FLETCHER v. PACIFIC INDEMNITY GROUP (1972)

OPINION

Plaintiff (Fletcher) brought the present action against defendant (Pacific Indemnity) on an all-risk policy of insurance which covered loss of equipment, machinery, stock, and materials and supplies used in the manufacture and testing of electronic components. At the conclusion of plaintiff's case the court granted defendant's motion for a judgment pursuant to section 631.8 of the Code of Civil Procedure on the ground the action had not been commenced within 12 months after the occurrence of the alleged loss as required by the terms of the policy. Plaintiff appeals from the judgment.

Plaintiff's principal contentions are (1) the contractual period of limitation for the commencement of the action should have been construed as commencing at the time the cause of action arose rather than when the alleged loss was sustained and (2) the contractual period of limitations was unreasonable and hence void.

Preliminarily it should be noted that where a motion pursuant to section 631.8 of the Code of Civil Procedure is granted, a reviewing court must accord the findings and judgment the same respect as is accorded findings and judgment following a plenary trial. (United States Industries, Inc. v. Vadnais, 270 Cal.App.2d 520, 524, 76 Cal.Rptr. 44; Franco Western Oil Co. v. Fariss, 259 Cal.App.2d 325, 328-329, 66 Cal.Rptr. 458; Guttman v. Howard Homes, Inc., 241 Cal.App.2d 616, 618, 50 Cal.Rptr. 769; Greening v. General Air-Conditioning Corp., 233 Cal.App.2d 545, 550-551, 43 Cal.Rptr. 662.) On an appeal following a full trial, the evidence must be viewed in the light most favorable to the party prevailing below and all reasonable inferences therefrom must be drawn in support of the findings. (Waller v. Southern Pacific Co., 66 Cal.2d 201, 204, 57 Cal.Rptr. 353, 424 P.2d 937; Bakity v. County of Riverside, 12 Cal.App.3d 24, 28, 90 Cal.Rptr. 541.) The same rule governs appeals from a judgment pursuant to section 631.8 of the Code of Civil Procedure.

Viewing the evidence in conformity with the foregoing principles, the facts in the instant case may be summarized as follows:

On November 25, 1964, defendant issued the policy in question for a term of three years to plaintiff's corporate predecessor in interest. The policy contained the following provision under a paragraph entitled “Suit”: “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.”

The alleged loss occurred on November 10, 1967, and the insurance policy was then in full force and effect. Plaintiff's predecessor in interest submitted its verified proof of loss to defendant in January 1968. On April 8, 1968, defendant notified the insured that the claim was rejected. On September 27, 1968, attorneys for the insured wrote defendant requesting reconsideration of its denial of the claim stating that in the event the claim was not paid a lawsuit would be filed. Defendant responded by letter dated October 8, 1968, reaffirming its denial of the claim.

Plaintiff¹ as successor in interest of the corporate insured filed the present action on March 24, 1969, alleging that property of the value of $10,000 had been stolen, that a claim had been presented to defendant and that defendant denied liability. Defendant answered with a general denial and affirmative defenses that the losses were subject to an exclusion for “any unexplained losses” and to an exclusion for losses resulting from infidelity of the insured or its employees. Thereafter defendant moved for a judgment on the pleadings on the ground the complaint failed to allege performance of all conditions precedent to the defendant's liability and failure to allege the suit was commenced within 12 months after the loss had occurred. The motion was denied.

Thereafter plaintiff moved to amend the complaint to increase the damages sought from $10,000 to $40,000 and defendant moved to amend its answer to raise the defense of failure to commence the action within 12 months after the loss occurred. Both motions were granted and amended pleadings were accordingly filed.

At the conclusion of plaintiff's case the court granted defendant's motion for judgment pursuant to section 631.8 of the Code of Civil Procedure. The court found that the action was filed more than 12 months after the loss occurred, that plaintiff was bound by the policy provisions respecting the time for commencement of the action, and that defendant did not do anything which would constitute a waiver of the policy provision or estop it from relying upon it. Judgment was entered that plaintiff take nothing by his action.

As we noted at the outset plaintiff's main contentions on appeal are (1) the policy provision respecting time for commencement of the action should be construed as a period of limitation commencing as of the time the cause of action arises rather than when the loss occurred and (2) the policy provision as construed by the court below was unreasonable and, therefore, void. In addition, plaintiff contends defendant waived or was estopped from relying upon the period of limitation prescribed by the policy. For the reasons which follow we have concluded that the contentions are nonmeritorious.

I

Plaintiff urges that the policy provision limiting the time for commencement of the action should be construed as a period of limitation commencing as of the date the cause of action arises.

While there are a few jurisdictions which have adopted the construction urged by plaintiff, the great majority of states hold that the period commences from the date of the loss. (See cases collected in dissenting opinion of Edmonds, J. in Bollinger v. National Fire Ins. Co., 25 Cal.2d 399, 416-417, 154 P.2d 399; see also 18 Couch, Insurance (2d ed.) § 75.88.) California has adhered to the majority rule. (Tebbets v. Fidelity and Casualty Co., 155 Cal. 137, 139, 99 P. 501; Harlow v. American Equitable Assur. Co., 87 Cal.App. 28, 31, 261 P. 499; Fitzpatrick v. N. A. Accident Ins. Co., 18 Cal.App. 264, 265-266, 123 P. 209.)

Plaintiff's reliance on Case v. Sun Insurance Co., 83 Cal. 473, 23 P. 534, is misplaced. In that case a fire insurance policy contained a contractual period of limitation of 12 months from the date the fire occurred within which to commence an action under the policy. The policy also contained a provision that a claim was not payable until 60 days after the assured complied with all of the requirements of the policy with respect to the perfection of the proof of loss. It was alleged and proven that the company had exacted strict compliance with the policy requirements respecting proof of loss and that the insured, despite his best good faith efforts, was unable to comply with those requirements until after the 12 month period had expired. In those circumstances the court held that an action commenced 14 months after the loss was incurred was not barred by the contractual limitation for commencement of actions. Case presented a “clear case of estoppel” in that the insurer had by its own action postponed the time when a cause of action accrued until after the limitation had run and was therefore precluded from relying upon it. (Fitzpatrick v. N. A. Accident Ins. Co., supra, 18 Cal.App. 264, 266-267, 123 P. 209; Lang-maid, Waiver and Estoppel in Insurance Law, 20 Cal.L.Rev. 1, 40-41.)

In the instant case defendant communicated to the insured its unconditional denial of the claim on April 8, 1968. An unconditional denial of liability after an insured incurs the loss and makes claim under the policy gives rise to an immediate cause of action. (Bollinger v. National Fire Ins. Co., supra, 25 Cal.2d 399, 404-405, 154 P.2d 399.) Plaintiff's cause of action thus accrued some seven months before the expiration of the 12 month contractual period of limitation. Plaintiff thus had ample time to commence his action after the cause of action arose.

II

Plaintiff's contention that the 12 month limitation was unreasonable as a matter of law and, hence, void is likewise without merit.

In this state a contractual stipulation shortening the statute of limitations is valid if the period so fixed is not so unreasonable as to show imposition or to confer undue advantage. (Beeson v. Schloss, 183 Cal. 618, 622-623, 192 P. 292; Capehart v. Heady, 206 Cal.App.2d 386, 388, 23 Cal.Rptr. 851; Fitzpatrick v. N. A. Accident Ins. Co., supra, 18 Cal.App. 264, 266, 123 P. 209.) The principle has been applied to contractual limitations for commencement of actions under insurance policies. (Tebbets v. Fidelity and Casualty Co., supra, 155 Cal. 137, 139, 99 P. 501 [6 months after death on life insurance policy]; Fageol T. & C. Co. v. Pacific Indemnity Co., 18 Cal.2d 748, 753, 117 P.2d 669 [liability under excess loss, 12 months after loss].)

Plaintiff urges, however, that under the doctrine of contracts of adhesion the contractual limitation for commencement of an action on a policy was unenforceable in that its provision was never brought to the attention of the insured or to plaintiff as its successor in interest. The contention may not be sustained.

It is now settled that standardized insurance contracts are contracts of adhesion between parties with unequal bargaining strength. (Steven v. Fidelity and Casualty Co., 58 Cal.2d 862, 882, 27 Cal.Rptr. 172, 377 P.2d 284.) Consequently, the insurer must bring to the attention of the insured provisions or conditions which create exceptions or limitations on the insured's reasonable expectation of coverage (Steven v. Fidelity and Casualty Co., supra, p. 878; Young v. Metropolitan Life Ins. Co., 272 Cal.App.2d 453, 460-461, 77 Cal.Rptr. 382, 78 Cal.Rptr. 568) and any ambiguity or uncertainty in the policy provisions will be construed in favor of the insured (Gray v. Zurich Insurance Co., 65 Cal.2d 263, 271-273, 54 Cal.Rptr. 104, 419 P.2d 168).

However, none of the cases cited by plaintiff in which the doctrine of contracts of adhesion has been applied to insurance policies deal with the validity of a provision limiting the time within which an action may be brought on a claim under the policy. They all deal with provisions either excluding or limiting coverage and are, therefore, clearly distinguishable. However, we do not rest our decision on that narrow ground. An unreasonable time limitation for commencement of an action on a claim would defeat the reasonable expectation of the insured as much as an unanticipated limitation upon or exclusion of coverage. The normal expectation of an insured would be that he would have a reasonable time in which to bring a lawsuit should his claim be rejected by the insurance company. The ultimate question, therefore, is whether the time period provided was reasonable. In our view the rationale of the cases upholding contractual stipulations shortening the statute of limitations where the period fixed is not so unreasonable as to show imposition or confer an undue advantage is consistent with and does not undermine the principles underlying the doctrine of contracts of adhesion. In the present case the provision was in clear and specific language and was conspicuously set out under a section of the policy entitled “Suit.” The unqualified rejection of plaintiff's claim having occurred some seven months before the expiration of the 12 month contractual period, plaintiff had ample time within which to pursue his judicial remedy.

While we have found no case involving the validity of a contractual limitation for the commencement of an action on an insurance policy, in Capehart v. Heady, supra, 206 Cal.App.2d 386, 23 Cal.Rptr. 851, the court upheld such a clause in a service station lease limiting the time in which the lessee could sue the lessor for breach. The court rejected the contention that the provision was invalid because the lease was presented by lessor on a “take it or leave it” basis, citing Tebbets v. Fidelity and Casualty Co., supra, 155 Cal. 137, 99 P. 501.

In passing we note that the standard form fire insurance policy prescribed by the Legislature contains the provision that suit for recovery of a claim under the policy must be “commenced within 12 months next after inception of the loss.” (Ins.Code, § 2071.) The fact that the provision is required to be included in all fire insurance policies indicates that a limitation on the time for commencement of an action under an insurance policy to within 12 months after the inception of loss is not per se contrary to the public policy of the state.

III

Plaintiff's contention that defendant waived or was estopped from relying upon the 12 month limitation for commencement of the action is equally without merit.

The trial court found that defendant did not waive the limitation and was not estopped from relying upon it.

A waiver is a voluntary and intentional abandonment of a known right. (Trujillo v. City of Los Angeles, 276 Cal.App.2d 333, 343, 81 Cal.Rptr. 146.) And conduct so inconsistent with the intent to enforce the right in question as to induce a reasonable belief that it has been relinquished can give rise to an estoppel. As a general rule, four elements are necessary in order to apply the doctrine of equitable estoppel: “(1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.” (Driscoll v. City of Los Angeles, 67 Cal.2d 297, 305, 61 Cal.Rptr. 661, 666, 431 P.2d 245, 250; City of Long Beach v. Mansell, 3 Cal.3d 462, 489, 91 Cal.Rptr. 23, 476 P.2d 423.) The doctrine is frequently invoked in situations where the party seeking to take refuge behind the statute of limitations or a contractual limitation of like nature has conducted himself in such a manner that to apply the bar in his favor “would shock the conscience of equity.” (Morgan v. International Aviation Underwriters, Inc., 250 Cal.App.2d 176, 179, 58 Cal.Rptr. 164, 166.) It has been properly utilized in situations where the insurer's promise or conduct has been responsible for the insured's delay in filing until after the expiration of the policy's limitation period. (Elliano v. Assurance Co. of America, 3 Cal.App.3d 446, 451-454, 83 Cal.Rptr. 509.)

However, the question of waiver or estoppel is normally a question of fact. (Albers v. County of Los Angeles, 62 Cal.2d 250, 266, 42 Cal.Rptr. 89, 398 P.2d 129; Trujillo v. City of Los Angeles, supra, 276 Cal.App.2d 333, 343, 81 Cal.Rptr. 146; Henry v. City of Los Angeles, 201 Cal.App.2d 299, 306, 20 Cal.Rptr. 440.) In the instant case there is substantial evidence to support the trial court's findings. There was no evidence that defendant, either by word or conduct, did anything to cause plaintiff to delay filing his action or to lead him to believe that an action need not be filed within the 12 month period. While plaintiff's insurance broker testified he attempted to communicate with defendant's claims supervisor after the insured received defendant's letter of April 8, 1968, rejecting the claim, defendant's claims supervisor testified he had no further communication with the insured or anyone representing it concerning the claim until he received the letter dated September 27, 1968, from the insured's attorneys requesting reconsideration of the denial. Upon receipt of that letter the claims supervisor promptly responded by letter dated October 8, 1968, stating that the rejection was reaffirmed.

The court below was convinced that plaintiff's fatal delay in filing suit was not occasioned by defendant's bad faith or conduct and that all negotiations were ended by defendant's unequivocal denial of liability a reasonable time before the expiration of the policy's limitation period. It, therefore, correctly concluded that defendant was not estopped. (Fitzpatrick v. N. A. Accident Ins. Co., supra, 18 Cal.App. 264, 266, 123 P. 209.)

Plaintiff contends that defendant was estopped from relying on the 12 month limitation contained in the policy because it was not raised as a defense until the filing of the amendment to the answer. Plaintiff's contention turns not on estoppel but on whether the trial court abused its discretion in permitting defendant to amend its answer to raise the special defense. The trial court is vested with wide discretion in passing upon applications to amend pleadings, and there is a policy of great liberality in allowing amendments at any stage of the proceedings (Lemoge Electric v. County of San Mateo, 46 Cal.2d 659, 664, 297 P.2d 638; Simons v. County of Kern, 234 Cal.App.2d 362, 367-368, 44 Cal.Rptr. 338; Hayutin v. Weintraub, 207 Cal.App.2d 497, 505, 24 Cal.Rptr. 761), particularly in allowing amendments to answers. (Dunzweiler v. Superior Court, 267 Cal.App.2d 569, 576-577, 73 Cal.Rptr. 331; Schriber v. Alameda, etc. Title Ins. Co., 156 Cal.App.2d 700, 708-709, 320 P.2d 82; Hyman v. Tarplee, 64 Cal.App.2d 805, 813, 149 P.2d 453.) The trial court's determination will be reversed on appeal only where a clear abuse of discretion appears. (Schriber v. Alameda, etc. Title Ins. Co., supra; 3 Witkin, California Procedure (2d ed.) § 1040, p. 2619.)

We find no abuse of discretion in the instant case. Although plaintiff argues that he was prejudiced by the granting of defendant's motion to amend “a mere 30 days” prior to trial, plaintiff did not seek a continuance of the trial nor has he shown that had a continuance been granted he could have produced evidence to overcome the special defense. The fact that the defense defendant belatedly raised is one which prevented recovery is not the kind of prejudice which shows an abuse of discretion in permitting the amendment. (See Gonzales v. Brennan, 238 Cal.App.2d 69, 75-76, 47 Cal.Rptr. 501.)

Finally, plaintiff asserts that defendant owed plaintiff a fiduciary duty to inform him of the fact that the policy contained the 12 month limitation for the commencement of the action. No California cases are cited for the assertion and we find none.

In Elliano v. Assurance Co. of America, supra, 3 Cal.App.3d 446, 83 Cal.Rptr. 509, the court in holding that the insurer was estopped to assert the 12 month limitation for commencement of an action under a fire insurance policy stressed the fact that the insurer failed to inform the insured that it regarded settlement negotiations as terminated or that it intended to rely upon any limitation of time within which an action could be commenced on a claim. However, in that case the evidence revealed that the only evidence of insurance furnished the insured was a memorandum of insurance which contained no reference to the 12 month limitation for commencement of an action on the policy. In the instant case, as heretofore indicated, the policy which was delivered to the insured clearly and specifically set out the contractual limitation.

While an insurer must deal with an insured with the highest good faith and honesty, there is no evidence in the instant case of any unfair dealing, imposition or overreaching.

Judgment is affirmed.

FOOTNOTES

1.  Plaintiff was an officer of the insured and had guaranteed certain bank loans to the insured. Upon default on the loans, the bank foreclosed on its security which consisted of the assets of the insured. Plaintiff discharged his obligations under the guaranty and the corporate assets were conveyed to him.

TAMURA, Associate Justice.

GARDNER, P. J., and KAUFMAN, J., concur.