Court Opinion

ID: 9554135
Source: CourtListenerOpinion
Date Created: 2023-08-07 20:06:24.905078+00
Date Added: 2024-06-11T15:33:06.382352
License: Public Domain

Filed 8/7/23 KB Home Nevada v. Steadfast Ins. Co. CA 2/5
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION FIVE

 KB HOME NEVADA INC., et al.,                                       B318390

           Plaintiffs and Appellants,                               (Los Angeles County
                                                                    Super. Ct. No. 21STCV07601)
           v.

 STEADFAST INSURANCE
 COMPANY et al.,

           Defendants and Respondents.

     APPEAL from a judgment of the Superior Court of Los
Angeles County, Barbara A. Meiers, Judge. Reversed and
remanded with directions.
     Newmeyer & Dillion, Gregory L. Dillion, John A. O’Hara
and C. Kendie Schlecht for Plaintiffs and Appellants.
     Horvitz & Levy, David M. Axelrad and Melissa B. Whalen;
Sinnott, Puebla, Campagne & Curet, Randolph P. Sinnott and
Winnie Ching-Lan Louie for Defendants and Respondents.

                                    ____________________
       A homebuilder obtained insurance coverage for
construction defects in its projects; the policies provided for a
sizeable self-insured retention before the insurer’s obligations
were triggered. Many years into the adjustment of claims under
the policies, the homebuilder learned that the parties had been
omitting from their accounting numerous homebuilder repair
costs which the builder believed should have been credited to its
self-insured retention. The result was that the insurer took over
the defense and indemnification obligations later than it should
have and the homebuilder incurred significant damages. The
homebuilder sought a refund of the excess amounts it paid.
When the insurer failed to agree, the homebuilder brought suit.
The insurer successfully demurred on statute of limitations
grounds – arguing that although it did not know precisely when
the refund claim accrued, it must have been early in the
adjustment process. We reverse.
      FACTUAL AND PROCEDURAL BACKGROUND
1.    Underlying Facts1
     Plaintiffs and appellants are KB Home Nevada Inc., KB
Home Phoenix Inc., KB Home South Bay Inc., and their corporate
parent, KB Home (collectively, KB Home). KB Home is in the

1     As this case was resolved on demurrer, we take our
discussion of the facts from the operative first amended
complaint and the exhibits attached to it. (Fundin v. Chicago
Pneumatic Tool Co. (1984) 152 Cal.App.3d 951 955 [on demurrer,
we deem the allegations of the complaint to be true; however,
when the allegations are inconsistent with unambiguous written
instruments incorporated by reference, the written instruments
control].)

                                2
business of constructing residential housing projects – the
individual projects consist of dozens or hundreds of homes.
      Beginning in 2003, homes purchased in California have
been subject to the Right to Repair Act.2 (Civ. Code, § 895 et seq.)
Under this law, before a homeowner can bring suit for a defect in
new residential construction, the homeowner must give notice to
the builder, and give the builder an opportunity to repair the
defect at its expense. (Civ. Code, §§ 910, 917, 921.) With certain
exceptions set forth in the statute, the Right to Repair Act also
provides a 10-year statute of repose for actions to recover for
those defects. (Civ. Code, § 941, subd. (a).)
      Possibly, but not necessarily, coextensive with its
obligations under the Right to Repair Act, KB Home provided its
residential homebuyers with a Home Builder’s Limited
Warranty.3 KB Home’s warranty obligations to its homeowners
extended for 10 years from close of escrow on the homes.
      Defendant and respondent Steadfast Insurance Co. offered
a Home Builders Protective Insurance Policy. This policy
included, as Coverage C, a Home Builders Limited Warranty

2     KB Home’s operative complaint discusses California law as
a background for the insurance policies at issue. The policies,
however, insured developments in Arizona and Nevada, as well
as California. KB Home did not plead, and the parties do not
discuss, whether the laws in these other states are similar or
apply.

3      The Right to Repair Act permits a homebuilder to offer
“greater protection or protection for longer periods” than that set
forth in the statute, but it cannot offer lesser protection. (Civ.
Code, § 901.) No exemplar of KB Home’s warranty is in the
record on appeal; we therefore do not know its terms.

                                 3
coverage, under which Steadfast agreed to pay the repair costs its
insured was obligated to pay under the Home Builder’s Limited
Warranty policies issued to its home buyers.4 Under this
coverage, Steadfast also agreed that it had the right and duty to
defend against any suit seeking those repair costs.
       There were a number of exclusions to the warranty
coverage under Coverage C. Relevant to this lawsuit, the policies
excluded coverage for repair costs for a construction defect which
first arose within 12 months of the first sale of the home.5
       Coverage C was not first dollar coverage. Instead,
Steadfast’s obligation applied only to damages or repair costs in
excess of a self-insured retention. The policies at issue had two
different self-insured retention amounts – one per “occurrence”
and one per “project.”
       KB Home purchased five policies from Steadfast.6 The first
two were purchased by its Nevada subsidiary, covering
February 1, 2004 – February 1, 2005, and February 1, 2005 –

4      Coverage C was different from, and in addition to,
insurance provided under Coverage D, for construction damage
liability.

5     The exclusion had some exceptions. First year repair costs
were not excluded if the defect was a structural failure or design
flaw that threatened the integrity of the home or a defect that
involved the use of defective materials.
6      There is a disagreement between the parties as to whether
the policies should be considered five separate policies, or three
policies, two of which were renewed. We do not intend to express
an opinion on this, or any other, factual disagreement between
the parties.

                                4
February 1, 2006; two more were purchased by the Phoenix
subsidiary, from June 1, 2003 – June 1, 2004, and June 1, 2004 –
June 1, 2005; and the last by the South Bay, California
subsidiary from February 1, 2005 – February 1, 2006. The self-
insured retention amounts were not the same across all policies.
In addition, some of the language governing Coverage C was
modified in later policy years.
       Specifically, the policies beginning in 2005 (i.e., the second
Nevada policy and the South Bay policy), but not the earlier
policies, required KB Home to “employ a claim service provider”
acceptable to Steadfast “for the purpose of providing claims
services for settlement of losses within the ‘self-insured retention’
amounts.”7 Even before it was required by the policies, KB Home
hired, allegedly at Steadfast’s insistence, Zurich Services
Corporation to act as its claim service provider, to process claims
within its self-insured retention.8 According to KB Home, Zurich
was a sister company to Steadfast and, unbeknownst to KB
Home, Zurich acted with divided loyalties.

7      The operative complaint alleges that “[a]s a requirement of
coverage under the [Steadfast] policies, Plaintiffs were to employ
a claim service provider, acceptable to Steadfast . . . .” But the
terms of the attached policies themselves show that this was a
requirement only of the second Nevada and the South Bay
policies.
8     Zurich, and its agent John Diemer, were originally named
as defendants in this action. Those defendants ultimately
prevailed on demurrer. KB Home’s notice of appeal was
ambiguous as to whether it encompassed Zurich and Diemer. KB
Home has since made clear that it does not challenge the
dismissal of Zurich and Diemer.

                                  5
      For some time, the system appeared to work. Zurich
adjusted warranty claims within the self-insured retention, and
KB Home paid those claims. Steadfast was not involved in those
claims. Once the parties determined that one of the self-insured
retention amounts had been exceeded, Steadfast took over.
2.    KB Home Seeks a Refund
      KB Home alleges that “[i]n or about 2018, [it] became
aware that [Zurich] may not have been tracking all [self-insured
retention] amounts or may have been inaccurately, incorrectly
and inconsistently tracking [self-insured retention] amounts
under the [policies] on one or more projects, and that [KB Home]
may not have received full credit for expenditures that should
have counted toward erosion of their [self-insured retention]
obligations and may have overpaid their [self-insured retention]
obligations.” KB Home then conducted an “internal audit” of its
expenses related to a single residential project, a Nevada
development called “Liberty at Mayfield,” and concluded it had
overpaid nearly $200,000 in self-insured retention expenses
before Steadfast took over the claims on that project.
      On July 3, 2018, KB wrote the corporate parent of both
Steadfast and Zurich, seeking reimbursement for the $200,000
overpayment on Liberty at Mayfield. While the underlying
merits of the dispute are not before us, it appears that the claim
was partially based on KB Home’s belief that, although there was
no coverage under Steadfast’s policy for first-year repair
expenses, those expenses should nonetheless count toward KB
Home’s self-insured retention.9

9     Other areas of dispute were whether KB Home was entitled
to charge against the self-insured retention an amount for

                                6
       According to KB Home’s operative complaint, Steadfast did
not timely reply and instead “unreasonably demand[ed]” KB
Home submit lot-by-lot invoices to support its claim.10
Thereafter, Steadfast said it would not respond to the Liberty at
Mayfield claim until KB Home provided audits on all other
Nevada projects for which it believed it might be entitled to a
refund. KB Home therefore audited its self-insured retention for
other Nevada projects. On June 3, 2019, it submitted an
additional claim for reimbursement, now seeking over $10 million
in allegedly overpaid self-insured retention payments for a total
of 12 Nevada projects.
       KB Home alleged that Steadfast repeatedly indicated it
would respond to the claim but failed to do so. In 2020, while KB
Home was waiting for a response that never came, it audited
Arizona and California projects, finding an additional $3.5
million it believed it overpaid in self-insured retention obligations
on three additional projects. It did not submit these claims to
Steadfast prior to this lawsuit.

overhead expenses related to warranty repairs it conducted itself;
and whether there was a second “per project” self-insured
retention for projects which overlapped two policy years.
10    KB Home attached to the operative complaint a lengthy
June 3, 2019 letter from KB Home’s counsel to Steadfast’s
counsel, responding to a November 21, 2018 letter from
Steadfast’s counsel. The November 21, 2018 letter is not part of
the record. We therefore only know Steadfast’s position through
KB Home’s characterization of it in KB Home’s responsive letter
and its complaint.

                                 7
3.    Proceedings Leading to the First Amended Complaint
       On February 25, 2021, KB Home filed suit against
Steadfast, Zurich and Diemer. On April 5, 2021, Zurich removed
the matter to federal court. There, Steadfast answered and
asserted the statute of limitations as an affirmative defense. On
June 10, 2021, the district court granted KB Home’s motion to
remand the matter to state court.
       On July 13, 2021, back in Los Angeles Superior Court,
Zurich and Diemer demurred to the complaint against them on
the merits. (Those parties did not raise a statute of limitations
ground for demurrer.) The trial court sustained the demurrer
with leave to amend. The court’s minute order addressed other
issues the court raised on its own. Although the parties had not
briefed the issue, the court expressed concern about the initial
complaint not clearly setting forth the terms of the relevant
policies or defining necessary terms of art. In addition, the court
stated, “The plaintiffs have also alleged that the coverages in the
policies in issue ended in 2006 or earlier, this poses a statute of
limitations problem on the face of the complaint depending upon
whether or not they were claims made policies or event
occurrence policies. Hopefully, on[c]e the contracts are on file,
there will be a clarification on this point.”
4.    KB Home’s Operative First Amended Complaint
     On August 24, 2021, KB Home filed its first amended
complaint, which alleged causes of action against Steadfast for
breach of contract and bad faith.11 It attached as exhibits: all five

11    The complaint includes three breach of contract causes of
action – one for each of the three KB Home geographical
subsidiaries (Nevada, Phoenix, and South Bay). There is only

                                 8
insurance policies; a sample claim service agreement with Zurich;
KB Home’s July 2018 and June 2019 letters seeking
reimbursement from Steadfast; and some spreadsheets
supporting its calculations. The latter will become relevant to
our discussion. The key fact is that, although the spreadsheets
purport to set forth KB Home’s self-insured retention payments
on a project-by-project basis, they do not set forth the expenses
year-by-year. Instead, expenditures are separated between first
year expenses and post-first year expenses.12
       Perhaps because the trial court in its minute order had
raised the statute of limitations as a possible defense, KB Home’s
first amended complaint included allegations relating to the
accrual of its claim, delayed discovery, and equitable tolling.
Delayed discovery and equitable tolling are unnecessary to our

one cause of action for bad faith, pursued only by the KB Home
parent and the Nevada subsidiary, based, in part, on Steadfast’s
failure to respond to its refund claim.

12     For example, the spreadsheet for the Chaco Canyon project
shows the contractual $500,000 self-insured retention. It shows a
total first year warranty expenditure of $16,579.88, leaving a
remaining self-insured retention, after first year expenses, of
$483,420.13. (The calculation is a penny off.) There follows a
heading entitled, “Amounts paid in excess of the [self-insured
retention] or toward remaining [self-insured retention] and six
different expenses, which add up to $971,058.14. Subtracting
from that amount the remaining retention of $483,420.13, results
in an “Amount Owed to KB Home” of $487,638.02. (This
calculation assumes, as KB Home contends, that first year
warranty exclusion amounts, although paid directly by KB Home,
are to be included in determining when the $500,000 retention
has been reached.)

                                9
resolution of this appeal. Accordingly, we limit the remainder of
our recitation of this section (and the ensuing Discussion) to the
issue of claim accrual.
      KB Home first alleged that the Steadfast policies provided
coverage for defect claims made for 10 years following the close of
escrow. It next alleged that, although its Home Builder’s Limited
Warranty was 10 years long, and the corresponding statute of
repose was also 10 years, covered expenses could and did occur
well after that 10-year period following the close of escrow.
Specifically, KB Home alleged that “more often than not, the
construction defect plaintiff bar would be successful in convincing
large numbers of individual plaintiff homeowners (or the
homeowner’s association) on each project to retain them on a
contingency fee basis to bring a construction defect claim under
the [Right to Repair] Act against [KB Home] shortly prior to
expiration of the 10-year statute of repose. These claims would
typically start a 3-8 year process of defending the claim,
attempting to settle the claim, or taking the claim to trial and on
appeal.”
5.    Steadfast’s Demurrer
      On October 13, 2021, Steadfast filed its demurrer on
statute of limitation grounds. Steadfast did not support its
motion with a request for judicial notice; it argued the first
amended complaint was time barred on its face.
      The statute of limitations for breach of contract is four
years. (Code Civ. Proc., § 337.) Since KB Home filed suit on
February 25, 2021, Steadfast sought to establish that KB Home’s
breach of contract claim accrued before February 25, 2017.
      Steadfast argued that KB Home’s claim for refund of the
alleged overpayments accrued when the self-insured retention

                                10
overpayments were made and (according to KB Home) Steadfast
should have begun paying under its policies. But Steadfast did
not follow this argument with any specific facts showing when
that point in time might have been, based on KB Home’s view of
which payments should have been credited against its self-
insured retentions. Nor did Steadfast support the demurrer with
any evidence of when it had, as a factual matter, taken over the
repair costs on the relevant projects – a date which, of necessity,
would have been after KB Home’s claim arguably accrued on
each project.
      Instead, Steadfast’s argument was based on sweeping
generalities. Because the latest of its five policies ended on
February 1, 2006, it reasoned that KB Home’s warranty
obligations ended ten years later, on February 1, 2016. Steadfast
argued, “the February 1, 2016 end of the warranty agreements is
the hard stop for any alleged warranty repair obligations of KB
[Home].”13 Steadfast argued that since the “Latest Possible

13     Steadfast supported this proposition with KB Home’s
alleged acknowledgement that it performed warranty repairs
“promptly.” It cites paragraph 45 of the first amended complaint
for this proposition. Paragraph 45, does, in fact, begin with an
assertion that KB Home kept its “end of the bargain by
performing prompt warranty and customer service work on
dozens of projects and hundreds of homes for up to ten years from
the close of escrow on each home at a cost of multiple tens of
millions of dollars.” However, that same paragraph goes on to
allege, “Further, construction defect suits for a project are often
filed 8 or 10 years after the close of escrow of the homes in the
project in order for plaintiff homeowners to get in under the 10-
year statute of repose for construction defect actions. There also
are situations where the statute of repose may be extended
beyond 10 years. [KB Home] typically respond[s] to and

                                11
Warranty Repairs” were February 1, 2016, that is the latest date
on which the statute of limitations could have begun to run.
Therefore, the latest date to file a breach of contract action was
February 1, 2020, and the February 21, 2021 complaint was
untimely by more than a year.
      Steadfast also argued that, by definition, self-insured
retentions are exhausted first, before the insurer’s obligation is
triggered. “In other words, KB [Home] alleges that the [self-
insured retention] sums at issue in the [first amended complaint]
were paid out in the earliest years of Steadfast’s coverage and the
home warranties, well outside the limitations period.” (Emphasis
omitted.) Again, however, Steadfast did not support this with
any project-by-project, year-by-year analysis showing when,

defend[s] construction defect lawsuits for 3-5 years and more
beyond the 10-year statute of repose to the extent that the
applicable [self-insured retention] has not yet been met or
satisfied by [KB Home]. This time period can stretch to 8 years
and more if there are appeals.” Consider the last policies, ending
February 1, 2006. Under KB Home’s alleged facts, a construction
defect lawsuit can be filed against it right before the 10-year
statute of repose runs (i.e., in January 2016). If that case is
appealed, KB Home could be making covered payments (both
defense costs and settlement or judgment expenses) for as many
as eight years after the suit is filed (into 2024). If those expenses
were the ones that exceeded KB Home’s self-insured retention on
a project, KB Home’s claim would not accrue (and the statute
would not start running) until those expenses were paid –
possibly as late as 2024. Steadfast’s demurrer does not address
this part of paragraph 45, which directly alleges covered expenses
occurring well after the 10-year “hard stop” Steadfast asserts.

                                 12
exactly, KB Home alleged any self-insured retention was
exhausted.
       Steadfast very briefly addressed the bad faith cause of
action, arguing that the statute was either two or four years,
depending on whether the claim sounded in tort or contract.
Steadfast pointed out that KB Home sought tort damages for this
cause of action. “Therefore,” it argued, “the statute of limitations
for [the bad faith cause of action] is two years, and expired long
ago.”
6.    KB Home’s Opposition
       KB Home’s opposition argued, on the issue of accrual, that
covered expenses, in the form of litigation costs, did, in fact, occur
significantly beyond the 10-year initial warranty period. It
repeated its allegation that “more often than not,” the
construction defect plaintiffs’ bar would “convinc[e]” homeowners
to bring suit “shortly prior to expiration of the 10-year statute of
repose,” commencing litigation that would run for three to eight
years.
       As to the bad faith cause of action, KB Home argued that a
cause of action for bad faith claim denial accrues at the time the
claim is denied, but Steadfast never actually denied its refund
claim. KB Home relied on its allegations that Steadfast had
promised to respond, but never did.
7.    Steadfast’s Reply
      In reply, as to breach of contract, Steadfast again argued
that the cause of action accrued, and the statute of limitations
began to run, at the time of the alleged self-insured retention
overpayments. Steadfast argued that by definition, this would
have occurred in the early years of the policies and, in fact, before

                                 13
the date on which Steadfast began paying benefits on a particular
claim. Steadfast did not at any time during briefing request
judicial notice of the dates on which Steadfast began paying those
benefits.
      As to bad faith, Steadfast argued that KB Home is not
suing it for bad faith denial of a claim, but simply to recover
overpayments in a contract sense. Therefore, the law governing
accrual of a cause of action for bad faith denial of a claim does not
apply.14
8.    Hearing, Ruling, Judgment and Appeal
      After a hearing, which was not reported, the trial court
took the matter under submission. On November 17, 2021, it
issued its ruling sustaining the demurrer without leave to
amend.15
      The court concluded that the causes of action began to run
once the self-insured retention overpayments were made.
However, the court appeared to believe that coverage applied
only to homeowner claims that were made during the policy
period, not the entire 10-year warranty period. The court
explained, “The coverages were for occurrences (not claims made)
taking place through the policy periods which ended as to two
plaintiffs in about February of 2006 and as to the other in June of

14    At the same time, Steadfast stated, “there was a tender and
denial years and years ago . . . .” It is not clear to what “tender”
or “denial” it was referring.
15     The court indicated that it would, however, entertain a
motion for reconsideration setting forth additional facts plaintiffs
could allege to cure all of the defects the court identified in the
first amended complaint. No such motion was filed.

                                 14
2005. Therefore, even if it took 10 years to do all of the work
necessary to resolve one of these claims were it filed during the
period of the policy, it still would not serve to toll the statute as to
the recovery sought in these cases because the statute of
limitations started to run, based on the case law from Steadfast,
as soon as the plaintiff’s payment of their deductible had been
met, or, in this court’s view, possibly a little later meaning when
Steadfast delayed taking over a claim until more than the
deductible had been satisfied. . . . Moreover, plaintiffs have not
even been able to point to a single case where there may someday
be some inadequate performance in satisfying a customer claim
who has claimed damages from the construction company which
might give rise to suit. Again, that is not this case, and should it
ever occur, presumably a separate suit based on that might then
be filed.”
       The court interpreted KB Home’s bad faith claim as simply
a misstated breach of contract claim, and concluded it added
nothing to the complaint and, in any event, was time-barred for
the same reason.
       Judgment of dismissal was entered on January 3, 2022.
KB Home filed a timely notice of appeal.
                           DISCUSSION
1.    Standard of Review
      “On appeal from a judgment of dismissal following the
sustaining of a demurrer without leave to amend, the reviewing
court must accept as true not only those facts alleged in the
complaint but also facts that may be implied or inferred from
those expressly alleged. [Citation.] A demurrer based on a
statute of limitations will not lie where the action may be, but is

                                  15
not necessarily, barred. [Citation.] In order for the bar of the
statute of limitations to be raised by demurrer, the defect must
clearly and affirmatively appear on the face of the complaint; it is
not enough that the complaint shows that the action may be
barred.” (Marshall v. Gibson, Dunn & Crutcher (1995)
37 Cal.App.4th 1397, 1403.)
      “ ‘[I]t is difficult for demurrers based on the statute of
limitations to succeed because (1) trial and appellate courts treat
the demurrer as admitting all material facts properly pleaded
and (2) resolution of the statute of limitations issue can involve
questions of fact. Furthermore, when the relevant facts are not
clear such that the cause of action might be, but is not
necessarily, time-barred, the demurrer will be overruled.
[Citation.] Thus, for a demurrer based on the statute of
limitations to be sustained, the untimeliness of the lawsuit must
clearly and affirmatively appear on the face of the complaint and
matters judicially noticed.’ ” (Schmier v. City of Berkeley (2022)
76 Cal.App.5th 549, 554.)
2.    The Breach of Contract Causes of Action Accrued No
      Earlier Than When the Alleged Overpayments Were
      Made
       “ ‘ “Liability insurance policies often contain a ‘deductible’
or a ‘self-insured retention’ (SIR) requiring the insured to bear a
portion of the loss otherwise covered by the policy.” ’ [Citation.]
‘ “The term ‘retention’ (or ‘retained limit’) refers to a specific sum
or percentage of loss that is the insured’s initial responsibility
and must be satisfied before there is any coverage under the
policy. It is often referred to as a ‘self-insured retention’ or
‘SIR.’ ” ’ [Citation.] Although an SIR is, in some ways, similar to
a deductible in an insurance policy, ‘[u]nlike a deductible, which

                                  16
generally relates only to damages, an SIR also applies to defense
costs and settlement of any claim.’ [Citation.] Another difference
is that the SIR does not reduce available policy limits. [Citation.]
Rather, the policy limits apply on top of the SIR.” (Deere & Co. v.
Allstate Ins. Co. (2019) 32 Cal.App.5th 499, 505.) “In other
words, a deductible represents a portion of a covered loss lying
within the terms of the policy. [Citation.] Whereas, a retention
is the initial portion of a loss that lies outside the policy.
[Citation.] It represents the risk the insured has agreed to retain
for itself before coverage is triggered.” (Ibid.)
       A district court case has discussed when a claim for refund
of overpaid self-insured retention payments accrues. National
Steel and Shipbuilding Co. v. Century Indemnity Co. (S.D. Cal.
2013) 959 F.Supp.2d 1264 was concerned with an employer who
had obtained insurance – with a sizeable self-insured retention –
for workers’ compensation payments. (Id. at p. 1268.) The
employer concluded that it had overpaid its self-insured retention
with respect to two employees in 2002, and submitted a request
for refund in 2009, ultimately bringing suit in 2012. (Id. at
p. 1278.) Although the district court granted the insurer
summary judgment on the merits, it also found the action time-
barred. The court explained that the statute of limitations runs
when a party knows or should know the facts essential to its
claim. “Applied here, [the insured’s] cause of action against [its
insurer] began to accrue when the accounts of [the injured
employees], respectively, exceeded the self-insured retention
amount of $250,000. According to [the insured’s] exhibits, the
$250,000 limit with respect to both [employees] was reached in
2002. [Citations.] Thus, the statute of limitations on these
claims began to accrue in 2002, when [the insured] could have

                                17
sought indemnification from [the insurer] under the theories
espoused here. Consequently, the four-year limitations period
expired in 2006. Because [the insured] did not file the present
action until 2012, its claims are barred.” (Ibid.)
       It is unnecessary for us to determine whether a claim for
refund of overpaid self-insured retention payments necessarily
accrues at the time the payment exhausting the retention
occurred or if, to the contrary, the claim does not accrue until a
demand for the repayment is made and rejected. What is certain,
however, is that the claim could not possibly accrue before the
payment allegedly exhausting the retention occurred. The
statute of limitations on KB Home’s breach of contract causes of
action could accrue no earlier than when KB Home exceeded its
self-insured retention amounts and could have sought
indemnification from Steadfast on the underlying claims. We
assume, without deciding, that this earlier accrual date applies.
3.    Steadfast Failed to Establish KB Home’s Breach of
      Contract Cause of Action Accrued More Than Four
      Years Before the Complaint Was Filed
       The question next becomes: when did KB Home exceed any
of its self-insured retention amounts? The answer is simple: The
operative complaint does not tell us and, for purposes of
demurrer, we do not know.
       KB Home did not allege any particular dates in its
complaint, although it alleged that expenses could still be
incurred on covered homebuyer claims as many as eight years
after the statute of repose had run on those claims. The exhibits
attached to its complaint did not indicate when the self-insured
retentions were allegedly exhausted, although, for the most part,

                               18
they established that none of the retentions were exhausted
within the first year.16
      Steadfast, in its demurrer, did not argue for any particular
accrual date either, although it claimed that, since there was a
10-year statute of repose, there was a “hard stop” with the “Last
Possible Warranty Repairs” being ten years after the last policy
ended on February 1, 2006. But, based on the complaint and
materials judicially noticed, there was no “hard stop” on
February 1, 2016. That was simply the last day for a homeowner
to request warranty repairs, not the last day for KB Home to
make them. KB Home alleged that it was frequently subjected to
lawsuits filed near the end of the 10-year period, which suits
could generate expenses for years. But even if KB Home timely
made the necessary repairs without a lawsuit, the time to make
those repairs could run more than a year after Steadfast’s
purported “hard stop.”17

16    Each spreadsheet shows some portion of the self-insured
retention remained unsatisfied after the first-year expenses,
although four of the fifteen total projects show additional offsets
which may or may not have been in the first year, resulting in a
negative “remaining” self-insured retention balance.

17    Under the Right to Repair Act, once the homeowner gives
notice of a warranty claim, the builder must acknowledge receipt
within 14 days. (Civ. Code, § 913.) The builder then has another
14 days in which to conduct an initial inspection of the claim.
(Civ. Code, § 916, subd. (a).) If the builder deems a second
inspection is necessary, it has another 40 days to conduct it. (Civ.
Code, § 916, subd. (c).) Within 30 days of the final inspection, the
builder may offer to repair the defect. (Civ. Code, § 917.) The
homeowner shall have 30 days to authorize the builder to
proceed. But the homeowner may also request the builder to

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       Steadfast’s alternative argument that, because the self-
insured retention is exhausted first, it must have been exhausted
early in the warranty period is a reasonable argument, but not
one sufficient to establish the complaint is time-barred as a
matter of law. It certainly cannot be said, on this record, that,
with respect to every project on which KB Home claims its self-
insured retention was exhausted, it was necessarily exhausted in
early years of the warranty. The very existence of a 10-year
warranty presumes some defects will be discovered throughout
that term; and sizeable per-project self-insured retentions
suggest that they are not easily exhausted.
       In its respondent’s brief on appeal, Steadfast attempts to
fill the void in its argument by returning to the language of KB
Home’s operative complaint. Specifically, KB Home alleged it
performed “prompt warranty and customer service work on
dozens of projects and hundreds of homes for up to ten years from

provide the information of alternative contractors to conduct the
repairs. If so, the builder has another 35 days to present the
information of the alternative contractors, and the homeowner
has 20 days after that to authorize one to conduct the repairs.
(Civ. Code, § 918.) The repair work shall be commenced within
14 days of selection. (Civ. Code, § 921, subd. (a).) “Every effort
shall be made to complete the repair within 120 days.” (Civ.
Code, § 921, subd. (b).) “If the applicable statute of limitations
has otherwise run during this process, the time period for filing a
complaint . . . for a claim of inadequate repair, is extended from
the time of the original claim by the claimant to 100 days after
the repair is completed . . . .” (Civ. Code, § 927.) If each of these
deadlines is run to its fullest extent, a warranty claim submitted
on the last date of the warranty could result in repairs completed
over 300 days later, and an additional 100-day extension to file
suit if the repairs are inadequate.

                                 20
the close of escrow on each home at a cost of multiple tens of
millions of dollars.” Recognizing that the self-insured retentions
on the 15 projects at issue were $1 million or less, Steadfast
emphasizes the “multiple tens of millions” language, and reasons,
“KB Home incurred expenses well above its self-insured
retentions within the 10-year limited warranty periods covered
by the” policies. The conclusion does not follow. There is no
evidence that the “multiple tens of millions of dollars” refers only
to the 15 projects at issue in its complaint. Indeed, the language
of the allegation, speaks of “dozens of projects,” thereby implying
tens of millions were spent on at least 24 projects.
       The trial court’s analysis fares no better. While the court
characterized the policies as occurrence policies rather than
claims-made policies, the “occurrences” covered consisted of the
construction work within the policy period. Instead, as Steadfast
agrees, it offered insurance for the scope of the warranty, which
covered claims made up to 10 years after the close of escrow
within the policy period. As we have discussed, it is simply not
clear from the complaint (or any of Steadfast’s arguments) that
the self-insured retentions for the 15 projects at issue were
necessarily exhausted during that 10-year period. KB Home
alleged expenses – particularly litigation expenses – that
continued to accrue long after the 10-year period had run. We
cannot determine whether any of the self-insured retentions were
also exhausted during this post-10-year period. It follows that
Steadfast’s statute of limitations defense cannot be adjudicated
on demurrer.
4.    The Bad Faith Cause of Action is Not Barred
     KB Home’s bad faith claim is based on Steadfast’s failure to
properly respond to its request for reimbursement. With the

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survival of the breach of contract causes of action, it is apparent
that if the bad faith claim is viewed as a breach of contract and is
subject to the four-year statute, it survives as well. If it is a tort
claim, subject to the two-year statute, (Code Civ. Proc., § 339,
subd. 1), Steadfast must still establish the date of its accrual. KB
Home requested reimbursement by letter of July 3, 2018, but it is
not clear when Steadfast denied the request. According to KB
Home, Steadfast said it would not respond until KB Home had
audited its other Nevada projects and sought reimbursement for
all of them together. Steadfast performed the audit and sent the
expanded request for reimbursement on June 3, 2019.
Thereafter, according to KB Home, Steadfast promised it would
respond, but never did. KB Home ultimately filed suit on
February 25, 2021. Based on these allegations, at the very least
the complaint was timely with respect to the June 3, 2019
request for reimbursement.
5.    Conclusion
      It may be that both parties possess the data necessary to
establish the accrual date of KB Home’s causes of action. KB
Home has audited its payment files and created individual
project spreadsheets of all expenses it seeks to allocate to its self-
insured retention; it appears not yet to have provided a
spreadsheet that indicates when the expenses exhausting the
retentions were allegedly incurred. Steadfast, for its part, knows
when it believed each self-insured retention was triggered and it
began adjusting claims on each project directly. It is also aware –
at least in general – of which expenses KB Home argues were
wrongfully omitted from those retentions, and may be able to
determine the arguable accrual date from this information. But
that data was not before the trial court, and, on demurrer, we

                                 22
give the plaintiff the benefit of the doubt that the action is timely.
It is therefore unnecessary to address KB Home’s arguments of
delayed discovery and equitable tolling.
                          DISPOSITION
       The judgment is reversed, and the matter remanded to the
trial court with directions to vacate its order sustaining
Steadfast’s demurrer and enter a new and different order
overruling it. Steadfast is to pay KB Home’s costs on appeal.

                                            RUBIN, P. J.
WE CONCUR:

                   BAKER, J.

                   MOOR, J.

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