Ward LAMBERT, Plaintiff and Appellant, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendant and Respondent.
Ward Lambert appeals from a judgment of dismissal entered after the trial court sustained the demurrer of respondent, Commonwealth Land Title Insurance Company, to appellant's first amended complaint without leave to amend, on the ground that all causes of action were barred by the statute of limitations. We affirm.
In January 1984 respondent issued appellant a title insurance policy in connection with appellant's purchase of real property. The policy excluded coverage of easements not shown by the public records and excluded loss or damage arising from an easement over appellant's property reserved by an adjoining property owner.
In November 1984, the adjoining property owner filed an action seeking a judicial determination that, among other things, he was the owner of an easement by implication over appellant's property. He also sought reformation of the recorded easement.
Appellant tendered defense of the action to respondent. On April 26, 1985 respondent notified appellant that it would not provide him with a defense and denied coverage under the policy. Appellant successfully defended the underlying suit, and judgment was entered in his favor on October 26, 1987.
On October 24, 1988, appellant filed an action against respondent, claiming that it had wrongfully refused to provide him a defense. The first amended complaint alleged causes of action for breach of the duty of good faith and fair dealing, fraud, breach of statutory duties, breach of contract, and intentional infliction of emotional distress. Appellant claimed that, as the result of respondent's wrongful refusal to provide a defense, he had been forced to incur attorney fees, costs and other expenditures in defending the suit.
Respondent's demurrer was sustained, without leave to amend, on the ground that all causes of action were barred by the statute of limitations. Appellant filed a timely notice of appeal from the judgment of dismissal.
The statute of limitations on an action founded on a contract, obligation or liability evidenced by a policy of title insurance is two years. (Code Civ.Proc., § 339(1).) The statute provides that the cause of action under a title insurance policy “shall not be deemed to have accrued until the discovery of the loss or damage suffered by the aggrieved party thereunder.”
Appellant contends that the trial court's order sustaining respondent's demurrer on the basis of the statute of limitations was based on its erroneous belief that the holding in Central Bank v. Transamerica Title Insurance Co. (1978) 85 Cal.App.3d 859, 149 Cal.Rptr. 822 required it to find that appellant's causes of action for breach of the duty to defend accrued, and the limitation period began to run, on April 26, 1985, when respondent denied liability and refused appellant's tender of defense. Under Central Bank, appellant's action, filed on October 24, 1988, was time barred as a matter of law.
Appellant argues that the better rule of accrual of his causes of action is found in Israelsky v. Title Ins. Co. (1989) 212 Cal.App.3d 611, 261 Cal.Rptr. 72. In Israelsky, the court declined to follow Central Bank and held that “․ while claims on title policies accrue upon discovery of loss or harm, ․ the statute of limitation for claims for breach of the duty to defend does not commence until entry of a final judgment in the underlying litigation.” (Id. at p. 623, 261 Cal.Rptr. 72.)
Central Bank and Israelsky are the only California authorities that consider the failure to defend under a policy of title insurance. The holding in Central Bank was based on the California Supreme Court's definition of discovery of loss or damage in the context of actions for professional malpractice (covered at the time by the first part of Code Civ.Proc., § 339(1)). The Supreme Court concluded that the statutory period in such cases commences when the client discovers that he has sustained appreciable and actual harm, however uncertain in amount. (Davies v. Krasna (1975) 14 Cal.3d 502, 514, 121 Cal.Rptr. 705, 535 P.2d 1161.)
The Central Bank court applied the Supreme Court's definition of “discovery of loss or damage” to the accrual provision of Code of Civil Procedure section 339(1) and held that an action for breach of the duty to defend under a title insurance policy accrues when plaintiffs first incur attorney fees, or, at the least, when tender of defense is refused, not when plaintiffs discover the full extent of their loss at the conclusion of the underlying action.
The Israelsky court relied on Oil Base, Inc. v. Continental Cas. Co. (1969) 271 Cal.App.2d 378, 76 Cal.Rptr. 594. In Oil Base, eight days after final judgment had been entered in the underlying case, and six and one-half years after the insurer had refused tender of defense under a liability policy, appellant filed an action against the insurer for breach of the duty to defend. The court held that the statute of limitations on a claim against a liability insurer for breach of its duty to defend does not begin to run until a final judgment is entered in the underlying action. (Id. at p. 389, 76 Cal.Rptr. 594.) The court reasoned that since it is well-established that the duty to defend is continuing in nature, the insurer “could have indicated its willingness to appear and defend at any time before trial, during trial, and at any stage before final judgment.” (Id. at pp. 389–390, 76 Cal.Rptr. 594.) Since the insurer's duty was continuous, appellant could elect to wait until a final judgment had been entered and the duty to defend had ceased. It deemed that appellant's action for breach of the duty to defend was timely because appellant “waited only a few days after its cause of action against Continental had accrued before it filed an action.” (Id. at p. 390, 76 Cal.Rptr. 594.)
The Israelsky court found “nothing in the nature of title insurance or in the Central Bank opinion which supports departure from the rule of delayed commencement set forth in Oil Base.” (Israelsky v. Title Ins. Co., supra, 212 Cal.App.3d at p. 620, 261 Cal.Rptr. 72.)
Arguing that the decision in Israelsky was erroneous, respondent points out that in Oil Base, the court was required to construe Code of Civil Procedure section 337, which merely provides that the limitation on an action for breach of a written contract is four years. Unlike section 339(1), section 337 does not state when the cause of action accrues. Therefore, the Oil Base court could judicially determine that for purposes of section 337, a cause of action for breach of the insurer's duty to defend under a liability policy accrues upon entry of final judgment in the underlying litigation.
We agree with respondent that the Israelsky court was precluded by Code of Civil Procedure section 312 from relying on Oil Base and coming to the same conclusion.
Code of Civil Procedure section 312 provides that “[c]ivil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute.” There is no statute tolling the limitation period for causes of action for breach of the duty to defend under a title insurance policy.
The Israelsky court stated that “[i]n light of the plain language of section 339, subdivision 1, we cannot fault the Central Bank opinion for concluding claims against title insurers accrue upon discovery of loss or damage.” (Israelsky v. Title Insurance Company of Minnesota, supra, 212 Cal.App.3d at p. 621, 261 Cal.Rptr. 72.) The court then found “nothing in the history or terms of section 339, subdivision 1, which suggests title policyholders cannot avail themselves of the same option the law affords insureds under liability policies.” (Id. at p. 622, 261 Cal.Rptr. 72.)
Respondent argues that the Israelsky court improperly created a judicial exception to Code of Civil Procedure section 312. Since the court admitted that the plain language of section 339(1) requires the conclusion that claims under title policies accrue upon discovery of loss or damage, section 312 obligated the court to hold that the limitations period runs from that date.1
We agree with respondent that to follow Israelsky is to disregard the clear provision of Code of Civil Procedure section 312. It is the province of the Legislature, not the courts, to modify the statute providing that the accrual date is the date from which the limitation period begins to run.
In the present case, respondent refused tender of defense of the underlying suit and denied liability under the policy on April 26, 1985. Pursuant to Central Bank, appellant's causes of action for breach of the duty to defend accrued, and the two-year limitation period prescribed by Code of Civil Procedure section 339(1) began to run on that date. Accordingly, appellant's causes of action based on respondent's breach of its duty to defend, filed on October 24, 1988, are barred by the statute of limitations.
We find that appellant's causes of action are barred by the statute of limitations. Accordingly, we need not consider appellant's adhesion contract argument.
A portion of this opinion is unpublished. The judgment of dismissal is affirmed.
1. The Israelsky opinion did not discuss Code of Civil Procedure section 312.
ABBE, Associate Justice.
STEVEN J. STONE, P.J., and GILBERT, J., concur.