Doheny Park Terrace Homeowners Ass'n v. Truck Insurance Exchange

Opinion

Plaintiff Doheny Park Terrace Homeowners Association, Inc. (Doheny Park), appeals from the trial court’s order dismissing its first amended complaint. The defendant, Truck Insurance Exchange (Truck),^[1] had demurred to Doheny Park’s pleading and the trial court sustained that demurrer without leave to amend. The trial court concluded that Doheny Park had not filed its action within the two-year contractual limitation period specified in Truck’s policy, or during the revival period established by Code of Civil Procedure, section 340.9. In addition, Doheny Park had failed to plead facts sufficient to establish a basis for application of the doctrine of equitable estoppel precluding Truck from asserting a limitations defense.

We have reviewed the record, including Doheny Park’s first amended complaint, and concur with the trial court that Doheny Park did not timely file its action, either within the original two-year period or during the one-year statutory revivor. We disagree, however, that it failed to plead sufficient facts to raise the bar of equitable estoppel. We will, therefore, reverse and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND^[2]

Doheny Park is a condominium association involving 21 units located in the City of Beverly Hills, California. Its property was damaged by the Northridge earthquake on January 17, 1994. On that date, Doheny Park was insured by Truck and the policy included coverage for earthquake damage, subject to a deductible. Before the end of January 1994, Doheny Park submitted claims for damage to Truck.

After conducting an inspection of the damage to the Doheny Park property, Truck concluded that such damage was in the sum of $36,489.02. This amount was less than the deductible in Truck’s policy, so Doheny Park’s claim was denied.^[3]

Doheny Park took no further action with respect to its claim until February 2003. At that time, it met with its counsel who recommended retention of an expert. Following that expert’s inspection of the property, Doheny Park learned that the damage caused by the Northridge earthquake was more extensive and, in fact, exceeded the amount of the policy deductible. In April 2003, Doheny Park commenced this action against Truck alleging four causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and violation of Business and Professions Code, section 17200.^[4]

Truck filed a demurrer to the complaint alleging that the action was untimely.^[5] More than eight years had elapsed from the date that Doheny Park had sustained damage until the time that it filed suit. The trial court held that Doheny Park’s action had not been timely filed and, in any event, Code of Civil Procedure, section 340.9,^[6] precluded any action by Doheny Park after December 31, 2001. Truck’s demurrer was sustained with leave to amend and, on or about October 1, 2003, Doheny Park filed its first amended complaint, the operative pleading herein.

Truck again demurred, arguing that the applicable limitations period had run and that Doheny Park had not pled sufficient facts to justify either (1) its delay in filing the action, or (2) the application of the doctrines of delayed

discovery, equitable tolling or equitable estoppel which would preclude Truck from successfully asserting a limitations defense. The trial court sustained Truck’s demurrer, this time without leave to amend. The court held that section 340.9 set an absolute deadline for Doheny Park’s action of December 31, 2001 and contained no provision for delayed discovery (see fn. 6, ante). It concluded that the only way Doheny Park could allege a viable claim was to set forth sufficient facts demonstrating that Truck was equitably estopped under the principles set out in Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142 [ 113 Cal.Rptr.2d 70 , 33 P.3d 487 ] (Vu). After reviewing the new allegations submitted by Doheny Park, the court concluded that they “again fall short.”

Thereafter, on February 5, 2004, an order of dismissal was entered and filed. Doheny Park has prosecuted this timely appeal.

CONTENTIONS OF THE PARTIES

Doheny Park’s principal contention is that the allegations of the first amended complaint sufficiently set forth a basis for applying the doctrine of equitable estoppel as articulated by the Supreme Court in Vu. It also urges that it is not bound by the limitation of the one-year revival window opened by section 340.9 and that its knowledge of the rationale for, or the passage of, that statute did not trigger any duty of inquiry. Doheny Park further urges that it is entitled to the benefit of the delayed discovery rule because, due to misrepresentations and concealment by Truck, it did not reasonably discover the full extent of its damage until February 2003. It also asserts the related argument that the limitation period was equitably tolled because Truck never unequivocally denied Doheny Park’s claim in writing as required under the principles set out in Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674 [ 274 Cal.Rptr. 387 , 798 P.2d 1230 ] {Prudential-LMI). Finally, Doheny Park argues that the trial court improperly denied it an opportunity to file a second amended complaint so as to add certain additional allegations.^[7]

Truck asserts that none of these arguments justifies a reversal of the order of dismissal. The policy provided for a two-year limitation period from the date that Doheny Park discovered (or should have discovered) damage from the Northridge earthquake. Doheny Park waited over eight years after it sustained damage, and over a year after the revival deadline set out in section 340.9 before filing its action. Truck argues that Doheny Park is relying on

nothing but conclusionary and argumentative allegations to justify this extraordinary delay. Truck also argues that, in any event, section 340.9 establishes an absolute deadline (December 31, 2001) for the pursuit of any claim arising from the Northridge earthquake; Doheny Park cannot avoid that deadline by reliance on either the equitable estoppel or delayed discovery doctrines.

DISCUSSION

1. Standard of Review

In reviewing an order sustaining a demurrer without leave to amend, the appellate court decides de novo whether the complaint sets forth facts sufficient to state a cause of action. (Hoffman v. State Farm Fire & Casualty Co. (1993) 16 Cal.App.4th 184 , 189 [ 19 Cal.Rptr.2d 809 ].) The court looks to the face of the complaint and treats the demurrer as admitting all the material facts alleged. (Blank v. Kirwan (1985) 39 Cal.3d 311 , 318 [ 216 Cal.Rptr. 718 , 703 P.2d 58 ].) However, the appellate court does not assume the truth of contentions, deductions, or conclusions of fact or law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120 , 125 [ 271 Cal.Rptr. 146 , 793 P.2d 479 ].) It is only necessary for a plaintiff to plead ultimate facts. (Perkins v. Superior Court (1981) 117 Cal.App.3d 1 , 6 [ 172 Cal.Rptr. 427 ].^[8] )

2. Doheny Park’s Policy Imposed a Two-year Contractual Limitation Period That Commenced To Run on the Date of the Northridge Earthquake and Its Delayed Discovery Argument Fails

The ordinary statute of limitations for breach of a written contract is four years from the date of the breach. (§ 337). When the contract is a policy of insurance (e.g., a homeowners policy) and the insured has a property damage claim, there is a contractual limitation period imposed by the terms of the policy. In the case of fire policies, the limitation period is one year, as dictated by Insurance Code, section 2071 (setting out the terms that must be included in the standard form fire policy).^[9] Such a shortened limitation period has long been recognized as valid in California. (Prudential-LMI, supra, 51 Cal.3d at p. 683.)

Two examples will illustrate the point. In Magnolia Square Homeowners Assn. v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1049 [ 271 Cal.Rptr. 1 ], the insured became aware in 1985 of possible structural defects in its property and sued the developer accordingly. It was not until 1986, however, that the insured’s experts opened up certain walls and verified the structural problems. In 1987, the insured sued its insurer under an all-risk property policy. The suit was barred because the policy required suit “ ‘within one year after the loss occurs.’ ” (Id. at p. 1058.) The insured may not have known the full extent of the problem in 1985 (when it sued the developer), but it knew enough that it “should have conducted further investigation to determine the scope of the structural problem.” (Id. at p. 1060.)

In Sullivan v. Allstate Ins. Co. (C.D.Cal. 1997) 964 F.Supp. 1407 , the insureds made no claim for damage to their home after the Northridge earthquake because they thought the repair costs would be less than the deductible. They left the home unrepaired for more than a year, during which time the house began to leak, exacerbating the earthquake damage. When they discovered it would cost $50,000 to repair the damage, they submitted a claim to their insurer. The court held that the claim was barred under the policy’s one-year suit limitation because the insureds were aware of appreciable damage from the outset (even though they underestimated its cost). It was not a “ ‘progressive loss’ ” merely because they allowed their property to deteriorate. (Id. at p. 1412.)

These cases articulate principles that dispose of Doheny Park’s delayed discovery argument. By its own allegations, it knew that sufficient damage had been done to warrant notification of the damage to Truck. That started the running of the two-year period in which to commence an action against Truck. Admittedly, Doheny Park did not file any action during that period nor (as we discuss below) during the one-year revivor period established by section 340.9.

3. The Running of the Contractual Limitations Period Was Not Equitably Tolled

As discussed above, the contractual limitations period commences to run upon the inception of loss. The running of this period, however, may be tolled during the period that the claim is being considered by the insurer. Put another way, the limitations period will be tolled “from the time the insured files a timely notice,^[10] pursuant to policy notice provisions, to the time the

There is one additional basis for application of the estoppel doctrine under California law. Insurers are required by the relevant regulations^[11] issued by the Commissioner of Insurance to notify a claimant of any applicable time limits that might apply to the claim. Unless it can be shown that the claimant in fact had actual knowledge of it, the insurer may be estopped to assert any time limit as to which the required notification was not given. (See Spray, Gould & Bowers v. Associated Internat. Ins. Co. (1999) 71 Cal.App.4th 1260 , 1269 [ 84 Cal.Rptr.2d 552 ]; Neufeld v. Balboa Ins. Co. (2000) 84 Cal.App.4th 759 , 761-762 [ 101 Cal.Rptr.2d 151 ].)

5. Section 340.9 Conditionally Revived Certain Northridge Earthquake Claims for a One-year Period but Such Statutory Revivor Does Not Preclude Application of the Doctrine of Equitable Estoppel

In 2000, the Legislature enacted section 340.9 (see fn. 6, ante) in response to “compelling reports of rampant mishandling of [Northridge Earthquake] insurance claims by insurers, and the unavailability of relief from the former administration of the Department of Insurance[.]” (20th Century Ins. Co. v. Superior Court (2001) 90 Cal.App.4th 1247 , 1267 [ 109 Cal.Rptr.2d 611 ] (20th Century).)^[12] Section 340.9 revived, for a one-year

period (ending December 31, 2001) “ ‘any insurance claim for damages arising out of the Northridge earthquake of 1994 which is barred as of the effective date of this section [i.e. January 1, 2001] solely because the applicable statute of limitations has or had expired . . . .’ ”^[13] (20th Century, supra, at p. 1253, fn. 2, italics added.) Put simply, section 340.9 “reopen[ed] the filing window, for a one-year period, to those otherwise viable cases that had become time barred.” (Rosenblum v. Safeco Ins. Co. (2005) 126 Cal.App.4th 847 , 858 [ 24 Cal.Rptr.3d 427 ].)

There is no dispute that Doheny Park was a claimant who had contacted an insurer regarding its claim prior to January 1, 2000 and its claim was barred by the expiration of the two-year limitation period in Truck’s policy. Thus, Doheny Park was a claimant entitled to the benefit of the revivor provisions of section 340.9.

Truck does not argue otherwise, but urges that since Doheny Park admittedly did not file this action until April 2003, section 340.9 is of no assistance to it. We agree. But Truck goes further and contends that section 340.9 also operates to preclude, as a matter of law, Doheny Park’s reliance upon the doctrine of equitable estoppel. Essentially, Truck’s argument is that section 340.9 supplemented or superseded the application of equitable estoppel to the Northridge earthquake claims. In Truck’s view, section 340.9 amounts to an

adequate legal remedy that is reflected in a comprehensive statutory scheme. (See Pacific Scene, Inc. v. Penasquitos, Inc. (1988) 46 Cal.3d 407 , 414 [ 250 Cal.Rptr. 651 , 758 P.2d 1182 ] [“ ‘equitable relief . . . cannot be intruded in matters that are plainly] and fully covered by positive statute’ ”].) Even though neither section 340.9, nor its legislative history, mentions the doctrine of equitable estoppel, it is Truck’s view that by its enactment of section 340.9, the Legislature intended to bar the assertion of equitable estoppel. Section 340.9 was, according to Truck, intended to be the one final and complete remedy for all unpaid or underpaid Northridge earthquake claims and, once the one-year revival period had passed, all such claims were forever foreclosed. With this part of Truck’s argument, we disagree.

This issue was directly reached by our colleagues in Division 7 of this District in Cordova v. 21st Century Ins. Co. (2005) 129 Cal.App.4th 89 [ 28 Cal.Rptr.3d 170 ] (Cordova).^[14] The Cordova court addressed and expressly rejected the contention that the Legislature had any intent at all, in enacting section 340.9, to bar an insured’s reliance upon the doctrine of equitable estoppel. The court noted, with emphasis, that there is not one word mentioned with respect to that doctrine in either the statute or its legislative history. (129 Cal.App.4th at p. 106.)

As the Cordova court put it, “[cjlearly the Legislature intended to put a one-year lid on the statutory revival of time-barred claims but neither we nor 21st Century have found one sentence in the legislative history suggesting this one-year lid was intended to exclude equitable remedies for those who for some legitimate reason could not bring their claims within this one-year period. [f] Indeed it is the Legislature’s ‘expressive silence’ which most convinces us it did not intend section 340.9 to supplant the doctrine of

equitable estoppel with respect to claims for damages arising from the Northridge quake.” (Cordova, supra, 129 Cal.App.4th at p. 106, fn. omitted.)

The Cordova court emphasized that the Legislature may or may not have been aware of the then pending Vu litigation,^[15] but most certainly it was aware of the doctrine of equitable estoppel. “If by enacting section 340.9 the Legislature intended to take away a remedy which has existed for hundreds of years one would expect to see discussion of such a step in the legislative history. But there is not a word in the legislative record about the doctrine of equitable estoppel. ... It is not our role to speak for the Legislature when the Legislature has kept silent, [ft] Our conclusion section 340.9 does not replace the doctrine of equitable estoppel is further supported by other extrinsic aids to statutory interpretation including ‘ “. . . the ostensible objects to be achieved, the evils to be remedied, . . . public policy, . . . and the statutory scheme of which the statute is a part.” [Citation.] [Fn. omitted.]’ [ft] In enacting section 340.9 the Legislature’s object was ‘to alleviate a broad and significant problem caused by the insurers’ conduct; to help thousands of policyholders who were misled by the insurers into waiving their right to make claims in a timely manner.’ [Fn. omitted.] The evil to be remedied was the insurance companies’ ‘rampant mishandling’ of Northridge claims, their ‘ “systematic program of misleading” ’ their policyholders, and their ‘ “refusal] to pay claims on the basis that the claims had become time-barred.” ’ [Fn. omitted.] The public policy reflected in the legislation was to enforce the insurance companies’ fiduciary duties to their policyholders [fn. omitted] and ‘to advance the public interest in protecting insureds mistreated by their insurers at a time when the insureds were most vulnerable.’ [Fn. omitted.] The statutory scheme of which section 340.9 is a part is the regulation of insurance policies including the time for bringing suit under the policy as set forth in Insurance Code section 2071. We have found no extrinsic evidence suggesting section 340.9 was intended to bar any new claims for earthquake damage after December 31, 2001.

“Finally, we are not won over by 21st Century’s argument that after the passage of a reasonable length of time (legislatively determined in section 340.9 to be eight years) insurers should be free from the burden of disruptive and protracted liability and able to plan their affairs with a degree of certainty; it is unreasonable to expose insurers to liability on claims made 10, 20 or 30 years after the Northridge quake, [ft] This argument was impliedly rejected in Lantzy v. Centex Homes [supra, 31 Cal.4th at p. 384] in which the court held the doctrine of equitable estoppel permits a plaintiff to bring an action for construction defects after the expiration of the ‘absolute’ 10-year statute of limitations on such claims. [Fn. omitted.]

6. The Allegations of the First Amended Complaint State Sufficient Facts to Warrant Application of the Doctrine of Equitable Estoppel

As already indicated, this case reaches us upon demurrer. We must therefore accept as true all well pled factual allegations, although not those that are conclusionary or argumentative (Moore v. Regents of University of California, supra, 51 Cal.3d at p. 125). We focus on those allegations of Doheny Park’s first amended complaint upon which it bases its claim for application of equitable estoppel.

In the “Claims of Plaintiff” portion of its complaint (which was incorporated by reference in each of the relevant separate causes of action), Doheny Park alleged that its property did suffer some damage from the January 17, 1994 earthquake and then alleged as follows:^[16]

“. . . [Doheny Park] was run by a volunteer board of directors that did not believe that the cost to repair the covered earthquake damage exceeded the policy deductible. [It] made a claim and entrusted [Truck] with the building inspection in compliance with its policy of insurance and in furtherance of [its] duty to [Doheny Park]. Though [Doheny Park] did not believe at the time the claim was reported that the cost to repair the damage would exceed the policy deductible, . . . [it] believed that [it had been] diligent and that reporting a possible claim to [Truck], whom [it] trusted to inspect [its property], was in furtherance of that diligence.

“. . . In 1994 [Truck’s] representative inspected [Doheny Park’s] property and evaluated the earthquake damage. [Truck] represented that it was an expert in the adjustment of property loss and valuation of property damages. [It] informed [Doheny Park] in writing that [it] determined that the cost to repair the covered earthquake caused damages at [the] condominium complex was $36,489.02. This repair estimate was a misrepresentation, though [Doheny Park] at the time had no reason to believe that [Truck] was misrepresenting the cost of repair. [f] . . . [][]

“. . . [Truck’s] representation that [the] earthquake damages were $36,489.02 and below the policy limits deductible was, in fact, false. [Truck] intentionally misled [Doheny Park] by making this representation. [Truck] also failed to fully and properly inspect [the] property but led [Doheny Park] to believe that the property was properly and fully inspected. In fact, the earthquake damage to [Doheny Park’s] buildings exceeded the policy deductible and may exceed the policy limits for the coverage to buildings. m... m

“[Doheny Park] reasonably relied on [Truck’s] representation that the earthquake damage to [the] property was below the deductible. [Truck’s] representation that the cost to repair the earthquake damage was $36,489.02, was consistent with [Doheny Park’s] uneducated estimate of the cost to repair the earthquake damage. It takes a trained expert to determine the cost to repair earthquake damage. No one on the board of directors had training to assess property damage and no one on the board knew or had reason to believe that [Truck’s] analysis of the cost to repair the earthquake damage was wrong. [Doheny Park] knew of no facts which were inconsistent with the repair estimate of $36,489.02. The damage that [Doheny Park] witnessed at its building, some cracks around windows, appeared to the uneducated eye to be superficial and insubstantial.[^[17] ] Not being experts in the adjustment of property losses, and not having an independent expert opinion, [Doheny Park] trusted [Truck’s] representation of the cost to repair. Had [it] known that [Truck] had a practice of underestimating the cost to repair earthquake damaged buildings in an effort to preclude claims payments, [Doheny Park] would not have relied on [Truck’s] estimate. By reporting the existence of what [it] believed to be minor earthquake damage, and by having [Truck] inspect and estimate the repair cost of the earthquake damage, [Doheny Park] was diligent in using the means at its command to ascertain the truth. Unfortunately . . . , [Truck was] not truthful. [Doheny Park], a non-profit organization run by volunteers, did not hire experts to verify [Truck’s] factual assertions because [it] had no reason to believe that [Truck was] misrepresenting any facts. Had [Doheny Park] known that [Truck] could not be trusted, that [Truck] looked out for its own interests above the interests of its policyholders, and that [it] had a pattern and practice of misrepresenting the amount of earthquake damage to insureds, then [Doheny Park] would not have relied on [Truck’s] representation as to the cost to repair [the] condominium complex. In reliance on [Truck’s] representation, [Doheny Park] did not hire professionals to inspect the property to determine the true cost to repair the earthquake caused damage. At no time between [Truck’s] denial of the insurance claim and January 2003 did [Doheny Park] learn, or believe, that [Truck] had misled [Doheny Park] about the extent of earthquake damage and the cost to repair [such] damage. [Doheny Park] was not aware at any time that earthquake damage could be hidden in the walls and that such damage was ignored by [Truck] or that [Truck] knew of the existence of the hidden damage but failed to inform [Doheny Park] of its existence. While [Doheny Park] did learn of the passage of . . . section 340.9 prior to December 2001, [it] had no reason to believe that [Truck] had misrepresented any facts .... [Doheny Park] believed, at the time, that [it] could depend