Vu v. Prudential Property & Cas. Ins. Co.

• Citation: 113 Cal.Rptr.2d 70,33 P.3d 487,26 Cal.4th 1142
• Decision Date: 05 November 2001
• Docket Number: No. S078271.,S078271.
• Court: California Supreme Court
• Parties: Peter VU, Plaintiff and Appellant, v. PRUDENTIAL PROPERTY & CASUALTY INSURANCE COMPANY, Defendant and Respondent.

113 Cal.Rptr.2d 70

26 Cal.4th 1142

33 P.3d 487

Peter VU, Plaintiff and Appellant, v. PRUDENTIAL PROPERTY & CASUALTY INSURANCE COMPANY, Defendant and Respondent.

No. S078271.

Supreme Court of California.

November 5, 2001.

Gruber & Kantor, Glenn R. Kantor, Daniel S. Gruber, Encino, Lisa S. Kantor, Northridge, and Sara Smith Ray, for Plaintiff and Appellant.

Bill Lockyer, Attorney General, Timothy G. Laddish, Assistant Attorney General, Randall P. Borcherding, Deputy Attorney General for the State Insurance Commissioner as amicus curiae on behalf of Plaintiff and Appellant.

James T. Linford, San Francisco, as amicus curiae on behalf of Plaintiff and Appellant.

Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, Janice A. Ramsay, James F. Henshall, Jr., William Wraith, Craig S. Simon, Irvine; Sonnenschein, Nath & Rosenthal, Ronald D. Kent and Susan M. Walker, Los Angeles, for Defendant and Respondent.

Robie & Matthai, Pamela E. Dunn, Los Angeles, and Daniel J. Koes, for the Personal Insurance Federation of California as amicus curiae on behalf of Defendant and Respondent.

Lewis, D'Amato, Brisbois & Bisgaard, Raul L. Martinez, Richard B. Wolf and Elise D. Klein, Los Angeles, for California FAIR Plan Association as amicus curiae on behalf of Defendant and Respondent.

Luce, Forward, Hamilton & Scripps, Peter H. Klee, San Diego, and Marc J. Feldman, Los Angeles, for the National Association of Independent Insurers as amicus curiae on behalf of Defendant and Respondent.

Sonnenschein, Nath & Rosenthal, Ronald D. Kent and Susan M. Walker, Los Angeles, for the Association of California Insurance Companies as amicus curiae on behalf of Defendant and Respondent.

Horvitz & Levy, Mitchell C. Tilner and Lisa Perrochet, Encino, for 21st Century

Insurance Company and Truck Insurance Exchange as amici curiae.

James Osborne & Associates and W. James Osborne as amicus curiae.

Nielsen, Merksamer, Parrinello, Mueller & Naylor and Richard D. Martland, Mill Valley, for the California Chamber of Commerce and California Manufacturers Association as amici curiae.

Barger & Wolen and Kent R. Keller, Los Angeles, for Century National Insurance Company, the National Association of Independent Insurers and the Association of California Insurance Companies as amici curiae.

Robinson, Calcagnie & Robinson and Sharon J. Arkin, Newport Beach, for United Policyholders as amicus curiae.

Fred J. Hiestand, Sacramento, for the Civil Justice Association of California as amicus curiae.

KENNARD, J.

In a case involving an insurance claim for damages caused by the 1994 Northridge earthquake, the United States Court of Appeals for the Ninth Circuit certified the following question to this court: "Where an insured presents a timely claim to his insurer for property damage under a policy, and the insurer's agent inspects the property but does not discover the full extent of covered damage, does California Insurance Code § 2071 bar a claim brought by the insured more than one year after the damage was sustained but within one year of his discovery of the additional damage? Or, to put the matter differently, does Neff v. New York Life Ins. Co., 30 Cal.2d 165, 180 P.2d 900 (1947), remain good law?" (Vu v. Prudential Property & Cos. Ins. Co. (9th Cir. 1999) 172 F.3d 725, 727.)¹

In answering this question, we explain below that Neff's holding that an unconditional denial of coverage commences the running of the one-year statute of limitation of Insurance Code section 2071 remains good law. On the facts of this case, however, Prudential may be estopped to raise the statute of limitations defense if the insured can show that he refrained from bringing a timely action because he reasonably relied on the insurer's factual misrepresentation that his damages were less than his policy's deductible amount. We do not decide whether the federal district court erred in sustaining defendant insurer's motion for summary judgment. That task remains for the United States Court of Appeals, aided, we hope, by the views expressed in this opinion.

I. THE NINTH CIRCUIT'S CERTIFICATION

The Northridge earthquake struck at 4:31 a.m. on January 17, 1994. It had an estimated magnitude of 6.7 or 6.8 on the Richter Scale. Many residences and commercial buildings were damaged. One report estimated that 450,000 insurance claims were paid, totaling $12.5 billion. (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 1899 (1999-2000 Reg. Sess.) p. 2.) Another estimated that some 600,000 claims were paid, and put the damage figure at $15.3 billion. (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 1899 (1999-2000 Reg. Sess.) p. 4.) Many other claims were rejected, often on the basis of the statute of limitations. (Sen. Com. on Ins., Rep., Department of Insurance: In Rubble After Northridge (Aug. 28, 2000) p. 9.) More than 2,000 complaints were filed with the California Insurance Commissioner. (Assem. Com. on Insurance, Rep. on Dept. of Ins., Northridge Earthquake (2000) p. 26.) The Legislature later undertook an extensive investigation of the California Department of Insurance, its handling of these complaints, and its settlements with various insurers. (See generally Sen. Com. on Ins., Rep., Department of Insurance: In Rubble After Northridge, supra.) The rejected claims have also engendered considerable litigation and generated five published opinions in the federal district court. (Campanelli v. Allstate Ins. Co. (C.D.Cal.2000) 85 F.Supp.2d 980; Vashistha v. Allstate Ins. Co. (C.D.Cal.1997) 989 F.Supp. 1029; Ward v. Allstate Ins. Co. (C.D.Cal.1997) 964 F.Supp. 307; Sullivan v. Allstate Ins. Co. (C.D.Cal.1997) 964 F.Supp. 1407; Hill v. Allstate Ins. Co. (C.D.Cal.1997) 962 F.Supp. 1244.)

The opinion of the Ninth Circuit succinctly summarized the facts and proceedings leading to its order of certification in this case:

"Peter Vu was one of countless insureds who suffered damage to his home as a result of the infamous Northridge earthquake of January 17, 1994. At the time of the earthquake, Vu maintained a homeowner's insurance policy with Prudential Property and Casualty Insurance Company. The policy included an endorsement for earthquake damage, covering $300,000.00 for his dwelling and $30,000.00 for appurtenant structures. A separate 10% deductible applied to each coverage. As required by California Insurance Code § 2071, Vu's policy contained a one-year suit clause providing that `[n]o action can be brought unless ... the action is started within one year after the date of loss.' Cf. Cal. Ins.Code § 2071 (`No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity ... unless commenced within 12 months next after inception of the loss.'). Within a few days of the earthquake, Vu contacted Prudential to report that his home had sustained observable damage, which included cracks in his walls and ceilings. An adjuster sent by Prudential inspected Vu's home on January 26 and informed him that he was entitled to $2,500 for damage to appurtenant structures, but that the damage to his home was only $3,962.50, an amount significantly below the policy deductible. On January 30, Prudential paid Vu for the appurtenant-structure damage.

"Relying on Prudential's inspection and denial of his claim, Vu took no further action until August 1995 when he discovered substantial additional damage that had been caused by the earthquake. In September 1995, some twenty months after Prudential had effectively denied Vu's claim for damage to his home, an appraiser hired by Vu estimated that the earthquake damage to Vu's home far exceeded the $30,000 deductible.² Vu promptly informed Prudential and requested coverage for this newly discovered damage. Prudential declined on the ground that the one-year statute of limitations on actions for recovery of claims had expired.

"Two and a half years after Prudential had resolved Vu's original claim, but less than a year after Vu discovered the additional damage, Vu filed suit in federal district court. Vu alleged that Prudential was estopped from invoking the one-year statute of limitations because his failure to bring an action within one year was the direct result of his reasonable reliance on Prudential's January 1994 inspection, and on Prudential's representation that the damage to his home fell below the $30,000 deductible. The district court granted Prudential's motion for summary judgment, holding that the one-year statute of limitations acted as a bar to Vu's breach-of-contract claim and to his second claim for breach of the implied covenant of good faith and fair dealing. Vu timely appealed." (Vu v. Prudential Property & Cas. Ins. Co., supra, 172 F.3d at pp. 727-728, italics omitted.)

II. THE STATUTE OF LIMITATIONS ON INSURANCE CLAIMS

The ordinary statute of limitations for breach of a written contract is four years. (Code Civ. Proc., § 337.) Insurance claims for property damage, however, have a one-year limitation period. (Ins.Code, § 2071.) We explained: "The short statutory limitation period ... is the result of long insistence by insurance companies that they have additional protection against fraudulent proofs, which they could not meet if claims could be sued upon within four years as in the case of actions on other written instruments. (Code Civ. Proc., § 337.) Originally, the shortened limitation periods were inserted into policies by insurers. Some courts declared such provisions void as against public policy while other courts enforced them in order to protect freedom of contract." (Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 407, 154 P.2d 399.) In 1909, the California Legislature intervened in favor of a shortened period of limitation by enacting the predecessor to Insurance Code section 2071 to impose a 15 month limitation on claims under fire insurance policies. (Stats.1909, ch. 267, § 1, p. 409.) The statute was...