Filed 9/9/19 Hufstedler v. Mercury Ins. Co. CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

DIANE HUFSTEDLER,

Plaintiff and Appellant,

v.

MERCURY INSURANCE COMPANY,

Defendant and Respondent.

G056113

(Super. Ct. No. 30-2016-00878057)

O P I N I O N

Appeal from a judgment and order of the Superior Court of Orange County, Melissa R. McCormick, Judge. Affirmed.

Hunt & Adams and John C. Adams III for Plaintiff and Appellant.

O’Connor, Schmeltzer & O’Connor and Lee P. O’Connor for Defendant and Respondent.

* * *

I. INTRODUCTION

As explained in Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674 (Prudential–LMI), every homeowners’ policy in California has, by law (Ins. Code, § 2071 ), a limitations period of 12 months from the date of the inception of a loss during which the insured must file suit against the insurer. (See id. at pp. 682-684.) This limitations period is often referred to as the one-year suit provision. But because literal application of the statutory date-of-the-inception-of-the-loss language would allow an insurance company to run out the clock on that one year by stalling the claims investigation process, Prudential-LMI developed a rule of equitable tolling that is superimposed on the one-year suit provision. As announced in Prudential-LMI, the one year still runs from the “inception of the loss” (the exact language used in the statute) but is tolled “from the time an insured gives notice of the damage to his insurer, pursuant to applicable policy provisions, until coverage is denied.” (Id. at p. 693.) The tolling period ends and the one year begins to run again at the time “the insurer formally denies the claim in writing.” (Id. at pp. 678-679.)

In the present case the insurer formally and unequivocally denied a kitchen damage claim in writing. And in that denial letter the insurer made it clear the one-year period had begun to run. Then the insured disputed the coverage denial. The insurer maintained its position, but also told the insured if she had any new information bearing on the claim it would be more than happy to reconsider its denial. The insured then further disputed the insurer’s denial, in one instance including an appliance repair invoice. But in every letter from the insurer in our record the insurer made it clear the claim was still denied.

Even though the insured retained her own coverage counsel about two months after the first formal unequivocal written denial, suit was not filed until about 13 and a half months after that initial denial. For that reason, the dispute before us centers on the tolling provision.

The insured’s main argument is that because the insurer allowed for the possibility, in its second letter to her, that she might be able to supply it with new information bearing on the claim, the insurer was required as a matter of law to explicitly tell the insured again – when she later sent new information in the form of an appliance repair invoice to the insurer, that the one-year suit provision was still running as of the date of the first denial letter. Having not done so, the year did not commence running until the letter reiterating the insurer’s denial in response to the insured’s invoice letter.

The argument is not compatible with existing California appellate case law. (Singh v. Allstate Ins. Co. (1998) 63 Cal.App.4th 135 (Singh); Migliore v. Mid-Century Ins. Co. (2002) 97 Cal.App.4th 592 (Migliore); and Vishva Dev, M.D., Inc. v. Blue Shield of California Life & Health Ins. Co. (2016) 2 Cal.App.5th 1218 (Vishva Dev).) Nor is it in accord with the duty of an insurer to remain open to new information. And it is contrary to a careful reading of Prudential-LMI, which is grounded in the fundamentals of classic statute of limitations analysis. The insured had all the information she needed to sue the insurer as of the date of the first written denial of her claim. We affirm.

II. FACTS

Like an epistolary novel, this case unfolds as a series of letters. On July 30, 2015, plaintiff Diane Hufstedler discovered the wood flooring in the kitchen of her Mission Viejo home had been damaged. She made a claim to defendant Mercury Insurance Company the next day. Mercury had a “Property Damage Specialist” inspect the home four days later.

On August 6, 2015, Mercury sent Hufstedler a three-page denial letter. The gravamen of the letter was that the damage was caused by an intermittent leak in a water supply line to her refrigerator, and hence was excluded under Hufstedler’s homeowner’s policy because the damage was the result of repeated leakage of water over a period of more than one week. The letter stated: “We have completed our evaluation and determined there is no coverage for your loss.”

The letter also – explicitly – reminded Hufstedler of the one-year suit provision. We quote that portion of the letter here: “As of today’s date, we are closing your claim. [¶] California law requires that we notify you of the time limits that apply to your claim. Please refer to your property policy under ‘SECTION I-CONDITIONS: [¶] 7. Suit Against Us. No action shall be brought unless there has been compliance with the policy provisions and the action is started within one year after the loss or damage. [¶] This one-year period begins when the claim is closed. However, if there is a lapse of time between the date of loss occurred and the date you reported it to Mercury, those days will be subtracted from your one-year period. [¶] We are not suggesting that you file legal action. We are simply advising you of the time limits outlined in your property policy.” (Italics added.)

There was no language in the August 6, 2015 letter, indicating that Mercury was willing to reconsider Hufstedler’s claim if she presented any new information. It said only that the year began to run when the claim was closed and it was closed on August 6.

About two weeks later, on August 18, Hufstedler sent Mercury an email disagreeing with Mercury’s “denial” (we put the word in quotes to show that Hufstedler herself understood her claim had been denied) and requesting all of Mercury’s file on her claim. Mercury sent a letter the next day honoring the request by enclosing all claim-related documents, and also said it would “be more than happy to reconsider its position based on any new or additional information or documentation that you have or may acquire in the future.” However, Mercury’s letter was clear Hufstedler’s claim remained closed: “Please refer to our letter of August 6, 2015 wherein we advised you that we have closed your claim. Your claim remains closed.”

A little more than two months later, on October 29, 2015, Hufstedler’s lawyers sent Mercury a 16-plus page letter disputing Mercury’s coverage position, demanding Mercury “re-open this claim,” and arguing that Mercury should not have closed its claim file in its letter of August 6, 2015. The lawyers’ letter recognized that Mercury had closed its claim file, noting that the closing “would commence Ms. Hufstedler’s one-year time period to file suit.” The point of the letter was that the closing was erroneous, but the fact it had been closed was acknowledged.

Mercury’s response, sent November 12, 2015, was terse. It acknowledged receipt of the October 29 letter and indicated it wanted to “review” the lawyers’ letter. It said: “Once we complete our review of your correspondence we will advise you. [¶] Please be advised at this time the file remains closed.” (Italics added.)

The review was completed by December 21, 2015. Mercury’s letter of that date stated the lawyers’ letter “does not provide a valid basis for a change in the coverage determination. [¶] . . . . [¶] At this time our coverage decision remains the same and the file remains closed as outlined in our August 6, 2015 correspondence to the insured.” Again, Mercury reiterated the file was closed as of August 6.

Hufstedler’s lawyers replied on January 15, 2016, enclosing a copy of an invoice from an appliance repair company concerning a cracked ice maker water pump. It was a short letter. It simply asserted Mercury should take “this additional evidence into consideration, in both denying coverage and refusing to reopen this claim.” (Italics added.) Clearly, the lawyers knew Mercury had never reopened the claim. The letter also asked “whether or not Mercury intends to stand on its denial of this claim and closure of its file.”

Mercury wrote back 10 days later on January 25. Its position remained the same: “Unfortunately this new information does not change our coverage decision. [¶] At this time our coverage decision remains the same and the file remains closed as outlined in our August 6, 2015 correspondence to the insured.”

Five months went by. Then, on June 7, Hufstedler’s lawyers wrote to Mercury saying it had come to their attention Hufstedler had provided Mercury with a recorded or written statement prior to her retaining counsel. Her lawyers wanted a copy.

Mercury answered on June 21, enclosing a copy of Hufstedler’s recorded interview on a compact disc (CD) in the letter. About a month later Hufstedler’s lawyers thanked Mercury for the CD, but noted – based on the times indicated on the tape by the interviewer –that the interview ran about 15 minutes. The total time of the CD, on the other hand, was only 11 1/2 minutes. The lawyers stated there appeared to be a missing 3 1/2 minutes on the CD provided. They asked if those missing minutes were the result of editing, deletion or redaction.

Mercury wrote back on August 2, saying its own copy of the recorded interview corresponded to the 11 1/2 minutes in the CD already provided. The letter ended with the ubiquitous but increasingly important reiteration: “The file remains closed as outlined in our August 6, 2015 correspondence to the insured.”

Hufstedler’s lawyers did not further inquire about the discrepancy in the timing of the interview. Mercury’s letter of August 2 was the end of the correspondence as far as our record shows.

Almost two months later, on September 28, 2016, Hufstedler filed this action, asserting Mercury’s denial of her claim was improper. Mercury brought a motion for summary judgment in August 2017, based on the 12-month suit provision in Hufstedler’s insurance policy. In December the court granted it, noting that Mercury had never agreed to reopen Hufstedler’s claim.

A judgment was entered on January 2, 2018, notice of entry of which was served January 23. Hufstedler moved for a new trial on February 5, but that was rejected by the court in early March. The court again ruled Hufstedler’s suit was time-barred due to the 12-month suit provision. Hufstedler appealed.

III. DISCUSSION

Under the rules announced in Prudential-LMI, Hufstedler’s September 28, 2016 suit was clearly untimely. Mercury sent an unequivocal formal written denial of Hufstedler’s claim on August 6, 2015. That formal denial included a specific quotation of the one-year suit provision in her policy. As the chronicle of the Hufstedler–Mercury correspondence shows, at no time did Mercury ever say it had reopened its file. Even the letter saying it would reconsider if presented with new information reiterated the closure of the case. Every letter ended with the same mantra: The claim had been closed back in August 2015.

A. Attack on the Policy Language

Hufstedler makes two arguments to avoid the running of the one year from August 2015. The first is that insurers should have modified their policy language after Prudential-LMI to tell insured about the tolling provisions laid down in that case. That argument ignores large swaths of what Prudential-LMI itself said about the one-year suit provision.

Prudential-LMI explained that the one-year suit provision is a part of what is known as the “standard form” insurance policy in California. The actual language of the one-year suit provision as set forth in the standard form insurance policy is prescribed by statute. (§ 2071. ) Further, by statute (§ 2070), insurers have no choice but to include it in their policies. (See Prudential-LMI, supra, 51 Cal.3d at pp. 682-684 [explaining history behind statutory one-year suit provision].)

Because, as Prudential-LMI further explained, the one-year suit provision is “authorized by statute,” it is “deemed consistent with public policy as established by the Legislature” and also “must be construed to implement the intent of the Legislature and should not be construed strictly against the insurer (unlike ambiguous or uncertain policy language).” (Prudential-LMI, supra, at p. 684, italics added.)

The short answer, then, to Hufstedler’s argument that Mercury should have changed its policy language to explicitly tell insureds about the tolling provisions of Prudential-LMI is that it couldn’t. The standard form language is required. (§ 2070.) The most an insurer could do (see § 2070, quoted in the margin) might be to include an addendum to its policy explaining the holding of Prudential-LMI. Nothing in Prudential-LMI, however, comes close to requiring such an addendum and it would seem beyond the mandate of the judicial branch.

Hufstedler forgets that Prudential-LMI itself is a common law gloss imposed on statutory language because that language, applied literally, could lead to highly inequitable results in the case of “progressive property loss cases” such as the one involving expansive soil and earth movement in Prudential-LMI. (Prudential-LMI, supra, 51 Cal.3d at pp. 679-681 [noting that insured sued four different insurers who had insured the property between 1971 and 1986].) In fact, the Prudential-LMI court expressly limited its holding to progressive property loss cases. (Id. at p. 679. ) Modifying sections 2070 and 2071 is going to require an act of the Legislature.

B. The Reconsideration Conundrum

That leaves Hufstedler’s main argument. She focuses on the proviso in Mercury’s August 19 letter that it would be “more than happy to reconsider its position based on any new or additional information or documentation that you have or may acquire in the future.” Hufstedler’s theory is that by sending the appliance repair invoice to Mercury – as Hufstedler did in January 2016 – Mercury became obligated, at the very least, to expressly tell the insured (in this case the insured’s attorneys) that her one year had been running since August 2015. Hufstedler appears to argue that if Mercury didn’t explicitly reiterate the point that the one year was already running in the response to her counsel’s January 2016 letter enclosing a repair invoice, the one-year tolling began anew that month.

There are several answers to this theory. The foremost is that even if, for sake of argument, some consideration of equity supported fastening to insurers the requirement of reiterating an express time limit notification with any rejection of a reconsideration request, this is not the case in which to proclaim such a requirement. Mercury’s August 6, 2015 denial letter found its way to Hufstedler’s attorneys by October 2015, and their letter shows they certainly understood the import of Mercury’s closing its file and denying the claim. Their letter of October 29, 2015, in response, was practically an appellate brief attacking Mercury’s application of certain terms in its policy to Hufstedler’s claim. Hufstedler’s lawyers certainly knew that the one year was running as of August 6, 2015 – they said so in so many words.

Additionally, the theory leads to counterproductive consequences by punishing insurers for trying to do the right thing, for being willing to reconsider new information instead of doubling down on an early denial. Under Hufstedler’s theory, insurers would have the Hobson’s choice of either losing the benefit of the one-year suit provision, or acting in bad faith by announcing an early denial and then refusing to consider any new information. That would contravene the policy that insurers should investigate claims in good faith. “[T]he insurer’s early closure of an investigation and unwillingness to reconsider a denial when presented with evidence of factual errors will fortify a finding of bad faith.” (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 880; accord, Singh, supra, 63 Cal.App.4th at p. 148 [“Plaintiffs forget that insurers have a duty to investigate claims”].)

Moreover, Hufstedler’s theory has the practical effect of nullifying the one-year statutory suit provision. As noted by the court in Singh, “the simple expedient of making many requests for reconsideration” would “extend the one-year statute at will with successive periods of tolling.” (Singh, supra, 63 Cal.App.4th at p. 145.) And as one court, citing Singh, observed about an insured’s use of an insurer’s optional appeals process: “Moreover, under Dev’s theory, any party engaging in an insurance company’s optional appeal process could continuously toll the statute of limitations, thereby rendering it a nullity.” (Vishva Dev, supra, 2 Cal.App.5th at p. 1225, italics added.)

The final answer is that acceptance of Hufstedler’s theory would open up a fissure in what is now consistent appellate precedent. Specifically, Hufstedler’s theory is contrary to the actual holdings in Singh and Migliori and inconsistent with the rationale of Vishva Dev. Nor is it supported, much less required, by the two cases Hufstedler does rely on, Aliberti v. Allstate Ins. Co. (1999) 74 Cal.App.4th 138 (Aliberti) and Ashou v. Liberty Mutual Fire Ins. Co. (2006) 138 Cal.App.4th 748 (Ashou).

First Singh. That case involved a fire that occurred April 27, 1994. The insured’s claim was denied in a letter of November 9, 1994. That letter said if the insureds had “‘any further information’” they should “not hesitate to bring this information to our attention.’” (Singh, supra, 63 Cal.App.4th at p. 138.) Then, on February 21, 1995, the insureds requested reconsideration of their claim, adding that they “did ‘not wish to litigate this matter[.]’” (Id. at pp. 138-139.) The insurer simply said it would provide a response within 30 days. In that response – a letter of March 22, 1995 – the insurer said that “‘[a]fter reconsideration’” its “‘position . . . remain[ed] unchanged[.]’” (Id. at p. 139.) On appeal from the insurer’s subsequent motion for summary judgment, the Singh court held that the equitable tolling period did not apply to any period of reconsideration (id. at p. 140), noting how easy a reconsideration theory would make circumvention of the one-year suit provision. (Id. at p. 145.)

Migliore followed Singh, applying it to more complex facts. Migliore centered around whether certain damage to a house – most notably a hump in a cement slab in a kitchen – was the result of aftershocks from the Northridge Earthquake. If the hump (and some other damage) was the result of aftershocks, the damage was covered. But if it was the result of the Northridge Earthquake itself or was a preexisting condition, it wasn’t. (See Migliore, supra, 97 Cal.App.4th at pp. 596-597.) Prior to litigation, the insurer had already paid for certain other damage which the insurer had ascribed to the aftershocks. The opinion centered on a claim for further damage made by the insured in April 1995. (See id. at p. 597.)

The claim for further damage was denied on July 6, 1995. The letter giving the insured the bad news was quoted verbatim by the court, a quotation that took up about three pages of the opinion. (Migliore, supra, 97 Cal.App.4th at pp. 597-600.) Rather remarkably, the letter did not use the words “deny” or “denial,” nor did it say anything about the insurer closing its file. (Ibid.) It was a tour de force of gentility. The strongest words of rejection were the mild, “we are unable to extend coverage to you for any pre-existing damages or losses caused by pre-existing damages.” And the letter included an invitation for more information: “‘This decision is based upon the information available to us at this time. If you have any other information which you believe may effect [sic] Mid-Century Insurance Company’s decision on your claim, please let us know so we can consider it. Call us at the Emergency Claim Center at (800) 593-5736.’” (Id. at p. 599.)

Nor did the Migliore letter (in contrast to the case at bar) quote the one-year suit provision in the policy. It merely alluded to general policy conditions: “‘In closing we want you to be aware that Mid-Century Insurance Company is not waiving any of the terms, conditions or provisions of the insurance policy issued to you. Fire Insurance Exchange expressly reserves its right to assert those terms, conditions or provisions.’” (Migliore, supra, 97 Cal.App.4th at p. 600.)

Despite these relatively oblique circumlocutions, the appellate court rejected the idea that the July 6 letter was anything but “an unequivocal denial.” (Migliore, supra, 97 Cal.App.4th at p. 605.) It reiterated Singh’s point that a willingness to reconsider “does not render a denial equivocal.” (Migliore, supra, 97 Cal.App.4th at p. 605, citing Singh, supra, 63 Cal.App.4th at pp. 147-148.) And – most importantly for the case before us – the Migliore court also rejected the idea that the denial letter had to specifically notify the insured of the one-year suit provision: “No case has established that inclusion of this information in a denial letter is necessary to qualify the letter as an ‘unequivocal’ denial, and we decline to do so.” (Migliore, supra, at p. 606.)

Finally, the Vishva Dev case directly confronted the tension between the need for tolling as explained in Prudential-LMI and the problem of an insurer’s willingness to reconsider a denied claim as explicated in Singh and Migliore. To be sure, the Vishva Dev case did not originate in a homeowners’ policy claim. It stemmed from an emergency physician’s quest for payment from an insurer concerning two patients, and involved the two-year statute of limitations for quantum meruit claims rather than the one-year suit provision. But what makes Vishva Dev instructive for our purposes is that it presents even stronger facts than those in Singh, Migliore – or the case at bar – for tolling based on an insurer’s willingness to reconsider a claim. Yet the Vishva Dev court still declined to impose Prudential-LMI tolling.

In Vishva Dev, a physician received three letters (called explanations of benefits or “EOBs” in the opinion) severely cutting his bills for treating three specific patients. In each case the physician appealed the cuts through the insurer’s voluntary appeals process, and in each case the insurer denied the appeal.

The physician then filed an action in quantum meruit. He argued that his cause of action for quantum meruit did not accrue until the “conclusion of its communications” regarding his appeals to the insurer, which would have made each claim timely. (Vishva Dev, supra, 2 Cal.App.5th at p. 1224.) The physician also made the related argument that the insurer should be estopped from raising a statute of limitations defense because he “reasonably relied on the appeals process.” (Ibid.) In rejecting these arguments, the Vishva Dev court specifically cited Singh and Migliore to the effect that a voluntary appeal process after an “unequivocal notice” of denial does not toll the limitations period. (Ibid.)

The Vishna Dev court focused on the fact that with the unequivocal denial the physician had all the facts he needed to bring suit, pointing in particular to Prudential-LMI’s treatment of the statute of limitations issue there: “The sole issue in this case is when Dev knew or should have known the facts essential to its quantum meruit claim – that Blue Shield Life and Blue Shield California denied payment of Dev’s medical bills for the emergency services performed for their insureds. Dev argues that the limitations period began to run at the end of the insurers’ optional appeals process. Blue Shield Life and Blue Shield California argue that it began to run when they formally denied Dev’s claims in writing in the original EOBs. [¶] California courts have taken the latter approach in the case of homeowners insurance. For example, in Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 678, the California Supreme Court held that the statute of limitations begins to run once the insurer has issued an unequivocal denial of payment in writing. In that case, the insured brought an action against the insurer for bad faith denial of coverage of losses resulting from damage to the insured’s property. The court reasoned that an unequivocal denial of payment in writing gave the insured knowledge of the facts essential to the insured’s claim – bad faith denial of coverage – and, therefore, started the limitations period. (Ibid.)” (Vishva Dev, supra, 2 Cal.App.5th at p. 1223, citing Prudential-LMI, supra, 51 Cal.3d at p. 678, italics added.)

Application of Singh, Migliore and Vishva Dev to the case at hand leaves no room for doubt the trial court correctly granted summary judgment here. Hufstedler’s main theory that an insurer’s willingness to reconsider an unequivocal denial somehow delays or otherwise rewinds the one-year suit provision was rejected as unworkable in all three opinions. (Singh, supra, 63 Cal.App.4th at pp. 145-146; Migliore, supra, 97 Cal.App.4th at p. 605; Vishva Dev, supra, 2 Cal.App.5th at p. 1223.) And Vishva Dev’s point that even a formal appeals process offered by the insurer will not toll a limitations period is directly applicable to Hufstedler’s arguments.

Finally, we address the two cases Hufstedler relies on, Aliberti, supra, 74 Cal.App.4th 138 and Ashou, supra, 138 Cal.App.4th 748. Each case is consistent with Singh, Migliore, and Vishva Dev.

Aliberti is the outgrowth of Prudential-LMI’s point that the year begins with the insurer’s unequivocal written denial of a claim. In Aliberti “it was undisputed that Allstate never denied his claim in writing, as required by Prudential[-LMI].” (Aliberti, supra, 74 Cal.App.4th at p. 142.) The point of the opinion was to emphasize the need for a written denial. (Id. at pp. 146-148.) Here Hufstedler recognizes that Mercury did indeed send her a written denial on August 6, 2015. Aliberti thus has little application to the case at hand.

Ashou is a bit more complicated. The case arose out of a special statute enacted by the Legislature in the aftermath of the terrible Northridge earthquake of 1994. The statute, section 340.9 of the Code of Civil Procedure, expressly “‘revived’” any cause of action for damages arising out of that earthquake which might have otherwise expired. (Ashou, supra, 138 Cal.App.4th at p. 753, fn. 1, quoting Code Civ. Proc., § 340.9.) The revival statute gave an insured one year from the statute’s effective date. The reason for the statute was that the Legislature had found “the insurance industry’s response to the Northridge earthquake to have been so inadequate that it was necessary to enact blanket legislation allowing suits on earthquake claims that would otherwise have been time-barred.” (Id. at p. 764.)

The main point of Ashou was to extend Prudential-LMI’s doctrine of equitable tolling to the newly-enacted Code of Civil Procedure section 340.9. (See Ashou, supra, 138 Cal.App.4th at pp. 760-764.) But under the facts of the case it was unclear whether the insured’s claim should have been equitably tolled, and reversal was needed to clear up the point.

This is because in Ashou the file really was reopened. The court noted it was “undisputed” the insurance company agreed to reopen the insured’s 1994 claim. (Ashou, supra, 138 Cal.App.4th at p. 754.) But it was unclear precisely when the insurer had agreed to reopen the file. For some reason that information hadn’t been included in the record on appeal. On appeal – and without a clear record from the trial court – the parties disputed the date of the reopening. The insured said the company had agreed to reopen the claim on December 20, 2001. The insurer said it reopened the file in August 2001. (Id. at pp. 765-766.) Which of the two dates made a difference as far as the timeliness of the subsequent suit was concerned, so the case had to go back to ascertain which date was correct. (See id. at pp. 765-766 [walking through the calculations].) In the present case, by contrast, there is nothing to indicate the insurer ever agreed to reopen the file. Unlike Ashou, this court has everything it needs on the present record to ascertain whether the one year ran, or not.

In sum, all the published precedent is consistent with what the trial court did here. Hufstedler has given us no reason to depart from it.

IV. DISPOSITION

The judgment is affirmed. Respondent shall recover its costs on appeal.

BEDSWORTH, J.

WE CONCUR:

O’LEARY, P. J.

MOORE, J.