Insurer’s Denial of Coverage Does Not Alter Limitations Period

Tuesday, November 6, 2001

Page No.: 4

Insurer’s Denial of Coverage Does Not Alter Limitations Period—S.C.

By ROBERT GREENE, Staff Writer

The state Supreme Court yesterday affirmed a 1947 statute-of-limitations restriction favorable to insurance companies but said the 54-year-old ruling might not apply to a plaintiff who alleged that his insurer misrepresented the extent of damage to his home caused by the 1994 Northridge earthquake.

The ruling in the case of Neff v. New York Life Ins. Co.—that an insurance company’s unconditional denial of coverage does not block the company from invoking the one-year limit for filing suit—remains “good law” today, the justices said in answer to a query posed by the Ninth U.S. Circuit Court of Appeals.

The Supreme Court rejected plaintiff Peter Vu’s assertion that Neff should no longer be read to deny relief to plaintiffs whose insurers, perhaps wrongly, denied coverage.

Justice Joyce Kennard said California opinions giving expanded significance to the relationship between insurance companies and the insured are not so sweeping as to undermine Neff’s holding that “no mere denial of liability, even though it be alleged to have been made through fraud or mistake, should be held sufficient, without more, to deprive the insurer of its privilege of having the disputed liability litigated within the period prescribed by the statute of limitations.”

Still, Kennard said, Vu might have a point if he can show he relied on his adjuster’s statement that any quake damage to his home was minimal and fell below his deductible.

The justice explained:

“…Neff and many of the cases applying Neff were careful to distinguish…a misrepresentation of fact. The latter, they noted, could lead to an estoppel.”

The decision in Vu’s case is merely the latest of hundreds that came in the wake of the Northridge quake.

So many claims were filed and damage was so immense—from $12 billion to more than $15 billion, depending on which reports are to be believed—and the state Department of Insurance’s handling of the claims was so controversial that the Legislature extended the statute of limitations for some quake claims.

The lengthened period may or may not apply to Vu’s case. The state Supreme Court asked for briefing on the issue and saw enough to conclude that the case was not moot. But the question of whether the longer period applies to Vu was not part of the question certified to the Supreme Court by the Ninth Circuit and was not addressed.

Kennard noted that quake cases filed in federal district court already have resulted in five published opinions.

Vu filed his case in district court in 1995, well after the statutory one-year period started running with the Jan. 17, 1994 quake.

But Vu said he didn’t file earlier because of his adjuster’s representation that he had no claim. Only later did Vu discover that there was extensive damage that the adjuster did not tell him about.

The district court granted Prudential Property & Casualty Insurance Company’s motion for summary judgment, and Vu appealed to the Ninth Circuit, arguing that the basis for the ruling—the absolutist rule of Neff—should not apply.

The Ninth Circuit certified the question to the state Supreme Court under a procedure that has been used several times since state rules began allowing it.

The justices concluded that Neff was still good law, but they went further.

“Here the undisputed representation is one of fact,” Kennard said. “William Leggitt, Prudential’s inspector, examined Vu’s property after the earthquake, and provided Vu with a worksheet showing the specific items of damage and the cost of repairs….Leggitt’s worksheet and explanation did not merely convey a denial of coverage, or state Prudential’s interpretation of the policy. Leggitt communicated specific facts describing the nature and amount of damage, and he advised Vu not to file a claim because the total damage Vu had incurred was less that the policy’s deductible.”

On these facts, Kennard said, “Prudential may be estopped from raising a statute of limitations defense if Vu can show that he reasonably relied on Leggett’s representation.”

The case is Vu v. Prudential Property & Casualty Insurance Company, 01 S.O.S. 5406.