PRUDENTIAL LMI COMMERCIAL INSURANCE v. LUNDBERG (1989)

Petitioner Prudential–LMI Commercial Insurance (Prudential) sought summary judgment or adjudication of issues in an insurance bad faith case filed by Ralph E. Lundberg and Britt M. Lundberg, trustees of a family trust (the Lundbergs).   Certain property owned by the Lundbergs, an apartment building, suffered progressive soil subsidence damage which the Lundbergs contend was a covered loss under a number of sequential insurance policies, one of which was issued by Prudential.   Prudential denied coverage based on the Lundbergs' alleged failure to make a timely claim under the policy and based its motion for summary judgment on this theory.   The trial court denied the motion in its entirety and this writ was taken.   We issued an alternative writ to consider the issues of whether an insured is required to comply with an internal policy notice of claims provision and one-year suit limitations period when the claimed loss could not reasonably have been discovered within the policy period.

We hold that for purposes of assessing the timeliness of the filing of a claim and action thereon, a delayed discovery rule must be applied such that the time at which the insured is required to take action to enforce his or her rights begins to run at the point at which a reasonable person would be found to be in possession of facts placing him or her on notice of a possible defect in the property.   Thus, the statutory and contractual period of the “inception of the loss” begins to run when the loss becomes reasonably observable.   Such a rule promotes the policy favoring litigation on the merits over the disposition of claims on purely procedural grounds.

In the case before us, while the insureds' claim was timely under delayed discovery principles, this action was not.   Therefore, Petitioner was entitled to summary judgment and the petition must be granted.

FACTUAL AND PROCEDURAL BACKGROUND

The Lundbergs built their apartment house in the early 1970's and insured it with four successive fire and extended coverage property insurers between 1971 and 1986.   Prudential, the petitioner in this action, was on the risk between October 27, 1977, and October 27, 1980.¹  It issued an “all-risk” policy which insured against “ALL RISKS OF DIRECT PHYSICAL LOSS except as hereinafter excluded.”   The specified exclusions included loss:

“Caused by, resulting from, contributed to or aggravated by any earth movement, including but not limited to earthquake, mudflow, earth sinking, rising or shifting;  unless loss by fire or explosion ensues, and this Company shall then be liable only for such ensuing loss.”

Definitions of “property damage” and “occurrence” appear only in the third party liability portion of the policy, as opposed to the first party property loss portion.   They read as follows:

“ ‘occurrence’ means an accident, including continuous or repeated exposure to conditions, which results in bodily injury, property damage or personal injury neither expected nor intended from the standpoint of the Insured;

“․

“ ‘property damage’ means:

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or

(2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.”  (Italics added.)

While replacing the floor covering in one of the apartment units in November 1985, the Lundbergs discovered an extensive crack in the foundation and slab floor of the building.   In December 1985 they filed a claim with their insurance agents or brokers, CFK, who, as requested, presented their claim to Prudential and several other past and present insurers.   Investigation thus far has revealed the cause of the crack was expansive soil which caused stress, rupturing the foundation of the building.

When Prudential did not pay their claim, the Lundbergs on August 26, 1987 (more than one and one-half years after the damage was discovered), filed this bad faith insurance action (later amended) against their four past insurers and their insurance brokers or agents, alleging theories of bad faith, breach of fiduciary duties, breach of contract, and negligence.   In pertinent part in their amended complaint filed February 11, 1988, they alleged:

“On or about November of 1985, Plaintiff suffered a loss compensable under the terms of said policies in that the structural integrity of said Apartment was destroyed by a crack in the foundation.

“․

“While the insurance policies, and each of them, hereinabove described, were in full force and effect, damage occurred to the structural integrity of said Apartments.”

Prudential sought summary judgment and, in the alternative, adjudication of 16 issues on the amended complaint, contending there was no evidence any loss was suffered during the period of time its policy was in effect, and in any case the action was barred by a contractual provision required to be contained in any such policy of fire and other insurance pursuant to Insurance Code sections 2070 and 2071.   This provision, commonly referred to as a “one-year suit provision,” appears in Prudential's policy in the following statutorily prescribed form:

“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.” 2

Under the policy, the requirements for the making of claims include written notice of any loss “without unnecessary delay” and proof of loss within 60 days after the loss.

At the hearing on the summary judgment motion, the court first continued the matter pursuant to Code of Civil Procedure section 437c, subdivision (h),³ for further evidence on the issue of whether the damage occurred during the policy term.   Further papers were filed, including the Lundbergs' declaration from a mathematician regarding statistical inferences on the chances a particular insurer's policy should be held to afford coverage during the periods in question.⁴  The court then denied the motion in its entirety, stating triable issues existed as to whether the earth movement exclusion applied, whether the damage occurred during the policy period, and on what date the crack appeared.   No issues were summarily adjudicated, on the stated grounds there was still ongoing discovery in the matter.   Since the trial court declined Prudential's request for an order embodying the reasons for the ruling and since the parties could not agree on the form of the order, a copy of the reporter's transcript was attached to the order eventually formalizing the ruling.

Prudential sought mandamus relief from the denial of the motion, specifying the sole basis of the requested relief was its argument that the Lundbergs failed to comply with the notice of claim requirement and one-year suit provision;  the additional grounds for summary judgment raised below (relating to causes of the loss and whether such causes are covered perils) are not argued to this court.   No claim is raised regarding the court's refusal to summarily adjudicate issues.

The Lundbergs' response included a demurrer to Prudential's petition on the grounds of failure to state sufficient facts,⁵ “invited error” in the preparation of the formal order,⁶ and the existence of an adequate remedy at law in the form of a future motion upon completion of discovery.   Further, the Lundbergs' attorney seeks fees of $9,562.50 on unspecified grounds.⁷

We issued an alternative writ on this and two similar petitions ⁸ and have received supplemental briefing.

DISCUSSION

To resolve the complex issues presented we must address the issue of whether a progressive property damage loss such as, but not limited to, land subsidence is qualitatively different from other forms of property damage compensable under a property damage policy, such that the usual rules for determining timeliness of a claim and action thereon should be altered.   We are accordingly required to interpret the meaning of the contractual and statutory term “inception of the loss” in light of our determination of the question framed above.   We confine our analysis of these issues to the timeliness question, since this petition does not present and we do not decide whether this claim is covered or excluded by the Prudential policy sued upon.

Although we find the Lundbergs' claim was timely, their action was not.   However, such determination does not render the petition moot.   The issues presented are of statewide importance and the matter has been well briefed;  there is little consistency in rulings on these issues in the trial courts.   We therefore address the merits of both the timely claim and the timely action requirements.

We conclude on these facts that a delayed discovery rule must be applied to the policy requirement that a claim be made without unnecessary delay and any action thereon be accordingly filed within one year after “inception of the loss.”   To rule otherwise would require claimants to act in protection of rights under the policy even if still “blamelessly ignorant” ⁹ of the objective facts underlying the claim.   As will be shown, gradually incurred loss may be found to have caused an effect (i.e., property damage) even when no person was there to perceive it.   The policy requirement of notice of loss without unnecessary delay, which gives rise to the initiation of the contractual limitations period for the bringing of an action after the “inception of a loss,” shall be extended in cases of continuous and progressive loss by the application of a delayed discovery rule, subject to the usual pleading and proof requirements.  (See, e.g., April Enterprises, Inc. v. KTTV, supra, 147 Cal.App.3d 805, 195 Cal.Rptr. 421.)

Our discussion will be divided into three general topics:  a consideration of the rules for determining the character and causation of a loss in the first-party insurance context, the effect of the claims requirement and one-year suit provision upon a discovery of a progressive loss which could not have reasonably been discovered earlier, and finally, a discussion of the principles of delayed discovery of a claim or cause of action as applied to these facts.

I

Causation and Character of a Loss

This court in Home Ins. Co. v. Landmark Ins. Co. (1988) 205 Cal.App.3d 1388, 253 Cal.Rptr. 277 recently had occasion to consider an issue closely related to those presented by the petition before us.   In Home, the sole issue resolved was “which of two first party insurers is liable for the loss from continuing property damage manifested during successive policy periods.”   (Id. at p. 1390, 253 Cal.Rptr. 277.)   Our holding was that the first insurer in that situation must pay the entire claim.   In contrast, here we are presented with a case in which several predecessor insurers are sought to be held liable for a progressive loss which allegedly took place in some measure during each of their policy periods.

This court in Home expressly stated that the facts then before us did not allow consideration of “the interesting question whether it is possible for the insured to have a covered loss when the loss is not reasonably observable by the insured during the period of the policy under which the insured seeks payment.”  (Id. at p. 1392, 253 Cal.Rptr. 277.)   Predictably, this “interesting question” has materialized in the form of this case.¹⁰

In Home, where damages had already been manifested during the first insurer's policy term and continued during a separate, second policy term, we rejected an offered analogy between continuous property damage cases and the field of asbestos bodily injury litigation, stating:

“Common sense tells us that property damage cases, even those involving continuous damage such as the one before us, differ from asbestos bodily injury cases where injury is immediate, cumulative and exacerbated by repeated exposure.   We believe the rationale for apportioning liability in the asbestos cases is not a basis to deviate from settled principles of law applicable to this case.”  (Id. at p. 1395, 253 Cal.Rptr. 277.)

This conclusion was based on settled law governing the liability of successor insurers.   Inter alia, we considered Snapp v. State Farm Fire & Cas. Co. (1962) 206 Cal.App.2d 827, 831–832, 24 Cal.Rptr. 44, which held the date of materialization of a loss determines which of two successive carriers must provide indemnity for a loss suffered by the insured, and the insurer on the risk at the time the damage is first discovered is liable for the entire loss.   We also relied on the loss in progress rule (see, e.g., Southern Cal. Edison Co. v. Harbor Ins. Co. (1978) 83 Cal.App.3d 747, 148 Cal.Rptr. 106), which provides an insurer is required only to insure against contingent or unknown risks, not those which are apparent before the policy takes effect.   We then distinguished as not controlling a case involving continuing property damage, California Union Ins. Co. v. Landmark Ins. Co. (1983) 145 Cal.App.3d 462, 193 Cal.Rptr. 461, where the court, in interpreting third-party liability insurance policies, applied an “exposure theory” derived from the field of asbestos-related bodily injury to property damage.   The result reached by that court was apportionment of a loss between successor insurers, since the “one occurrence” found (leakage from a swimming pool) stretched out over two policy periods.

In Home, we did not find it necessary to distinguish between policy language used in first- or third-party policies, noting:

“Here the parties agree there is no meaningful difference between terminology employed in the property damage and liability sections of the Home and Landmark policies.   Courts frequently use the terms ‘loss' and ‘damage’ interchangeably to describe events that trigger coverage.   A property insurer decides whether there has been a ‘loss to property’ during the policy period.   Similarly, the liability insurer determines if there has been an ‘occurrence ․ resulting in property damage’ while it was on the risk.”   (Home Ins. Co. v. Landmark Ins. Co., supra, 205 Cal.App.3d 1388, 1393, 253 Cal.Rptr. 277, fn. omitted.)

We emphasized in Home our decision was limited to the stipulated facts then before us, concerning design and construction defects which did not give rise to visibly manifested property damage until seven years after construction.   The manifestation of damage occurred during the first insurer's policy term and continued throughout the second's.  Home was admittedly “not a case for all purposes.”  (Id. at p. 1394, fn. 3, 253 Cal.Rptr. 277.)

Since our decision in Home was issued, the California Supreme Court has rendered an important decision on the scope of insurance coverage under “all-risk” policies of insurance where multiple causes are present.  (Garvey v. State Farm Fire and Casualty Company (1989) 48 Cal.3d 395, 257 Cal.Rptr. 292, 770 P.2d 704.)   In rejecting for use in the first party property insurance context a concurrent causation approach developed in State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123, which interpreted a third-party liability insurance policy, the Supreme Court emphasized the distinction between the two forms of insurance policies.   Citing a commentator, the court explained:

“[I]t is important to separate the causation analysis necessary in a first-party property loss case from that which must be undertaken in a third-party tort liability case.   The following quotation summarizes the distinction that must be drawn:  ‘Property insurance ․ is an agreement, a contract, in which the insurer agrees to indemnify the insured in the event that the insured property suffers a covered loss.   Coverage, in turn, is commonly provided by reference to causation, e.g., “loss caused by ․” certain enumerated perils.   [¶]The term “perils” in traditional property insurance parlance refers to fortuitous, active, physical forces such as lightning, wind, and explosion, which bring about the loss.   Thus the “cause” of loss in the context of a property insurance contract is totally different from that in a liability policy․   The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.’  [Citation.]”  (Garvey v. State Farm Fire & Casualty Company, supra, 48 Cal.3d 395 at p. 406, 257 Cal.Rptr. 292, 770 P.2d 704.) 11

Thus, in Garvey, the Supreme Court carefully distinguished the first party causation analysis from that used in the context of third party liability policies, where traditional tort concepts of fault, proximate cause, and duty determine the right to coverage, and where the focus is on whether a specific “occurrence” is covered.  (Ibid.)  Again referring to first party property insurance, the court stated the insured and the insurer could not reasonably expect coverage for property loss where the efficient proximate cause of the loss is an activity expressly excluded under the policy.  (Ibid.)

In light of the above considerations, we turn to the facts now before us concerning a progressive loss similar to that described in Home, but discovered long after several previous insurers' policy periods had expired.

II

Insurance Code Section 2071:  One–Year Suit Provision

The Lundbergs' building, constructed apparently in 1970–1971, developed signs of soils distress which were not discovered until 1985.   Sometime in the interim, slipping, subsiding, and settlement from some cause or another must have taken place or the cracks would not have developed.   Since this writ is expressly not taken on the covered peril issue, the record has not been developed on the issue of whether natural earth movement (an excluded cause) or third-party negligence (potentially a covered cause) is to blame, and accordingly we cannot and do not decide the applicability of Prudential's and its fellow insurers' earth movement exclusions.  (See Landslide and Subsidence Liability (Cont.Ed.Bar Supp.1988) § 4.11, pp. 38–40.)

Instead, here we are concerned only with the issue of the timeliness of the Lundbergs' claim and action on their Prudential policy.   That policy required notice of loss to be given “without unnecessary delay” and any action to be brought within one year of “inception of the loss.” ¹²

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 P.2d 669], of a policy provision requesting action to be commenced within 12 months after the happening of the loss:  ‘Such a covenant shortening the period of limitations is a valid provision of an insurance contract and cannot be ignored with impunity as long as the limitation is not so unreasonable as to show imposition or undue advantage.   One year was not an unfair period of limitation.  [Citations.]’ ”

 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 intention, 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.¹³  (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:

“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),¹⁴ the court held:

“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 the Lundbergs' opposition to Prudential's motion, that their delayed discovery of their claim and bringing of their action was 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.

To resolve these issues, we find it instructive to reexamine the applicability of “pre-manifestation” of damage authority, such as the asbestos bodily injury cases.   In our view, they shed some light on the application of the notice of loss and one-year suit provision in this case, even though they have arisen in the context of liability insurance.   In the field of insurance law, the concepts of manifestation and discovery necessarily overlap different policy types.   We have turned to pre-manifestation cases since existing law does not dispose of facts, such as those before us, which are distinguishable from those described in the authority governing first party policy claims for immediately observable damage.   As a matter of policy, we seek to interpret the claims requirement and one-year suit limitation period in such a manner as to avoid forfeiture of claims on procedural grounds, in order to allow coverage issues for potentially meritorious claims to be litigated on the merits.  (See, e.g., Denham v. Superior Court (1970) 2 Cal.3d 557, 566, 86 Cal.Rptr. 65, 468 P.2d 193.)

Returning to Home to begin this analysis, we there noted our concern that the court in California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 476, 193 Cal.Rptr. 461, misapplied several pre-manifestation cases to hold a post-manifestation carrier jointly and severally liable.   Of these cases, two arose from the asbestos bodily injury context (Ins. Co. North America v. Forty–Eight Insulations (6th Cir.1980) 633 F.2d 1212 and Keene Corp. v. Ins. Co. of North America (D.C.Cir.1981) 667 F.2d 1034), while the remaining citation, Gruol Construction Co. v. Insurance Co. of No. Amer. (1974) 11 Wash.App. 632, 524 P.2d 427, was a case involving liability for construction defects.¹⁵  The court in California Union relied on these cases to support its conclusion joint and several liability among successive insurers was proper, but failed to discuss the issue of whether the insurers in the cited cases were still on the risk at the time of manifestation of the loss, as were the California Union insurers.   The cited authority thus focused on a different issue than was involved in California Union:  the equities of holding pre-manifestation carriers jointly and severally liable where the claimed damage progressively developed over a long period of time, and thus no bright-line date of injury could be identified.   Instead, in those cases, an exposure period and a manifestation of injury date marked the time the damage began to be incurred and the time it could be recognized as such.

Facts such as those in Gruol and in the asbestos cases raise difficulties in applying the general rule that an insured has the burden to show occurrence of the loss or damage while the policy was in force.  (21 Appleman, Insurance Law & Practice (1980) “Burden of Proof—Property Insurance”, § 12093, pp. 15–17.)   The history of a particular variation of this general rule, as it applies in the context of liability insurance, was discussed in California Union.   The court examined a number of California cases which hold that generally, for purposes of assessing the timeliness of a claim under a third party liability policy, insurance coverage is afforded by the policy in effect when actual damage is incurred, rather than the one in effect at the time of commission of a wrongful act which later results in the damage.   In other words, where delay occurs between a wrongful act and actual loss, no duty to make a claim and no compensable loss is found until the loss materializes.  (California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 473, 193 Cal.Rptr. 461, citing Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84, 295 P.2d 19;  Tijsseling v. General Acc. etc. Assur. Corp. (1976) 55 Cal.App.3d 623, 127 Cal.Rptr. 681;  Arant v. Signal Ins. Co. (1977) 67 Cal.App.3d 514, 136 Cal.Rptr. 689;  Maples v. Aetna Cas. and Surety Co. (1978) 83 Cal.App.3d 641, 148 Cal.Rptr. 80;  Employers Casualty Co. v. Northwestern Nat. Ins. Group (1980) 109 Cal.App.3d 462, 167 Cal.Rptr. 296;  Chamberlin v. Smith (1977) 72 Cal.App.3d 835, 140 Cal.Rptr. 493.)   These cases applied this rule to such diverse theories of liability as nuisance, negligent misrepresentation, legal malpractice, and negligence in installing or manufacturing products.

Certainly we have no quarrel with the above-stated rule or the many cases in which it is applied.   However, the facts pled by the Lundbergs fall into a different category.   In the first place, we are not dealing with a third-party liability policy, but instead with first-party property damage issues.   Therefore, as directed by Garvey, we must focus upon the cause of the loss as limited by any policy exclusions when applying the contractual limitations clause, rather than relying too heavily upon the “occurrence” language in the policy.¹⁶  Further, as pointed out by the Court of Appeals for the Sixth Circuit in Ins. Co. North America v. Forty–Eight Insulations, supra, 633 F.2d 1212, 1222, fn. 18, in the cases applying the rule finding coverage only upon actual occurrence of injury, no damage or injury of any kind has taken place until manifestation;  the cause instead lies dormant until it later causes appreciable injury.   In contrast, where damages slowly accumulate, the Sixth Circuit noted the exposure theory applies.  (Ibid., citing Gruol Construction Co. v. Insurance Co. of No. Amer., supra, 524 P.2d 427, and federal products liability cases.)

In connection with an analysis of property damage caused by toxic materials such as asbestos, a commentator has pungently observed:

“[I]n the great majority of cases, property damage is not like a cancerous growth—it does not become worse with time.”  (Arness & Eliason, supra, at p. 972.)

However, we think that in some respects, a building undergoing soil subsidence distress or other progressive, continuous deterioration can in some respects be likened to a “sick” or decaying structure.¹⁷  Gradually developing damage to real property, while not immediately perceptible, nevertheless infects the integrity of the structure so that a compensable loss may be found to have been gradually incurred over a period of time.   Not uncommonly, several insurance policies may have been in effect during that time.   Such a fact pattern is distinguishable from the usual situation in which damage is eventually incurred when a specific negligently caused event later results in loss after a period of dormancy.

As noted above (see fn. 16 ante ), we look to the policy language in the liability section for lack of other guidance as to the extent of coverage under the policy.  “Property damage” is defined in part as “physical injury to or destruction of tangible property which occurs during the policy period․”  (Italics added.)   Generally, policy provisions defining coverage are broadly interpreted, while in contrast, exclusionary clauses, such as the earth movement exclusion here, are narrowly interpreted.  (Garvey v. State Farm Fire and Casualty Company, supra, 48 Cal.3d at p. 406, 257 Cal.Rptr. 292, 770 P.2d 704, citing Reserve Ins. Co. v. Pisciotta (1982) 30 Cal.3d 800, 808, 180 Cal.Rptr. 628, 640 P.2d 764.)

The question thus arises whether ongoing damage such as has been pleaded here may qualify under the policy as “occurring” during the policy period, so as to give rise to a potentially meritorious claim.   In Sabella v. Wisler (1963) 59 Cal.2d 21, 34, 27 Cal.Rptr. 689, 377 P.2d 889, a case heavily relied on by the Supreme Court in Garvey, a difficult concurrent causation question arose in the property loss context.   In Garvey, it was explained the Sabella coverage issue arose “after a building contractor constructed a house on uncompacted fill and negligently installed a sewer line;  negligent installation was a covered peril.   Eventually, the sewer line ruptured causing water to saturate the ground surrounding the insured's house, resulting in subsidence, an excluded peril.”  (Garvey v. State Farm Fire and Casualty Company, supra, 48 Cal.3d at p. 402, 257 Cal.Rptr. 292, 770 P.2d 704.)   The facts in Sabella showed that although the house had always sat on uncompacted fill, no “appreciable earth failure or damage to the house from subsidence” occurred until the house was approximately five years old, when the sewer pipe began leaking into the fill.  (Sabella v. Wisler, supra, 59 Cal.2d at p. 25, 27 Cal.Rptr. 689, 377 P.2d 889.)   Had it not been for the leakage, a “virtual absence of subsidence damage might have continued for some time.”  (Id. at p. 27, 27 Cal.Rptr. 689, 377 P.2d 889.)   On these facts, the Supreme Court based the “efficient proximate cause” of loss theory endorsed in Garvey.

With regard to general issues of coverage for events insured against, which under Insurance Code sections 22 and 250 must be “contingent or unknown,” ¹⁸ the Supreme Court in Sabella rejected an insurer's argument that a particular property loss did not qualify as a “fortuity” or contingent event within the meaning of those terms as they are used in the insurance context.   The Supreme Court noted that even if it were “inevitable” that the loss would eventually occur, due to the operation of natural forces and defective workmanship, the time of occurrence remained a fortuity.   Citing Snapp v. State Farm Fire & Cas. Co., supra, 206 Cal.App.2d 827, 24 Cal.Rptr. 44, the Supreme Court held the determinative factor was whether at the time the contract of insurance was entered into, the event was only a contingency or risk which might or might not occur during the policy period.¹⁹

Later, in California Union, the Court of Appeal disagreed with the notion that in all cases occurrence may be equated with manifestation of damage without regard to cause.  (California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d at p. 469, 193 Cal.Rptr. 461.)

Here, as in Sabella, when the insurer and insured entered into their contractual agreement, the possibility that soil subsidence damage would occur was presumably unknown to either.   Further, the nature of such damage is such that the progressive loss, while difficult to detect, was allegedly gradually being incurred.   Therefore, even though some damage may have been inevitable given the conditions at the site, the period over which the damage took place may be found to fall within one or several particular policy periods.   Such factual issues regarding the “happening of the loss” (see ante, fn. 2) are, of course, subject to proof.   Subject to any such factual determinations and any applicable policy exclusions, apportionment of damages between those insurers whose policy periods were in effect during the ongoing development of the injury would be an equitable result.

Based on the above reasoning, we conclude progressive property damage of the type alleged here is in some respects different from the usual type of damage for which standard first-party property damage policy requirements were designed.   Accordingly, the reasons for strictly enforcing policy requirements of notice of loss without unnecessary delay and the corollary one-year suit provision are not squarely applicable.²⁰  By analogy to Sabella, where the date at which “appreciable” damage became evident marked the accrual of the insured's rights against both the builder and the insurer, it seems logical that the date at which “appreciable” damage is detected should start the claims and accrual period of an action to run.   Otherwise, the merits of such coverage disputes could never be litigated, which would be an undesirable resolution of disputes.

We therefore turn to an examination of the principles of delayed discovery for accrual of a cause of action in order to reconcile them with the application of the notice of claim and one-year suit provisions in this context.

III

Delayed Discovery Principles

In April Enterprises, Inc. v. KTTV, supra, 147 Cal.App.3d 805, 826–831, 195 Cal.Rptr. 421, the court extensively discussed the development of the discovery rule for determining the accrual of a cause of action, and traced the extension of the rule to its current status that “as a result of judicial pronouncements, the discovery rule can be regarded as the general rule of accrual in many classes of cases in California.”  (Id. at pp. 828–829, 195 Cal.Rptr. 421.)   While adherence to the traditional “date-of-injury” rule for measuring the accrual of a cause of action advances fundamental policies underlying statutes of limitation—those protecting potential defendants by affording them the opportunity to gather evidence while the facts are still fresh—a strict application of the rule may produce an unjust result of depriving some plaintiffs of their causes of action before they are aware they have been injured.  (Id. at p. 826, 195 Cal.Rptr. 421.) ²¹  Thus, the rule has evolved:

“ ‘[A] cause of action under the discovery rule accrues when the plaintiff discovers or should have discovered all facts essential to his cause of action ․;  this has been interpreted under the discovery rule to be when “plaintiff either (1) actually discovered his injury and its negligent cause or (2) could have discovered injury and cause through the exercise of reasonable diligence.” ’  [Citation.]  Thus, the discovery rule reflects concern for the practical needs of plaintiffs.   It avoids dismissing a suit on grounds of limitation when a plaintiff is blamelessly ignorant of his cause of action.  [Citation.]”  (Id. at pp. 826–827, 195 Cal.Rptr. 421.)

The court in April Enterprises found several considerations justified its extension of the discovery rule to a breach of contract cause of action:  the injury and/or the act causing the injury were difficult to detect and, in most instances, the defendant was in a superior position to comprehend the injury and knew the plaintiff remained ignorant of the harm.   The court stated:

“Specifically, we hold the discovery rule may be applied to breaches which can be, and are, committed in secret and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by plaintiffs until a future time.”  (Id. at p. 832, 195 Cal.Rptr. 421.)

Obviously, there are distinguishing features between the facts in April Enterprises, where the defendant breached an alleged joint venture agreement by secretly erasing tapes in which the plaintiff had an interest, and the facts before us here, where insurance coverage is sought for progressive soil subsidence damage, which allegedly unknown to the plaintiffs continued over a period of time and continuously damaged the property.   Here, the Lundbergs, who contracted to have the apartment building constructed, have not brought a construction defect action against the contractors who did the work, instead seeking recovery under their first-party property damage policy pursuant to their claim the damage is not subject to policy exclusions.   Although there is no reason here, as there was in April Enterprises, to believe any concealment of a cause of action took place, in some respects the facts are analogous in that in both cases a plaintiff previously “blamelessly ignorant” of a cause of action seeks to pursue it.

We next examine whether these policies extending the time for accrual of causes of action, as stated in April Enterprises, equally apply to contractual limitations periods.   In Keene Corp. v. Ins. Co. of North America, supra, 667 F.2d 1034, 1043, fn. 17, an action over coverage for asbestos bodily injury, the Court of Appeal flatly stated statute of limitation cases were not at all relevant for purposes of choosing between an exposure or manifestation rule to determine when coverage is triggered.   The court's rejection of this authority appeared to be limited to those cases in which it would lead to the barring of meritorious claims.

The court in Fireman's Fund Ins. Co. v. Sand Lake Lounge, Inc. (Alaska 1973) 514 P.2d 223, 226, cited Professor Corbin (1A Corbin, Contracts (1963) § 218, pp. 311–312), who found in this excerpt no meaningful distinction between statutory and contractual limitations periods:

“ ‘Such time limits in insurance policies [such as Insurance Code section 2071 provisions] have often been held valid.   These agreements are not at all inconsistent with the purposes underlying the statute of limitations.   Those purposes are to prevent the bringing and enforcement of stale claims, involving extra danger of fraud and mistake, unless the debtor has expressed a voluntary assent within the statutory period․’ ”  (Ibid.)

On the other hand, a commentator has stated:

“Some courts have suggested that the time when damage is discovered should control the time of the occurrence.   This is derived in part from the ‘discovery rule’ in statute-of-limitations law, which tolls the statute on a claim arising from a latent injury until the date that injury is or should have been discovered.   This equitable principle has no place in insurance coverage law, however because the same equitable considerations do not apply.   Although the discovery rule may apply to determine whether an insured's claim is time-barred, for purposes of determining which policy is triggered courts should continue to apply the majority rule that the time of occurrence is the time injury is suffered.  [Fns. omitted.]”  (Arness & Eliason, supra, at pp. 943, 970–971, italics added.) 22

Another commentator has made the following well-founded prediction:

“We suspect that the courts will hold that the period of time for running of the time limitation commences at the same time as the loss begins for the purposes of assigning policy coverage․ In other words, there should be some consistency between the date when the time period limitations commence to run and the date that the loss is considered to have manifested itself for coverage purposes.”  (Hook, supra, at pp. 393, 404.)

Several recent cases have applied a discovery rule to hold an insured responsible for initiating an action under an insurance policy within one year (the contractual limitations period) of the date at which the insured was put on some kind of notice from which he could have reasonably concluded his property was defective.   In Lawrence v. Western Mutual Ins. Co. (1988) 204 Cal.App.3d 565, 573, 251 Cal.Rptr. 319, the insured received a soils report in 1983 revealing defects in his property dating back to when the lot was first created before he purchased it in 1968, but nevertheless failed to make a claim or file an action until approximately two years later.   The court found unmeritorious his contention he did not discover his cause of action until consultation with his attorney in 1985 educated him about his rights.   It was held the report provided him with “any specialized knowledge” that he needed to interpret the factual cause of the damage to his house.  (Ibid.)

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 small cracks in his house in the walls, driveway, counter, and fireplace.   After being an absentee landlord for some time, he noticed the cracks had worsened and new cracks had appeared by 1984, and then filed a claim 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, supra, 147 Cal.App.3d 805, 195 Cal.Rptr. 421, the court found the insured should have discovered the damage earlier and acted accordingly.   Thus, the limitations period in the policy was found to bar the action.

 Based on our analysis of the above authority, we find no meaningful reason to distinguish between the time which starts a claim and suit limitations period running and the time at which a cause of action may be said to have accrued for statute of limitations purposes.   Principles of delayed discovery are applicable to both.   We hold that a determination of that single date, at which both the duty to make a claim arises and the right to file an action against the insurer for denial of coverage accrues, must be made according to a “reasonable person” standard.²³  In Home Ins. Co. v. Landmark Ins. Co., supra, 205 Cal.App.3d 1388, 1396, 253 Cal.Rptr. 277, citing United States Fidelity & G. Co. v. American Ins. Co. (Ind.1976) 345 N.E.2d 267, 272, we suggested but did not adopt such a standard;  i.e.:  When was the damage sufficient to put a reasonable person on notice of the possibility of a defect?   Put another way, at what time did the “inception of the loss” become appreciable or reasonably observable?  (See Sabella v. Wisler, supra, 59 Cal.2d at pp. 25–26, 27 Cal.Rptr. 689, 377 P.2d 889.)

We now adopt this “reasonable person” standard, finding such a rule consistent with the principles set out in McGee v. Weinberg (1979) 97 Cal.App.3d 798, 804, 159 Cal.Rptr. 86:

“It is the occurrence of some ․ cognizable event rather than knowledge of its legal significance that starts the running of the statute of limitations.”

 As with any delayed discovery claim, procedural safeguards apply that a plaintiff must plead and prove facts showing delayed discovery was justified.   (April Enterprises, Inc. v. KTTV, supra, 147 Cal.App.3d at p. 832, 195 Cal.Rptr. 421.)   The issue of reasonableness is a factual matter:

“ ‘It is plaintiff's burden to establish “facts showing that he was not negligent in failing to make the discovery sooner and that he had no actual or presumptive knowledge of facts sufficient to put him on inquiry.”   [Citation.]  “[W]hether the plaintiff exercised reasonable diligence is a question of fact for the court or jury to decide.”  [Citation.]’  [Citation.]”  (Id. at p. 833, 195 Cal.Rptr. 421.)

 An additional safeguard against unmeritorious claims applies:  Insurers may assert, by way of defense, prejudice from the lateness of the claim and action.  (Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134, 142–143, 85 Cal.Rptr. 693.)   However, mere delay or lateness of notice does not result in a presumption of prejudice to the insurer, who bears the burden to show it suffered actual prejudice, in the form of inability to conduct an adequate investigation or otherwise defend the claim.  (Ibid.)

 In the case before us, while factual issues remain unresolved as to whether the insured's failure to earlier discover the damage to the property was reasonable, the issue is moot because in any case, they failed to bring their action on their claim within the contractual limitations period of 12 months after a reasonable person would have been placed on notice of possible defects in the property.   Therefore, their action is barred.

However, in general, where progressive or continuous loss over several different policy periods is adequately pleaded, a delayed discovery rule applies to extend the time for giving notice of loss and subsequent compliance with a contractual limitations clause.   Thus, any action on a policy must be brought within 12 months of the time at which the loss became reasonably observable.   Due to the special nature of the kind of defect here alleged, we believe the fairer reading of the relevant authority leads to a rule allowing litigation on the merits regarding the applicability of policy exclusions, rather than to one which would authorize dismissals of such actions by means of a strict construction of the contractual limitations period.

IV

DISPOSITION

The alternative writ is hereby discharged.   Let a peremptory writ issue directing the superior court to vacate its order denying Prudential's motion for summary judgment and to enter another order granting the relief requested.   Each party is to bear its own costs.

FOOTNOTES

1.   In answers to interrogatories, the Lundbergs tentatively claimed Prudential also insured the property from 1974 through 1977, but the amended complaint appears to abandon that contention.

2.   Later in the policy the same language is repeated except the word “happening” is used in place of “inception” of the loss.

3.   All statutory references are to the Code of Civil Procedure unless otherwise specified.   When referring to statutory subparts we omit repetition of the word “subdivision.”

4.   Parenthetically we note this declaration is less than persuasive due to its speculative character and the lack of evidentiary foundation for the opinions expressed.

5.   We summarily overrule this demurrer as the petition is well pled and adequately presents the legal issues arising from these facts.  (§ 1089;  California Rules of Court, rule 56(e).)

6.   The Lundbergs' return to this writ goes into great detail on the dispute over the form of the order denying the summary adjudication order.   However, we do not find it appropriate to reach these claims, since the petition and our holding are confined to the substantive, as opposed to procedural, issues presented.   In any case, the order in its present form is adequate for review by this court.  (See § 437c(f), (g), allowing specification of those issues which are not adjudicated to be made by reported oral orders.)

7.   Due to the lack of any cited authority for this relief (which appears to be in the nature of a request for fees under § 128.5), we summarily deny this request.   Each party will bear its own costs, as our disposition of this matter will order infra.

8.   Fire Insurance Exchange v. Superior Court (Johnson) (June 27, 1989) D009083, 212 Cal.App.3d 39, 260 Cal.Rptr. 299 [certified for publication July 21, 1989.];   Fire Insurance Exchange v. Superior Court (Kentro) (June 27, 1989) D009003 [nonpub. opn.].

9.   April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 827, 195 Cal.Rptr. 421.

10.   In Home, the court also did not consider whether the date of manifestation of a loss might differ from the date of discovery in some instances, since the dates were there the same.   We need not reach this issue in detail in view of our disposition of the writ on other grounds, except insofar as the “reasonable person” discovery standard adopted herein (see Section III infra ) applies.

11.   A commentator has also pointed out the difficulty in applying the usual rules of first party policy interpretation to situations involving progressive loss or damage:“The issue of continuous and progressive losses has not arisen frequently in the context of first-party cases (perhaps because homeowner's policies were intended to cover sudden damage such as fire and windstorm, and not gradual damage such as settlement).”  (Hook, Multiple Policy Period Losses and Liability Under First–Party Policies (1985) 21 Tort & Insurance Law Journal 393, 398 (hereafter Hook).)Another commentator has warned against confusing first-party with third-party policies:“Applying the terminology that has grown up around bodily injury [liability] insurance coverage cases in the context of coverage for property damage implies that the considerations are identical and obscures the real differences between the two types of problems.”  (Arness & Eliason, Insurance Coverage for “Property Damage” in Asbestos and Other Toxic Tort Cases (1986) 72 Va.L.Rev. 943, 973, fn. 108 (hereafter Arness & Eliason).)

12.   Each of the theories alleged is “fundamentally a claim on the policy” (Lawrence v. Western Mutual Ins. Co. (1988) 204 Cal.App.3d 565, 575, 251 Cal.Rptr. 319) and is thus subject to the contractual claims limitation provision in the policy.

13.   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:“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.)

14.   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, § 11611, p. 461.)

15.   In Gruol Construction Co. v. Insurance Co. of No. Amer., supra, 524 P.2d 427, the Court of Appeals of Washington, Division 1, held jointly and severally liable three insurers who successively issued third-party liability policies insuring a general contractor who built a building that became damaged by dry rot caused by defective backfilling during construction.   The court found the dry rot, an undiscovered condition which began during the first policy period and progressively worsened during the following coverages, qualified as an accident or occurrence within the meaning of the policies, and cited as persuasive a poetic excerpt from Travelers v. Humming Bird Coal Co. (Ky.Ct.App.1963) 371 S.W.2d 35, 38:“The accident mentioned in the policy need not be a blow but may be a process.   It is not required that the injury be the result of some contact with the bulldozer or the shelf or a rock hurled over from the shelf.   It is not required to be sudden like an Alpine avalanche ․  A glacier moves slowly but inevitably.”  (Ibid.)

16.   However, we are constrained to rely to some degree on the liability policy definitions for lack of other definitions of “property damage” in the first-party section of the policy.   The policy should be read as a whole in the absence of any reason not to do so.  (See Home Ins. Co. v. Landmark Ins. Co., supra, 205 Cal.App.3d at pp. 1390–1391, fn. 1, 253 Cal.Rptr. 277;  Zurn Engineers v. Eagle Star Ins. Co., supra, 61 Cal.App.3d at p. 499, 132 Cal.Rptr. 206.)

17.   See California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 468–469, 193 Cal.Rptr. 461, where the court used a medical metaphor for the mysterious leakage from the swimming pool in that case:  a backache whose etiology was difficult to establish.

18.   These Insurance Code sections provide as follows:“Section 22:  Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”Section 250 provides in relevant part:“[A]ny contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this code.”

19.   See discussion of the concept of fortuity in Roberts, All–Risk Property Insurance:  Problems in Determining the Scope of Coverage (1986) 53 Insurance Counsel Journal 88, 91–93.

20.   In any case, as noted above, these policy provisions regarding claims limitation have not been strictly enforced in California.  (See ante, p. 92;  Zurn Engineers v. Eagle Star Ins. Co., supra, 61 Cal.App.3d 493, 499–500, 132 Cal.Rptr. 206.)

21.   See Civil Code section 3531, a maxim of jurisprudence:  “The law never requires impossibilities.”   As a matter of common sense, it would seem impossible for an insured to timely file a claim before the loss on which it is based could reasonably have been discovered.

22.   See our discussion in Part II ante of the special nature of progressive and continuous damage and our conclusion valid reasons exist to allow claims to be delayed where there is a showing the damage may be said to have partially occurred during each of several successive policy periods.

23.   Should confusion arise over the use of the same limitations period for filing a claim and later filing of an action, the line of cases regarding the doctrines of estoppel and waiver may become applicable if an insured was induced to delay filing an action while the claim was being processed.  (See, e.g., Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 406–411, 154 P.2d 399.)

HUFFMAN, Associate Judge.

WORK, Acting P.J. and BENKE, J., concur.