20TH Century Ins. Co. v. Superior Court

Decision Date24 July 2001
Docket NumberNo. B147464.,B147464.
Citation109 Cal.Rptr.2d 611,90 Cal.App.4th 1247
CourtCalifornia Court of Appeals
Parties20TH CENTURY INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent. Linda P. Ahles, Real Party In Interest.

No appearance for Respondent.

Dale E. Washington, Long Beach, for Real Party in Interest.

Shernoff, Bidart, & Darras, William M. Shernoff, Michael J. Bidart, Claremont, and Jeffrey Isaac Ehrlich for Consumer Attorneys of California, United Policyholders, Consumer Federation of California, Congress of California Seniors, Foundation for Taxpayer and Consumer Rights, and California Public Interest Research Group as Amicus Curiae on behalf of Real Party in Interest Linda Ahles.

Quisenberry & Kabateck, Brian S. Kabateck, Suzanne Havens Beckman and Heather M. Mason, Los Angeles, for Consumer Attorneys of California, United Policyholders, Consumer Federation of California, Congress of California Seniors, Foundation for Taxpayer and Consumer Rights, and California Public Interest Research Group as Amicus Curiae on behalf of Real Party in Interest Linda Ahles.

CROSKEY, J.

The petitioner, 20th Century Insurance Company, seeks a writ of mandate directing the trial court to vacate and set aside an order granting the motion of the real party in interest, Linda P. Ahles, to reconsider an earlier order sustaining a demurrer to Ahles' complaint without leave to amend.1

Ahles had filed a complaint against 20th Century for breach of a contract of insurance, tortious breach of the implied covenant of good faith and fair dealing (bad faith) and fraud. The trial court's ruling, which allowed her to go forward with her action and required 20th Century to file an answer, was based on the Legislature's enactment of Code of Civil Procedure, section 340.9 (hereafter, section 340.9).2 This new statute, which became effective on January 1, 2001, revives, subject to certain conditions and limitations insurance claims "arising out of the Northridge earthquake of 1994" that previously had been barred by "the applicable statute of limitations." (Italics added.)

The trial court's application of section 340.9 to restore legal vitality to Ahles' complaint raises a number of important questions which we must address. After a review of this record, the legislative history of section 340.9, including the significant public policies it seeks to serve, and the relevant case law, we are persuaded that the new statute (1) does not impermissibly impair 20th Century's right of contract or deny it substantive due process by the destruction of vested contract rights, (2) embraces and applies to the 12 month "contractual" limitations period included in 20th Century's policy as mandated by Insurance Code section 2071, (3) applies to all cases "pending" on the date the statute became effective, and (4) extends to Ahles' tort claim for bad faith, as well as her breach of contract cause of action.3 In view of these conclusions, we will affirm the trial court's order of December 5, 2000, and deny 20th Century's writ petition.

FACTUAL AND PROCEDURAL BACKGROUND4

On January 17, 1994, Ahles was the owner of the residential property at 10727 Garfield Avenue in Culver City, California. She had a homeowner's insurance policy issued by 20th Century (policy no. H07066432) which included, by endorsement, coverage for loss and damage caused by earthquake. The policy covered her home and other structures on the property. On January 17, a large earthquake commonly known as the Northridge earthquake, struck Southern California and caused extensive damage.

On or about May 1, 1994, Ahles reported to 20th Century that she had observed damage to her property which she believed was attributable to the Northridge earthquake. Three weeks later, 20th Century sent an adjuster to inspect the property and evaluate the damage. In July, 20th Century sent an engineer to further inspect the property, including Ahles' attic and the crawl space underneath her home. Based on those inspections, 20th Century determined the amount of damage to Ahles' home was less than the amount of her $11,100 deductible. It therefore made no payment to her for that damage.5

Approximately four years later, on August 27, 1998, Ahles had her home inspected for termites. According to Ahles' allegations, the termite inspector observed earthquake damage in the crawl space under her house. On or about September 15, 1998, she filed a supplemental claim for earthquake damage with 20th Century. In that claim, Ahles asserted that her home had sustained earthquake damage that had neither been discovered nor considered during 20th Century's adjustment of her original claim. Almost one year later, on July 15, 1999, 20th Century sent an adjuster to inspect Ahles' home and to investigate her new claim. The adjuster concluded that the damage claimed by Ahles was not caused by the earthquake. On that ground, and because Ahles had submitted her supplemental claim more than four years after the earthquake and the adjustment on her initial claim, 20th Century denied it. Ahles responded to this denial on August 26, 1999, by filing a complaint against 20th Century, alleging breach of contract and breach of the implied covenant of good faith and fair dealing.

20th Century then sent engineers to inspect Ahles' house on October 26, 1999. The engineer's report apparently acknowledged that Ahles' home had sustained considerable damage, but blamed it on causes other than the earthquake. The report, however, also noted that the initial engineer's report had been incomplete in that it had failed to identify damage to the foundation and stucco, as well as other "non-earthquake" problems.

At proceedings held on March 23, 2000, the trial court sustained 20th Century's demurrer, but granted Ahles leave to amend her complaint. She did so, and added as an allegation in her first amended complaint a cause of action for fraud. When 20th Century again successfully demurred, Ahles was once more granted leave to amend.

After Ahles filed her second amended complaint on July 17, 2000, 20th Century again demurred. As one ground, 20th Century argued that Ahles'"entire action [was] barred by the one-year statute of limitations contained in the insurance policy." 20th Century's policy issued to Ahles contained a provision stating that "[n]o action shall be brought unless there has been compliance with the policy provisions and the action is started within one year after the occurrence causing the loss or damage." (Italics added.) 20th Century contended, pursuant to this clause, that Ahles had only one year from denial of her 1994 claim to file suit. Her entire action was therefore untimely.

In response, Ahles asserted that in 1994 she was assured by three different 20th Century representatives that there had been no structural damage to her home and that if she discovered damage which exceeded her deductible, she could re-open her claim.6 Ahles argued she reasonably relied on these representations and, in 1998, when the termite inspector informed her of the damage under her house, Ahles believed she could make a claim. Ahles further alleged that "20th Century's claims handling practices were improper, so much so that the Department of Insurance audit ... found 75% of the Northridge earthquake claims were mishandled." Finally, Ahles alleged 20th Century had been guilty of bad faith and fraud in that it knowingly "lowball[ed]," mishandled and improperly denied hers and numerous other claims pertaining to the Northridge earthquake. Under these circumstances, she contended, 20th Century waived and was estopped from asserting the one-year statute of limitations.7

At the hearing held on September 29, 2000, following which the trial court sustained 20th Century's demurrer to her second amended complaint without leave to amend, Ahles asked the court to take judicial notice of SB No. 1899, a bill which had been passed by the California Legislature and was then awaiting the Governor's signature. The bill had been drafted to add section 340.9 to the Code of Civil Procedure. (See fn. 2, ante.)

The trial court, recognizing that the Governor had not yet signed the bill, indicated the case was therefore controlled by the one year limitations period in the insurance contract. Ahles had timely filed her 1994 claim and, although she argued her claim of delayed discovery of further earthquake damage was excusable, the court indicated that it was "not persuaded that the delay was justified." The trial court held that Ahles' complaint was time barred and sustained 20th Century's demurrer without leave to amend. In concluding the proceedings, however, the trial court stated, "And of course, ... if the Governor signs a bill that is enacted into law, that is a ground for reconsideration under 1008 of the Code of Civil Procedure."

8

According to 20th Century, it served notice of the trial court's ruling sustaining its demurrer without leave to amend and entering a judgment of dismissal on October 3, 2000. Ahles, however, asserts 20th Century never served her with a signed, file-stamped copy of the dismissal. The only copies received by Ahles were "blank."9

On November 28, 2000, 56 days after the judgment of dismissal, Ahles made an ex parte application for a special setting of a motion for reconsideration of the trial court's October 3, 2000, ruling and "to vacate" that decision. Ahles indicated that "unknown to ... counsel and the court, the law [SB 1899] had .... been signed into law on September 30, 2000." Ahles brought the motion for reconsideration and to vacate judgment "based upon [the] new law."

On December 5, 2000, following a hearing, the trial court granted...

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