Zuckerman v. Transamerica Ins. Co., 15661

• Decision Date: 26 July 1982
• Docket Number: No. 15661,15661
• Citation: 650 P.2d 441,133 Ariz. 139
• Parties: Raymond ZUCKERMAN and Gerald Zuckerman, Plaintiffs-Appellees, v. TRANSAMERICA INSURANCE COMPANY, a corporation, Defendant-Appellant.
• Court: Arizona Supreme Court

Page 441

650 P.2d 441

133 Ariz. 139

Raymond ZUCKERMAN and Gerald Zuckerman, Plaintiffs-Appellees, v. TRANSAMERICA INSURANCE COMPANY, a corporation, Defendant-Appellant.

No. 15661.

Supreme Court of Arizona, In Banc.

July 26, 1982.

Rehearing Denied Sept. 14, 1982.

Gust, Rosenfeld, Divelbess & Henderson by Richard A. Segal, Phoenix, for defendant-appellant.

Fred J. Pain, Jr., Phoenix, for plaintiffs-appellees.

FELDMAN, Justice.

Transamerica appeals from the judgment of the trial court which awarded the plaintiff, Zuckerman, damages on a fire loss claim. We assumed jurisdiction pursuant to Rule 19(e), Rules of Civil Appellate Procedure, 17A A.R.S.

On July 27, 1975, a fire substantially destroyed property belonging to the plaintiff, Zuckerman. Transamerica had covered Zuckerman for fire loss by a policy which contained a clause requiring that any action for recovery on a claim insured under the policy must be commenced within twelve months "after inception of the loss." ¹ Within the one-year period, Zuckerman consulted counsel and also negotiated directly with Transamerica's adjuster. The adjuster informed Zuckerman that the loss was covered and that the company would pay the claim. Subsequently, it was agreed that the payment would be equal to the lowest of the three damage estimates that were to be obtained. The lowest estimate was $9,417.87. Accordingly, Zuckerman informed his attorney that he had reached a settlement agreement with the adjuster. This information was confirmed by the adjuster, who told the attorney that a draft would be forwarded for an amount equal to the lowest estimate.

A dispute then arose. Because Zuckerman did not intend to use the insurance proceeds to rebuild, the company took the position that the policy permitted it to reduce the settlement to "actual cash value," subject to a depreciation factor and excluding contractor's overhead and profit, sales tax, building permit fees and like items. ² By letter of October 14, 1975, the company tendered a draft in the amount of $6,247.76 and notified Zuckerman's lawyer that "[i]n the event the building is repaired at some future date, we will at that time, after inspection of same, issue our draft for the difference...." It also indicated that Zuckerman had failed to file a proof of loss form as required by the policy and gave Zuckerman fifteen days from that date in which to comply with this requirement. Zuckerman's lawyer refused the tender, demanding the full $9,417.87 settlement.

On December 15, 1975, the company advised Zuckerman that it had received a document purporting to be a proof of loss from his attorney and claimed that the document was "DEFICIENT" in nine separate respects. Transamerica stated that the proof of loss form was "hereby rejected and refused as compliance with contract terms, and is enclosed herein for your disposal." ³ Therefore, Transamerica concluded, it "neither admits nor denies liability for any loss which may have occurred...." Nevertheless, Transamerica concluded its letter of December 15 by informing Zuckerman that "[i]n the interest of fairness, we will maintain [sic] to honor our offer ... in the amount of [$6,247.76]...."

Between December 15, 1975 and the summer of 1976, Zuckerman's attorney and the adjuster had several conversations regarding settlement of the claim. The adjuster's position was that the insurer was not required to pay the entire amount of the agreed settlement if Zuckerman was not going to rebuild. The lawyer stood on the settlement amount.

Finally, on September 30, 1976, approximately three months after expiration of the one-year policy limitation period, Zuckerman filed an action against Transamerica. The action was not brought on the settlement agreement, but rather for recovery of the loss under the policy coverage. After trial to the court, judgment was awarded to Zuckerman in the amount of $11,960. Transamerica appeals, and claims that the action was barred by the one-year limitation provision contained in the policy. Nevertheless, Transamerica acknowledges that it is willing to pay its insured the sum of $6,247.76, which was previously tendered in its offer of October 14, 1975. Since the case was tried without a jury and neither party requested findings of fact or conclusions of law, we must sustain the judgment below on any legal theory which is supported by the evidence. Nicholas v. Giles, 102 Ariz. 130, 133, 426 P.2d 398, 401 (1967).

Zuckerman claims that the judgment can be supported on the theory that the trial court found that Transamerica was estopped to raise the defense of failure to file within the one-year period required by the policy. ⁴ This estoppel, Zuckerman claims, was based upon the continued negotiations of the parties with regard to whether Transamerica would pay the agreed settlement and the adjuster's statement to Zuckerman's lawyer that "you don't have to end up in court." Transamerica responds to this argument by pointing out that after unilaterally reducing the settlement it had clearly told the lawyer that it would never pay more than $6,247.76 and that the lawyer knew he would have to "end up in court" unless his client was willing to take the offer. In fact, "negotiations" were at a stalemate. Transamerica never offered or negotiated toward payment of more than the offer of $6,247.76.

Policy provisions such as that in question here have been held enforceable in Arizona. Wells-Stewart Construction Co., Inc. v. General Insurance Company of America, 10 Ariz.App. 590, 594, 461 P.2d 98, 102 (1969). However, the insurer's rights under such a provision may be lost by a waiver or estoppel resulting from continuing negotiations between the parties. Shea North, Inc. v. Ohio Casualty Insurance Company, 115 Ariz. 296, 298, 564 P.2d 1263, 1265 (App.1977). Zuckerman argues there were sufficient facts here to justify a conclusion by the trial court that the type of "negotiations" which took place were enough to establish the elements of such an estoppel.

A waiver or estoppel with respect to a contractual limitation period will exist if an insurer by its conduct induces its insured, by leading him to reasonably believe a settlement or adjustment of his claim will be effected without the necessity of bringing suit, to delay commencement of the action on the policy until after the limitation period has run.

Shea North, Inc. v. Ohio Casualty Company, 115 Ariz. at 298, 564 P.2d at 1265 (citations omitted).

It is difficult to conclude that the elements of estoppel required by Wells-Stewart, 10 Ariz.App. at 594, 461 P.2d at 102, and Shea-North, 115 Ariz. at 298, 564 P.2d at 1265, are present in this case. Transamerica had taken a final position and had indicated no willingness to go beyond the offer which had been extended. It did not lead Zuckerman's counsel to reasonably believe that settlement for any amount above that figure could be "effected without the necessity of bringing suit" and the record contains no suggestion that the delay in filing was due to any well-founded belief to the contrary. All offers of settlement made by insurance companies to the insured are not to be construed as waivers of the time limitation.

If this company, in making its offers to the insured, had made it clear that it had concluded this was the full extent of its liability, and that it was refusing to recognize any further liability, it could have relied upon the limitation of action clause within the policy.

Hounshell v. American States Insurance Co., 67 Ohio St.2d 427, 433, 424 N.E.2d 311, 314 (1981). Thus, we hold that the "negotiation type" of estoppel raised in Shea North, supra, is not applicable here.

This, however, does not necessarily end our inquiry. The facts of this case lead us to question the wisdom of applying this clause in the circumstances presented here. At the outset, we note that the limitation for suit set by the clause establishes a significantly shorter time than the six-year period which ordinarily applies to actions on written contracts. See A.R.S. § 12-548; Eureka-Security Fire & Marine Insurance Co. v. Simon, 1 Ariz.App. 274, 277, 401 P.2d 759, 762 (1965) (holding that absent a policy limitation clause, A.R.S. § 12-548 applies to actions on insurance contracts).

Ordinarily, we would question the inherent validity of a policy provision which sets a limitation period so much shorter than that enacted by the legislature. The statutes of limitations "are declarations of public policy as well as a private right...." Ross v. Ross, 96 Ariz. 249, 252, 393 P.2d 933, 934 (1964). ⁵ The clause in issue here, however, is given inherent validity by A.R.S. § 20-1115(A)(3), which permits but does not require that such a provision be inserted in certain types of insurance policies.

However, the fact that the law permits the existence of such a clause does not mean that it must be applied in every situation. Statutory authorization may validate the clause against the claim that it is inherently void as contrary to the general statute of limitations, but it does not guarantee that the clause will be enforceable under all circumstances.

... While courts are diligent to protect insurance companies from fraudulent claims and to enforce all regulations necessary to their protection, it must not be forgotten that the primary function of insurance is to insure. When claims are honestly made care should be taken to prevent technical forfeitures such as would ensue from an unreasonable enforcement of a rule of procedure unrelated to the merits.... Statutes of limitation ... in their conclusive effects are designed to promote justice by preventing surprises through the revival of 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 an adversary on notice to defend within the period of limitation and the right to be free of...