Stanton Road Associates v. Pacific Employers Ins. Co.

• Decision Date: 28 February 1995
• Docket Number: Nos. A060822,A064753,s. A060822
• Court: California Court of Appeals Court of Appeals
• Parties: , 95 Daily Journal D.A.R. 8642 STANTON ROAD ASSOCIATES, Plaintiff and Appellant, v. PACIFIC EMPLOYERS INSURANCE COMPANY et al., Defendants and Respondents.

Page 1

43 Cal.Rptr.2d 1

36 Cal.App.4th 333, 95 Daily Journal D.A.R. 8642

STANTON ROAD ASSOCIATES, Plaintiff and Appellant, v. PACIFIC EMPLOYERS INSURANCE COMPANY et al., Defendants and Respondents.

Nos. A060822, A064753.

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

Feb. 28, 1995.

Peter Anderson, Steven L. Hock, Michelle R. Harbottle, Thelen, Marrin, Johnson & Bridges, San Francisco, for plaintiff and appellant.

James L. Wraith, Michael K. Johnson, Larson & Burnham, Oakland, Larry E. Lulofs, Karen D. Marcus, Richmond, Morton, Lulofs & Allen, Oakland, James T. Ferrini, Stephen D. Marcus, James R. Swinehart, Susan Condon, Clausen, Miller, Gorman, Caffrey & Witous, P.C., Chicago, IL, Martin S. Checov, Jennifer L. Isenberg, O'Melveny & Myers, San Francisco, for defendants and respondents.

Lisa E. Lear, Douglas G. Houser, Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, OR, M. Taylor Florence, Bullivant, Houser, Bailey, Pendergrass & Hoffman, Rancho Cordova, for amicus curiae on behalf of respondents.

CORRIGAN, Associate Justice.

Stanton Road Associates (Stanton), a limited partnership, appeals from two judgments entered after the trial court sustained the demurrers of three insurers without leave to amend and granted summary adjudication in favor of a fourth. We ordered the appeals consolidated and now affirm both judgments.

BACKGROUND

This case involves a continuous property loss and claims made against multiple insurance companies that, concurrently or successively, provided first-party property coverage for real property located at 860 Stanton Road in Burlingame. Stanton seeks to recover from defendant insurers damages caused by environmental contamination from an adjacent dry-cleaning plant.

At all times relevant until September 1986, the Stanton Road property was owned by the Curley Bates Company. The property was insured by three different insurers during that period: St. Paul Surplus Lines Insurance Company (St. Paul) from April 1, 1983, through July 1, 1986; Integrity Insurance Company (Integrity) ¹ from July 1, 1983, through July 1, 1986; and United National Insurance Company (United National) from July 1, 1984, through July 1, 1986.

Stanton was formed and the Stanton Road property transferred to it in September 1986. Pacific Employers Insurance Company (Pacific) issued a policy covering the property effective October 1, 1986, which was canceled for nonpayment of premiums effective March 6, 1988.

Stanton discovered the property was contaminated in August 1988, when it learned that soil samples taken by a prospective purchaser the previous August had been found to contain hazardous substances. In its third amended complaint, the operative pleading here, Stanton alleged as follows: "[T]he contamination of the Stanton Road Property occurred over a number of years preceding Stanton's discovery of the loss in August of 1988. Stanton was delayed in discovering the contamination because the contamination unobtrusively affected the soil and groundwater of the Stanton Road Property, the contamination was caused by the illicit and secretive release of contaminants by an adjoining landowner, the contamination occurred In February or March of 1989, Stanton gave notice of the loss to St. Paul, United National, Integrity, and Pacific. On November 1, 1989, Stanton filed this action against each of the insurers, alleging causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief. Stanton subsequently amended its complaint three times, each time alleging that it first discovered the loss in August of 1988.

in an untravelled and unused alley between the Stanton Road Property and the adjoining landowner, and the contamination was caused by individuals who were unrelated to Stanton and beyond Stanton's control. The contamination of the Stanton Road Property was not obvious or readily apparent to Stanton and in fact could only be discovered by soil and water sampling. Stanton was delayed in finding out about the samples taken in August of 1987 because the prospective purchaser was acting independently of Stanton in taking the samples and did not inform Stanton that the samples were being taken. For all of these and other reasons, Stanton's delay in discovering the contamination, and the loss caused thereby, was reasonable." (Italics added.)

United National, St. Paul, and CIGA demurred to the third amended complaint, arguing that (1) Stanton lacked standing, and (2) the complaint was barred by the one-year statute of limitations provided by Insurance Code section 2071 ² and the insurance contracts. The superior court agreed on both grounds and sustained the general demurrers without leave to amend. Stanton filed a timely appeal from the ensuing judgment.

Pacific subsequently moved for summary adjudication of Stanton's first-party insurance claims against it. The court granted the motion on the ground that Stanton's losses manifested after Pacific's policy had lapsed. Stanton dismissed its remaining causes of action against Pacific and filed a timely appeal. We ordered the appeals consolidated and address them, in turn, below.

DISCUSSION

I. Prudential-LMI Com. Insurance v. Superior Court

Because the dispositive law on both appeals is stated in Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230 (hereafter Prudential-LMI ), we discuss the case in some detail.

Prudential-LMI, like this case, involved progressive damage to property insured over the years by successive insurers. The plaintiffs had insured their property with four different insurers between 1971 and 1986. In November 1985, while replacing floor covering, they discovered an extensive crack in the foundation and floor slab of their building. (Prudential-LMI, supra, 51 Cal.3d at p. 680, 274 Cal.Rptr. 387, 798 P.2d 1230.) Prudential-LMI denied the plaintiffs' claim and, when sued, sought summary judgment on the grounds, inter alia, that: (1) it was not liable on the loss because its policy had expired in 1980, more than five years before the plaintiffs' discovery, and (2) the action was barred by the one-year statutory and contractual limitations period. (Id. at pp. 679-681, 274 Cal.Rptr. 387, 798 P.2d 1230; see Ins. Code, § 2071.) The Court of Appeal issued a writ of mandate directing summary judgment in favor of the insurer. (51 Cal.3d at p. 681, 274 Cal.Rptr. 387, 798 P.2d 1230.)

Addressing the first of these arguments, the Supreme Court adopted the "manifestation rule" for allocating indemnity between successive first-party property insurers for progressive losses spanning multiple policy periods. (Prudential-LMI, supra, 51 Cal.3d at pp. 678-679, 699, 274 Cal.Rptr. 387, 798 P.2d 1230.) Under the manifestation rule, liability for a progressive loss falls solely on the insurer on the risk at the time the loss manifests, i.e., at "that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered." (Id. at p. 699, 274 Cal.Rptr. 387, 798 P.2d 1230.)

The court further held the standard one-year limitation period on first-party insurance suits begins to run on the date of "inception" of the loss, which, it held, is the same as the date of manifestation. (Prudential-LMI, supra, 51 Cal.3d at pp. 678, 686-687, 699, 274 Cal.Rptr. 387, 798 P.2d 1230.) This limitation period is equitably tolled, however, "from the time the insured files a timely notice ... to the time the insurer formally denies the claim in writing." (Id. at pp. 678, 687-691, 274 Cal.Rptr. 387, 798 P.2d 1230.)

Based on these principles, the Supreme Court concluded the plaintiffs should be allowed to amend their complaint to allege, if they could, that their delayed discovery of the loss was reasonable and their claim timely filed. (Prudential-LMI, supra, 51 Cal.3d at p. 700, 274 Cal.Rptr. 387, 798 P.2d 1230.) In so doing, the court acknowledged that the record on appeal indicated manifestation had occurred in 1985, after Prudential-LMI's policy had expired. If so, of course, Prudential-LMI was not liable: "Whether Prudential must then indemnify plaintiffs for any covered claim under the policy necessarily depends on whether that insurer was the carrier of record on the date of manifestation of the loss." (Ibid., italics added.) However, noting that the plaintiffs had joined other insurers and that the record on appeal did not conclusively establish the date of manifestation, the court expressly declined to speculate as to the date manifestation of loss occurred. (Ibid.) ³

With these principles in mind, we turn to the specifics here.

II. The Demurrers Were Properly Sustained Under Prudential-LMI

As noted above, the trial court sustained the demurrers of United National, St. Paul, and CIGA (sued on the Integrity policy, ante, fn. 1), in part on the ground that Stanton's claims against these insurers were time barred by the policies' contractual and statutory one-year limitation provision. ⁴ We agree, both for the court's stated reason and because Stanton's allegations establish that its loss manifested after these policies had expired.

A. Standard of Review

A general demurrer "searches the complaint" for a failure to state a cause of action as a matter of law. (Banerian v. O'Malley (1974) 42 Cal.App.3d 604, 610-611, 116 Cal.Rptr. 919.) On review from an order sustaining a general demurrer, "[w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts...