Northwest Airlines v. Ontario Aircraft

• Decision Date: 24 December 2002
• Docket Number: No. B156158.,B156158.
• Court: California Court of Appeals Court of Appeals
• Parties: NORTHWEST AIRLINES, INC., Plaintiff and Appellant, v. ONTARIO AIRCRAFT SERVICES, INC., Defendant and Respondent.

129 Cal.Rptr.2d 146

104 Cal.App.4th 1053

NORTHWEST AIRLINES, INC., Plaintiff and Appellant, v. ONTARIO AIRCRAFT SERVICES, INC., Defendant and Respondent.

No. B156158.

Court of Appeal, Second District, Division 5.

December 24, 2002.

Review Granted April 9, 2003.

Rintala, Smoot, Jaenicke & Rees, Robert A. Rees and Robert W. Hodges, Los Angeles, for Plaintiff and Appellant.

Shaw, Terhar & LaMontagne, John W. Shaw, Los Angeles, and Eric A. Amador for Defendant and Respondent.

MOSK, J.

Plaintiff and appellant Northwest Airlines, Inc. (Northwest) alleged in its complaint that an insurer, Great American, breached its obligation required by a regulation to inform Northwest of the statute of limitations applicable to its claim against Great American's insured, Ontario Aircraft Services, Inc. (Ontario). After the period of the applicable statute of limitations expired, Northwest filed its action against Ontario claiming that Ontario is estopped from raising the statute of limitations based on its insurer's (Great American's) failure to comply with its obligation to inform Northwest of the applicable statute of limitations. The trial court sustained Ontario's demurrer without leave to amend on the grounds that the statute of limitations barred the action and that Ontario was not estopped to invoke the statute of limitations. We reverse the trial court's judgment and hold that the insurer's failure to comply with its obligation by regulation to inform a third party claimant of the statutory time limits pertaining to the claim may estop the insured from relying on the applicable statute of limitations in defense of the third party claim against the insured.

FACTUAL AND PROCEDURAL BACKGROUND¹

On November 1, 1997, an airplane towed by Ontario's employee struck and damaged Northwest's airplane. Northwest submitted a claim to Ontario for the damages. Great American, Ontario's insurer, admitted liability but challenged the reasonableness of the damage claim. Great American and Northwest's Risk Management Department agreed to mediate the dispute, but the mediation never took place.

On October 31, 2001, more than three years after Northwest's plane was damaged, Northwest filed a complaint for damages against Ontario in an amount of not less than $336,000. Code of Civil Procedure section 338, subdivision (c), provides for a three-year statute of limitations for actions based on "injuring any goods or chattels." Northwest alleged that it was being represented by its "Risk Management Department" in its negotiations with Great American, and that Ontario was estopped to assert a statute of limitations defense because Ontario failed to comply with its obligation under California Code of Regulations, title 10, section 2695.7, subdivision (f),² to advise Northwest of any statute of limitations applicable to Northwest's claim. The allegations of the complaint may be interpreted to mean that Ontario was estopped to assert the statute of limitations because its insurer, Great American, while acting on Ontario's behalf, failed to give notice of the statute of limitations to Northwest in violation of that applicable regulation.³ Ontario demurred to the complaint on the sole ground that the statute of limitations barred Northwest's claim. The trial court sustained the demurrer without leave to amend.⁴

DISCUSSION

1. Standard of Review

We review de novo an order sustaining a demurrer without leave to amend. We "`treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.]'" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) Also, whether the complaint alleges facts sufficient to show that defendant is estopped from asserting a defense of statute of limitations as an affirmative bar to the action is a question of law. (See Ard v. County of Contra Costa (2001) 93 Cal.App.4th 339, 347-348, 112 Cal.Rptr.2d 886.)

2. Great American was required by regulation to inform Northwest of any statute of limitations or other time period requirement that could bar Northwest's Claim.

The purpose of the California Unfair Practices Act (Ins.Code, § 790 et seq.)⁵ is to "regulate trade practices" and prohibit "unfair or deceptive acts or practices" in the insurance business. (Ins.Code, § 790.) Insurance Code section 790.10 authorizes the Insurance Commissioner to promulgate any reasonable rules or regulations necessary to administer the Unfair Practices Act. (Ins.Code, § 790.10; see also Spray, Gould & Bowers v. Associated Intermit. Ins. Co. (1999) 71 Cal.App.4th 1260, 1269, 84 Cal.Rptr.2d 552 (Spray).) To establish means to prevent unfair insurance claims practices, the Insurance Commissioner promulgated the Fair Claims Settlement Practices Regulations. (§ 2695.1 et seq. (the Regulations).)

Section 2695.4, subdivision (a), requires an insurer to disclose to a "first party claimant"—i.e., one who asserts a right under an insurance policy as a named insured (§ 2695.2, subd. (f))—any time limits of any insurance policy issued by the insurer that may apply to the claim.⁶ Section 2695.7, subdivision (f) (the Regulation) requires an insurer to give a "claimant" "written notice of any statute of limitations or other time period requirement upon which the insurer may rely to deny a timely claim."⁷ The notice must be given not less than 60 days prior to the expiration date. The Regulations define "claimant" to include a first party claimant and a third party claimant. (§ 2695.2, subd. (c).) A third party claimant is one who asserts a claim against a named insured under an insurance policy. (§ 2695.2, subd. (x).) The Regulation does not "apply to a claimant represented by counsel on the claim matter." (§ 2695.7, subd. (f).)

For purposes of this appeal, there is no dispute that Great American had a duty under section 2695.7, subdivision (f), to inform a "third party claimant"—here Northwest—of any statute of limitations or other time period requirement upon which the insurer or insured may rely to deny a claim. The notification requirements are not limited to contractual periods of limitations applicable to first party claimants. The Regulation refers to a time period requirement "upon which the insurer may rely to deny a timely claim." (Italics added.) In the context of a third party claim, in which only the insured is a party that would rely on a statute of limitations defense, the Regulation must be referring to a time period upon which the insurer on behalf of the insured or the insured may rely. And the reliance referred to must be to a time period requirement that would bar an otherwise timely claim.

The "unmistakable duty to advise" of applicable time limits is part of the Regulations "expressly authorized by Insurance Code section 790.10." (Spray, supra, 71 Cal.App.4th at p. 1269, 84 Cal.Rptr.2d 552.) There is no contention that the Regulations were not duly promulgated. The purpose of such notice provisions is "to foster equity, fairness, and plain-dealing in claims handling." (Ibid.)

Similar notice provisions have been statutorily applied so as to "`prevent a claimant from being lulled into a sense of complacency about filing his suit because of the apparent cooperativeness of the defendant or his insurance company. . ..'" (Associated Truck Parts, Inc. v. Superior Court (1991) 228 Cal.App.3d 864, 868, 279 Cal.Rptr. 76 [interpreting Insurance Code section 11583 so as to toll the statute of limitations if the insurer failed to notify the recipient of a partial payment of the statute of limitations applicable to the cause of action]; accord, Llanera v. M & S Pipe Supply Co. (1979) 92 Cal.App.3d 332, 336-337, 154 Cal.Rptr. 704; Evans v. Dayton Hudson Corp. (1991) 234 Cal.App.3d 49, 54, 285 Cal.Rptr. 550.)

3. The failure to comply with the regulations can result in an estoppel to rely on the statute of limitations.

a. Estoppel

Equitable estoppel or estoppel in pais is a well-established doctrine that "prevent[s] one from taking an unfair advantage of another" (Peskin v. Phinney (1960) 182 Cal.App.2d 632, 636, 6 Cal.Rptr. 389) and "rests firmly upon a foundation of conscience and fair dealing." (City of Long Beach v. Mansell (1970) 3 Cal.3d 462, 488, 91 Cal.Rptr. 23, 476 P.2d 423.)

"Estoppel applies to prevent a person from asserting a right where his conduct or silence makes it unconscionable for him to assert it." (In re Marriage of Recknor (1982) 138 Cal.App.3d 539, 546, 187 Cal.Rptr. 887.) An estoppel can be based on silence when there is a duty to speak. (Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 154 P.2d 399; People v. Ocean Shore Railroad (1948) 32 Cal.2d 406, 421-22, 196 P.2d 570; Skulnick v. Roberts Express, Inc. (1992) 2 Cal. App.4th 884, 891, 3 Cal.Rptr.2d 597; Elliano v. Assurance Co. of America (1970) 3 Cal.App.3d 446, 451, 83 Cal.Rptr. 509.) Estoppel is not dependent on a bad faith intent; it can be based on negligence. (Crumpler v. Board of Administration, (1973) 32 Cal.App.3d 567, 582, 108 Cal. Rptr. 293.) The California Supreme Court said, "`An estoppel may arise although there was no designed fraud on the part of the person sought to be estopped. [Citation.] To create an equitable estoppel, "it is enough if the party has been induced to refrain from using such means or taking such action as lay in his power, by which he might have retrieved his position and saved himself from loss." ". . . Where the delay in commencing action is induced by the conduct of the defendant it cannot be availed of by him as a defense."' [Citations.]" (Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1152-1153, 113 Cal.Rptr.2d 70, 33 P.3d 487.)

The estoppel doctrine can preclude a party from relying upon a statute of limitations defense even when the Legislature has provided that the period of Hmitations may not be tolled. (Battuello v. Battuello (1998) 64 Cal.App.4th 842, 847, 75 Cal.Rptr.2d 548 (Battuello...