Canadian Indem. Co. v. K & T, INC.

• Decision Date: 17 September 1990
• Docket Number: No. Civ. 90-C-59A.,Civ. 90-C-59A.
• Citation: 745 F. Supp. 661
• Parties: CANADIAN INDEMNITY COMPANY, a Canadian corporation, Plaintiff, v. K & T, INC. d/b/a Budget Rent-a-Car of Salt Lake City, a Utah corporation; and General Accident Insurance Company, a Pennsylvania corporation, Defendants.
• Court: U.S. District Court — District of Utah

745 F. Supp. 661

CANADIAN INDEMNITY COMPANY, a Canadian corporation, Plaintiff, v. K & T, INC. d/b/a Budget Rent-a-Car of Salt Lake City, a Utah corporation; and General Accident Insurance Company, a Pennsylvania corporation, Defendants.

No. Civ. 90-C-59A.

United States District Court, D. Utah, C.D.

September 17, 1990.

Dennis C. Ferguson, John R. Lund, Robert C. Keller, Snow, Christensen & Martineau, Salt Lake City, Utah, for plaintiff.

Donald J. Purser, William C. Halls, Purser, Okazaki & Berrett, Salt Lake City, Utah, for defendant General Acc.

Lincoln W. Hobbs, Donald J. Winder, Winder & Haslam, Salt Lake City, Utah, for K & T, d/b/a Budget.

ORDER

ALDON J. ANDERSON, Senior District Judge.

I. INTRODUCTION

Both of the defendants have filed separate motions that are now before the court. Defendant General Accident Insurance Company ("General Accident") has moved for summary judgment, and defendant K & T, Inc. d/b/a Budget Rent-a-Car of Salt Lake City ("Budget") has made a motion to dismiss alleging that the plaintiff, Canadian Indemnity Company ("Canadian Indemnity" or plaintiff), has failed to state a claim on which relief may be granted. Because the court finds that the plaintiff's claims are barred by the statute of limitations, the motions are granted.

II. FACTUAL BACKGROUND

The plaintiff, Canadian Indemnity, is a Canadian insurance company that provided a comprehensive business liability insurance policy to Big Country Water Slides, Ltd. ("Big Country"). In the spring of 1984, Big Country contracted with a Utah company known as Supersliders for the sale of a waterslide to be constructed in Draper, Utah. Supersliders contracted with Ken Anderson to install the slide. As part of the agreement between Big Country and Supersliders, Big Country loaned one of its employees, Scott Roddick, to Anderson to assist in the installation of the waterslide. Early in 1984, Anderson came to Utah to meet with Roddick and review the site. Anderson rented a car from Budget and listed Roddick on the rental agreement as an additional driver. In the rental agreement, Budget agreed to provide liability insurance coverage to the driver in the amount of $100,000. Budget obtained $50,000 in coverage from the defendant General Accident and attempted to obtain an additional $50,000 in coverage from an insurance carrier who became insolvent before these proceedings arose. General Accident's policy provides coverage to the renter and defines the term "renter" to include any employer or employee of a renter.

On or about April 24, 1984, Roddick was involved in an auto-pedestrian accident in Salt Lake County severely injuring Daniel J. Pokorny. Following the accident, Anderson and Roddick returned the vehicle to Budget without notifying Budget of the accident, and after having repaired the damage to the vehicle. Budget did not learn of the accident until several weeks later. In 1986, Pokorny filed suit against several parties including Big Country, Roddick, and Anderson ("the Pokorny action"). General Accident defended and indemnified Anderson and Roddick, ultimately paying the policy limit of $50,000 in satisfaction of the claim, but did not defend Big Country. Canadian Indemnity defended Big Country in the Pokorny lawsuit and eventually paid $650,000 in settlement of that claim. During the suit, Big Country became aware of the insurance policy issued by General Accident and obtained it through discovery.

In this lawsuit, Canadian Indemnity alleges a breach of a duty to defend Big Country by General Accident and seeks to obtain reimbursement for the costs of defense incurred on Big Country's behalf. Additionally, Canadian Indemnity makes a claim against Budget for $50,000 representing the difference between the $100,000 in coverage called for in the rental agreement and the $50,000 in coverage provided by General Accident.

III. ANALYSIS

A. Applicable Statute of Limitations

The insurance policy upon which plaintiff bases its claim against General Accident was issued on March 1, 1984, and was effective until March 1, 1985. After the insurance policy was issued, but prior to the alleged breach of a duty to defend, the Utah Legislature enacted Utah Code Ann. § 31A-21-313(1) (1986) which provides that:

An action on a written policy or contract of insurance must be commenced within three years after the inception of the loss.

Plaintiff argues that Utah Code Ann. § 78-12-23 (1984), which provides a six-year limitation on any action based upon a contract in writing, should control because § 31A-21-313(1) was not yet enacted at the time the policy was issued. At issue then is whether plaintiff's claim is controlled by the six-year statute, which was in effect at the time the policy was issued, or the three-year statute, which was in effect when the Pokorny suit for which plaintiff claims a breach of a duty to defend was brought.

As a general rule, the statute of limitations controlling a cause of action is the statute in effect at the time the cause of action accrues. See, e.g., J.E.S. v. F.F., 762 P.2d 703, 705 (Col.App.1988) ("The controlling statute of limitations is normally the statute in effect at the time the cause of action accrues."); Gage v. Engelbert, 114 Idaho 89, 753 P.2d 825, 826 (1988) ("The statute of limitations in effect when the right of action is deemed to accrue defines the statutory period unless the legislature provides otherwise."). As early as 1927, the Utah Supreme Court recognized that "the statutes of limitation do not begin to run until a suit or cause of action exists." Kimball v. McCornick, 70 Utah 189, 259 P. 313, 317 (1927).

The Utah Supreme Court has recognized that the legislature may reduce the time for bringing a cause of action, even for an already existing cause of action.

It is well established that the legislature may reduce a period of limitations and apply a new and shorter period to previously accrued causes of action, so long as a reasonable time is allowed to bring such an action; and that the effect of the new statute commences upon the effective date of the statute. The result of this is actually prospective in that the statutory change relates to procedures to occur in the future.

Greenhalgh v. Payson City, 530 P.2d 799, 803 (Utah 1975) (citations omitted). See also Day & Night Heating Co. v. Ruff, 19 Utah 2d 412, 432 P.2d 43, 44 (1967) (holding that a new one-year statute of limitations provided a reasonable time within which to commence causes of action which accrued prior to its enactment); Vealey v. Clegg, 579 P.2d 919 (Utah 1978). Thus, even if the six-year statute of limitations would have applied at the time the policy was issued by General Accident, it was the statute that applied at the time of the accrual of the cause which governs the limitations period.

A cause of action accrues upon the happening of the last event necessary to complete the cause of action. Becton Dickinson & Co. v. Reese, 668 P.2d 1254, 1257 (Utah 1983). Plaintiff alleges a breach of a duty to defend in the Pokorny action and claims damages for the attorney's fees and defense costs associated with defending that action. It was impossible for a cause of action for breach of a duty to defend to accrue until the underlying suit was filed in 1986, which was after the Utah Legislature had enacted a statute of limitations specifically applying to contracts of insurance.

The Utah Supreme Court in Greenhalgh expressed concern that a reasonable time be allowed in which to bring an action after the legislature shortens an existing limitation period. In this case, plaintiff had the full three-year limitation period in which to bring the action after it accrued. The court thus finds that Utah Code Ann. § 31A-21-313(1) is the proper statute of limitations to be applied in this case since it was enacted before the plaintiff's cause of action arose and it allowed the plaintiff the full length of the three-year limitations period in which to bring its action.

B. Commencement of the Running of the Limitations Period

Since the three-year limitations period contained in § 31A-21-313(1) is controlling, it is next necessary to determine when the limitations period began to run. The law of many states provides that a cause of action for breach of an insurer's duty to defend does not accrue until the conclusion by judgment or settlement of the underlying litigation against the insured. See, Annotation, Limitation of Action Against Insurer for Breach of Contract to Defend, 96 A.L.R.3d 1193 (1979). However, the court must construe the "inception of the loss" language contained in § 31A-21-313(1) with relation to the alleged breach of a duty to defend.

The word "inception" may be defined as the "act or process of beginning; commencement; initiation." Webster's New International Dictionary 1256 (2d Ed.1956). Similarly, Black's Law Dictionary defines "inception" as "commencement," "opening" or "initiation." Black's Law Dictionary 685 (5th Ed.1979)....