Opinion
G040440.
6-25-2009
WENDI KNAAK et al., Plaintiffs and Appellants, v. ISU WILLINGHAM INSURANCE SERVICES, INC., et al., Defendants and Respondents.
Stolpman, Krissman, Elber & Silver, Thomas G. Stolpman and Donna Silver for Plaintiffs and Appellants. Law Offices of Lydia Bouzaglou-Newcomb, Jane E. Carey; P. K. Schrieffer, Paul K. Schrieffer and Alfred J. Shine, Jr., for Defendants and Respondents.
Not to be Published in Official Reports
This is a very tragic case involving family members who have sued each other and impacting third parties who were severely injured eight years ago and are still waiting to recover damages. Ruth Knaak (Ruth) loaned her car to several fellow church members, including her son and granddaughter, and they were involved in a horrific single-car accident in Mexico, 31 miles south of the United States (U.S.) border. After the accident, Ruth was surprised to discover her automobile insurance only covered property damage and personal injuries occurring within 25 miles of the U.S. border. The insurance company denied all claims arising from the car wreck. The passengers (including Ruths granddaughter) filed a lawsuit and obtained a multimillion-dollar default judgment against Ruth. Soon thereafter, Ruth and the passengers filed a lawsuit against Ruths insurance agent, Rodney Knaak (who is also Ruths son and the father of one of the injured passengers) and his employer. Ruth and the passengers alleged Rodney must pay the outstanding default judgment and other damages arising from Rodneys negligence in securing an adequate insurance policy. Rodney and his employer obtained a summary judgment on the basis the action was time-barred. The trial court concluded the applicable two-year statute of limitations was triggered when Ruths insurance officially notified everyone it was denying coverage and it refused to provide Ruth a defense. On appeal, Ruth and the passengers argue the limitations period was not triggered until the full extent of damages became certain by entry of the default judgment. We conclude the contention lacks merit, and accordingly, the judgment must be affirmed.
We refer to the Knaak family by their first names for clarity and ease of reference, and intend no disrespect. (See In re Marriage of Olsen (1994) 24 Cal.App.4th 1702, 1704, fn. 1.)
Facts
The Parties: Ruth has two sons, David Knaak and Rodney Knaak. David is a pastor in the Revival Christian Fellowship Church. Rodney is a licensed fire and casualty broker/agent employed by ISU Willingham (hereafter ISU). Wendi Knaak is Rodneys daughter and a member of the church. Matheu Elliott is an associate pastor at the church. His wife, Pamela Elliott, and Robert Griffin are members of the church.
The Car Wreck: David received permission to borrow his mothers (Ruths) Lincoln Towncar to drive Wendi, Matheu, Robert, and Pamela to Mexico. It is disputed whether they went there for official church business or personal reasons. In any case, on March 4, 2001, they were in a single vehicle accident approximately 31 miles from the U.S. border. David drove the car off a bridge, and they fell approximately 50 feet. Everyone in the car was severely injured.
The Insurance Policy: At the time of the accident, Ruths car was insured under a policy issued by Allied Insurance Company (Allied) with policy limits of $1 million per occurrence for bodily injury and umbrella coverage of an additional $1 million. However, the policy only provided coverage in Mexico within 25 miles of the U.S. border. Rodney had helped his parents obtain this insurance policy.
Prior to the Allied policy, Ruth (and her now deceased husband, Paul) had a policy with CalFarm containing similar policy limits, but it extended coverage in Mexico to within 75 miles of the border. Ruth said Rodney never told her the CalFarm policy was replaced or that her scope of coverage had changed. Before the trip to Mexico, Rodney told Wendi the terms of the old CalFarm and Allied policies were the same.
The First Lawsuit: Ruth, Wendi, Matheu, Pamela, and Robert filed claims for personal and property damages with Allied, but it denied coverage on the basis the accident occurred more than 25 miles from the U.S. border. Allied sent a letter to Ruth on July 12, 2001, stating coverage was denied for damage to her vehicle and the claims being made by David, Wendi, Robert, Pamela, and Matheu. The attorney for Wendi, Matheu, Pamela, and Robert received a similar letter denying coverage of their claims on February 25, 2002.
The following month, on March 1, 2002, Wendi, Matheu, Pamela, and Robert filed a lawsuit alleging negligence against David, Ruth (both individually and as trustee of the Knaak Family Trust), and the Revival Christian Fellowship Church. On April 19, 2002, Allied sent a letter to Ruth, as trustee of the family trust, stating it had received a copy of the complaint seeking damages for the automobile accident occurring in Mexico. Allied regretfully informed Ruth it would not provide coverage or a defense for the claims being asserted.
Due to her devastating injuries resulting from the car wreck, Wendi moved from her home in Brentwood, Los Angeles, to live rent free with Ruth in Santa Ana. In her deposition, Wendi stated Ruth paid for her food and board until Wendi returned to work in 2005 (four years later). In her deposition, Wendi admitted that within one year of the accident, she discussed with Ruth the fact Allied had denied coverage for the accident.
Ruth did not file an answer or participate in the litigation. After three years, on September 27, 2005, the court entered a default judgment against the defendants. Wendi recovered $842,207 for medical bills, $3.2 million for loss of earnings, and $10 million in general damages ($14,042,207 total). Matheu recovered $144,827 for medical costs, $100,000 for lost earnings, and $3 million in general damages ($3,244,827 total). Pamela recovered $131,312 for medical expenses, $100,000 for lost earnings, and $1 million general damages ($1,231,312 total). Robert recovered $135,374 for medical bills, $100,000 for lost earnings, and $1 million general damages ($1,235,374 total). The court ordered the defendants would be jointly and severally liable. Interest was set at the legal rate of 10 percent. Ruth maintains she was entirely unaware of the lawsuit and the default judgment. Consequently, she did not move to have the judgment set aside or appeal the judgment.
The Second Lawsuit: Approximately one year after the default judgment was entered, on August 18, 2006, Ruth, Wendi, Robert, Pamela, and Matheu filed a lawsuit against Rodney and ISU. Their claims for negligence, breach of contract, and fraud (negligent misrepresentation), were based on allegations Rodney failed (1) to exercise due care in purchasing insurance on Ruths behalf, (2) to advise her as to what insurance coverage to purchase, (3) to review the insurance policies to ensure they provided adequate coverage for the customary usage of her vehicle, and (4) to exercise reasonable care to explain any differences in coverage when a different policy is purchased. In the prayer of the complaint, Ruth sought $19,753,720 plus interest in damages to allow her to pay off the default judgment entered against her. In addition, Ruth sought damages to "compensate her for property damage to her vehicle." All the plaintiffs requested the loss of policy benefits of $1 million plus interest.
In January 2008, ISU and Rodney (hereafter collectively referred to in the singular as Rodney), filed a motion for summary judgment claiming, inter alia, the action was time-barred by a three or two-year statute of limitations. (Code Civ. Proc., §§ 335.1, 338 and 339.) Rodney asserted Ruth and the injured passengers (hereafter collectively referred to in the singular as Ruth, unless otherwise indicated) could have filed the lawsuit against him after receiving Allieds letter denying coverage in 2002, four years before Ruth filed the lawsuit. After considering the parties documents and oral argument, the court entered summary judgment in favor of Rodney. In its order, the court stated it found "the damage [had] occurred once plaintiffs were aware that their defense and coverage claim was denied. It was not necessary for plaintiffs to know the exact amount of damages for there to be a damage to trigger the statute of limitations to start running." The court awarded ISU $5,976.37 and Rodney $7,084 for costs.
Discussion
This appeal arises from a summary judgment and "[b]ecause the relevant facts are not in dispute, the application of the statute of limitations may be decided as a question of law. [Citation.]" (International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 611 (Feddersen).)
As noted in the appellants opening brief, the parties do not dispute a two-year statute of limitations applies in the case. There is no dispute the accident occurred in 2001, and Allied denied coverage to Ruth in July 2001, to the other parties in February 2002, and to Ruth as trustee in April 2002. Ruth asserts the statute of limitations was not triggered when coverage was denied "because nothing more than a threat of future harm to plaintiffs from defendants professional negligence and misrepresentations existed before the entry of the underlying [d]efault [j]udgment awarding damages, triggering the denial of indemnity by Allied." She argues, "Before entry of the [d]efault [j]udgment that established the fact of actual damage from [Rodneys] negligence, this case against them would have been subject to demurrer for failure to state a cause of action." She contends the action was timely filed within two years of the 2005 default judgment. We conclude Ruth was aware of the purported negligence and consequential damages by 2002 (at the latest), and therefore, her 2006 lawsuit was untimely filed.
"Section 312 of the Code of Civil Procedure, which introduces the title dealing with the time of commencing civil actions, provides: `Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued . . . . On certain causes of action the law in California has evolved to a point where the limitations clock begins to run only `when the injured party discovers or should have discovered the facts supporting liability. (Davies v. Krasna (1975) 14 Cal.3d 502, 512, . . . and cases cited.) The Davies court held that California `generally now subscribe[s] to the view that the period cannot run before plaintiff possesses a true cause of action, by which we mean that events have developed to a point where plaintiff is entitled to a legal remedy, not merely a symbolic judgment such as an award of nominal damages. [Citation.]" (Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442, 1468 (Butcher).)
As determined by our Supreme Court, "The mere breach of a . . . duty, causing only nominal damages, speculative harm, or the threat of future harm—not yet realized—does not suffice to create a cause of action for negligence. [Citations.]" (Budd v. Nixen (1971) 6 Cal.3d 195, 200 (Budd), superseded by statute on other grounds.) The Budd case concerned a legal malpractice claim, and the court concluded that "until the client suffers appreciable harm as a consequence of his attorneys negligence, the client cannot establish a cause of action for malpractice." (Ibid.) The court noted, "Ordinarily the client has already suffered damage when he discovers his attorneys negligence . . . . In other cases, the infliction of the damage will alert the client to the attorneys negligence and thus the statute of limitations will then begin to run on any malpractice action. Only in the unusual case will the client discover his attorneys negligence without having suffered any consequential damage." (Id. at p. 201.)
"Examples [of such unusual cases] include: (1) attorney malpractice, where it cannot be determined whether such errors actually cause the client harm until he suffers an adverse judgment [citations]; (2) accounting malpractice, where the client has no injury from errors in tax return preparation until the IRS assesses a tax deficiency [citation]; and (3) negligent property appraisal, where the lender does not suffer actual damage from an inflated appraisal value until it actually acquires the property. [Citation.]" (Roger E. Smith, Inc. v. SHN Consulting Engineers & Geologists, Inc. (2001) 89 Cal.App.4th 638, 651 (Smith).)
Contrary to Ruths contention, her case is not similar to those types of "unusual" cases. She did not need to wait for the multimillion-dollar default judgment before filing her lawsuit. The adverse judgment was not the only consequential damages arising from Rodneys negligence. The record shows Ruth suffered other immediate out-of-pocket losses.
Like the trial court, we found Butcher, supra, 77 Cal.App.4th at page 1428, instructive. In Butcher, an insured provided a copy of his policy to an agent of Truck Insurance Exchange (Truck) and asked the agent to find a similar policy but with higher limits. Before purchasing the policy, the insured did not read it, but he relied on the agents assurances it would provide the same coverage. (Id. at p. 1448.) When the insured was sued for malicious prosecution, he learned the policy was not the same and Truck would not provide coverage for that kind of claim. The insured filed a lawsuit against Truck and the agent. (Id. at p. 1449.)
In Butcher, the trial court granted summary judgment in favor of defendants, but the appellate court reversed this ruling based on its determination there was a triable issue of material fact with respect to the causes of action for reformation and negligent misrepresentation, among others. (Butcher, supra, 77 Cal.App.4th at p. 1465.) In addition, the Butcher court rejected Trucks and the agents argument the claim was time-barred by the two-year statute of limitations. (Id. at pp. 1469-1470.) It concluded, "In the case at bar, although [the agent] delivered the Truck policy that did not conform with his promise in 1986, the fact of any damage at all was completely uncertain until Truck told [the insured] it would not defend them in the [malicious prosecution] action. Until the malicious prosecution action was filed and served, and appellants were required to defend, whether the omission of personal injury coverage would harm them at all was a mere possibility. That remained the case until Truck refused to defend the . . . action, which occurred April 1, 1993, and appellants filed suit against Truck and Meyer in October 1994, less than two years later." (Ibid.)
In short, the court in Butcher concluded the insured suffered no actual damage from the brokers misconduct until Truck refused to defend the insured. "The determination of actual injury requires only a factual analysis of the claimed error and its consequences. The inquiry necessarily is more qualitative than quantitative because the fact of damage, rather than the amount, is the critical factor. [Citations.]" (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1988) 18 Cal.4th 739, 752 (Jordache Enterprises).) For example, in Jordache Enterprises, plaintiffs brought an action for legal malpractice based on the claim the attorneys neglect had allowed an insurance company to raise a viable defense to coverage. (Id. at pp. 743-744.) The Supreme Court reasoned the "actual injury" requirement of the legal malpractice statute of limitations was satisfied once plaintiff had suffered actual harm through among other things, "the diminution of [its] insurance policy rights" and the incurring of attorney fees. (Id. at pp. 752-754.) "There is no requirement that an adjudication or settlement must first confirm a causal nexus between the attorneys error and the asserted injury." (Id. at p. 752.)
Thus, the relevant "inquiry concerns whether `events have developed to a point where plaintiff is entitled to a legal remedy . . . . [Citation.]" (Jordache Enterprises, supra, 18 Cal.4th at p. 752.) Here, the record shows Ruth sustained actual damage when Allied denied coverage for the property damage to her car. It is an item of damages listed in the prayer for damages in her current complaint. In addition to the loss of her vehicle, Ruth became aware she had been paying premiums on a policy that did not adequately protect her as Rodney allegedly promised. Thus, she could have sought the repayment of past premiums. Ruth also incurred sizeable costs in assuming the care and responsibility of Wendi, who had been paralyzed in the car wreck. It is undisputed Ruth paid Wendi $500 per month, plus food, and gave her a place to live rent free for several years. If Allied had covered Wendis claims, Ruth would not have incurred these costs.
Similarly, it is undisputed Wendi, Robert, Pamela, and Matheu incurred staggering medical costs and suffered loss of earnings as a result of their injuries. After discovering Allied was denying coverage, they incurred attorney costs to file and pursue a lawsuit. Their damages against Rodney, for negligently handling Ruths insurance coverage, was certainly realized long before they obtained the default judgment.
Ruth focuses on the fact she did not incur attorney fees or expenses when Allied refused her claims, which makes her case different from the Butcher case. If we assume Ruth could prove she was completely unaware of the lawsuit filed by her granddaughter and the other passengers, despite (1) the fact she was living with Wendi, (2) Wendi testified she told Ruth the claims had been denied, and (3) the letter stating Allied would not provide Ruth a defense in the lawsuit filed by the passengers, we conclude the statute of limitation was nevertheless triggered because Ruth suffered other actual damages. As noted above, Ruth suffered property damage to her car, the perceived diminution of insurance coverage, and expenses relating to Wendis care. It is not a stretch of logic to presume that if Ruth had filed a lawsuit against Rodney, she would have quickly become aware of the lawsuit filed against her. Ruth (and Rodney) would have incurred fees but also would have had an opportunity to mitigate the damages sought by the injured passengers.
In the reply brief, Ruth argues, "That damage incurred due to [Rodneys] professional negligence is not the same as damage attributable to the accident itself." She argues Rodney does not stand in the shoes of the insurer and the damages arising from his negligence is "separate and apart from actual damage from the accident itself . . . ." She maintains Mid-Century Ins. Co. v. Hutsel (1970) 10 Cal.App.3d 1065 (Mid-Century), supports this legal principle. She is wrong.
In Mid-Century, an insurance agent, John Hutsel, negligently permitted his clients car insurance policy to lapse. (Mid-Century, supra, 10 Cal.App.3d at p. 1067.) A few days later, the cars owner permitted his son, who carried Mid-Century insurance, to drive the uninsured car. (Ibid.) The son was involved in an accident and was sued. Mid-Century agreed to defend both the father and son, and it also filed a declaratory relief action seeking clarification of the respective rights of itself, the insured, the cars owner, and the negligent insurance agent. (Ibid.) The court determined Mid-Century was "primarily liable for the claims arising from the accident, to the extent of its policy limits . . . ." (Id. at pp. 1069-1070.) It noted, Mid-Centurys losses were caused by the driver who negligently caused the accident, not the agent who failed to procure insurance for the cars owner. The court held the negligent insurance agent was liable for damages arising from his breach of contract to procure insurance, and he could not be treated as either the primary or excess insurance company. "If the claims arising from the accident cannot be satisfied within its limits, [car owner and driver] will be damaged because of Hutsels breach. . . . The judgment should require him to pay any such claims [in excess of the insurance policy limits] or to indemnify [the car owner and driver] if they, or either of them, are required to pay them." (Id. at p. 1070.) The court reasoned if the settlement or judgment is less than Mid-Centurys policy limits, neither the owner or driver will have "sustained damage by reason of Hutsels breach. To that extent, the claims must be paid by Mid-Century . . . ." (Id. at pp. 1069-1070.)
In the case before us, there is no secondary insurance company agreeing to cover Ruths property damage to her car, cover the third party personal injury claims, defend Ruth or the driver in the lawsuit, or pay any settlement or judgment. The purportedly negligent insurance agent, Rodney (and presumably his companys errors and omissions insurance), stands alone as the deep pocket in this case. If found negligent, Rodney will be liable for all that which Ruth owes after Allied failed to cover or defend her in the lawsuit. Although Rodney does not technically "stand in the shoes" of any insurance company, in this case the starting point for damages are what an insurance company would have paid if the car accident in Mexico had been covered.
Ruth asserts our holding affirming the judgment runs contrary to the long standing California precedent specifying the limitations period in professional negligence cases, the limitations can only be triggered upon the entry of judgment in the underlying litigation. She relies primarily on the case Walker v. Pacific Indemnity Co. (1960) 183 Cal.App.2d 513 (Walker), where the insured ordered a policy with bodily injury limits of $50,000 in March 1952, but the broker procured a policy with limits of only $15,000. A few months later, the insureds truck was involved in an accident injuring Elaine Walker. She sued the insured, who provided a defense, but a verdict was entered in her favor for $100,000. Given that the insurer paid only the policy limits of $15,000, the insured assigned his claim against the broker to Walker, who sued in December 1956, alleging the broker was negligent. She won a $35,000 judgment, and the broker appealed asserting the cause of action accrued either when he procured the policy or when the accident happened. The appellate court held the limitations period began when judgment in the underlying action was entered, because injury to the insured did not occur, if at all, until the insureds liability was found to exceed the policy limit.
Ruth asserts the Walker case stands for the general rule the limitations period will not begin running against an insurance agent for failure to procure insurance until after a judgment becomes final. Not so. The cases holding is narrowly tailored to the unique facts of the case. The Walker court determined there was no actionable injury or damage to the insured until a verdict was returned in an amount greater than the liability limits in the policy. Until that time, the insurer provided a defense, and the judgment could have fallen within the policy limits of $15,000. It was not until the insured was found liable in excess of the policy limits that he sustained actual damages from the brokers negligent failure to procure additional coverage.
Here, when Allied denied coverage, Ruth became immediately aware she had been making payments for a policy that was inadequate for her needs. She suffered the loss of her car, followed by years of costs in caring for her disabled granddaughter. These damages directly related to Rodneys purported negligence and were immediately actionable. Ruth chose to ignore her right to sue, as well as the lawsuit filed against her. This "ostrich-head-in-the-sand" approach to a big insurance coverage problem cannot equitably serve to toll the statute of limitations. Ruth suffered actual harm and had no reason to believe the third party claims would vanish.
Alternatively, Ruth argues the record supports a finding Rodney owed her a fiduciary duty of care due to his dual role as her trusted broker and her son. Citing United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, she contends a cause of action never accrues against a fiduciary until the fiduciary relationship has terminated. As correctly noted by Rodney, this tolling argument was not raised in Ruths opposition to the summary judgment motion, there is no authority he owed a fiduciary duty to his mother, and the cited case is distinguishable because it involved an insured who had no knowledge or notice of wrongdoing until after the fiduciary relationship terminated.
Rodney also noted Ruth omitted from her brief the fact this tolling argument was raised and rejected by the trial court in denying Ruths motion for new trial (which she does not appeal from). In the reply brief, Ruth simply responds by stating the complaint can be amended to allege a fiduciary relationship when the case returns to the trial court. This statement is completely nonresponsive to the challenges made. In any event, the trial court got it right. The depth of Ruths relationship with her son is not "newly discovered evidence" that could not have been timely raised in opposition to the summary judgment motion. (See Doe v. United Air Lines, Inc. (2008) 160 Cal.App.4th 1500, 1509.) The late allegations of a fiduciary relationship cannot now serve as valid grounds for a reversal.
Disposition
The judgment is affirmed. Respondents shall recover their costs on appeal.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
IKOLA, J.