Aceves v. Allstate Ins. Co.

• Decision Date: 21 May 1993
• Docket Number: No. 91-0461-GT(CM).,91-0461-GT(CM).
• Citation: 827 F. Supp. 1473
• Court: U.S. District Court — Southern District of California
• Parties: Lauro ACEVES and Jamie Aceves, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

827 F. Supp. 1473

Lauro ACEVES and Jamie Aceves, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

No. 91-0461-GT(CM).

United States District Court, S.D. California.

May 21, 1993.

Theresa Castagneto McAteer and Michael D. Osteen, Schall, Boudreau & Gore, San Diego, CA, for plaintiffs, Lauro and Jamie Aceves.

Peter H. Klee and Marc J. Feldman, Luce, Forward, Hamilton & Scripps, San Diego, CA, for defendant, Allstate Ins. Co.

ORDER AND MEMORANDUM DECISION

GORDON THOMPSON, Jr., District Judge.

The above-captioned case came on for hearing on April 26, 1993 at 10:30 a.m., in Courtroom 1 of the above-entitled court, the Honorable Gordon Thompson, Jr., presiding. Theresa Castagneto McAteer of Schall, Boudreau & Gore, Inc., appeared on behalf of plaintiffs; Peter H. Klee of Luce, Forward, Hamilton & Scripps appeared on behalf of defendant. The Court has fully considered this matter, including review of the papers filed by the parties, the authorities cited therein, and the arguments presented.

FACTUAL BACKGROUND

1. The Injury to Plaintiffs' Home

In 1978, plaintiffs, Lauro and Jamie Aceves, purchased the home that is the subject of this action. During their first year in the new residence, plaintiffs noticed that the front door began sticking. They contacted McMillan Homes ("McMillan"), the builder of the house, who repaired the door. However, the door continued to stick and plaintiffs repeatedly had McMillan repair the problem. Unfortunately, the door was not the only problem discovered by plaintiffs with their new home. During their first two years in the home, McMillan was also called upon to patch cracks in the drywall on several occasions and to replace the cracked entry way tile with a new wood parquet floor. By 1981, plaintiffs had become aware of the losses that are the basis of the insurance claim in the present litigation.

2. Allstate's Conduct Following Notification

Although plaintiffs became aware of the loss in 1981 and although plaintiffs' insurance policy contained a one-year limitation provision barring any suit or action against Allstate more than one year after a loss, plaintiffs did not notify Allstate of the subject loss until August 1985. Thereafter, Allstate investigated the loss, confirmed coverage fully aware that the claim was over a year old,¹ made an offer to settle and did not reserve any of its rights under the contract.

Notwithstanding Allstate's repeated express affirmations of coverage beginning in August 1985 and notwithstanding Allstate's failure to reserve its right to dispute coverage and limitations issues, Allstate requested a coverage letter to determine if it had to pay on this claim four years later, in 1989. An initial coverage letter on January 12, 1990 (the "January coverage letter"), recommended that Allstate continue to offer coverage. The January coverage letter, however, did raise some issue as to whether Allstate might not be required to cover the damage. On July 12, 1990, a second coverage letter (the "July coverage letter") modified the earlier recommendation. The new recommendation was based on an interpretation of a recently decided California appellate court case, in addition to the cases discussed in the January coverage letter. The July coverage letter recommended that Allstate now deny coverage on the theory that the claim had been filed after the expiration of the policy limitations period and that Allstate's conduct could not constitute a waiver as a matter of law. On August 1, 1990, Allstate denied coverage under the policy and disapproved plaintiffs' claim.

PROCEDURAL BACKGROUND

In addition to the facts relating to the claim and Allstate's conduct, some elaboration on the procedural history of this case is relevant, in addition to further explaining the posture in which these motions come before the court.

In March 1991, plaintiffs filed suit in the Superior Court of California. Thereafter, in April 1991, Allstate removed the action to this court. In February 1992, the court denied Allstate's motion for summary judgment (the "1992 Order"). At that time, the court made the following specific findings:

(1) that for purposes of the one-year limitation provision, the inception of the loss occurred in 1981,

(2) that there can, as a matter of law, be a waiver after the limitations period has run, and

(3) that based on the undisputed facts in this case, that such a waiver occurred.

Subsequently, the parties requested interlocutory review on the issue of when the inception of loss occurred and whether there could be a waiver after the limitations period had run. The court granted the petition for certification for interlocutory review, but the Ninth Circuit returned the case without any ruling on the merits.

Allstate then filed a motion for partial summary adjudication that its conduct in denying coverage was reasonable and in good faith. Allstate also requested the dismissal of plaintiffs' tort claim of bad faith. On March 1, 1993, at the hearing on this motion, the court issued its oral ruling on this motion, granting the motion in part and denying the motion in part. The court found that the denial of coverage was reasonable, but that such a finding did not require the dismissal of plaintiffs' tort claim.

In the subsequent preparation of the written order related to the March 1, 1993 hearing, the court discovered several cases that appeared to suggest that the 1992 Order did not represent the correct interpretation of California law.² None of these cases had previously been brought to the court's attention, and the court was until that time unaware of any of these cases. Because of the apparent relevance of these cases to the viability of plaintiffs' contract claim, the court ordered further briefing on the following three issues:

I. Whether, fourteen months later, the court may or must reconsider its prior ruling based on the discovery of new case law not previously presented to the court by the parties.

II. Assuming the court does reconsider its prior ruling, whether the new case law mandates that the court reverse its earlier pronouncement that there can be a waiver of a policy limitations period after the period has expired.

III. Assuming that there cannot be a waiver and that the underlying contract claim is dismissed, whether conduct that occurred prior to the newly discovered case law can still be determined to be in bad faith.

The parties rebriefed these issues. Accordingly, this order and memorandum decision reconsiders (1) the ruling the court made in 1992 Order that there can be a waiver after the statute of limitations has expired and (2) the court's oral ruling on March 1, 1993 that dismissal of the entire tort claim was not warranted. This order also reinstates and provides reasons for the court's oral ruling on March 1, 1993 that granted partial summary adjudication with respect to Allstate's decision to terminate coverage.

CONCLUSIONS OF LAW

I. RECONSIDERATION

A district court retains the jurisdiction to modify or rescind an interlocutory order, such as the prior summary judgment orders in this case. See Federal Rule of Civil Procedure 54(b); 1B Moore's Federal Practice §§ 0.4041 and 0.4044.-1 (1992). In the present case, subsequent to the prior interlocutory order denying defendant's motion for summary judgment, there has been a significant change in the Ninth Circuit law. As a result, the court finds it both appropriate and necessary to review its prior holdings in light of the new case law.

II. THE NINTH CIRCUIT'S VIEW OF CALIFORNIA LAW ON INSURANCE WAIVERS FOLLOWING INTEL

As a matter of judicial hierarchy, the Ninth Circuit must follow California's interpretation of California law. Likewise, this court must follow the Ninth Circuit's interpretation of how the California Supreme Court has or will interpret an issue of law. As a result, although the court does not believe that the interpretation of the law as set forth in Intel Corp. v. Hartford Acc. & Indemnity Co., 952 F.2d 1551 (9th Cir.1991), is a proper interpretation of the question of "what is required for a waiver in the insurance context," the court cannot disregard relevant Ninth Circuit authority.

The court's prior order rested on an interpretation of the waiver doctrine. Following the Ninth Circuit's ruling in Intel, it is no longer possible to discuss the waiver doctrine in insurance cases. The doctrine no longer exists. If there is nothing that is more disappointing about the decision in Intel, it is that the court did not acknowledge that it had eliminated the waiver doctrine by requiring insureds to make a showing similar to that required for the doctrine of estoppel. In effect, the waiver doctrine is no longer independent of estoppel, but instead is merely a subset of this previously distinct doctrine. Without actually saying what it was doing, Intel accomplished this elimination of the waiver doctrine in insurance cases by concluding that the distinction between waiver and estoppel in the insurance context had become "blurred." Intel, 952 F.2d at 1559. Accordingly, the court held that waivers must satisfy the same requirements as the doctrine of estoppel — namely that there must be "some element of misconduct by the insurer or detrimental reliance by the insured." Id. Because there was no evidence that the insurer had misled the insured and because the insured had not shown that it was prejudiced, Intel held that the district court "should not have found insurer waived reliance on the policy provision at issue." Id. at 1561.³

Unfortunately, at least in this court's opinion, Intel has subsequently been favorably cited by the California Appellate Court. See Garcia v. Calfarm Ins. Co., 12 Cal.App.4th 999, 1009, 7 Cal.Rptr.2d 504 (April 1992) (opinion depublished by California Supreme Court); B & E Convalescent Center v. State Compensation Ins. Fund, 8 Cal.App.4th 78, 86 n. 7, 9 Cal.Rptr.2d 894 (1992). Neither of these cases provided any...