Israelsky v. Title Ins. Co.

• Decision Date: 24 May 1989
• Docket Number: No. D008049,D008049
• Citation: 211 Cal.App.3d 90,261 Cal.Rptr. 72
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 211 Cal.App.3d 90 211 Cal.App.3d 90, 212 Cal.App.3d 611 Steven D. ISRAELSKY et al., Plaintiffs and Appellants, v. TITLE INSURANCE COMPANY OF MINNESOTA et al., Defendants and Respondents.

Page 72

261 Cal.Rptr. 72

Previously published at 211 Cal.App.3d 90

211 Cal.App.3d 90, 212 Cal.App.3d 611

Steven D. ISRAELSKY et al., Plaintiffs and Appellants, v. TITLE INSURANCE COMPANY OF MINNESOTA et al., Defendants and Respondents.

No. D008049.

Court of Appeal, Fourth District, Division 1, California.

May 24, 1989.

As Modified on Denial of Rehearing June 20, 1989.

Review Denied Aug. 10, 1989.

Jenkins & Perry, David R. Clark and Cynthia K. Thornton, San Diego, for plaintiffs and appellants.

Seltzer, Caplan, Wilkins & McMahon, Reg A. Vitek, Donald A. English, Sternberg, Eggers, Kidder & Fox, James R. Sternberg, San Diego, and Scott I. Richards, for defendants and respondents.

BENKE, Associate Justice.

SUMMARY

Oil Base, Inc. v. Continental Cas. Co. (1969) 271 Cal.App.2d 378, 389, 76 Cal.Rptr. 594 (Oil Base ), holds the statute of limitations on a claim against a liability insurer for breach of its duty to defend commences when a final judgment in underlying litigation against the insured is entered. In Central Bank v. Transamerica Title Ins. Co. (1978) 85 Cal.App.3d 859, 865-866, 149 Cal.Rptr. 822 (Central Bank ), another district of the Court of Appeal held the statute of limitations on a claim against a title insurer for breach of its duty to defend commences to run when a tender of defense has been denied and the policyholder incurs attorney fees defending his or her title. Central Bank is the only authority in California which addresses the failure to defend under a title policy.

In this case, appellants, the Israelskys, have made a claim for breach of a duty to defend which arises under their title insurance policy. Under the holding in Central Bank that claim is time-barred as a matter of law. The trial court felt itself bound by Central Bank and thus dismissed appellants' claim.

We, of course, are not bound by Central Bank. (See Swinerton & Walberg Co. v. City of Inglewood-L.A. County Civic Center Authority (1974) 40 Cal.App.3d 98, 101, 114 Cal.Rptr. 834.) More importantly we are not persuaded by its reasoning. Rather, we believe the rationale set forth in Oil Base is more compelling and we find no reason to exempt title policies from its holding. Accordingly, for the reasons we discuss below, we reverse.

FACTUAL SUMMARY

The record discloses the following undisputed facts:

In December 1982 plaintiffs Steven D. Israelsky and Kimberly Israelsky (Israelskys) agreed to purchase a home from J. Robert Schumsky and Sandra W. Schumsky (Schumskys). Prior to the sale, the Schumskys owned both the lot where the home was located and a second adjoining lot. While the sale was in escrow, the Schumskys and the Israelskys discovered that a fence, which they had believed was the western boundary of the residential lot, actually enclosed a substantial portion of the second lot. They also discovered they could not adjust the boundary between the lots to reflect their previous understanding before the scheduled close of escrow.

In lieu of a boundary adjustment, the Israelskys and the Schumskys amended their escrow instructions to provide for a sale of both lots to the Israelskys. Under the terms of the agreement, the Schumskys were given the right to obtain a boundary adjustment which would divide the two lots along the fence line. If the Schumskys were successful, the Israelskys agreed to reconvey to them the remaining portion of the second lot. Significantly the terms of the amendment gave the Schumskys six months in which to obtain the boundary adjustment from local authorities.

At the close of escrow on March 1, 1983, the Israelskys received a title insurance policy from defendant Title Insurance Company of Minnesota (TIM). The policy was issued by TIM's agent, defendant California Coast Title Co. (Cal Coast).

On April 27, 1984, the Schumskys filed a complaint against the Israelskys in the San Diego County Superior Court. The complaint alleged, among other things, that the amendment to the escrow instructions did not properly reflect the Schumskys' agreement with the Israelskys. In particular the Schumskys alleged they had never agreed to the six-month limitation on their right to adjust the boundary and receive a reconveyance.

The Israelskys asked TIM to defend them against the claims made by the Schumskys. On May 31, 1984, TIM declined the Israelskys' tender of defense.

In denying coverage of the Schumskys' claims, TIM relied upon, [212 Cal.App.3d 615] among other provisions of its policy, an exception for defects in title "created, suffered, assumed or agreed to by the insured claimant."

On July 26, 1985, the Israelskys asked TIM to reconsider its earlier decision. On September 3, 1985, TIM advised the Israelskys' counsel the company would reevaluate its decision. TIM again rejected the Israelskys' request for a defense on November 1, 1985.

PROCEEDINGS BELOW

On August 27, 1986, the Israelskys filed a complaint against TIM, one of TIM's employees, Cal Coast, and one of Cal Coast's employees. The Israelskys alleged TIM's refusal to provide a defense to the Schumskys' claims was improper and gave rise to claims for declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, negligent and intentional infliction of emotional distress, fraud, breach of fiduciary duty, violation of a statutory duty, negligence and malpractice. At the time the Israelskys' complaint was filed, the Schumsky action was still pending in superior court. ¹

TIM demurred to the Israelskys' complaint on the ground it was barred by CODE OF CIVIL PROCEDURE SECTION 339², subdivision (1), which provides a two-year statute of limitations for claims based upon a title policy. ³ The demurrer was overruled because the face of the complaint did not disclose when the Israelskys first incurred attorney fees in defending the Schumskys' complaint nor the date upon which TIM declined the Israelskys' tender of defense.

Following discovery by the parties, the Israelskys stipulated they incurred attorney fees on May 20, 1984, and that TIM rejected their tender of defense on May 31, 1984. The defendants then moved for summary judgment, again arguing the Israelskys' complaint was barred by section 339, subdivision (1). The trial court granted the defendants' motion and a judgment dismissing the Israelskys' complaint was entered. The Israelskys filed a timely notice of appeal.

DISCUSSION

The parties agree the Israelskys' claim for breach of the duty to defend is governed by section 339, subdivision (1). However, they disagree on when the period under section 339, subdivision (1), began to run. Relying on Oil Base, the Israelskys argue the statutory period did not begin until a final judgment in the Schumsky litigation was entered. Since at the time the instant claim was filed no such judgment had been entered, they contend their complaint was timely. Relying on Central Bank the defendants contend the period commenced in May 1984, when the Israelskys' request for a defense had been denied and they incurred attorney fees. In addition the defendants argue the Israelskys' claims for fraud, negligence, conspiracy and violation of the Insurance Code are also governed by Central Bank because the defendants believe these claims arise out of TIM's failure to defend. Hence, the defendants contend each of the claims set forth in the Israelskys' August 1986 complaint must be dismissed as untimely.

We agree with the Israelskys.

A. The Duty to Defend Under Liability Policies

In Oil Base the court found an insurer's duty to defend is continuing and may be assumed at any time prior to entry of a final judgment in an action on the claim. (Oil Base, supra, 271 Cal.App.2d at p. 389, 76 Cal.Rptr. 594.) The court noted that where a defendant has breached a continuing contractual duty, the statute of limitations does not commence until the time for performance has passed. (Ibid.) " ' "In the case of a continuing executory contract, if the parties do not mutually abandon and rescind it, it is optional with the plaintiff to sue immediately upon the breach or to wait until the expiration of the time designated in the contract before commencing his action." ' " (Ibid.) Accordingly the court in Oil Base held the statute of limitations on claims for breach of the duty to defend under a liability policy does not begin to run until a final judgment in the underlying action has been entered. (Ibid.)

We believe the holding in Oil Base was proper. We note initially that it conforms with the holdings in other jurisdictions which have considered the issue. (See Boyd Bros. Transp. Co., Inc. v. Fireman's Fund Ins. (M.D.Ala.1982) 540 F.Supp. 579, 582, aff'd (11th Cir.1984) 729 F.2d 1407; Kielb v. Couch (1977) 149 N.J.Super. 522, 374 A.2d 79, 81; Colpan Realty Corp. v. Great Am. Ins. Co. (1975) 83 Misc.2d 730, 373 N.Y.S.2d 802, 804 ["The breach was not complete until final dismissal for until such event defendant could have assuaged plaintiff's grief, sealed the breach and redeemed its wrong by taking up the cudgels of the action"]; Continental Casualty Co. v. Florida Power and Light Co. (1969 Fla.App. D3) 222 So.2d 58, 59, cert. den. (Fla.) 229 So.2d 867; Moffat v. Metropolitan Casualty Insurance Co. of New York (M.D.Pa.1964) 238 F.Supp. 165, 175-176; see also Paul Holt Drilling, Inc. v. Liberty Mut. Ins. Co., (10th Cir.1981) 664 F.2d 252, 255-256 ⁴; Ginn v. State Farm Mutual Automobile Insurance Co. (5th Cir.1969) 417 F.2d 119, 122; Gilbert v. American Casualty Co. of Reading Pa. (1969 Fla.App. D3) 219 So.2d 84, 86, cert. den. (Fla.) 225 So.2d 920 ⁵.)

Moreover the principles relied upon in Oil Base are well-established. The continuing nature of the duty to defend is not subject to serious question. (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 618, fn. 11, 222 Cal.Rptr. 276; Fireman's Fund Ins. Co. v. Chasson (1962) 207 Cal.App.2d 801, 807, 24 Cal.Rptr. 726; Firco, Inc. v. Firemen's Fund Ins. Co. (1959) ...