Liberty Mut. Ins. Co. v. Fales, S.F. 22914

• Decision Date: 23 January 1973
• Docket Number: S.F. 22914
• Citation: 505 P.2d 213,106 Cal.Rptr. 21,8 Cal.3d 712
• Court: California Supreme Court
• Parties: , 505 P.2d 213 LIBERTY MUTUAL INSURANCE COMPANY et al., Plaintiffs and Respondents, v. Edward FALES, Defendant and Appellant. In Bank

Page 21

106 Cal.Rptr. 21

8 Cal.3d 712, 505 P.2d 213

LIBERTY MUTUAL INSURANCE COMPANY et al., Plaintiffs and Respondents, v. Edward FALES, Defendant and Appellant.

S.F. 22914.

Supreme Court of California,

In Bank.

Jan. 23, 1973.

Harvey M. Freed, Armando M. Menocal, III, San Francisco, and James R. Thompson, San Francisco, of counsel, for defendant and appellant.

L. F. Haeberle, III, and Donald S. Britt, San Francisco, for plaintiffs and respondents.

MOSK, Justice.

Section 11580.2, subdivision (g), of the Insurance Code ¹ provides that an insurer paying a claim under an uninsured motorist endorsement in an automobile insurance policy shall be entitled to be subrogated to the rights of the insured to whom such claim was paid against the person causing the injury, to the extent that payment was made. It provides further that an action against the uninsured motorist may be brought by the insurer within three years from the date the claim was paid.

Jun Maeyama was insured by Liberty Mutual Insurance Company (hereinafter Liberty) under a policy which included uninsured motorist coverage, as required by the Insurance Code. (§ 11580.2.) On February 6, 1969, Maeyama's car was involved in an accident with a vehicle driven by defendant Edward Fales. Maeyama and a passenger in his car were both injured, and his vehicle was damaged. Fales did not have insurance.

Ten months after the accident, on December 19, 1969, Liberty paid Maeyama and his passenger damages for their personal injuries, and paid Maeyama substantially all of his property damage. ² In April 1970, 14 months after the accident, Liberty filed an action against Fales seeking reimbursement for the amounts it had paid to Maeyama and his passenger. ³ Fales challenged the constitutionality of section 11580.2, subdivision (g), in his answer. The trial court held that the section was constitutional and rendered judgment for Liberty and Maeyama.

On appeal Fales asserts, as he did at trial, that he was precluded from seeking affirmative relief in Liberty's action because of the one-year limitation upon actions for damages for personal injuries (Code Civ.Proc., § 340, subd. 3) ⁴ and that subdivision (g) of section 11580.2 is unconstitutional insofar as it allows an insurer which is subrogated to the claim of its insured to file suit against an uninsured motorist three years from the time it pays the claim, whereas the uninsured motorist is precluded from obtaining affirmative relief unless he sues within one year after the accident. We need not reach the constitutional issue raised by Fales because we conclude that an uninsured motorist is not precluded from seeking affirmative relief in these circumstances.

We are met at the threshold with a problem of mootness. After Fales submitted his opening brief to the Court of Appeal, Liberty filed in the trial court a document declaring that the judgment rendered against Fales had been satisfied. Thereafter, Liberty moved to dismiss Fales' appeal as moot, and the Court of Appeal granted the motion. Admittedly, Fales did not pay the judgment, but Liberty explains that there is no realistic possibility it could collect the amount of the judgment, and therefore it was unwilling to defend the appeal. Fales insists his appeal is not moot because the constitutionality of section 11580.2 subdivision (g), is a matter of importance and insurers have avoided a judicial determination on the question for some time by devices such as those employed here. ⁵ Liberty argues, on the other hand, that any decision rendered by this court would be ineffective as between the parties since the record discloses a satisfied judgment.

If an action involves a matter of continuing public interest and the issue is likely to recur, a court may exercise an inherent discretion to resolve that issue, even though an event occurring during its pendency would normally render the matter moot. (In re William M. (1970) 3 Cal.3d 16, 23--24, 89 Cal.Rptr. 33, 473, P.2d 737; Di Giorgio Fruit Corp. v. Dept. of Employment (1961) 56 Cal.2d 54, 58, 13 Cal.Rptr. 663, 362 P.2d 487; American Civil Liberties Union v. Board of Education (1961) 55 Cal.2d 167, 181--182, 10 Cal.Rptr. 647, 359 P.2d 45.) It is evident that the question at bar involves a matter of continuing public interest. There appears to be a substantial amount of litigation touching on the issue, ⁶ and one writer has characterized it as being 'the subject of much legal argument.' (See Elsier, California Uninsured Motorist Law (1969) p. 132.) Furthermore, appellate review has been and may continue to be thwarted by the filing of a notice of satisfaction of judgment by the insurer (as occurred here) or the acquiescence by the insurer in dismissal of the action (as occurred in other cases, see fn. 5) when the validity of section 11580.2, subdivision (g), is raised. Under all the circumstances, we reject Liberty's claim that the issue presented is moot.

We turn, then, to the merits. The purpose of the extended limitation period accorded to an insurer by section 11580.2, subdivision (g), is to protect the subrogation rights provided by that section. Under certain limited circumstances, the insurer's right to recover as subrogee would be barred before the right has accrued, but for that section. (See Interinsurance Exchange v. Harmon (1968) 266 Cal.App.2d 758, 762, 72 Cal.Rptr. 352.) Subdivision (i) of section 11580.2 provides that the insured, in order to recover from his own insurer under the uninsured motorist endorsement of the policy, must, within one year of the accident, either file an action against the uninsured motorist, reach agreement with the insurer as to the amount due under the policy, or institute arbitration proceedings. It may be that the award in arbitration will be made more than one year after the accident. Since the insurer's rights as subrogee under subdivision (g) do not arise until the insured's claim is paid and payment may not be made until more than a year after the accident, there is a distinct possibility that the insurer could lose its right to succeed to the insured's claim unless the statute of limitations on the insurer's cause of action as subrogee begins to run from the time it pays the claim rather than from the time the accident occurred. ⁷

Under settled principles, an insurer in its role as subrogee has no greater rights than those possessed by its insured, and its claims are subject to the same defenses. (Iusi v. City Title Ins. Co. (1963) 213 Cal.App.2d 582, 588, 28 Cal.Rptr. 893.) If Maeyama and his passenger has filed a timely action for personal injuries, Fales would have had the right to seek affirmative relief for any injuries he had suffered in the same collision. Thus the determinative issue is whether the Legislature intended, by the enactment of section 11580.2, subdivision (g), to afford the insurer advantages over the uninsured motorist which its own insured did not enjoy, i.e., the power, by delayed filing, to preclude the uninsured motorist from seeking affirmative relief for personal injuries by cross-claim.

We think not. The purpose of according the insurer an extended statute of limitations is not to grant the insurer privileges greater than those of its insured or to place the uninsured motorist at a disadvantage vis-a -vis the insurer, but to render it impossible for the insurer's right of subrogation to lapse before it arises. In order to effectuate this legislative intention without violating settled rules of assignment and without affording the insurer a substantial and unintended advantage over the uninsured motorist, we hold that the insurer may not rely upon the defense of the statute of limitations as to the cross-claim when its action is filed more than one year from the date of the accident. While Liberty may properly proceed against Fales pursuant to the extended statute of limitations, it may not rely upon section 340, subd. 3 of the Code of Civil Procedure to bar Fales' right to seek affirmative relief. ⁸

This conclusion is not contrary to the fundamental policy underlying enactment of statutes of limitations. Such statutes are designed to promote justice by preventing the revival of hoary claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. 'The theory is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and that the right to be free of stale claims in time comes to prevail over the right to prosecute them.' (Order of Railroad Telegraphers v. Ry. Express Agency (1944) 321 U.S. 342, 348--349, 64 S.Ct. 582, 586, 88 L.Ed. 788.)

Here Liberty sued Fales on the basis of the very accident as to which Fales desired to seek affirmative relief. That is, Liberty's aim was to prove that Fales was negligent in the accident and Fales as a matter of defense attempted to negate such a showing and, instead, to establish that it was Maeyama who was at fault. It is difficult to rationally conclude that justice would be promoted by permitting Fales to show Maeyama's negligence for the purpose of defending against the charge that he, Fales, was the party at fault, while prohibiting him from offering the very same facts for the related purpose of recovering for his personal injuries. There is no problem here regarding the tardy revival of claims after evidence has been lost or witnesses' memories faded, since Liberty was required to prove its case on the basis of the same general facts as Fales would have utilized in his quest for affirmative relief.

Moreover, insofar as limitations statutes are designed to place an opposing party on notice within a reasonable time that a claim is pending against him, the rights of the uninsured motorist under these circumstances may be, if anything, more significant than those of the insurer. The uninsured motorist need not be informed of the negotiations...