Case Name: JOHN FORMAN, Plaintiff and Appellant, v. CHICAGO TITLE INSURANCE COMPANY, Defendant and Respondent
Court: Court of Appeal of the State of California
Jurisdiction: California
Decision Date: 1995-02-27
Citations: 32 Cal. App. 4th 998
Docket Number: No. B074889
Parties: JOHN FORMAN, Plaintiff and Appellant, v. CHICAGO TITLE INSURANCE COMPANY, Defendant and Respondent.
Judges: 
Reporter: California Appellate Reports, Fourth Series
Volume: 32
Pages: 998–1021

Head Matter:
[No. B074889.
Second Dist., Div. Seven.
Feb. 27, 1995.]
JOHN FORMAN, Plaintiff and Appellant, v. CHICAGO TITLE INSURANCE COMPANY, Defendant and Respondent.
Counsel
Susan A. Mitchell for Plaintiff and Appellant.
Browne & Woods, Allan Browne, Allen B. Grodsky and Robert B. Broadbelt for Defendant and Respondent.

Opinion:
Opinion
JOHNSON, J .
In this case we hold the statute of limitations period on a title insurance policy is equitably tolled while the insurer determines whether to honor or reject a timely filed insurance claim under that policy. Accordingly, we reverse a judgment based on a finding the statute of limitations had expired.
Facts and Proceedings Below
In 1987, appellant, John Forman, obtained a title insurance policy from respondent, Chicago Title Insurance Company (Chicago Title), in connection with his purchase of vacant land in the City of Bellflower. The face amount of the policy was $590,000. The parties stipulate Chicago Title was guilty of a notable omission in schedule B which purported to list all recorded interests affecting the property. It failed to list a blanket easement recorded on July 21, 1930, in favor of the Los Angeles County Flood Control District which effectively prevents ingress to and egress from the property.
Evidently this omission was first detected in 1989. Chicago Title was asked to prepare a preliminary title report for a prospective purchaser willing to pay $1,150,000 for the vacant land. After discovering its mistake, Chicago Title issued an amendment to the preliminary title report prepared for that buyer disclosing and excepting the flood control district's blanket easement. The prospective purchaser bowed out of the deal. Forman asked for a copy of the amendment and received it August 2, 1989.
A couple of months later, another prospective buyer commissioned a preliminary title report from Provident Title. That company discovered the blanket easement and provided Forman with its report on October 16, 1989.
On November 1, 1989, the department of public works (DPW) wrote Forman offering to sell him a "portion" of the blanket easement for $10,000, but did not advise him which "portion" of the easement could be purchased, however.
On November 8, 1989, Forman filed formal written notice of his policy claim with Chicago Title. Shortly thereafter, Chicago Title began its investigation of the claim. By January 1990, the insurance company had learned the DPW was not willing to part with the portion of its easement fronting Alondra Boulevard, and so advised Forman. This meant there still was no ingress or egress from the property. On February 27, 1990, Chicago Title sent Forman a $10,000 draft so he could buy the portion of the easement DPW was willing to sell.
It was not until four months later, July 31, 1990, that Chicago Title asked a real estate consultant for an appraisal of Forman's property to determine how much the remaining easement had diminished the property's value. Chicago Title instructed the consultant to appraise the property solely as vacant agricultural land. It was another three and a half months before the consultant submitted his report to Chicago Title on November 15, 1990. He concluded the land was worth $85,000 when Forman bought it and was still worth $85,000 after the easement was discovered.
Chicago Title wrote Forman on November 16, 1990, denying liability for diminution in the property's value. A copy of the appraisal was enclosed and the denial was based on that report.
On October 15, 1991, Forman filed a complaint for breach of the title insurance contract. In his mandatory settlement conference brief and his trial brief Forman also alleged breaches of the covenant of good faith and fair dealing based on unreasonable delays and unfair manipulations during the processing of his insurance claim and for failing to indemnify him for Chicago Title's failure to disclose and except the blanket easement.
In its answer, Chicago Title alleged the statute of limitations set forth in Code of Civil Procedure section 339, subdivision 1 (section 339(1)) barred Forman's entire lawsuit. In a bifurcated trial of this affirmative defense, the trial court dismissed Forman's case on December 11, 1992. The court found the two-year statutory period provided in section 339(1) had expired before Forman filed suit. Judgment was entered December 17, 1992, and Forman timely filed a notice of appeal.
Discussion
Until 1990, Chicago Title might well have thought the statute of limitations continued to run while it, expeditiously or otherwise, went through a series of steps to decide whether to honor the insured's claim, in full or in part. But in that year, the California Supreme Court held a similar statute of limitations was equitably tolled from the time the insured "gives notice of the damage to his insurer, . . . , until coverage is denied." (Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 693 [274 Cal.Rptr. 387, 798 P.2d 1230].) Both the holding and the rationale of that opinion apply with equal vigor to the statute of limitations in this case.
In Prudential-LMI, homeowners discovered a cracked foundation in November 1985. A month later they notified Prudential and other insurers of the property. Prudential spent about as much time investigating that claim as Chicago Title did in this case, ultimately denying coverage in August 1987. The homeowners filed suit under a property damage policy which was governed by a one-year statutory period. The trial court granted summary judgment on statute of limitations grounds and the Court of Appeal upheld that judgment. In doing so, the lower courts used the same reasoning as the trial court did in this case. The limitations period began running with the discovery of the initial loss and continued running while the insurance company investigated the claim. Thus, a lawsuit filed after the statutory period expired was barred.
The California Supreme Court reversed. In doing so, our high court explicitly chose one line of out-of-state cases over another and adopted the reasoning of a New Jersey Supreme Court opinion, Peloso v. Hartford Fire Insurance Co. (1970) 56 N.J. 514 [267 A.2d 498]. In that case, an insured gave prompt notice of fire damage. The insurance company took nine months to investigate and deny the claim and the insured waited another nine months before filing suit.
The New Jersey Supreme Court noted an inherent inconsistency between a statute which purported to allow insureds a full year to file suit and the three months this insured would have had after the insurer's denial of his claim. The California Supreme Court found this to be an inconsistency, too, quoting with approval from Peloso: " '[The] fair resolution of the statutory incongruity is to allow the period of limitation to run from the date of the casualty but to toll it from the time an insured gives notice until liability is formally declined.' "
"The Peloso court recognized that although the limitation period purports to provide the insured with one year in which to institute suit, other policy provisions greatly affect what occurs during this period. As Peloso observed, 'the central idea of the limitation provision was that an insured [had] 12 months to commence suit.' . . . Thus, Peloso reasoned that 'the period during which an insured's right to bring suit is postponed is for the benefit of the company so that it can pursue its statutory and contractual rights. Accordingly, it ought not to be charged against the insured's time to bring suit.' " (Prudential-LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d 674, 688, quoting in part from Peloso v. Hartford Fire Insurance Co., supra, 267 A.2d 498, 501.)
The Prudential/Peloso rationale obviously applies just as strongly to the statute of limitations at issue in this case. That statute "purports to provide the insured with [2 years] in which to institute suit." Yet, "other policy provisions greatly affect what occurs during this period." Those policy provisions have to do with the insurance company's procedures for investigating the claim and are of the same nature in this case as in Prudential and Peloso. (The main difference is that the insurer's investigative process required 16 months in this case and only 9 months in Peloso.) Furthermore, just as in Prudential and Peloso "the period during which [Forman's] right to bring suit [in this case] is postponed is for the benefit of the company. . . . Accordingly, it ought not be charged against the insured's time to bring suit."
As further justification for its ruling, the California Supreme Court discussed a series of "persuasive policy considerations support[ing] equitable tolling of the limitations period," all of which apply with equal force to the statute of limitations at issue in this case.
Our high court first rejected the insurer's policy argument the "suspension of the one-year suit provision during the time the insurer investigates the loss will frustrate the provision's primary purpose of preventing the revival of stale claims." (Prudential-LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at p. 691.) The Supreme Court explained, "We do not believe that an equitable tolling of the one-year limitation period will frustrate the purpose of [Insurance Code] section 2071, or work a hardship on the insurer, whose investigation will necessarily have preceded the denial of coverage." (Ibid., italics added.) The very same thing can be said about the two-year limitation period of Code of Civil Procedure section 339(1). Equitable tolling will only implement, and not frustrate, the purpose of allowing insureds a two-year period to decide whether to file suit for breaches of a title insurance policy. It will not work any hardship' on the insurer who will have been on notice and fully investigated the claim before deciding not to honor that claim.
The Supreme Court then pointed out the many advantages flowing from the equitable tolling of limitation periods while the insurer investigates a claim which the insured has brought to its attention. Among these advantages, it allows the insured to wait until the insurance company completes a thorough investigation before filing suit. This minimizes the number of unnecessary lawsuits where, given time, insurers would satisfy their policyholders' claims without court action. It also "protects the reasonable expectations of the insured" they will not face a "technical rule" resulting in an "unfair forfeiture" just because they allowed the insurance company's investigation to run its course. Further, it will "encourag[e] settlements between insurers and insureds" and "discourage unnecessary bad faith suits that are often the only recourse for indemnity if the insurer denies coverage after the limitation period has expired." (Prudential-LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at p. 692.)
All three of these policy values are advanced by equitably tolling the two-year limitation period of section 339(1) just as much as by equitably tolling the one-year period of Insurance Code section 2071.
The Supreme Court found another virtue in equitable tolling while the insurer investigates the claim. "Equitable tolling is also consistent with the policies underlying the claim and limitation periods — e.g., the insurer is entitled to receive prompt notice of a claim and the insured is penalized for waiting too long after discovery to make a claim." Whatever time the insured delays in notifying the insurance company about his claim will be deducted from the period he will be allowed to file suit after the company denies the claim. (Prudential-LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at p. 692.) Once again, this virtue obtains in the case of the two-year statute involved here just as it does with the one-year limitations period involved in Prudential and Peloso.
Under equitable tolling, Forman would not be penalized at the other end because he lodged his claim with the insurance company a few months after discovering the loss. Thus, once his claim was denied he would have been entitled to nearly two years after rejection of his claim to decide whether to file a lawsuit. But he only used 11 months of that time before bringing suit.
Respondent relies heavily on a recent opinion which is readily distinguishable and indeed has no bearing on the facts of this case, Tabachnick v. Ticor Title Ins. Co. (1994) 24 Cal.App.4th 70 [29 Cal.Rptr.2d 59]. In Tabachnick, the insured independently learned of the error in the title insurance company's report. Instead of filing any kind of claim with the insurance company and without notifying the insurance company of its error, he filed a lawsuit against those who sold him the property. Three years later, for the first time, he filed a claim with the insurance company asking it to indemnify him for the costs of his lawsuit against these third parties.
Here, in sharp contrast, the title insurance company discovered its own error in the course of researching title for a subsequent prospective purchaser of the property. So, unlike the insurer in Tabachnick, the insurer here had notice of its mistake long before Forman filed his lawsuit. Furthermore, unlike the insured in Tabachnick, Forman filed a claim requesting compensation from the insurance company shortly after learning of the loss and long before the two-year section 339(1) period expired. Consistent with the terms of its policy, the insurer insisted on determining the extent of its error and calculating the amount it would be willing to pay as compensation for its failure to discover the easement. This process took over a year.
In Tabachnick, the title insurance company adopted the entirely tenable position no claim had been filed with it — and it had no notice of its error — until three years after the insured discovered his loss. Here, the title insurance company argues the untenable position the statute of limitations was running for over a year while it was processing a claim the insured had filed with the company a few months after discovering its loss. Under the terms of the insurance company's own contract, Forman was required to submit his claim against the title company to a lengthy evaluation process. When the insurance company finally completed that process, it had eaten up 16 of the 24 months it argues the insured had to file his lawsuit.
This is inconsistent with section 339(1) which provides a two-year statute of limitations, not an eight-month statute of limitations. Under respondent's view, Forman had only an eight-month window in which he could file a lawsuit against Chicago Title. (If the insurer had taken 23 months, he would only have had a 1-month window. And, if the insurer had taken 25 months, he wouldn't have had a window at all.) In our view, the law does not allow insurers to so foreshorten the insured's statutory period for deciding whether to file suit.
Nothing in Tabachnick suggests equitable tolling does not apply to title insurance cases. Tabachnick did not even involve an issue of equitable tolling under Prudential-PMI. The insured in that case did not file a claim with the insurance company until well after the two-year period expired. Thus, it was too late to toll the running of the statute while the insurance company processed the claim. Tolling can only suspend the running of a statute that still has time to run; it cannot revive a statute which has already run out. In Tabachnick, the statutory period had expired before the insured filed his claim with the insurance company. In this case it had not.
The principle policy reason the Tabachnick court offered in support of its conclusion the statutory period expired in that case was that otherwise insureds would have the power to extend the limitations period indefinitely by waiting to sue third parties whenever they wanted to. (Tabachnick v. Ticor Title Ins. Co., supra, 24 Cal.App.4th at p. 74.) As still further evidence Tabachnick is inapposite, this policy consideration simply does apply to a rule which equitably tolls a statutory period while an insurance company processes a timely filed policy claim. Under such a rule, it is the insurance company — not the insured — who controls the statutory clock. If it processes the claim quickly, the insurer shortens the overall time within which the insured must file his lawsuit. If it moves at a snail's pace — as this company did — it extends the time within which it can be sued.
Disposition
The judgment is reversed and remanded with directions to vacate the judgment based on statute of limitations grounds and for further proceedings consistent with this opinion.
Lillie, P. J., concurred.
Respondent argues appellant waived any argument based on the particular form of "equitable tolling" the Supreme Court announced in Prudential-LMI by failing to raise that issue to the trial court. This is merely a legal precedent and a legal argument which dictates a certain legal result based on facts which were determined in the trial below. A party is not foreclosed from presenting a new legal argument or theory on appeal so long as the facts are undisputed. (Powell v. Premier Ins. Co. (1981) 118 Cal.App.3d 336 [173 Cal.Rptr. 383].) Chicago Title does not suggest, nor could it suggest, resolution of this appellate issue turns on facts which did not come before the court below. Both sides addressed the merits of this legal issue at length in their briefs, and argued it during oral argument. Thus, this court has been fully advised of their positions on the question.
In any event, if neither party had raised this issue in their appellate briefs, it would have been appropriate, if not incumbent, upon this court to raise the issue on its own. Indeed assuming neither party had mentioned the issue, it would have been incumbent on this court to request supplemental briefing and decide the case on this ground. Both the holding and the rationale of Prudential-LMI apply with equal vigor to the statute of limitations at issue in this case.
Unless otherwise indicated all statutory references are to the Code of Civil Procedure.
Since we conclude the statute of limitations was equitably tolled and the complaint thus timely filed, we find it unnecessary to consider an alternative, potentially viable grounds for reversing this judgment. That rationale arises out of appellant's contention he was suing Chicago Title for breach of the covenant of good faith and fair dealing in its manner of processing the claim and its denial of the claim, in addition to its initial negligence in failing to discover and list the competing property interest. Forman argues he did not suffer the "loss or damage" claimed in causes of action for breach of the covenant of good faith and fair dealing until the title insurer finished its evaluation process and failed to offer what Forman regarded as a sufficient payment for the diminishment in value he suffered. Thus, it was not until this denial of his full reimbursement claim that these causes of action accrued and the statute of limitations could begin to run against Forman under section 339(1) as to them. (See, 3 Witkin, Cal. Procedure (3d ed. 1985) Actions, § 351 [" 'A cause of action does not 'accrue' until the party owning it is entitled to begin and prosecute an action thereon. It accrues at the moment when he has a legal right to sue on it, and not earlier,' " quoting from Los Angeles Co. v. Metropolitan C. Ins. Co. (1933) 135 Cal.App. 26, 28 (26 P.2d 699, 27 P.2d 914).] Furthermore, a statute of limitations cannot commence running until the cause of action accrues. Code of Civil Procedure section 312 [statutes of limitation measured as prescribed period "after the cause of action shall have accrued. . . ." (Italics added.)] Oakes v. McCarthy Co. (1968) 267 Cal.App.2d 231, 254 [73 Cal.Rptr. 127]; Hayes v. 2831 Ellendale Place, Inc. (1963) 223 Cal.App.2d 362 [36 Cal.Rptr. 94]; Record Machine & Tool Co. v. Pageman Holding Corp. (1959) 172 Cal.App.2d 164 [342 P.2d 402]; Los Angeles Co. v. Metropolitan C. Ins. Co., supra, 135 Cal.App. 26.) Chicago Title did not deny Forman's claim until November 16, 1990. Forman filed his lawsuit on October 15, 1991, less than a year after this denial. Thus, he argues, as to these causes of action, at least, his lawsuit was timely.
While we find some possible merit in this argument, it only affects a part of appellant's lawsuit. We already have concluded the statutory period for Forman's entire lawsuit was tolled during the period Chicago Title was processing his insurance claim. Thus, we find it unnecessary at this time to consider an alternative rationale which might have saved some but not all of his causes of action.