HETHERINGTON v. HARTFORD FIRE INSURANCE COMPANY (1979)

Norriss and Edith Hetherington appeal from a judgment of dismissal entered upon an order granting a motion for summary judgment in favor of The Hartford Fire Insurance Company on the grounds that appellants' action was barred by the expiration of the statute of limitations.

The record discloses that on February 9, 1968, a fire damaged property which belonged to appellants and which was insured by respondent. Appellants claimed losses from the fire exceeding $12,000. Respondent investigated the damage and obtained estimates for repairs. Appellants hired their own appraisers, but the appraisers appointed by the respective parties were unable to reach an agreement on the amount of the fire losses. Although the policy provided for a procedure to resolve such disagreements, neither party made any demand to initiate the process.

After several months of negotiations, respondent offered $8,916.54 in full settlement of appellants' claim. This total figure was composed of $3,563.00 for the contents of the house; $4,735.08 for repairs to the dwelling; and $168.46, representing losses payable under a second fire insurance policy which appellants had with respondent.

Appellants offered to accept the $3,563 for personal property loss, but rejected the remaining structural damage settlement figures, believing they were far below the estimated repair costs. Respondents refused to enter into a partial settlement of this nature and rejected the offer.

Appellants thereafter retained attorney Henry Poppic to represent them. In February 1969, shortly before the twelve-month policy limitation period for suit contained within the insurance policy would have expired,¹ respondent granted Poppic's request for a six-month extension of the limitation period to allow further negotiations and simultaneously advised appellants that all further communication would have to be through Poppic.

Respondent heard nothing from appellants or their attorney until April 1973, when Mrs. Hetherington contacted the insurance company directly and was informed that respondent had destroyed its files since the statute of limitations on the claim had expired. In January 1976, nearly eight years after the fire occurred, appellants filed the instant action through a new attorney.

Appellants contend that there is only one limitation period governing the commencement of their lawsuit; namely, the contractual one-year limitation contained in the policy. They argue that respondent cannot assert the contractual limitation period as a defense to this action, since Hartford, according to appellants, breached the insurance contract by not paying or tendering unconditionally that portion of the claim conceded by it to be due, i. e., the sum of $3,563 for damage to contents. Appellants assert that respondent must first cure this alleged breach of contract before it can raise the policy limitation period to bar their claim. Such a rule was articulated by the New Jersey Supreme Court in Warren v. Employers Fire Insurance Co. (1969) 53 N.J. 308, 250 A.2d 578, and it is urged that a similar rule be adopted in California. For reasons which follow, however, we find the New Jersey decision to be unpersuasive and unsound. Accordingly, we shall affirm the judgment rendered by the trial court in a carefully and fully considered motion for summary judgment.

As the ensuing discussion will demonstrate, Warren cannot be held controlling here for two major reasons. Inasmuch as Warren is founded on the theory of breach of contract, its analysis is clearly defective and is in contradiction of basic precepts of the law of contracts. On the other hand, if the holding of Warren is deemed to be rooted in equitable principles (as we believe it is), it is palpably inapposite to the instant facts which fail to support the application of equitable considerations in favor of appellants.

Turning to the first point, it is well to remember that Warren, in essence, espouses the following tenets: Although the period of limitation is mandated by statute, the limitation is nonetheless part of the contract and becomes part of the contractual provisions. It is implicit in every insurance contract that the insurer is obligated to pay the amounts to which it admits liability. The failure of the insurance company to tender or remit payment results in a breach of the contract, which prevents the company from raising the breach on the part of the insured (i. e., that the action was not brought within the time prescribed by the contract). (250 A.2d p. 580.)

It appears obvious that the above reasoning is based on faulty legal analysis and contravenes well established principles pertaining to the law of contracts. It is elementary that one party to a contract cannot compel another to perform while he himself is in default. In order to recover under a contract, the plaintiff must allege and prove that he carried out his part of the bargain, performed all his legal duties and complied with all conditions included in the contract (Civ.Code, § 1439; Fenn v. Pickwick Corp. (1931) 117 Cal.App. 236, 242-243, 4 P.2d 215; Lewis Publishing Co. v. Henderson (1930) 103 Cal.App. 425, 284 P. 713; 1 Witkin, Summary of Cal.Law (8th ed. 1973), Contracts § 619, p. 527). As the court succinctly stated in Pry Corp. of America v. Leach (1960) 177 Cal.App.2d 632, 639, 2 Cal.Rptr. 425, 429-430, “A party complaining of the breach of a contract is not entitled to recover therefor unless he has fulfilled his obligations. [Citations.] He who seeks to enforce a contract must show that he has complied with the conditions and agreements of the contract on his part to be performed.” (Emphasis added.)

An insurance policy, as appellants aptly point out, is nothing but a contract to which the general rules of contract law are fully applicable. Since in Warren (similar to the case at bench) it was the insureds who sought to enforce the contract and obtain recovery thereunder, and since the insureds there, and here, were clearly in breach by failing to commence the action within the allowed 12-month period, they should be barred under the aforestated rules from maintaining an action against the insurance company.

The foregoing discussion compels the conclusion that Warren may be upheld only if interpreted as founded upon equitable considerations. A more profound review of Warren is convincing indeed, that in ultimate analysis the holding of the court is predicated on principles of equity.

To begin with, it bears emphasis that Agricultural Ins. Co. of Watertown, N. Y. v. Iglehart (Okl.1963) 386 P.2d 145, upon which the Warren court primarily relied is premised on the theory of waiver. It is, of course, well settled that both waiver and estoppel are equitable doctrines and are invoked only if the requisite elements of those doctrines are present and if the application of legal principles would lead to unjustifiably harsh results (Elliano v. Assurance Co. of America (1970) 3 Cal.App.3d 446, 450, 83 Cal.Rptr. 509; Morgan v. International Aviation Underwriters, Inc. (1967) 250 Cal.App.2d 176, 179, 58 Cal.Rptr. 164).

Second, the Warren court itself underlines that the result reached therein was dictated by equitable considerations, stating that “As indicated above, we agree that the insurer must make payment of the amounts for which it is admittedly liable if it intends to rely on the period of limitations to bar plaintiffs' claim. Equity demands that this result be reached.” (250 A.2d p. 580, emphasis added.)

Finally, the court in Warren was eager to point out that its conclusion was necessarily reached “Under the facts of this case”—facts which are markedly different from those in the case at bench.²

To sum it up, when properly interpreted and analyzed, Warren stands only for the proposition that an insurance company which admits a part of its liability and fails to pay under the policy is not allowed to invoke the contractual period of limitation if the conditions of the equitable doctrines of waiver or estoppel exist; that is, if the insurance company through negotiations or dilatory tactics or any other means induces an insured to forego bringing suit under an insurance policy until after the limitation period has expired or if it otherwise exhibits conduct which induces the insured to change his position to his detriment (cf. Elliano v. Assurance Co. of America, supra, 3 Cal.App.3d 446, 450, 83 Cal.Rptr. 509; Better Valu Homes v. Preferred Mut. Ins. Co. (1975), 60 Mich.App. 315, 230 N.W.2d 412, 413; Bernstein v. Connecticut Fire Insurance Company (Okl.1957) 315 P.2d 232, 233; Centennial Insurance Company v. Dowd's Inc. (App.D.C.1973) 306 A.2d 648, 651).

The facts of the instant case utterly fail to support any claim that appellants were misled to their detriment by respondent and/or that delay in filing the action until some eight years after the fire was caused by the conduct or representation of the insurance company or its agent. Quite the opposite, the record is undisputed that after the negotiations broke down, but before the expiration of the 12-month limitation period, appellants retained an attorney. It is further clear that appellants were well aware of their right to bring an action against the company. In a letter dated January 26, 1969 (still within the limitation period), appellants charged Hartford with numerous acts of bad faith in negotiating, and threatened legal action if the company failed to comply with their demand. Even more to the point, the record reveals that upon the request of appellants' attorney, respondent agreed to extend the 12-month limitation for an additional six months. Finally, it is conceded by appellants that the excessive delay in filing the action was occasioned solely by their own attorney, who made false representations with respect to the status of the case and mishandled the matter. Under these circumstances, appellants are clearly not entitled to any equitable relief against respondent.

In summary, appellants' effort to predicate respondent's liability on breach of contract for failing to agree to a partial settlement is unavailing due to the fact that they, too, were in breach of the contract by not bringing the action within the period allowed by the contract.³ Under well established law, this latter breach precluded appellants from maintaining an action against respondent based upon the policy. Appellants' reliance on Warren can be justified and acceptable only for the purpose of erecting a bar to respondent's defense on the basis of equity. However, the facts of the case clearly refute the existence of the requisite elements of equitable relief by either waiver and/or estoppel. It follows that in the situation here present, the trial court's ruling, dismissing the action for failure to comply with the contractual limitation period was eminently correct.

Lastly, it is briefly observed that the rule urged by appellants and adopted by the majority is not supportable by sound public policy either. It is well too obvious to seriously argue that to hold an insurance company liable without any time limitation once the company has rejected payment of a partial claim runs counter to the legislative policy expressed in Insurance Code, section 2071, which carves out an exception to the general statute of limitations (Code Civ. Proc., §§ 312, 337), and prescribes a mandatory one-year period for bringing an action for recovery of loss under a fire insurance policy.

The unfairness and inequity deriving from the perpetuation of the insured's right to sue is uniquely demonstrated by the instant case, where the action by appellants was not brought until eight years after the occurrence of the loss, and where respondent would be forced to defend an action after all its files and records pertaining to the matter were destroyed in reliance on the one-year statute of limitations. It is almost self-evident that the rule espoused by appellants would surely discourage settlement offers on the part of insurance companies for the justified fear that once a settlement offer has been made the statute of limitations will be extended indefinitely. Such a result would be patently unfair, contrary to sound public policy and inimical to the fair administration of justice.

Nor is the recent decision in Llanera v. M & S Pipe Supply Co. (1979) 92 Cal.App.3d 332, 154 Cal.Rptr. 704, pertinent to the case at bench. Llanera deals with the application of section 11583 of the Insurance Code to a personal injury-property damage claims situation. In the first place it is important to note that Insurance Code, section 11583, is a specific provision relating to the practice of advance or partial payments made “under liability insurance as defined in subdivision (a) of Section 108, …” (emphasis added). Insurance in California has been specifically classified by the Legislature into distinct classes (Ins.Code, § 100). Each classification is separately defined and treated (Ins.Code, §§ 101-120).

Secondly, in the instant case the limitations period is spelled out in the policy itself which is in the possession of the insured. In the third-party situation, as in Llanera, the limitations period is purely statutory and would not generally be known to the unsophisticated claimant, but clearly known to the insurance company claims representatives. Consequently, the requirement of notice of the limitations period contained in Insurance Code, section 11583, is clearly justified as a matter of sound public policy.

Finally, we must emphasize that in the case at bench appellants have never—and indeed in the face of the record could not have—contended that they were unaware of the limitations period. On the contrary, as we have pointed out, appellants retained an attorney prior to the expiration of the twelve-month period. That attorney requested and received a six-month extension from respondent, but failed to pursue the matter for several more years.

The judgment is affirmed.

I dissent.

Section 2071 of the Insurance Code sets forth the standard and mandatory provisions for a fire insurance policy written in the State of California. It provides in pertinent part: “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.” Appellants argue that the above mentioned twelve-month limitation for the commencement of suit on the policy was expressly created by the legislature as a special limitation period. Therefore, they conclude that, pursuant to section 312 of the Code of Civil Procedure,¹ it applies to the exclusion of any of the statutes of limitations, including section 337 of the Code of Civil Procedure, the general four-year statute for actions on written contracts.

In Elliano v. Assurance Company of America (1970) 3 Cal.App.3d 446, 83 Cal.Rptr. 509, the court held that the twelvemonth limitation on suit, even though it was prescribed by statute as a term to be included in all fire insurance policies, was not a statutory statute of limitations, but rather was a purely contractual limitation.

Since the State of New Jersey has a law nearly identical to section 2071 of the California Insurance Code and the court in Elliano relied heavily on New Jersey case law to reach its decision, appellants argue that the New Jersey Supreme Court holding in Warren v. Employers Fire Ins. Co., supra, should be adopted by this court.

In Warren, a standard fire insurance policy containing a mandatory limitation clause similar to the one in the present action was held by the insured. The insured suffered a fire loss around Christmas of 1964. The insurance adjuster for the carrier inspected the damage and offered to pay the amount which he estimated to be the cost of repairing that damage. Settlement negotiations continued until about Thanksgiving of 1965 (approximately one month prior to expiration of the twelve-month limitation), at which time the adjuster advised the insured to obtain the services of an attorney. Thereafter, negotiations continued beyond the twelve-month policy limitation and, subsequently, the insured filed suit five months after the expiration of the twelve-month period.

The New Jersey trial court granted a motion for dismissal on the ground that the twelve-month policy limitation period barred plaintiff's suit. The state supreme court reversed, holding that the insurance company's failure to make payment of the amount to which it admitted liability constituted a breach of contract and precluded the company from raising the period of limitation as a defense.

No California case is found which considers the issue of whether when an insurance carrier has been precluded from asserting the shorter limitation period set forth in section 2071 of the Insurance Code and contained in the policy, the general statutes of limitations apply. The reported cases involve situations which arose after the policy period had expired but within the general statute of limitations.

Appellants argue that because under section 312 of the Code of Civil Procedure the general statutes of limitations do not apply where a “different limitation is prescribed by statute,” and because section 2071 of the Insurance Code requires that policies include a one-year limitation period, only the period specified in the policy is ever applicable. Therefore, the question is whether section 2071 constitutes a statute of limitations.

In Elliano v. Assurance Company of America, supra, the insured never received a copy of the policy showing the one-year limit for bringing suit. The insurance company attempted to argue that the insured should be chargeable with notice of the one-year period required by section 2071 of the Insurance Code just as all claimants are chargeable with knowledge of the general statutes of limitations. The court held that although claimants are charged with knowledge of limitation periods, the insured was not held to knowledge of the shorter period specified by section 2071 of the Insurance Code, because the legislature had not created a statute of limitations for fire policies in enacting section 2071. Quoting from Fredericks v. Farmers Reliance Ins. Co. of N. J. (1963) 80 N.J.Super. 599, 194 A.2d 497, 500, the court stated, “The Legislature has not simply and unqualifiedly created a 12-month statute of limitations for claims on fire policies, as it has … for contracts generally. It has directed the inclusion of a 12-month limitation condition in the policy issued.” (Elliano v. Assurance Company of America, supra, 83 Cal.Rptr. at p. 514, at p. 453, emphasis in the original).

The twelve-month limitation condition has been characterized as “being in derogation of the general statute of limitation.” (Id. at 454, 83 Cal.Rptr. at 514.) It is clear that the Warren rule, when adopted in California, will not discourage settlements. The rule requires quite simply that an insurance company pay the amount which the company believes to be true. Nothing more. Any amount over that sum in dispute should be litigated. It is believed that whatever else the parties are or are not entitled to would be properly disposed of.

Of appropriate inclusion at this point is section 11583 of the Insurance Code which allows partial or advance payments on liability insurance policies to be paid by the insurer and provides further:

“Any person, including any insurer, who makes such an advance or partial payment, shall at the time of beginning payment, notify the recipient thereof in writing of the statute of limitations applicable to the cause of action which such recipient may bring against such person as a result of such injury or death … Failure to provide such written notice shall operate to toll any such applicable statute of limitations or time limitations from the time of such advance or partial payment until such written notice is actually given.”

It appears that the California legislature decreed by this statute that the limitation period required by the rule in the Warren case is appropriate and extended. When a Member of the State Legislature, the writer voted for the statute, believing such to be true.

It is believed that the holding in Elliano v. Assurance Co. of America (1974) 3 Cal.App.3d 446, 83 Cal.Rptr. 509, coupled with the rule of the Warren case is a satisfactory solution to a problem often faced by the insurance industry. There is no requirement that the insurance industry pay the insured any more than they concede is to be paid, yet such payments must be made before the claims of the insureds could be barred. Simply put, the rule is that when an insurer concedes that a loss has been sustained by the insured, the insurer must promptly pay the amount which it concedes is due. That which is in dispute can be settled in the courts, or between the contesting parties.

It is believed appropriate to quote the following language from the Warren case:

“… the view we take of the case eliminates the necessity of reaching other questions with regard to the application of the doctrine of estoppel. We hold that the insurance company's failure to make payment of the amount to which it admitted liability precludes the insurance company from raising the period of limitations as a defense. The company was obligated by its contract to pay what it conceded that it owed, and to do so without prejudice to the right of insureds to sue for the disputed balance of their claim. Since payment of the admitted liability was not made, the period of limitations may not be relied on.” Warren v. Employers Fire Insurance Co. (1969) 250 A.2d 578, 580.

This reasoning appears to be pertinently applicable to the present case. The appellants herein state, and it appears to be true, that they do not rely on estoppel. The issue is a question of contract law unrelated to the doctrine of estoppel. When the amount admittedly owed to the appellants is paid by respondent, the contractual duty and the policy limitation period will begin to run.

The holding in Llanera v. M & S Pipe Supply Co. (1979) 92 Cal.App.3d 332, 154 Cal.Rptr. 704, is important in that the Court of Appeal, Second District, held that the failure of an insurance company to comply with its duties under the Insurance Code, section 11583, would toll the statute of limitations rather than upon the estoppel argument presented by the plaintiff therein. It is analogous to this case wherein the failure of Hartford to tender the sums admittedly due under the policy tolled the statute of limitations. Accordingly, the judgment should be reversed.

FOOTNOTES

1.  The policy in question contained the following provision which is mandatorily required in all fire insurance policies written in California (Ins.Code, § 2071): “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.  It is worthy to note that in Warren the fire giving rise to the claim occurred at Christmas 1964. The insureds hired an attorney to pursue their claim about one month before the limitation period expired. The action against the company was brought five months after the limitation period expired. The court expressed its doubts whether under those circumstances one month was sufficient time for appellants' attorney to prepare and bring a lawsuit.

3.  We point out further that appellants had but one, single claim arising out of the fire loss. The various elements of their claim, i. e., contents and dwelling repairs, are not separate, legal claims. Rather, they are evidentiary elements of the single potential claim which must be asserted in a single lawsuit (see 3 Witkin, Cal.Procedure (2d ed. 1971) Pleading, §§ 22-33, pp. 1707-1717).

1.  Section 312 of the Code of Civil Procedure provides: “Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute.”

KANE, Associate Justice.

TAYLOR, P. J., concurs. MILLER, Associate Justice, dissenting.