Merchants Fire Assur. Corp. of New York v. Retail Credit Co.

• Decision Date: 25 July 1962
• Citation: 206 Cal.App.2d 55,23 Cal.Rptr. 544
• Parties: MERCHANTS FIRE ASSURANCE CORPORATION OF NEW YORK, Plaintiff and Appellant, v. RETAIL CREDIT CO., Inc., Defendant and Respondent. Civ. 25729 and 25942.
• Court: California Court of Appeals Court of Appeals

Page 544

23 Cal.Rptr. 544

206 Cal.App.2d 55

MERCHANTS FIRE ASSURANCE CORPORATION OF NEW YORK, Plaintiff and Appellant, v. RETAIL CREDIT CO., Inc., Defendant and Respondent.

Civ. 25729 and 25942.

District Court of Appeal, Second District, Division 3, California.

July 25, 1962.

Irving L. Halpern, Culver City, Long & Levit, Los Angeles, and David C. Bogert, San Francisco, for appellant.

Cosgrove, Cramer, Rindge & Barnum, Los Angeles, for respondent.

FILES, Justice.

These are appeals in two cases between the same parties. The first action was dismissed after a separate trial on the statute of limitations. The second action resulted in an interlocutory judgment of abatement because of the pendency of the other action. Plaintiff has appealed from both judgments.

THE FIRST APPEAL

The following facts were assumed to be true for the purpose of the special trial:

Plaintiff is in the business of insuring property against various kinds of physical damage. Defendant is in the business of furnishing information, for a price, to insurance companies, among others. On June 27, 1957, plaintiff issued a policy insuring a certain home against all physical loss. On August 28 plaintiff ordered a report from defendant for the purpose of evaluating the risk and to determine whether to cancel the policy. On September 4, 1957, defendant furnished the report Among other things, this report stated: 'The house does not stand on filled ground.' Actually the house did stand on filled ground. Plaintiff relied upon the report and kept the insurance in force. In April 1958 a landslide of the fill occurred, causing damage to the house. On April 8, 1958, the loss was reported and on May 27, 1958, the plaintiff for the first time learned that the house had been built on filled ground. On November 18, 1958, plaintiff entered into a compromise settlement with its insured, whereby plaintiff paid out $18,750 for the loss. Plaintiff also incurred expenses amounting to $2,309.44 in adjusting the claim, including engineering and attorney's fees.

This action was filed May 23, 1960. The pleading on which plaintiff went to trial is designated 'First Amended Complaint for Negligent Misrepresentation, and Breach of Contract.' It is in two counts. The first count alleges that defendant furnished a false report, and defendant made the false statements 'negligently, in that it had no reasonable grounds for believing them to be true.' It is further alleged that plaintiff believed the statements in the report and relied on them to its damage. The second count alleged that the report was furnished pursuant to a 'written unilateral contract embodied in the following documents,' the documents then being listed. It was alleged that the report was negligently prepared, contained false statements, and thereby constituted a breach of the contract.

The answer of the defendant pleaded several defenses, one being that the action was barred by limitations as set forth in subdivision 1 of section 339 of the Code of Civil Procedure. No other statute of limitations was pleaded. A separate trial of the issue of limitations was held. A stipulation of facts was filed and various documents were received in evidence. The trial court then made findings of fact and concluded that the first count sounded in negligence, that neither cause of action was

founded upon an instrument in writing, and that both causes are barred by Code of Civil Procedure, section [206 Cal.App.2d 58] 339, subdivision 1, because not brought within two years. Judgment was entered dismissing the action.

(a) The Cause did not Accrue within Two Years.

As a general proposition the period of limitations starts to run when, under the applicable substantive law, the elements of the cause of action are complete. (See 1 Witkin, California Procedure, 614; 31 Cal.Jur.2d, Limitation of Actions, § 32.) In this case the breach of contract, if any, occurred when the report was delivered. The tort cause of action may not have arisen until the landslide, upon the theory that there is no cause of action in tort for nominal damages. (Walker v. Pacific Indemnity Co., 183 Cal.App.2d 513, 517, 6 Cal.Rptr. 924.) When the landslide occurred in April 1958 plaintiff became unconditionally liable to its assured for the amount of the physical damage to the assured's home. This supplied the element of damage which made the tort cause of action complete. This occurred more than two years prior to the commencement of the action.

Plaintiff argues that the period of limitations should run from discovery. It is true that there are a number of exceptional situations in which the period runs from discovery. (See cases collected in 1 Witkin, California Procedure, 616.) Plaintiff fails to bring itself within any of the exceptions. Aced v. Hobbs-Sesack Plumbing Co., 55 Cal.2d 573, 12 Cal.Rptr. 257, 360 P.2d 897, involved a warranty in connection with the sale and installation of certain tubing. The Supreme Court construed the warranty to be prospective in character, and not breached until the tubing failed. In the present case plaintiff did not allege that defendant made any promise which could be construed as a prospective warranty. The alleged promise was to furnish a report of a certain quality, and the alleged breach was the furnishing of the report which was delivered on September 4, 1957. This report, unlike the tubing, did not deteriorate later. It was not claimed that the defendant made any promise or warranty concerning the house, for the alleged contract related only to the quality of the report

The medical malpractice cases cited by plaintiff are not analogous. In this case there is no continuing fiduciary relationship nor any concealment of acts done, which often suspend the running of the statute in the malpractice cases. Thus, for example, in Stafford v. Shultz, 42 Cal.2d 767, 270 P.2d 1, relied upon by plaintiff here, the Supreme Court held the first cause of action in the complaint was barred because the statutory period had run from the date of the malpractice (42 Cal.2d at 775, 270 P.2d 1) but held that the second cause of action was not barred, where plaintiff added allegations charging defendants with fraudulent concealment of his condition and falsely representing that it was reasonable to expect a cure. That case does not support plaintiff's hypothesis that ignorance alone will toll the period of limitations, either for negligence or for breach of contract.

Plaintiff also contends that the cause of action did not arise until plaintiff paid the damages to its assured, citing Walker v. Pacific Indemnity Co., 183 Cal.App.2d 513, 6 Cal.Rptr. 924. In that case the defendant insurance broker had agreed to procure for Merrill a liability insurance policy with limits up to $50,000. Through negligence he procured a $15,000 policy. Merrill was involved in an accident, was sued, and eventually suffered a $35,000 judgment taken against him, for which he had only $15,000 insurance coverage. When the broker was sued for his negligence, the statute of limitations was held to run from the date when the $35,000 verdict was returned against Merrill. The reason was that until the jury came in against Merrill, it could not be determined that Merrill was damaged at all. Had the verdict not exceeded $15,000, Merrill would not have been damaged

by the broker's negligence and would have had no cause of action against the broker. The reasoning of the Walker case, applied here, supports the conclusion that the cause of action arose at the time of the landslide, because that was the event which made it certain that plaintiff would take a loss.

(b) The Action is not Founded on an Instrument in Writing.

At the conclusion of the trial the court made the following finding:

'The documents in evidence do not constitute or express any obligation, the nonperformance of which plaintiff alleges in either the first or second cause of action of the first amended complaint.'

The documents in evidence inclued the following:

(1) A document dated July 25, 1929, headed, 'Protective Agreement.' This was in the form of a printed letter addressed to defendant and signed by plaintiff. By its terms plaintiff agreed that the reports furnished would be treated in confidence; that neither the verity nor accuracy of information is guaranteed; that plaintiff agrees to release defendant from any claim for any loss that may occur to it through reports furnished.

(2) Printed letters and folders issued by defendant explaining the necessity of keeping reports confidential to avoid legal hazards.

(3) Plaintiff's written request for a report on the property involved here.

(4) The report.

This evidence fully supports the trial court's finding. Nothing in any of these douments constitutes a promise to deliver a report, or a promise that reports will be of a particular quality. The only reasonable conclusion is that either this was a unilateral transaction, i. e., defendant did an act in exchange for plaintiff's promise to pay (see Restatement, Contracts, § 12), or else the promise of defendant was made orally as a part of a bilateral transaction.

Plaintiff would read out of context a portion of what is written in one of the folders on confidential handling of reports. The language there is:

'It is not possible to guarantee reports inasmuch as information in them is obtained from fallible human sources. However, a high degree of accuracy is maintained.'

Plaintiff argues that the last eight words of that warning constitute a part of a contract to produce accurate reports. In view of the context, the trial judge was entirely justified in concluding that this was not intended as a written contract warranting accuracy in every report.

Such decisions as Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198, 68 A.L.R.2d 883, do not assist plaintiff. The defendant in that case had obligated itself to perform a written insurance contract. The...