Court Opinion

ID: 9493306
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:04:29.189344+00
Date Added: 2024-06-11T17:55:46.349097
License: Public Domain

W. FLETCHER, Circuit Judge,
with whom HUG and TASHIMA, Circuit Judges, join, concurring in the judgment:
The two questions in this case are fairly straightforward. First, what law provides the period for the statute of limitations, and how long is that period? Second, what law provides the accrual rule for determining when the limitations period begins to run, and what is that accrual rule?
The majority answers the first by saying that we look to the limitations period provided under California law for written contracts. California Code of Civil Procedure § 337 sets that period as four years. The majority answers the second by saying that we look to federal law under ERISA for the accrual rule. That rule provides that the claimant’s cause of action accrues either when benefits are actually denied or the claimant has reason to know that they are denied.
I respectfully disagree. The answer to the first question should be that we look to California Insurance Code § 10350.11, which sets the limitations period as three years. The answer to the second question should be that we look to California Insurance Code § 10350.7, which provides that the cause of action accrues, and the limitations period begins to run, 90 days after the claimant is required to submit written proof of loss to the insurer.
I
California Insurance Code § 10350.11 provides the statutory limitations period for disability insurance policies issued in California. Section 10350.11 is one of a series of provisions required by California Insurance Code § 10350 to be included in the text of California disability insurance policies. See Cal. Ins.Code §§ 10350.1-10350.12. An insurer may substitute a different provision in place of § 10350.11, but only if the substitute provision is approved by the State Insurance Commissioner and only if it is “not less favorable in any respect to the insured or the beneficiary.” Cal. Ins.Code § 10350. As the majority opinion indicates, most states have identical, or nearly identical, statutes providing a limitations period for disability insurance policies.
California’s section 10350.11 provides:
A disability policy shall contain a provision which shall be in the form set forth herein.
Legal Actions: No action at law or in equity shall be brought to recover on this policy prior to the expiration of 60 days after written proof of loss has been furnished in accordance with the requirements of this policy. No such action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished.
Although an insurer is permitted by the statute to obtain approval from the Insurance Commissioner for a more generous period in which to bring suit, § 10350.11 specifies a minimum limitations period of three years. Because the limitations period is required by statute rather than based on bargaining between the parties, it is a statute of limitations rather than a mere contractual term.
The requirement of § 10350 that the limitations period be incorporated into the text of the contract does not indicate the contrary. It simply indicates that California lawmakers considered the three-year period specified in § 10350.11 to be so important that they required it to be written where a policy holder is most likely to read it. The majority seems to believe that because § 10350.11 is a contractual *652provision it cannot also be a statute of limitations. I see no reason to believe that this must be so. Rather, it seems to me a matter of common sense that § 10350.11 is both a contractual provision and a statute of limitations.
The majority’s choice of the four-year period provided in California Code of Civil Procedure § 337 was specifically rejected by this court in Nikaido v. Centennial Life Insurance Co., 42 F.3d 557 (9th Cir.1994). In Nikaido, we held that the three-year period of § 10350.11 “provides a closer analogy to this case than does the more general breach of contract provision.” Id. at 559. The majority in this case overrules Nikaido and holds that the four year period of § 337 is the proper analogy because, in the majority’s view, § 10350.11 provides a contractual limitations period rather than a statute of limitations. The majority bases its conclusion on non-California and California cases.
The majority writes that decisions construing comparable provisions in other states than California “have consistently focused on the resulting policy provisions — rather than the statutes mandating their inclusion — and have found that the provisions create enforceable contractual limitations periods for bringing suit on an insurance contract.” Supra at 647-48. It cites three cases in which a limitations period stated in a statute is required by statute to be included in the text of a contract. All three are suits under disability insurance policies, and all three involve statutory provisions virtually identical to § 10350.11.
Two cases, both decided in the Eastern District of Michigan, involved a Michigan statute. See Nolan v. Aetna Life Insurance Co., 588 F.Supp. 1375 (E.D.Mich.1984); Gipson v. Life Insurance Company of North America, 529 F.Supp. 224 (E.D.Mich.1981). The district court in Nolan explicitly held that the three-year limitations period was contractual in nature and that the relevant statute of limitations was Michigan’s six-year statute for contracts. The court in Gipson, three years earlier, had been less explicit, but its opinion is consistent with Nolan. These two cases clearly establish the rule in the Eastern District of Michigan and directly support the majority’s opinion in this case.
The third case, Esbrandt v. Provident Life and Accident Insurance Co., 559 F.Supp. 23 (E.D.Pa.1983), is not as explicit at the majority might wish. The district court enforced a three-year period contained in a Pennsylvania statute, stating, “[a]t issue here is a suit limitation clause, which is required by state law.” Id. at 25 n. 5 (emphasis in original). For this case to provide direct support for the majority, it needs not only to enforce the statutorily required limitations period stated in the policy; it needs also to say that there is a statute of limitations different from, and longer than, the statutory limitations period that is required to be in the contract. But the case contains no hint that there is a longer statute of limitations lurking outside the statutorily required limitations period.
The California cases are less useful to the majority. The majority writes that “California courts have treated policy provisions that arise out of the application of Section 10350.11 as contractual limitations periods which operate distinct and apart from the statutory limitations period set by the legislature.” Supra at 648 (emphasis in original). The majority cites two cases in support of this proposition, one involving life insurance and the other involving health insurance. Neither case involves disability insurance, and neither mentions § 10350.11 as the source of the policy provision at issue. The failure to mention § 10350.11 is not surprising, since that section, by its terms, applies only to disability insurance. (Indeed, I have not been able to discover any California statute, other than § 10350.11, that specifies a limitations period and requires that the period be stated in the text of a policy.)
*653The first case, Mize v. Reserve Life Insurance Co., 48 Cal.App.3d 487, 121 Cal.Rptr. 848 (1975), dealt with life insurance. The policy included a three-year limitations period set out in language comparable to § 10503.11, but there is no indication in the opinion that the contractual period in the policy was required by § 10503.11 (or by any other provision of California law). Indeed, there is some suggestion to the contrary, for in discussing the period in the policy the court wrote, “ ‘[W]e accept as a settled principle of law that an insurer may by the contract of insurance limit the time within which suit may be brought on the policy so as to provide a shorter time than is provided by law.’ ” Id. at 495, 121 Cal.Rptr. 853 (quoting Genuser v. Ocean Accident, etc. Corp., 57 Cal.App.2d 979, 983, 135 P.2d 670, 672 (1943) (sustaining a two years and one day contractual limitation in a motor vehicle liability policy)).
The second case, NN Investors Life Insurance Co. v. Superior Court, 208 Cal.App.3d 1070, 256 Cal.Rptr. 598 (1989), dealt with health insurance. The policy included a three-year limitations period, also set out in language comparable to § 10503.11, but, just as in Mize, there is no indication that the contractual period in the policy was required by § 10503.11 or by any other provision of California law. Indeed, just as in Mize, there is some suggestion to the contrary: “Plaintiffs do not challenge the enforceability of the clause itself. ‘Such a provision has long been recognized as valid in California,’ provided the limitation is not unreasonably short.” Id. at 1072, 256 Cal.Rptr. 600 (quoting C & H Foods Co. v. Hartford Ins. Co., 163 Cal.App.3d 1055, 1064, 211 Cal.Rptr. 765, 769 (1984) (sustaining a one year contractual limitation in a marine insurance policy)).
The only California case I have been able to discover that deals specifically with § 10503.11 is CBS Broadcasting, Inc. v. Fireman’s Fund Insurance Co., 70 Cal.App.4th 1075, 83 Cal.Rptr.2d 197 (1999). In considering § 10350.11,* the California Court of Appeal in CBS Broadcasting stated, “[T]he primary question is whether the policy at issue is a disability policy under California law. If it is, it is governed by the three-year statute of limitations set out in section 10350.11 [.]” Id. at 1081, 83 Cal.Rptr.2d 197 (emphasis added). The majority discounts the statement in CBS Broadcasting as dictum and as “not based upon a complete consideration of the entire statute.” Supra at 648 n. 9. The statement may be dictum, but so far as I am aware CBS Broadcasting is the only case that addresses, in any fashion, whether California courts treat § 10350.11 as providing a statute of limitations. The statement may also be a misconstruction of § 10350.11 (though I doubt it), but it is not up to us to tell a California appellate court that it has made a mistake of California law. Unlike the majority, I take the Court of Appeal at its word. There is no question that the policy at issue in our case is a disability policy, and there is accordingly no question that, in the words of CBS Broadcasting, § 10350.11 provides a “three-year statute of limitations.” 70 Cal.App.4th at 1081, 83 Cal.Rptr.2d at 200.
II
A
California Insurance Code § 10350.7 provides the statutory accrual rule for disability insurance policies issued in California. Section 10350.7 provides:
A disability policy shall contain a provision which shall be in the form set forth herein.
Proofs of Loss: Written proof of loss must be furnished to the insurer at its said office in case of claim for loss for which this policy provides any periodic payment contingent upon continuing loss within 90 days after the termination of the period for which the insurer is hable and in the case claim for any other loss within 90 days after the date of such loss....
*654Section 10350.7 provides the accrual rule for two independently sufficient reasons. First, as we held in Nikaido, § 10350.11 incorporates § 10350.7 by its reference to the date on which “written proof of loss is required to be furnished.” See 42 F.3d at 559. Section 10350.7, specifying when written proof of loss must be furnished, provides that date and thus provides the accrual rule.
Second, we are required by ERISA and by the Supreme Court’s decision in UNUM Ufe to follow § 10350.7. ERISA broadly preempts state laws relating to “any employee benefit plan,” 29 U.S.C. § 1144(a), but saves from preemption “any law of any State which regulates insurance,” 29 U.S.C. § 1144(b)(2)(A). In UNUM Life, the Supreme Court established a two-part test for determining whether a state law “regulates insurance” within the meaning of ERISA. First, we must ask “whether, from a ‘common-sense view of the matter,’ the contested prescription regulates insurance.” 526 U.S. at 367, 119 S.Ct. 1380 (citation omitted). Second, we must consider three factors to determine whether the law “fits within the ‘business of insurance’ as that phrase is used in the McCarran-Ferguson Act.” Id. Those factors are: “first, whether the practice has the effect of transferring or spreading a policyholder’s risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry.” Id. (citations omitted).
Under this test, it is apparent that the accrual rule specified in § 10350.7 is a state law that “regulates insurance.” As a matter of common sense, it is hard to come to any other conclusion. It is found in California’s Insurance Code; it regulates the determination of the timeliness of insurance claims; and it is required by California insurance law to be written into disability insurance policies. Further, at least two of the three McCarran-Ferguson factors are satisfied: the accrual rule of § 10350.7 is “an integral part of the policy relationship” and is “limited to entities within the insurance industry.”
A comparison of the rules at issue in UNUM Life and in this case strongly reinforces the conclusion that the accrual rule of § 10350.7 “regulates insurance.” The rule at issue in UNUM Life was a California “notice-prejudice rule” which requires an insurer to consider an untimely claim on its substantive merits unless the insurer can “prove that it suffered actual prejudice” from the untimeliness of the claim. Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal.App.4th 715, 761, 15 Cal.Rptr.2d 815 (1993). Applying its two-part test, the Court in UNUM Life concluded that the notice-prejudice rule regulates insurance within the meaning of ERISA. The Court’s conclusion in UNUM Life virtually compels the same conclusion in this case, for the notice-prejudice and the accrual rules both regulate the timeliness of claims against the insurer. Not only do they “regulate insurance”; they even do so in the same way.
The majority does not go through the details of UNUM Life’s two-part test, but it appears to agree that the accrual rule of § 10350.7 “regulates insurance” within the meaning of ERISA and is therefore saved from preemption. See supra 647 at n. 4 (“Both Section 10350.11 and Section 10350.7 ... of the California Insurance Code are statutes governing the content of insurance policies. They are not, therefore, preempted under ERISA, ... see generally UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 367, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999), and the contractual provisions they require to be included in the policy govern the relationship of the parties.”).
B
In Nikaido, this court interpreted § 10350.7 as establishing a “rolling accrual” rule: “For each month that a claimant is disabled and the company fails to make payment, a separate cause of action ac*655crues.” 42 F.3d at 560. Under the rolling accrual rule, so long as a claimant could allege that an insurer had failed to make a periodic payment within the past three years, the claimant had a never-ending series of causes of action. I agree with the majority that the rolling accrual rule of Nikaido is an incorrect construction of § 10350.7, and I agree with the majority’s discussion concerning the correct construction.
Ill
We originally took this case en banc to sort out difficult questions concerning Ni-kaido’s rolling accrual rule. I agree with the majority that Nikaido1's rolling accrual rule is wrong and should be overruled. The rest of Nikaido, however, was correctly decided. As Nikaido held, we must look to §§ 10350.11 and 10350.7 for the statutory limitations period and the accrual rule for California disability insurance policies.
I confess that I am somewhat baffled by the approach taken by the majority. It adopts the four-year statutory limitations period generally applicable to written contracts in California, even though California has specified by statute a three-year limitations period for disability insurance contracts. It also adopts a federal accrual rule under ERISA, even though California’s statute of limitations incorporates a state-law accrual rule, and even though ERISA requires us to follow state rather than federal law when the state law “regulates insurance.”
Perhaps the majority sees the longer limitations period and later federal accrual rule as advantages that justify straining to escape the statutory commands of §§ 10350.11 and 10350.7. But the majority cannot achieve the advantages it seeks, for under its approach the result is still controlled by §§ 10350.11 and 10350.7. Because the majority concludes that §§ 10350.11 and 10350.7 are exempt from federal preemption under UNTJM Life, and because § 10350 requires that the statutory language of §§ 10350.11 and 10350.7 be included in disability insurance policies, the three-year limitations period and state-law accrual rule provided by those statutes necessarily govern disability insurance policies in California. Thus, on remand the district court will face precisely the same questions it would face if §§ 10350.11 and 10350.7 were treated as statutory rather than contractual provisions. The four-year statute of limitations and federal accrual rule will be entirely irrelevant, and will remain so for as long as §§ 10350.11 and 10350.7 are part of California law.
I conclude that the majority has over-' ruled a part of Nikaido that should be retained, that it has incorrectly ignored California insurance law, and that it has done so for no discernable purpose. I concur only in the judgment.