QUINTANO v. MERCURY CASUALTY COMPANY (1994)

Appellant John Quintano appeals from a judgment entered after the trial court granted summary judgment in favor of respondent Mercury Casualty Company.   He urges that he substantially complied with his insurance policy and the Insurance Code to preserve his cause of action against respondent, or alternatively, that there are triable issues of material fact as to whether respondent waived or is estopped from asserting appellant's noncompliance with the preconditions to suit.   We construe the issue as one of statutory interpretation, and conclude that the Insurance Code provision at issue does not apply to underinsured motorists.

FACTS

Appellant was insured under an automobile policy issued by respondent for uninsured and underinsured motorist coverage with limits of $30,000 for each person and $60,000 for each accident.

On May 21, 1989, appellant was injured in a collision caused by a motorist who had liability insurance with coverage limits of $15,000.   Through telephone conversations and written correspondence, appellant kept respondent apprised of the status of his claim against the underinsured motorist.   On March 15, 1990, respondent gave appellant oral permission to settle the bodily injury claim with the other carrier, confirming that in writing on March 16, 1990, and requesting further information in order to proceed with the claim.   A subsequent letter from respondent contained a reminder that the statute of limitations would expire on May 21, 1990.

On June 26, 1990, appellant's counsel sent respondent the requested documents concerning the underinsured motorist's coverage, including the draft from the underinsured motorist's insurance company, and a copy of the medical special damages.   Appellant requested payment of $15,000 (the difference between his underinsured motorist protection [$30,000] and the limits of the negligent driver's liability policy [$15,000] ).

On August 24, 1990, respondent sent a letter to appellant advising him that his claim was rejected because the statute had not been protected.   On October 11, 1990, appellant filed a complaint against respondent.   The operative complaint stated causes of action for breach of contract, insurance bad faith, and infliction of emotional distress.

Respondent filed a motion for summary judgment on September 1, 1992, on the basis that appellant's action was barred by the statute of limitations provision in the insurance policy, and that there were no triable issues of fact in regard to whether respondent waived or was estopped from applying the statute of limitations defense.   The trial court granted summary judgment.

This appeal follows.

DISCUSSION

I. Standard of Review

 Summary judgment is granted if all the submitted papers show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.  (Code Civ.Proc., § 437c, subd. (c).)  A defendant seeking summary judgment has met the burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action cannot be established.  (§ 437c, subd. (n)(2);  see Rowe v. Superior Court (1993) 15 Cal.App.4th 1711, 1724, 19 Cal.Rptr.2d 625.)   Once the defendant's burden is met, the burden shifts to the plaintiff to show that a triable issue of fact exists as to that cause of action.  (Ibid.)  In reviewing the propriety of a summary judgment, the appellate court independently reviews the record that was before the trial court.  (Chevron U.S.A., Inc. v. Superior Court (1992) 4 Cal.App.4th 544, 548, 5 Cal.Rptr.2d 674, review den.)   We must determine whether the facts as shown by the parties give rise to a triable issue of material fact.  (Walker v. Blue Cross of California (1992) 4 Cal.App.4th 985, 990, 6 Cal.Rptr.2d 184.)   In making this determination, the moving party's affidavits are strictly construed while those of the opposing party are liberally construed.   (Ibid.)

II. Insurance Code Section 11580.2, Subdivision (i)

Appellant urges that he substantially complied with both the Insurance Code provision and policy clause setting forth certain conditions necessary to instituting an action against respondent.

 Insurance Code 1 section 11580.2, subdivision (i) states:  “No cause of action shall accrue to the insured under any policy or endorsement provision issued pursuant to this section unless one of the following actions have been taken within one year from the date of the accident:  (1) Suit for bodily injury has been filed against the uninsured motorist, in a court of competent jurisdiction.  (2) Agreement as to the amount due under the policy has been concluded.  (3) The insured has formally instituted arbitration proceedings.”   Appellant's policy recites essentially the same conditions.²  Thus, in order for a cause of action to accrue against the insurer, one of the three events listed in section 11580.2, subdivision (i) must occur as a condition precedent.  (Spear v. California State Auto. Assn. (1992) 2 Cal.4th 1035, 1039, 9 Cal.Rptr.2d 381, 831 P.2d 821.)

 As a threshold issue, we address whether section 11580.2, subdivision (i) was intended to apply at all in the underinsured motorist context.   Due to the dearth of any decisions on point,³ and out of an abundance of caution, it appears that counsel have heretofore assumed that section 11580.2, subdivision (i) applies.

 The first step in determining the Legislature's intent in drafting a statute is to look to the plain language of the law.  (Hartford Fire Ins. Co. v. Macri (1992) 4 Cal.4th 318, 326, 14 Cal.Rptr.2d 813, 842 P.2d 112.)   Where conflicting provisions exist, they “ ‘should be reconciled in order to carry out the overriding legislative purpose as gleaned from a reading of the entire act.  [Citation.]   A construction which makes sense of an apparent inconsistency is to be preferred to one which renders statutory language useless or meaningless.’  [Citation.]”  (Ibid.)

We find the analysis recently utilized by the California Supreme Court in Hartford Fire Ins. Co., supra, to be instructive.   There, the court determined that the Legislature intended section 11580.2, subdivision (c)(3), which requires the insured to obtain the written consent of the insurer before the insured makes a settlement with or prosecutes to judgment an action against a motorist, to apply only to uninsured and not to underinsured motorist coverage.

The court analyzed the legislative intent as follows:  “Underinsured motorist coverage was introduced in 1984 as Assembly Bill No. 3984 (AB 3984) to ‘expand the definition of uninsured motor vehicle to include underinsured motor vehicles․'  (Legis. Counsel's Dig., Assem. Bill No. 3984, 4 Stats. (1984 Reg.Sess.) Summary Dig., p. 539.)   As originally submitted, AB 3984 amended the definition of uninsured motorist to include underinsured motorist coverage, but it provided for separate procedures for administering the uninsured motorist claims.   The Legislative Counsel's Digest also stated that ‘the procedures for administering the underinsured motorist coverage and claims thereunder will track with existing uninsured motorist statutes, except where inapplicable.’  (Dig. of Sen. Republican Caucus (Aug. 29, 1984) regarding AB 3984.)   Thereafter, the Legislature identified those areas where uninsured motorist provisions might not apply to underinsured motorist coverage.   These include:  ‘1.   Coordination v. stacking of other available insurances.  [¶] 2.  Procedures utilized in claims out of multi-vehicle accidents.  [¶] 3.  Tracking of underinsured and third party actions.  [¶] 4.  Matter[s] of setoffs and credits.’  [Ibid.]”  (Hartford Fire Ins. Co. v. Macri, supra, at p. 327, 14 Cal.Rptr.2d 813, 842 P.2d 112.)

“Prior to becoming law, AB 3984 was amended to address the above four concerns with the addition of section 11580.2(p)(3) (coordination of available insurance), (p)(4) (procedures to be followed in multi-vehicle accidents), (p)(6) (tracking of underinsured and third party actions), and (p)(5) (setoffs and credits).”  (Ibid.) ⁴

We note that section 11580.2, subdivision (p) and its subsections (1) through (7) are specific to underinsured motorists.  Section 11580.2, subdivision (p) states that “[t]his subdivision applies only when bodily injury, as defined in subdivision (b), is caused by an underinsured motor vehicle.   If the provisions of this subdivision conflict with subdivisions (a) through (o), the provisions of this subdivision shall prevail.”  Section 11580.2, subdivision (p)(6), referenced in Hartford Fire Ins. Co., supra, at p. 327, 14 Cal.Rptr.2d 813, 842 P.2d 112, states:  “If the insured brings an action against the owner or operator of an underinsured motor vehicle, he or she shall forthwith give to the insurer providing the underinsured motorist coverage a copy of the complaint by personal service or certified mail.   All pleadings and depositions shall be made available for copying or copies furnished the insurer, at the insurer's expense, within a reasonable time.”

Hence, the Legislature delineated tracking of underinsured actions as an area to which the uninsured motorist provisions are not applicable, and directed that section 11580.2, subdivision (p) ⁵ shall prevail over subdivisions (a) through (i).   Moreover, section 11580.2, subdivision (p)(6) lacks a specific time frame within which an underinsured motorist must give the insurer a copy of the complaint.   We are led, therefore, to conclude that section 11580.2, subdivision (i) was not meant to apply to underinsured motorists.   This conclusion is bolstered by section 11580.2, subdivision (p)(3), which requires that the tortfeasor's insurance policy must first be exhausted by payment of “judgments or settlements,” along with proof of payment to the insurer in order for underinsured motorist coverage to apply.   Indeed, that requirement seems to be the only “condition precedent” to underinsurance coverage as contemplated by the Legislature, which stated “recovery would be possible only where both (1) bodily injury occurs and (2) the limits of bodily injury policies on all motor vehicles causing injury have been exhausted.”  (Dig. of Sen. Committee on Insurance, Claims and Corporations (August 28, 1984).)   We also find it noteworthy that the applicability of section 11580.2, subdivision (i) to underinsurance coverage was not mentioned by proponents or opponents of the bill during the various stages of the amendment process.

Since underinsured motorist coverage is by definition inapplicable until the tortfeasor has paid the injured insured the limits of his or her policy, the insured would in all cases be precluded from fulfilling section 11580.2, subdivision (i)(2) or (3) until judgments or settlements have been reached with the tortfeasor.   Thus, the only available avenue to fulfilling the condition precedent to bringing a cause of action against the insurer under section 11580.2, subdivision (i) would be subdivision (1), the filing of a suit for bodily injury against the tortfeasor.   Where, as here, no suit was filed by appellant against the tortfeasor because settlement negotiations were successful, we believe that the Legislature did not intend the insured's claim against the insurer to fail simply by virtue of his failure to go through the formality of filing suit.

Division Seven of this district recently explained that “[t]he rationale behind the existence of 11580.2, subdivision (i) is that the insurer is able to recoup the losses expended in uninsured motorist claims by suing the tortfeasor, but this recovery is only possible where the insured has preserved that right by complying with 11580.2, subdivision (i).”  (Kortmeyer v. California Ins. Guarantee Assn. (1992) 9 Cal.App.4th 1285, 1290, 12 Cal.Rptr.2d 71, emphasis added.)   The insured in the underinsured motorist context, on the other hand, “cannot receive more than the policy limits from the insurer providing underinsurance motorist coverage, [and] there is no requirement under the statutory scheme that such insurer be subrogated to the insured's statutory right to recover from the underinsured tortfeasor or its insurer.”   (Hartford Fire Ins. Co. v. Macri, supra, 4 Cal.4th 318, 329, 14 Cal.Rptr.2d 813, 842 P.2d 112.)   There is no need on the part of the insurer to protect its subrogation rights, nor should it fear a double recovery on the part of the insured.  (Ibid.)

To preclude appellant from bringing an action because he did not formally institute suit against the tortfeasor, although his claim was in all other respects valid, would work an injustice against appellant and result in more filing fees and court congestion.   Nor can respondent show how it has suffered prejudice.   Accordingly, the accrual of appellant's cause of action against respondent should not be conditioned upon fulfillment of the events listed in section 11580.2, subdivision (i), but upon the occurrence of “ ‘the last element essential to the cause of action.’ ”  (Spear v. California State Auto. Assn., supra, 2 Cal.4th 1035, 1040, 9 Cal.Rptr.2d 381, 831 P.2d 821.)   In Spear, the California Supreme Court held that in an uninsured motorist context, the accrual of the cause of action commenced when arbitration was refused by the insurer, not at the time the insured fulfilled the condition precedents of section 11580.2, subdivision (i).  (Id. at p. 1042, 9 Cal.Rptr.2d 381, 831 P.2d 821.)   Similarly here, appellant's breach of contract cause of action accrued upon the refusal of respondent to process the claim.

There is no need, however, for respondent to fear that it will be prejudiced by belated notice of claims.   Respondent's policy requires written notice of an accident to the company by the insured within 21 days.   Also, since under section 11580.2, subdivision (p)(3), underinsured motorist coverage does not apply until the insured has exhausted the limits of the tortfeasor's policy by judgment or settlement, the insured has an interest in timely filing or settling his action with the tortfeasor before the expiration of the one-year statute of limitations period of Code of Civil Procedure section 340, subdivision (3).   Indeed, the insured would have no interest in delaying notification.

We respectfully disagree with the reasoning and result of Arrasmith v. State Farm Ins. Co., supra, 24 Cal.App.4th 12, 29 Cal.Rptr.2d 53.   There, the Third District concluded that section 11580.2, subdivision (i) is applicable to underinsured motorist claims and that the plaintiff's cause of action against his insurer was barred by that section because his written demand for arbitration occurred more than one year after the date of his accident with the underinsured motorist.   The court reasoned that section 11580.2, subdivision (p)(3) does not preclude perfection of an underinsured motorist claim because “[t]he insured is also not prohibited from requesting arbitration or entering into settlement negotiations with the insurer before resolution of claims against others.   Any settlement or arbitration recovery against the insurer necessarily would be subject to the insurer's right of reimbursement or credit for amounts received from the tortfeasor or other insurers.  (§ 11580.2, subd. (p)(5).)”  (Arrasmith v. State Farm Ins. Co., supra, at p. 18, 29 Cal.Rptr.2d 53.)

We believe that reasoning is flawed.   As previously noted, the insured would face an insurmountable difficulty in that he or she would be unable to comply with sections 11580.2, subdivisions (i)(2) and (3) while attempting to fulfill conditions of coverage under section 11580.2, subdivision (p)(3).  Section 11580.2, subdivision (i)(2) requires that agreement as to the amount must be concluded, not merely initiated.   Also, it would appear anomalous to require formal institution of arbitration proceedings under section 11580.2, subdivision (i)(3) prior to being qualified to receive underinsured coverage under section 11580.2, subdivision (p)(3).   Again, the only alternative for the insured would be to file suit against the uninsured motorist, which is unnecessary to protect any rights of the insurer.   For that same reason, we reject the Arrasmith court's analogy to Firemen's Ins. Co. v. Diskin (1967) 255 Cal.App.2d 502, 63 Cal.Rptr. 177, an uninsured motorist case.

Two of the out-of-state cases cited in Arrasmith hold no persuasive value for us.  McGlinchey v. Aetna Cas. and Sur. Co. (1992) 224 Conn. 133, 617 A.2d 445, a Connecticut case, concerned an underinsurance policy clause which required “ ‘a written demand for arbitration within 2 years of the date of [the] accident.’ ”  (Id. 617 A.2d at p. 447.)   Dicta exists in a footnote to the effect that a demand for arbitration can be timely filed even while claims against the tortfeasor are being pursued in another forum.   However, that statement is taken slightly out of context since in Connecticut, an insurer under an underinsured motorist policy has the right of subrogation.   Nor is there mention of any requirement that settlement or judgment be obtained from the tortfeasor prior to application of underinsurance motorist coverage.   Shelton v. Country Mut. Ins. Co. (1987) 161 Ill.App.3d 652, 113 Ill.Dec. 426, 515 N.E.2d 235 involved two potentially conflicting policy clauses.   One required suit to be filed within two years of the date of the accident, the other stated:  “ ‘[w]e will pay only after all liability bonds or policies have been exhausted by judgments or payments.’ ”  (Id. 113 Ill.Dec. at p. 427, 515 N.E.2d at p. 236.)   A determination by the court that the policies did not conflict, since the exhaustion clause “qualifies only when [the insurer] will pay a claim” (id. 113 Ill.Dec. at p. 429, 515 N.E.2d at p. 238) is not analogous to the instant situation where a judgment or settlement is a prerequisite to coverage.

We do find Lapata v. Progressive Cas. Ins. Co. (1992) 79 Ohio App.3d 65, 606 N.E.2d 1015, cited by the Arrasmith court, more to the point.   The court refused to enforce a provision requiring the insured to demand arbitration within one year of the accident date as a condition precedent to triggering the insurer's obligation, deeming it unreasonable and unwarranted.   (Id. 606 N.E.2d at p. 1019.)   It wisely concluded, “We do not wish to encourage the filing of lawsuits just to obtain information concerning a tortfeasor's insurance limits through discovery.”  (Ibid.)

Further, the Arrasmith court concludes that requiring the insured to perfect his underinsured claim within one year properly parallels California's one-year limitation period for bringing an action for personal injury.   In our view, however, the parallelism exists in section 11580.2, subdivision (p)(3), because underinsured coverage is not effective until settlement or judgment against the tortfeasor is reached, which would be governed by the one-year personal injury statute of limitations.

In light of the foregoing conclusion, appellant's remaining arguments need not be addressed.

DISPOSITION

The judgment is reversed.   This case is remanded for further proceedings consistent with this opinion.   Appellant shall recover costs on appeal.

FOOTNOTES

FN1. All subsequent code section references shall be to the Insurance Code unless otherwise noted..  FN1. All subsequent code section references shall be to the Insurance Code unless otherwise noted.

2.   The policy states:  “Action against company:  no action shall lie against the company unless, as a condition precedent thereto, the insured or his legal representative has fully complied with all the terms of this coverage nor unless within one year from the date of the accident:  (a) suit for bodily injury has been filed against the uninsured motorist, in a court of competent jurisdiction and notice of such suit has been given to company, or (b) agreement as to the amount due under this coverage has been concluded, or (c) the insured or his representative has formally instituted arbitration proceedings.”

3.   Our research has revealed only one appellate case directly addressing that issue, Arrasmith v. State Farm Ins. Co. (1994) 24 Cal.App.4th 12, 29 Cal.Rptr.2d 53, infra.

4.   The Hartford court went on to state that “[a]llowing the insurer a power to thwart coverage at a threshold level by preventing fulfillment of a policy requirement would defeat the manifest intent of the statute to provide mandatory coverage where an insured suffers bodily injuries from an underinsured motorist.”  (Hartford Fire Ins. Co., supra, at p. 327, 14 Cal.Rptr.2d 813, 842 P.2d 112.)   Moreover, because section 11580.2, subdivision (p)(5) allows the insurer reimbursement or credit in the amount received by the insured from the underinsured tortfeasor, it precludes the insurer from asserting additional subrogation rights.  (Id. at pp. 328–329, 14 Cal.Rptr.2d 813, 842 P.2d 112.)   The court reasoned that the specific addition of section 11580.2, subdivision (p)(3) and section 11580.2, subdivision (p)(5), as well as separate substantive and procedural requirements for underinsurance matters, mandated the conclusion that section 11580.2, subdivision (c)(3) did not apply to underinsurance claims.  (Id. at p. 329, 14 Cal.Rptr.2d 813, 842 P.2d 112.)

5.   Section 11580.2, subdivision (p) states:  “This subdivision applies only when bodily injury, as defined in subdivision (b), is caused by an underinsured motor vehicle.   If the provisions of this subdivision conflict with subdivisions (a) through (o), the provisions of this subdivision shall prevail.  [¶] (1) As used in this subdivision, ‘an insured motor vehicle’ is one that is insured under a motor vehicle liability policy, or automobile liability insurance policy, self-insured, or for which a cash deposit or bond has been posted to satisfy a financial responsibility law.  [¶] (2) ‘Underinsured motor vehicle’ means a motor vehicle that is an insured motor vehicle but insured for an amount that is less than the uninsured motorist limits carried on the motor vehicle of the injured person.  [¶] (3) This coverage does not apply to any bodily injury until the limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury have been exhausted by payment of judgments or settlements, and proof of the payment is submitted to the insurer providing the underinsured motorist coverage.  [¶] (4) When bodily injury is caused by one or more motor vehicles, whether insured, underinsured, or uninsured, the maximum liability of the insurer providing the underinsured motorist coverage shall not exceed the insured's underinsured motorist coverage limits, less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury.  [¶] (5) The insurer paying a claim under this subdivision shall, to the extent of the payment, be entitled to reimbursement or credit in the amount received by the insured from the owner or operator of the underinsured motor vehicle or the insurer of the owner or operator.  [¶] (6) If the insured brings an action against the owner or operator of an underinsured motor vehicle, he or she shall forthwith give to the insurer providing the underinsured motorist coverage a copy of the complaint by personal service or certified mail.   All pleadings and depositions shall be made available for copying or copies furnished the insurer, at the insurer's expense, within a reasonable time.  [¶] (7) Underinsured motorist coverage shall be included in all policies of bodily injury liability insurance providing uninsured motorist coverage issued or renewed on or after July 1, 1985.   Notwithstanding this section, an agreement to delete uninsured motorist coverage completely, or with respect to a person or persons designated by name, executed prior to July 1, 1985, shall remain in full force and effect.”

NOTT, Associate Justice.

BOREN, P.J., and GATES, J., concur.