REPUBLIC INSURANCE COMPANY, Plaintiff and Appellant, v. GREAT PACIFIC INSURANCE COMPANY et al., Defendants and Respondents.
Plaintiff Republic Insurance Company (Republic) appeals after the trial court granted motions for summary judgment in favor of defendants Great Pacific Insurance Company (Great Pacific) and the Fire Insurance Exchange (Fire Exchange). We affirm.
Defendant Fire Exchange insured the Kenny's home in San Jose from 1976 to October of 1981. Defendant Great Pacific insured the Kenny's home for only two months—from November 1981 to January of 1982—before plaintiff Republic issued a policy for the house in January of 1982. In November of 1984, while Republic was still on the risk, the Kennys submitted an insurance claim for damage to their home caused by settlement and/or earth movement.
A geologist hired by Republic to help investigate the claim concluded that the damage to the Kenny home was caused by expansion and contraction of the highly expansive soils underlying the house. According to the geologist, this condition existed at the time the home was built, and damage to the home started shortly after construction. Consequently, Republic concluded that the damage to the Kenny property occurred in part during the time the home was insured by Fire Exchange and Great Pacific.
In August of 1985, Republic wrote to Great Pacific and Fire Exchange to advise those companies that Republic would be seeking contribution from them for any compensation paid to the Kennys.
In September of 1986, Republic paid more than $46,000 to the Kennys in full settlement of their claim.
In April of 1987, Fire Exchange wrote to Republic and denied liability on the claim.
On April 23, 1987—more than 27 months after the Kennys had submitted their claim to Republic and more than 18 months after Republic had advised Great Pacific and Fire Exchange that it would be seeking contribution—Republic filed suit against Great Pacific and Fire Exchange 1 for pro rata contribution to the Kenny's claim. Both Great Pacific and Fire Exchange brought motions for summary judgment on the ground that the private one-year statute of limitations contained in their respective policies barred Republic's action for contribution. This contractual statute of limitations required that suit be brought within 12 months of the inception of the loss. The trial court agreed that the statute of limitations barred Republic's suit for contribution, and granted summary judgment in favor of Fire Exchange and Great Pacific. This appeal followed.
A. The One–Year Statute of Limitations Applies to Republic's Contribution Action.
Both the Great Pacific and Fire Exchange policies contain the contractual statute of limitations found in the California Standard Form Fire Insurance Policy (Insurance Code, § 2071.). This clause provides: “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 12 months next after inception of the loss.” (Ins.Code, § 2071.) 2
There is no real dispute in this case that Republic's lawsuit was brought more than 12 months after the inception of the loss. Rather, the issue is whether the one-year statute of limitations should bar an action for contribution brought by one insurer against a predecessor insurer who covered the same risk. We conclude that the statute of limitations does apply in these circumstances.
The parties' positions on this issue can be summarized as follows: Great Pacific and Fire Exchange argue that Republic's action for “contribution” is nothing more than an action for subrogation of contractual rights, and, under well established subrogation principles, the subrogee (Republic) has no greater rights than its subrogor (the Kennys). (Smith v. Parks Manor (1987) 197 Cal.App.3d 872, 878, 243 Cal.Rptr. 256; Iusi v. City Title Ins. Co. (1963) 213 Cal.App.2d 582, 588, 28 Cal.Rptr. 893; Meyer Koulish Co. v. Cannon (1963) 213 Cal.App.2d 419, 424, 28 Cal.Rptr. 757.) Consequently, Republic must stand in the shoes of the Kennys vis-a-vis the other insurers, and must abide by the terms and conditions of their respective policies, including the statute of limitations. (See Iusi v. City Title Ins. Co., supra, 213 Cal.App.2d at p. 588, 28 Cal.Rptr. 893.)
Republic, on the other hand, disputes that this is an action for subrogation and instead claims that its suit is one for “contribution” which “arises only between insurers due to equitable principles, and not from any contractual relationship.” Because of this, Republic contends the provisions in the insurance policies “should be construed to ․ bind only those parties who executed the contract.”
In a strict sense, Republic is correct in describing its action as one for contribution rather than subrogation. Witkin has described equitable contribution as “the right to recover from a co-obligor,” which arises, for example, when several insurance companies are jointly liable and one has paid more than its share. (7 Witkin, Summary of Cal.Law (8th ed. 1974) Equity, § 123, p. 5341, see also 6 Appleman, Insurance Law & Practice (1972) § 3902, p. 422 [“Contribution is a principle sanctioned in equity, and arises between co-insurers only, permitting one who has paid the whole loss to obtain reimbursement from the other insurers who are also liable therefor.”].) By contrast, the right to subrogation arises when “ ‘one person, not a volunteer, pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter.’ ” (Meyer Koulish Co. v. Cannon, supra, 213 Cal.2d at pp. 423–424, 28 Cal.Rptr. 757, fn. omitted.) Thus, Witkin defines subrogation as “the right to recover from the debtor-obligor.” (7 Witkin, Summary of Cal. Law, supra, Equity, § 124, p. 5342.) In the insurance context it arises, for example, when an insurance company pays its insured for damage caused by a third party tortfeasor; when it does so, the insurer is subrogated to the insured's rights against the tortfeasor. (Meyer Koulish Co. v. Cannon, supra, 213 Cal.App.2d at p. 424, 28 Cal.Rptr. 757.)
In the present case, Republic is contending that Great Pacific and Fire Exchange are co-obligors, and consequently its action is best described as one for contribution. However, this description does not alter the essential fact that the action is derivative of the Kennys' rights under their insurance contracts with Great Pacific and Fire Exchange.
Republic argues, of course, that its action for contribution is based on “equitable principles,” and is not tied to the contracts between the Kennys and their prior insurers. However, the rights of the parties cannot be determined by equitable principles floating in the ether. Clearly, Republic would not now be arguing that it is entitled to contribution from the prior insurers had the prior policies unequivocally excluded the type of risk at issue here. Of necessity, we must look to the prior insurance contracts to determine if Republic is entitled to contribution. Only then can we determine whether the risk is of the type covered by the earlier policies. The issue simply cannot be determined—as Republic would have it—on disembodied equitable principles.3
However, we need not determine in this case whether a subsequent insurer seeking contribution from a prior insurer is bound by every comma, period, and clause of the prior contract. For our purposes, it is enough to decide that subsequent insurers are bound by the private statute of limitations present in all California fire insurance policies. Although we have not found any California cases on point, we find support for this position in a Michigan case addressing a nearly identical issue. In Fremont Mut. v. Michigan Basic Property (1988) 171 Mich.App. 500, 430 N.W.2d 764, two fire insurers insured the same property simultaneously. The property was destroyed by fire during the period of simultaneous coverage. A claim was made against the second insurer which paid the claim and then sought contribution from the first insurer. The first insurer defended on the ground that the second insurer's action for contribution was barred by the one-year statute of limitations applicable to fire insurance policies. The Michigan statute of limitations is identical to that found in the California Standard Form Fire Insurance Policy (Insurance Code, § 2071.) 4 The Michigan court rejected the plaintiff insurer's claim that the one-year statute of limitations did not apply to its action for contribution: “Plaintiff's claim against defendant, filed some 3 1/212 years after the fire and after defendant's refusal to pay, is derivative of plaintiff's payment [to the insured]. Because there is no privity of contract between the plaintiff and defendant insurers, plaintiff's action is clearly one ‘on the policy,’ governed by the one-year limitation period contained therein. [Citation.]․ Characterizing the action as one for contribution does not alter its nature as an action ‘on the policy.’ ” (Fremont Mut. v. Michigan Basic Property, supra, 430 N.W.2d at pp. 765–766, emphasis added.)
Similarly, in the present case, Republic's claim for contribution is derived from its payment to the Kennys. Because there is no contract between Republic and the prior insurers, its action is clearly on the policies between the Kennys and the prior insurers. Characterizing the action as one for contribution does not alter its nature as an action “on this policy.” (Ins.Code, § 2071.) Consequently, Republic is bound by the one-year statute of limitations contained in the prior policies. (See also Insurance Co. of N. America v. Fire Ins. (Tex.1979) 590 S.W.2d 642.)
B. Fire Exchange Did Not Waive the Statute of Limitations Defense.
Republic next contends that Fire Exchange waived the statute of limitations defense because it did not specify that defense in its letter stating the reasons Fire Exchange was denying liability for the claim. We reject this argument.
Republic relies on McLaughlin v. Connecticut General Life Ins. Co. (N.D.Cal.1983) 565 F.Supp. 434—a federal case interpreting California law—which holds that an insurance company which relies on specified grounds for denying a claim thereby waives the right to rely in subsequent litigation on any other grounds which a reasonable investigation would have uncovered. (Id., at p. 451.) However, in a subsequent case, the same court held that the McLaughlin rule does not apply to a statute of limitations defense. (Becker v. State Farm Fire and Cas. Co. (N.D.Cal.1987) 664 F.Supp. 460, 461–462.) The Becker court reasoned that the McLaughlin rule is designed to provide an incentive to insurance companies to investigate claims before denying them, and, consequently, the defenses subject to the waiver rule go to whether the claimed loss is covered by the policy. Since a statute of limitations defense is unrelated to any investigation of whether the claimed loss is covered by the policy, it is not subject to the waiver rule. (664 F.Supp. at p. 462.) We follow Becker and reject Republic's waiver argument.
C. Defendants Are Not Estopped From Relying On the Statute of Limitations Defense.
Finally, Republic contends that both Fire Exchange and Great Pacific should be estopped from relying on the statute of limitations as a defense because they “induced” Republic to delay filing suit by representing that ongoing investigations of the claim were underway. We reject this contention.
First, Republic did not plead estoppel in its complaint. Estoppel must be pleaded and proved as an affirmative bar to a statute of limitations defense. (Hanson v. Garden Grove Unified School Dist. (1982) 129 Cal.App.3d 942, 948, 181 Cal.Rptr. 378.)
Second, the authority Republic relies on is inapposite. In Muraoka v. Budget Rent–A–Car, Inc. (1984) 160 Cal.App.3d 107, 206 Cal.Rptr. 476, the individual plaintiff alleged in his complaint that while he was unrepresented by counsel the defendant car rental agency affirmatively represented that he would be fully compensated without litigation, and that this caused him to delay contacting counsel or filing suit until after the statute had run. The Muraoka court found these pleaded facts sufficient to estop the car rental agency from relying on the statute of limitations. (Id., at pp. 115–118, 206 Cal.Rptr. 476.) By contrast, Republic is a presumably sophisticated insurance company which was represented by counsel at an early stage of its investigation of the claim. It has been said that where a plaintiff has been represented by an attorney in connection with a claim, he may not, as a matter of law, claim that the defendant is estopped from relying on the statute of limitations as a defense. (Romero v. County of Santa Clara (1970) 3 Cal.App.3d 700, 705, 83 Cal.Rptr. 758.) We believe this rule may be properly applied in the present case.
The judgment is affirmed.
1. Republic also filed suit against Old Republic Insurance Company. However, Old Republic did not move for summary judgment and is not a party to this appeal.
2. During the five and one-half years Fire Exchange insured the Kenny home, two separate policies were in effect at different times. The first policy contained the statute of limitations language quoted in the text. The second policy—which was in effect from July of 1980 until the Kenny's cancelled the policy in October of 1981—also contained a one year statute of limitations, although in different language. The second policy provided: “We may not be sued unless there has been full compliance with all the terms of this policy. Suit must be brought within one year after the loss.”
3. Republic's reliance on Pacific Indemnity Co. v. Fireman's Fund Ins. Co. (1985) 175 Cal.App.3d 1191, 223 Cal.Rptr. 312 is misplaced. Although Republic cites language in that case which, at first blush, seems to support their position (id., at pp. 1197–1198, 223 Cal.Rptr. 312), Pacific Indemnity in fact had nothing to do with contribution, but instead concerned a dispute between two insurance companies over which had the duty to defend an insured. It is simply not apposite to the case before us.
4. Lines 157–161 of Michigan Compiled Laws Annotated § 500.2832 provide: “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.”
WHITE, Presiding Justice.
MERRILL and STRANKMAN, JJ., concur.