Opinion ID: 1258604
Heading Depth: 1
Heading Rank: 8

Heading: Doctrine of Equitable Tolling

Text: Our inquiry does not end with adoption of a delayed discovery rule. After filing their notice of loss, plaintiffs waited more than 18 months to file the present action. Thus, even under our delayed discovery rule, the one-year suit provision would, unless otherwise inapplicable or excused, bar plaintiffs from pursuing the present action. The seemingly anomalous conclusion  that an insured must file a lawsuit before the insurer has completed its investigation and denied the claim  has been questioned in other jurisdictions that have the identical statutory scheme as California. Two divergent views have developed. Several state courts have strictly interpreted the standard limitation clauses. ( Naghten v. Maryland Casualty Company, supra, 197 N.E.2d at pp. 490-492 [dismissed claim, for loss caused by pressure of underground water, based on one-year suit provision in homeowner's policy]; Proc, supra, 17 N.Y.2d 239 [12-month period after inception of loss is measured from date of loss]; Williams Studio v. Nationwide Mutual (1988) 38 Pa.Super. 1 [550 A.2d 1333, 1335] [same].) Other state courts have devised rules to equitably toll the limitation period until an insurer's formal denial of the claim by the insured. The leading case for this view is Peloso v. Hartford Fire Insurance Co., supra, 267 A.2d 498 ( Peloso ), involving an action by an insured seeking recovery for fire damage to his home. The policy contained a one-year suit provision identical to the one contained in plaintiffs' policy here. The facts of Peloso illustrate the anomalous result that would follow a literal interpretation of the one-year suit provision. The insured's building and its contents sustained damage from a fire on the premises, and he gave the insurer prompt notice of the fire. The insurer denied the claim nine months after the loss, but the insured waited approximately nine more months before instituting suit for coverage under the policy. He argued his suit was timely because the statute of limitations did not begin to run until liability was formally denied. After the trial court granted the insurer's summary judgment motion on the one-year suit provision, the New Jersey Supreme Court reversed, holding that 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. ( Peloso, supra, 267 A.2d at p. 501.) 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. (267 A.2d at p. 501.) 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. ( Ibid. ) Other states have followed Peloso 's lead. (See, e.g., Ford Motor Co. v. Lumbermens Mut. Cas. Co. (1982) 413 Mich. 22 [319 N.W.2d 320] [12-month limitation period tolled from notice of loss to formal denial of claim]; Clark v. Truck Ins. Exchange (1979) 95 Nev. 544 [598 P.2d 628] [12-month limitation period in fire loss runs from date of fire, but is tolled from date of notice to date of formal denial of liability]; Tom Thomas Organization v. Reliance Ins. Co. (1976) 396 Mich. 588 [242 N.W.2d 396] [same tolling rule].) In addition, as the parties observe, a few states have enacted statutes that expressly extend the one-year limitation provision. New York recently extended its suit provision to twenty-four months. (N.Y. Ins. Law § 168 (McKinney Supp. 1982-1983).) Illinois enacted a statutory tolling provision that states: Whenever any policy or contract for insurance ... contains a provision limiting the period within which the insured may bring suit, the running of such period is tolled from the date proof of loss is filed, in whatever form is required by the policy, until the date the claim is denied in whole or in part. (Ill. Rev. Stat. ch. 73, ¶ 755.1; see also Mass. Ann. Laws ch. 175, § 22 (1977) [limitation period runs two years from time cause of action accrues]; Me. Rev. Stat. Ann. tit. 24-A, § 2433 (1969) [two years from time cause of action accrues against foreign insurers]; see Reader & Polk, The One-Year Suit Limitation In Fire Insurance Policies: Challenges and Counterpunches (Fall 1983) 19 Forum 24, 26-28.) Early California cases took inconsistent approaches to the issue. (Compare Case v. Sun Insurance Co. (1890) 83 Cal. 473 [23 P. 534] [period tolled based on facts], with Tebbets v. Fidelity & Casualty Co. (1909) 155 Cal. 137 [99 P. 501] [claims and limitations requirements operate independently].) We relied on the doctrine of equitable tolling together with procedural defaults by the insurer to suspend the operation of the one-year suit provision in Bollinger, supra, 25 Cal.2d 399. There, the insured had filed one lawsuit, which was dismissed as premature because the insurer had not yet acted, and then filed a second suit after the one-year limitations period had run and after the insurer denied coverage. Under such circumstances, we suggested, the insurer had a duty, arising from its obligation of good faith to the insured, to inform the insured of its intention to rely on a technical defense that would otherwise result in forfeiture of policy benefits. ( Id. at pp. 410-411.) More recent cases have applied the equitable doctrines of waiver and estoppel to allow a suit filed after the limitation period expired to proceed. (6) It is settled law that a waiver exists whenever an insurer intentionally relinquishes its right to rely on the limitations provision. ( Elliano v. Assurance Co. of America (1970) 3 Cal. App.3d 446, 452-453 [83 Cal. Rptr. 509] ( Elliano ) [insurer who waived formal proof of loss estopped to claim time bar under 12-month limitation provision by (1) accepting written estimate of loss without requesting formal proof from insured, (2) delivering copy of policy to insured without noting limitations period, and (3) attempting to negotiate compromise well after 12-month period expired]; Sheetz v. IMT Ins. Co. (Iowa 1982) 324 N.W.2d 302, 305 [waiver where insurer continued negotiations for settlement of fire loss after limitation period]; Lally v. Allstate Ins. Co. (S.D.Cal. 1989) 724 F. Supp. 760, 763 [same].) An estoppel arises as a result of some conduct by the defendant, relied on by the plaintiff, which induces the belated filing of the action. (3 Witkin, Cal. Procedure (3d ed. 1985) Actions, § 523, p. 550.) According to Witkin, [t]he estoppel cases appear to fall roughly into three classes: (1) Where the plaintiff is aware of his cause of action and the identity of the wrongdoer, but the latter by affirmative acts induces the plaintiff to refrain from suit. (2) Where the plaintiff is unaware of his cause of action and his ignorance is due to false representations by the defendant. (3) Where the plaintiff is unaware of the identity of the wrongdoer and this is due to fraudulent concealment by the defendant. ( Ibid. ) For example, if the insurer expressly extends the one-year suit provision during its claim investigation, the insurer waives its right to raise a timeliness defense to the insured's action. [5] ( Elliano, supra, 3 Cal. App.3d at pp. 452-453.) Similarly, an insurer that leads its insured to believe that an amicable adjustment of the claim will be made, thus delaying the insured's suit, will be estopped from asserting a limitation defense. (See, e.g., Benner v. Industrial Acc. Com. (1945) 26 Cal.2d 346, 350 [159 P.2d 24]; Lagomarsino v. San Jose etc. Title Ins. Co. (1960) 178 Cal. App.2d 455, 462 [3 Cal. Rptr. 80].) By contrast, equitable tolling has most often been applied in California when the plaintiff first files a claim before an administrative agency and then files a second proceeding after the limitation period has expired. Under these circumstances, courts have held the policy underlying the statute of limitations  prompt notice to permit complete and adequate defense  has been satisfied and that the period should be tolled in equity to preserve the plaintiff's claim. ( Collier v. City of Pasadena (1983) 142 Cal. App.3d 917, 926 [191 Cal. Rptr. 681] [filing of worker compensation claim tolls period for filing pension disability claim]; see also Addison v. State of California (1978) 21 Cal.3d 313, 319 [146 Cal. Rptr. 224, 578 P.2d 941] [running of six-month limitation period of Gov. Code, § 945.6 tolled while plaintiff's action pending in federal court].) One commentator has called it unconscionable to permit the limitation period to run while the insured is pursuing its rights in the claims process. (18A Couch, Insurance (2d ed. 1983) § 75:88, at pp. 99-100.) Couch also observes that some jurisdictions have tolled the limitation period until the expiration of the 60-day waiting period following the filing of formal proofs of loss. ( Id., § 75:91, at p. 106.) This approach effectively allows the insured an additional two months, or a total of fourteen months, to bring his lawsuit. Another commentator has suggested that insurers be required to give special notice to insured claimants of the running of the limitation period during the claims process. (20A Appleman, Insurance Law and Practice (1980) § 11601, pp. 435-436.) Appleman notes that, as a practical matter, the insured is usually unaware of and would not reasonably expect such a short limitation period to run while his insurer is still examining the claim. ( Ibid. ) (7a) Like the Peloso court, we conclude the Legislature's intent to provide insureds with a full year (excluding the tolled period) in which to commence suit can be inferred from the fact that the period provided by section 2071 is considerably shorter than the usual four years for ordinary contracts (Code Civ. Proc., § 337) and ten years for an action against developers for property damage caused by latent defects. ( Id., § 337.15; Peloso, supra, 267 A.2d 498 at p. 501.) We find Peloso 's reasoning consistent with the trend in other states toward equitable tolling of the one-year suit provision in the limited circumstances in which the insurer (or other party against whom the claim has been made) has received timely notice of the loss and thus is able to investigate the claim without suffering prejudice.