UNITED STATES LIABILITY INSURANCE CO., Plaintiff and Respondent, v. HAIDINGER-HAYES, INC., et al., Defendants and Appellants.
Plaintiff is an insurance company engaged in writing (inter alia) liability insurance. Defendants are a California corporation acting as the general agent of plaintiff and the president of that corporation. In 1961, defendant corporation, acting through the individual defendant, proposed to plaintiff that it write a policy of insurance covering the liability of Crescent Wharf and Warehouse Company (hereinafter Crescent), at a rate of $1.05 per hundred dollars of Crescent's payroll as reported on a monthly basis. Plaintiff accepted the recommendation and the policy was issued. In 1965, when the claims payable under the policy had substantially exceeded the premiums paid, plaintiff cancelled it. Thereafter, plaintiff sued Crescent to rescind the policy and sued defendants herein to recover its losses under the policy. The cases were consolidated for trial, that against Crescent resulting in a judgment against the plaintiff from which it has not appealed. The complaint against defendants, as amended and on which the case proceeded to trial, alleged six causes of action: the first and second were based on a contention that defendants had misrepresented the nature of the risk, the third and fourth alleged breach of certain duties allegedly owed by defendants to plaintiff, the fifth was for negligence1 and the sixth was for breach of the written agency contract. The sixth cause of action was dismissed by plaintiff during trial, the trial court made findings adverse to plaintiff on essential elements of the first, second, third and fourth causes of action, but gave judgment for plaintiff on the fifth (negligence) cause of action. Defendants have appealed.
Defendants here contend: (1) that the evidence does not support the finding of negligence on its part; (2) that the cause of action on which judgment was based was barred by the statute of limitations; and (3) that, in any event, the judgment was excessive because the trial court used the wrong measure of damages. We reject the first contention but agree with the second and reverse the judgment on that ground. Consequently we do not reach the issue as to the measure of damages.
Crescent was a stevedoring company. For several years prior to the writing of the policy herein involved it had been insured by other carriers, acting through other agents. Each of those policies had been cancelled because the several carriers were unhappy with the ratio of premiums to losses. For several years, Crescent's own insurance broker, Bayly, Martin & Fay, Inc., (hereinafter Bayly) had discussed with defendants the possibility of placing the Crescent business with plaintiff, but nothing had come of those negotiations until, after Crescent's last policy was cancelled in 1961, defendants and Bayly negotiated a policy with a maximum coverage of $25,000 per claim at the $1.05 rate. Plaintiff contends: (1) that defendants knew that the rate for such a policy should be so fixed that the anticipated losses (including investigation and settlement costs) would not exceed 60 per cent2 of the net premium payable to plaintiff (after deducting defendants' commission of 20 per cent); (2) that defendants knew, or by reasonable inquiry would have known,3 that the premium payable under the policy would, in fact, be less than the anticipatable losses; and (3) that plaintiff was not advised of this fact. Defendants contend, on the other hand, that the rate was computed honestly, without knowledge, or reason for knowledge, of the results that actually came about and that, at the most, they were guilty only of poor judgment not amounting to negligence. The trial court made a series of findings, adverse to defendants' position.
The trial was long and the evidence conflicting. As defendants urge, there was evidence from which the trial court might have found that defendants acted reasonably in estimating the size of Crescent's future payroll and the probable amount of claims to be made under the policy, and that the actual results were due to two unanticipatable factors: (a) a major reduction in Crescent's payroll, because of increased automation and the loss of one of its principal customers; and (b) a major increase in claims, due to judicial decisions subsequent to the issuance of the policy, which substantially increased Crescent's liability to its employees.4 But, as plaintiff points out, there was other evidence from which the trial court could, as it did, find that defendants ignored information that it possessed, or by use of ordinary diligence should have possessed, which would have shown: (a) that the potential payroll had been greatly overestimated by them; and (b) that, even apart from the effect of the decisions above referred to, Crescent's probable claims were greatly underestimated.
It is not within our competence to review findings of fact that rest on substantial evidence. We cannot say that the trial court was wrong in finding that defendants were negligent in recommending the issuance of the policy on the terms and at the rate which they used.5 It is, thus, unnecessary to discuss how far, if at all, defendants could have been liable for misjudgments falling short of negligence.
In their answer, defendants pled the statute of limitations in the following terms:
‘That said cause of action is barred by the provisions of Section 337, Subdivision 1, of the Code of Civil Procedure of the State of California, and the provisions of Section 338, Subdivision 4, of the Code of Civil Procedure of the State of California.’
Of the subsections thus pleaded, subdivision (1) of section 337 is applicable to ‘an action upon any contract, obligation or liability founded upon an instrument in writing,’ and subdivision (4) of section 338 is the provision applicable to causes of action based on fraud or mistake.
The trial court rejected the statute of limitations defense and plaintiff supports that holding on two theories:
(1) That the applicable statute was subdivision (1) of section 339 of the Code of Civil Procedure—the two year statute applicable to section on liabilities not founded upon an instrument in writing—and that, under section 458 of the Code of Civil Procedure and the cases construing that section, a statute of limitations not specifically pleaded by section and subdivision, cannot be relied on. (Consult 2 Witkin, Cal.Proc. (1954) Pleading, §§ 546–547, pp. 1542–1546); and
(2) That the statute of limitations does not run in favor of an agent until the principal has discovered the wrong.
It is now conceded that subdivision (4) of section 338 is not applicable to the cause of action on which the judgment rests.6 Clearly, the two-year statute of subdivision (1) of section 339 is the only one applicable to the cause of action for negligence against the individual defendant. He was not a party to the written agency agreement, having signed it only as an officer of the corporation. Hence his liability, if any, could, by no possible theory, be one ‘founded upon an instrument in writing.’ However, we agree with the corporate defendant that the cause of action against it was one to which the four-year statute applies. Despite some language to the contrary in earlier cases (cf. Scrivner v. Woodward (1903) 139 Cal. 314, 316, 73 P. 863), it is now settled that ‘[t]he promise which the law implies as an element of the contract is as much a part of the instrument as if it were written out.’ (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 662, 328 P.2d 198, 203, 68 A.L.R.2d 883; see, also, Amen v. Merced County Title Co. (1962) 58 Cal.2d 528, 25 Cal.Rptr. 65, 375 P.2d 33.
While plaintiff is, thus, correct in its assertion that the individual defendant did not plead the proper statute of limitations, it may not now rely on that procedural defect. To the rule requiring a specific pleading of the statute of limitations relied on, there is an equally well-settled qualification—namely, that the party against whom the defense is raised must call attention to the pleading error in the trial court—ordinarily by way of demurrer to the answer. (2 Witkin, Cal.Proc. (1954) Pleading. § 547, p. 1545.) In the case at bench, there was no demurrer to the answer and, when defendants urged the defense at the trial, plaintiff made no suggestion that the matter was not properly pleaded. In the long argument on the limitations defense, plaintiff relied only on the contention (hereinafter discussed) that the statute did not begin to run in favor of its agent until plaintiff had discovered the negligence. It was this theory, and this theory only, that was argued; the trial court's ruling, carried forward into its second Conclusion of Law, was solely on that theory. Plaintiff may not, in this court, urge, for the first time, that the individual defendant had not properly pleaded the statutory provision applicable to the case against him.
We turn now to plaintiff's only contention in the trial court and its principal contention here: that the statute of limitations (whichever one be applicable) did not begin to run until its discovery of the negligencean event found by the trail court to have been January 1, 1965less than one year before the action was filed.7
Plaintiff admits that the general rule is that the statute of limitations for negligence, or other tort, begins to run from the date of the wrongful act and not from the date of its discovery, but it argues that this rule is subject to exceptions in cases where the parties stand in a fiduciary relation. Both parties agree that the case law creates such an exception in cases of medical malpractice (Huysman v. Kirsch (1936) 6 Cal.2d 302, 57 P.2d 908), and in cases of malpractice by accountants (Moonie v. Lynch (1967) 256 Cal.App.2d 361a, 64 Cal.Rptr. 55) but that the statute begins to run in actions for malpractice by attorneys from the time of the negligence (Bustamante v. Haet (1963) 222 Cal.App.2d 413, 35 Cal.Rptr. 176; Griffith v. Zavlaris (1963) 215 Cal.App.2d 826, 30 Cal.Rptr. 517).8
Insofar as the individual defendant is concerned, the contention is without merit. He was not an agent of plaintiff, but acted only as an employee of the agent. If he is liable to plaintiff it is because, in any capacity, he owed a duty to his employer's clients to act with due care in dealing with their affairs. But that is a pure tort liability governed by the general rule.
In support of its claim that the corporate defendant cannot rely on the statute until the discovery of the negligence or (at the earliest in this case) until the fiduciary relationship was terminated, plaintiff cites a group of cases in which a trustee, either express or constructive, had violated the terms of the trust by diverting trust assets to its own use. In those cases, admittedly, the courts have held that, since the beneficiary had no right of possession until the trust ended and the trustee was called on to account, the statute ran only from the time when, by failing to account, the trustee had irrevocably repudiated its obligations. But, apart from such cases, we are cited to only one case (other than those above discussed involving medical and accountancy malpractice) in which a rule other than the general tort rule has been applied. In Twomey v. Mitchum, Jones & Templeton, Inc. (1968) 262 Cal.App.2d 690,c 69 Cal.Rptr. 222, the court discusses the present problem and, after quoting extensively from the accounting case, held that the statute began to run only from the date the fiduciary relationship ended. But, in that case, the defendant, a stockbroker, had been guilty not only of original negligence in selecting investments for its customer, but had perpetuated its wrong by advice and assurances running until the customer finally terminated her dealings. We have no such continuing malfeasance here. The agent's duty was to recommend a proper rate; once the rate was recommended and the policy issued, the wrong was done. The agent here is in the same position as was the negligent attorney in Eckert v. Schaal (1967) 251 Cal.App.2d 1, 58 Cal.Rptr. 817, where the statute ran from the date the original and negligent advice was given, even though the attorney-client relationship continued thereafter and the attorney might have mitigated the loss by correcting the advice at a later date. Even where a fiduciary stockbroker had been guilty of outright conversion, concealed from its customer, the statute was held to run from the date of the conversion and not from the date of discovery. (Rose v. Dunk-Harbison Co. (1935) 7 Cal.App.2d 502, 46 P.2d, 242.)9
In the light of the cases as they now stand in this state, we have no authority to extend to this case of a single act of negligence the so-called ‘more liberal’ rule of the trustee cases.
The judgment is reversed.
1. Defendants state in their briefs that the negligence cause of action appeared first in the amended complaint filed several months after the action was commenced. In this they are in error; a negligence claim was contained in the fourth cause of action in the original complaint.
2. At the trial, the parties urged various ratios. However, the trial court found that a 60 per cent ratio was appropriate; plaintiff bases its arguments here on that ratio and we use it for the purpose of this opinion.
3. At oral argument, counsel for plaintiff insisted that it contended only that defendant Haidinger had actual knowledge of the essential facts. However, both the amended complaint and the findings speak in terms of both knowledge and of what Haidinger ‘should have’ known. Since negligence may be predicated on either basis, the argument is immaterial to the decision.
4. Defendants contend that decisions in 1963 and 1964, which permitted a stevedore's employees to sue a shipowner for injuries attributable to negligence on the part of the stevedore, with a right of action over by the shipowner against the stevedore, were the cause of the huge losses under the policy since previously the employees had had recourse only to their compensation claim against their employer. Whether or not these cases had already been forecast when the policy was issued was one of the factual issues in the case.
5. The trial court found, on evidence adequate to support the finding, that defendants should have anticipated an annual loss under the policy of ‘at least $85,000.’ Even accepting defendants' estimated annual payroll of $9,000,000, the annual premium, before commissions, would have been only $94,500, of which 60 per cent would have been only $56,700. Obviously, on these calculations, the premium fell far short of the proper ratio.
6. The fact that an inapplicable subdivision or section is pleaded is immaterial, as surplusage, if a proper section and subdivision are also pleaded. (2 Witkin, Cal. Proc. (1954) Pleading, § 546, p. 1543.) The pleaded provision was applicable to one of the other causes of action on which the factual findings were adverse to plaintiff.
7. Alternatively, plaintiff argued, and the trial court found, that the statute began to run, at the earliest, when the agency relation between plaintiff and the corporate defendant was terminated in December of 1963—still within two years of the filing of the action.a. 256 A.C.A. 395
FOOTNOTE. FNa. 256 A.C.A. 395
8. Plaintiff cites Chavez v. Carter (1967) 256 Cal.App.2d 577b, 64 Cal.Rptr. 350 as supporting its position. But in that case the attorney's wrong consisted of an omission to act under a duty still continuing. The case cites and relies on the basic rule of Griffith and of Bustamante in limiting recovery.b. 256 A.C.A. 652c. 262 A.C.A. 7 59
9. Although the Rose case was severely criticized as not in accord with the trustee cases—the same argument as is here made by plaintiff (see Note, 10 So.Cal.L. Rev. 101)—it is the law of California, having been cited with approval by the Supreme Court in Eistrat v. Cekada (1958) 50 Cal.2d 289, 291, 324 P.2d 881, and by the Court of Appeal in Collins v. County of Los Angeles (1966) 241 Cal. App.2d 451, 458, 50 Cal.Rptr. 586.)
KINGSLEY, Associate Justice.
FILES, P. J., and JEFFERSON, J., concur.