Aceves v. Allstate Ins. Co.
| Decision Date | 16 October 1995 |
| Docket Number | 94-55088,Nos. 94-55087,s. 94-55087 |
| Citation | 68 F.3d 1160 |
| Parties | 43 Fed. R. Evid. Serv. 186, 95 Cal. Daily Op. Serv. 8085, 95 Daily Journal D.A.R. 13,909 Lauro ACEVES, Jamie Aceves, Plaintiffs-Appellants, Cross-Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee, Cross-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
George A. Foster, Kevin A. Carey, Schall, Boudreau & Gore, San Diego, California, for the plaintiffs-appellants-cross-appellees.
Charles A. Bird, Peter H. Klee, Charles A. Danaher, Luce, Forward, Hamilton & Scripps, San Diego, California, for the defendant-appellee-cross-appellant.
Appeals from the United States District Court for the Southern District of California.
Before: FLETCHER, BRUNETTI, and T.G. NELSON, Circuit Judges.
Lauro and Jamie Aceves (the Aceveses) appeal from a judgment against Allstate Insurance Company (Allstate) for its failure to pay a claim on their homeowners' policy. The Aceveses argue that the district court, after conducting a bench trial, understated their contract damages, overstated their liability for Allstate's costs, and gutted their bad faith claim by its evidentiary rulings at trial. Allstate cross-appeals from the district court's denial of summary judgment on their contract claim.
The Aceveses' coverage claim arises as a result of structural damage to their house. In 1978, they bought a house in Bonita, California from the McMillin Construction Company. In 1981, they discovered a crack more than one-quarter inch wide, running longer than thirty feet of the length of a wall. They notified McMillin immediately and insisted that the damage was too serious to be patched. Although the Aceveses notified McMillin in 1981, they did not notify Allstate, their home insurer. Their homeowners' policy specified that they could only sue to enforce a coverage claim within one year of the loss giving rise to the claim.
In 1985, the structural damage to the Aceveses' house worsened; the initial crack widened and other cracks appeared. The Aceveses notified McMillin and soon after filed a lawsuit against it in propria persona. On August 12, 1985, they finally notified Allstate of the damage. Greg Martin, the adjuster who first processed the Aceveses' claim, set the date of the loss at September 30, 1983, to maximize the Aceveses' coverage under the different homeowners' policies they had from 1981 to 1985.
Martin made no mention of the one-year suit limitation when he first received the Aceveses' claim. Martin confirmed coverage orally in 1987 and the next adjuster to handle their claim reconfirmed coverage in a January 1988 letter. Neither raised the suit limitation.
It took Allstate five years to investigate the Aceveses' claim and negotiate with the Aceveses until it finally concluded that it could assert the suit limitation as a bar to their claim. In 1989, Joyce Almeida, another Allstate claims adjuster, took over the Aceveses' file. She was the first Allstate representative to consider that the Aceveses' claim might be time-barred. In December 1989, she referred their claim to outside counsel for a coverage opinion, analyzing in particular the suit limitation. On January 12, 1990, she received an opinion letter in response, advising her that Allstate had not waived the right to deny coverage because of the time bar, and that Allstate could deny coverage. Over the next seven months, she received other letters from the same attorney confirming this view, and communicated to Cannon, the Aceveses' attorney, that Allstate was considering denying their coverage.
On August 1, 1990, Allstate sent Cannon a letter denying the Aceveses coverage because they failed to file their claim within one year of discovering the loss giving rise to it. In February 1991, the Aceveses settled with McMillin for $90,000.
In March 1991, the Aceveses filed suit against Allstate in California Superior Court, alleging breach of contract and bad faith denial of coverage. In February 1992, Allstate removed the action to the United States District Court for the Southern District of California.
After removal, Allstate brought a motion for summary judgment, seeking a ruling of law that the one-year suit limitation precluded the Aceveses' contract and bad faith claims. The district court denied summary judgment on the contract claim, but granted partial summary judgment on the bad faith claim. The district court later sua sponte ordered the parties to brief whether it should reconsider its decision in light of a Ninth Circuit case applying California insurance waiver law, Intel Corp. v. Hartford Accident & Indemnity Co., 952 F.2d 1551 (9th Cir.1991). In a published opinion, 827 F.Supp. 1473 (S.D.Cal.1993), the district court reconsidered and affirmed its previous ruling in light of Intel. Id. at 1487.
The contract claim and the remainder of the bad faith claim went to a bench trial. The district court made findings of fact and conclusions of law that Allstate had not acted in bad faith, that it was liable for $99,000 in damages on the insurance policy, but that its liability should be offset by the $90,000 settlement the Aceveses obtained from McMillin. Before trial, Allstate had made a settlement offer of $50,100 under California Code of Civil Procedure section 998(c). Because the $9,000 judgment was less than Allstate's pretrial settlement offer, the court ordered the Aceveses to pay Allstate's trial costs under section 998(c). These costs came to $9,625, including full fees for expert witness engineers, geotechnical consultants, and claims adjusters. The Aceveses appealed, and Allstate cross-appealed.
We have jurisdiction over this appeal and cross-appeal under 28 U.S.C. Sec. 1291. The Aceveses bring three issues on appeal. First, they argue that the district court erred in offsetting their $99,000 judgment against Allstate by the $90,000 settlement they obtained from McMillin. They concede that if they do not prevail on this issue, they owe Allstate costs under an offer of judgment rule. Their second claim is that the district court erred in applying state law instead of federal law to determine Allstate's costs. Last, they argue that the district court made several trial errors which require reversal of the court's judgment for Allstate on their bad faith claim. Allstate's cross-appeal presents a single issue: whether the district court erred when it denied Allstate summary judgment on the Aceveses' breach of contract claim.
We begin with Allstate's cross-appeal. We review the district court's denial of summary judgment de novo. Intel, 952 F.2d at 1556. Because the Aceveses' suit was removed to federal court on the basis of diversity jurisdiction, California law governs the substantive issues of the case. Id. "We apply California law as we believe the California Supreme Court would apply it." Id. We conclude that the district court erred by denying Allstate summary judgment on the Aceveses' contract claim.
On the factual record before the court at the summary judgment stage, it was undisputed that the Aceveses' claim was time-barred. Their policy required them to sue to enforce a coverage claim within one year of their loss, they did not notify Allstate until four years after having discovered the damage to their house, and they did not sue until six years after giving notice. "[T]he one-year suit provision would, unless otherwise inapplicable or excused, bar [the Aceveses] from pursuing the present action." Prudential-LMI Ins. Co. v. Superior Court (Lundberg), 51 Cal.3d 674, 687, 274 Cal.Rptr. 387, 395, 798 P.2d 1230, 1238 (1990).
The Aceveses raise only one possible ground for excuse: Allstate may have waived its right to deny on the basis of the one-year limitation. See id. at 690, 274 Cal.Rptr. at 397, 798 P.2d at 1240. They suggest that Allstate did so by its conduct from 1985 to 1989, particularly when it confirmed coverage in 1987 and 1988 without mentioning the time bar.
Under California law, Allstate could not have waived the one-year suit limitation. The California Supreme Court has observed that if an insurer extends the expiration date of a one-year suit provision for a claim that the insured filed and it began investigating "after the limitation has run[, the extension] cannot, as a matter of law, amount to a waiver." Id. at 690 n. 5, 274 Cal.Rptr. at 397 n. 5, 798 P.2d at 1240 n. 5. Waiver provides insurers with an incentive to investigate claims diligently. The doctrine prevents insurers from denying claims for one reason then coming forward with several other reasons after the insured defeats the first. See Becker v. State Farm Fire and Casualty Co., 664 F.Supp. 460, 462 (N.D.Cal.1987); see also Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809, 819, 169 Cal.Rptr. 691, 695-96, 620 P.2d 141, 145-46 (1979) ( ).
However, insurers need no incentive to investigate thoroughly exclusions like the suit limitation here. The facts of such an exclusion need no investigation--they are evident from the policy, the coverage claim, and the claim's date. See Becker, 664 F.Supp. at 462, cited with approval in Prudential, 51 Cal.3d at 690 n. 5, 274 Cal.Rptr. at 397 n. 5, 798 P.2d at 1240 n. 5. Thus, as a matter of law, Allstate could not have waived the one-year suit limitation.
The Aceveses argue that we should disregard the California Supreme Court's reasoning in Prudential as unreasoned obiter dictum. The district court declined to treat Prudential as controlling authority for this reason. 827 F.Supp. at 1482. We disagree....
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