures, and $6,900 for personal property.
Paragraphs 10 through 13 of the complaint alleged as follows (straight capitals omitted):
“10. On or about January 17, 1994, while the policy was in full force and effect, the Northridge Earthquake caused serious damage to the property and plaintiffs' personal possessions. The full extent of the damage to the property and plaintiffs' possessions is unknown at this time but is believed to be at a minimum of $30,000.00.
“11. In February, 1994, plaintiffs notified defendants, and each of them, that they suffered property damage as a result of the earthquake. Plaintiffs opined that the cost of repairing said damage appeared to be under plaintiffs' 10% policy limits deductible. Defendants thereupon advised plaintiffs not to pursue a claim, as nothing could be paid if the deductible was not reached. Plaintiffs agreed. Defendants never came to plaintiffs' home to assess the amount of damage.
“12. In September, 1995, plaintiffs became aware that the cost of repairing the earthquake damage would exceed the deductible feature of the policy. Plaintiffs so notified defendants, and each of them. Defendants purportedly undertook to investigate the claim of plaintiffs.
“13. Defendants never challenged plaintiffs' assertion that the repair of the earthquake damage would cost approximately $30,000.00. Rather, defendants concluded that plaintiffs' claim was tardy, and defendants denied same on the following basis, and on no other basis: [¶] ‘Since your claim was made more than one year after the known date of loss, it does not fall within the proper parameters for coverage under your policy. Therefore, there is no coverage for your claim.’ ”
Based on these allegations, plaintiffs alleged a breach of the policy's duty to pay benefits. In addition, plaintiffs asserted a second cause of action, for breach of the covenant of good faith and fair dealing, also based essentially on 20th Century's failure to pay their claim. The action was commenced on January 17, 1997.
Plaintiffs' policy contained a one-year suit limitation provision, as provided for by Insurance Code section 2071. It stated: “9. Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions and the action is started within one year after the occurrence causing loss or damage.” With respect to notice and proof of loss, the policy also provided: “3. Your Duties After Loss. In case of a loss to which this insurance may apply, you shall see that the following duties are performed. [¶] a. give immediate notice to us ․ [¶] ․ [¶] e. submit to us, within 60 days after the occurrence, your signed, sworn proof of loss․”
20th Century demurred to the complaint, asserting that it demonstrated on its face that plaintiffs had not commenced their suit within one year after the loss. The trial court sustained the demurrer without leave, and entered an order dismissing the action.
The one-year limitations period for first-party property insurance cases, established by Insurance Code section 2071, operates subject to rules prescribed by the Supreme Court in Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230 (Prudential-LMI ). The first of these rules is that the period commences upon reasonable discovery of the loss, “not necessarily ․ on the occurrence of the physical event causing the loss.” (Id. at p. 686, 274 Cal.Rptr. 387, 798 P.2d 1230.) More specifically, “The insured's suit on the policy will be deemed timely if it is filed within one year after ‘inception of the loss,’ defined as that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered.” (Id. at pp. 686-687, 274 Cal.Rptr. 387, 798 P.2d 1230, italics added.) In this connection, “the insured is required to be diligent in the face of discovered facts.” (Id. at p. 687, 274 Cal.Rptr. 387, 798 P.2d 1230.) However, the determination of when appreciable damage occurs “is a factual matter for the trier of fact. The insured's unreasonableness in delaying notification of the loss ․ may be raised as a separate affirmative defense by an insurer in response to a complaint by the insured for recovery of benefits under the policy. The insurer has the burden of proving those allegations․” (Ibid.) 2
In light of these principles, the present complaint did not present facts sufficient to enable determination as a matter of law when the statute of limitations began running. This is manifest from the assortment of dates the parties advance as the starting point. For example, 20th Century urges that the date of the earthquake (January 17, 1994) is the relevant date, because plaintiffs alleged they observed serious damage to their property on that date. But that is simply a misreading of the complaint.3 Paragraph 10 of the complaint alleged that the earthquake caused serious damage to plaintiffs' home; it did not allege that plaintiffs were instantaneously aware of that damage. Notwithstanding dictum in Sullivan v. Allstate Ins. Co., supra, 964 F.Supp. at p. 1412, an insured's knowledge of appreciable damage from an earthquake, under Prudential-LMI, supra, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230, will not invariably arise on the date of the earthquake. The insured may be absent or out of communication, or the damage may not be immediately perceptible or appreciable. (Cf. Prieto v. State Farm Fire & Casualty Co., supra, 225 Cal.App.3d at pp. 1190, 1196, 275 Cal.Rptr. 362 [complaint alleged plaintiffs were present when their business was destroyed by fire].) In this context as in others, the issue is factual. The complaint did not establish that plaintiffs knew or should have known of appreciable damage on January 17, 1994.
A more likely juncture would be when plaintiffs determined to notify 20th Century that they had suffered earthquake damage. The exact date and exactly what plaintiffs knew remain undetermined. But it may be assumed for present purposes that at this point of notification plaintiffs had indeed become aware of appreciable damage, as contemplated by Prudential-LMI, supra, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230. That case measures appreciable damage as such that a reasonable insured would know that the policy obligation to notify the carrier had been triggered. Plaintiffs' giving of notice to 20th Century in February 1994 indicates that that time had contemporaneously arrived.
This assumption does not mean, however, that plaintiffs had just one year from February 1994 to commence suit. According to paragraph 11 of the complaint, when plaintiffs notified 20th Century they opined that the cost of repairing said damage appeared to be under the 10 percent policy deductible. 20th Century thereupon advised plaintiffs not to pursue a claim, and plaintiffs agreed. 20th Century did not then assess the extent of damage. In other words, plaintiffs having complied with their duty of notice, as reiterated in Prudential-LMI, supra, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230, 20th Century did not discharge its own responsibility-for which it now strenuously contends-to determine whether there was a covered loss. Instead, acting only on plaintiffs' own estimation or speculation of the extent of the loss, 20th Century told plaintiffs to pursue no claim.
Under these allegations, 20th Century would be estopped from relying on plaintiffs' failure to provide proof of loss under the policy (or to comply with supposed requirements of written notice or written claim).4 (E.g., Evid.Code, § 623.) Furthermore, 20th Century's receipt of plaintiffs' February 1994 notice would have equitably tolled the limitations period, as prescribed by Prudential-LMI, supra, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230. The Supreme Court there held that although the one-year provision commences upon inception of the loss, as previously discussed, it is tolled “from the time an insured gives notice of the damage to his insurer, pursuant to applicable policy notice provisions, until coverage is denied.” (Id. at p. 693, 274 Cal.Rptr. 387, 798 P.2d 1230.) Here, plaintiffs gave the requisite notice in February 1994. Assuming, as the complaint alleges, that 20th Century did not deny plaintiffs coverage until some time after September 1995, that interval would be excluded from the running of the statute.
Alternatively, 20th Century's February 1994 advice that plaintiffs not pursue a claim under the policy might estop 20th Century from relying on the limitations period for as long as plaintiffs, in reliance on that advice, refrained from pursuing their rights under the policy. A defendant's concealment of a cause of action, or dissuasion of a plaintiff from pursuing it, may estop the defendant from invoking the statute of limitations. (See 3 Witkin, Cal. Procedure (4th ed. 1996) Actions, §§ 685-690, 693-700, pp. 872-880, 885-892.) So too may an insurer's advice that a loss is not covered, and should not be pursued, preclude the insurer from asserting the consequent running of the limitations period against the insured. (Cf. Ward v. Allstate Ins. Co. (C.D.Cal.1997) 964 F.Supp. 307, 312.) 5
The foregoing analysis reflects that the complaint simply did not show that plaintiffs commenced this action beyond the limitations period. That period probably commenced, upon actual or constructive discovery of appreciable harm, on an indeterminate date between January 17, 1994 and the end of February 1994.6 Depending upon the exact, but unalleged, circumstances and content of plaintiffs' communications with 20th Century in February 1994, the statute may well have been tolled, or subject to estoppel against its invocation, until 20th Century denied plaintiffs' September 1995 claim.7 Plaintiffs commenced suit on January 17, 1997. Determination of whether that suit was untimely thus depends upon events of unestablished date. The complaint did not permit such determination, and hence the demurrer should not have been sustained.
The order of dismissal is reversed, with directions to overrule the demurrer and allow 20th Century to answer the complaint. Plaintiffs shall recover costs.
1. The other defendants referred to in quoted portions of the complaint were “Does” who were alleged to have been 20th Century's agents.
2. 20th Century's suggestion that the foregoing standards should not apply to earthquake damage cases, as opposed to those involving progressive property damage, lacks foundation. Since at least our decision in Prieto v. State Farm Fire & Casualty Co. (1990) 225 Cal.App.3d 1188, 1196, 275 Cal.Rptr. 362, the appreciable damage rule has been applied to sudden losses. Indeed, all of the Northridge earthquake cases on which 20th Century relies applied the rule. (See Vashistha v. Allstate Ins. Co. (C.D.Cal.1997) 989 F.Supp. 1029, 1031-1032; Sullivan v. Allstate Ins. Co. (C.D.Cal.1997) 964 F.Supp. 1407, 1411; Hill v. Allstate Ins. Co. (C.D.Cal.1997) 962 F.Supp. 1244, 1246-1249.)
3. And apparently a studied one, considering how many times it is repeated in 20th Century's brief.
4. These supposed requirements, repeatedly alluded to in 20th Century's brief, do not appear in the policy. Moreover, although the standard policy set forth in Insurance Code section 2071 provides for written notice of loss, under Insurance Code section 2070, 20th Century's deletion of the writing requirement was lawful and binding.
5. Vashistha v. Allstate Ins. Co., supra, 989 F.Supp. 1029, cited by 20th Century at oral argument, does not establish to the contrary. There the court held that, for purposes of estoppel, the insureds could not have reasonably relied on an inspector's advice that they had no claim, where the inspector had not inspected or seen the property. On the other hand, the court also suggested that the same advice could constitute a denial of coverage, ending any equitable tolling. (Id. at pp. 1032-1033.) As presently alleged, the circumstances of the instant case, involving direct advice from 20th Century's office not to pursue a claim, are different. Moreover, Vashistha overlooked that equitable tolling does not end until “the time the insurer formally denies the claim in writing.” (Prudential-LMI, supra, 51 Cal.3d at p. 678, 274 Cal.Rptr. 387, 798 P.2d 1230.)
6. Plaintiffs have contended that they did not know of appreciable harm until their September 1995 discovery of further damage, and that therefore the period did not commence until then. Plaintiffs' theory is that if the damage that prompted them to notify 20th Century in February 1994 did not meet the policy deductible, it was not appreciable. The authorities generally do not support this theory, although they are not unanimous. (See, e.g., Lawrence v. Western Mutual Ins. Co. (1988) 204 Cal.App.3d 565, 572-573, 251 Cal.Rptr. 319; Brown etc. Co. v. Pac. Auto. Ins. Co. (1942) 52 Cal.App.2d 760, 765, 127 P.2d 51; Sullivan v. Allstate Ins. Co., supra, 964 F.Supp. at p. 1413; but see Hill v. Allstate Ins. Co., supra, 962 F.Supp. at p. 1248, fn. 3.) But in any event, the question when plaintiffs did discover appreciable damage remains undetermined.
7. Appellants' opening brief indicates that this denial occurred between January 24 and January 26, 1996.
FUKUTO, Associate Justice.
BOREN, P.J., and ZEBROWSKI, J., concur.