Opinion
G031498.
11-13-2003
PHILLIP N. LYONS et al., Plaintiffs and Appellants, v. FIREMANS FUND INSURANCE COMPANY, Defendant and Respondent.
John K. Saur for Plaintiffs and Appellants. Jerome M. Jackson and Doran B. Richart for Defendant and Respondent.
Five years after Phillip and Mary Lyons noticed deterioration in their expensive custom windows, they discovered the damage might be insured under their homeowners policy. The Lyons filed a claim, but it was denied as untimely. Their ensuing action against the insurance company met a similar fate: The trial court granted summary judgment for the insurer on the ground the suit was barred by the policys one-year limitation provision. The trial court rejected the Lyons claim the limitation period was tolled due to "delayed discovery." We affirm.
Facts
In 1990, the Lyons hired a glass manufacturer/supplier to install custom-made, dual pane, beveled, laminated glass into French windows and doors throughout their Harbor Island home. In 1996, the Lyons noticed damage to their glass: It was cloudy and appeared to be "delaminating." The manufacturer/supplier failed to resolve the problem despite the Lyons complaints.
In the spring of 1999, the Lyons hired a glass expert, Brian Hale, to advise them on the condition of the windows. In a written report dated April 15, 1999, Hale opined that the damage to the laminated glass was caused by "[p]rolonged exposure to water and solvents[.]" He explained that "[t]he edges of the glass within the wood frames have been exposed to moisture in the form of water and or water vapors. The absence of weep holes and the several coats of exterior paint have not allowed for the necessary drainage of water." He also faulted the use of putty around the edges of the glass within the steel frame, which both created a "drainage problem" and exposed the glass edges to solvents.
Three months later, the Lyons sued the glass manufacturer/supplier, alleging the laminated glass was defective or improperly installed. During the course of that litigation, the Lyons asked Hale to perform destructive testing on the windows. Hale reported to the Lyons the results of that testing in a letter dated July 3, 2001.
Hale wrote that the destructive tests "confirm my original report. Primarily, the penetration and prolonged accumulation of water, in this case associated with wind driven rain, accommodated the delamination of the glass and the deterioration of the wood frames." The Lyons assert this letter from Hale informed them of a significant new fact: that "wind from storms" caused the damage to the glass.
Wind damage was a covered peril under the Lyons all-risk homeowners insurance policy. On the other hand, the policy specifically excluded coverage for defective workmanship or materials used in construction or remodeling. After receiving Hales report on the results of the destructive testing, the Lyons filed a property damage claim with their insurer, Firemans Fund. The Lyons asserted the damage to their glass was caused by wind.
On July 30, Firemans Fund denied the Lyons claim as untimely. The Lyons then sued Firemans Fund on the policy and for bad faith. The insurer moved for summary judgment on the ground the lawsuit violated the provision in the Lyons insurance policy requiring any action to be "started within one year after the date of loss."
In opposing the motion, the Lyons conceded they first noticed the glass damage in 1996. However, they contended their notification duty under the policy was not triggered until 2001, when they first learned "that a covered peril (wind) played any role in causing problems with the laminated glass." They argued that under "controlling case law," the policys limitation period was tolled until they discovered a covered cause of the damage.
The trial court rejected the Lyons tolling argument and entered summary judgment for the insurer. This appeal followed.
Discussion
The Lyons argue that in granting summary judgment for the insurer here, the trial court failed to properly apply the "delayed discovery rule" announced by the California Supreme Court in Prudential-LMI Comm. Insurance v. Superior Court (1990) 51 Cal.3d 674 (Prudential-LMI). Like the present case, Prudential-LMI involved a first party progressive loss claim under an all-risk homeowners policy. The high court held an "insureds suit on the policy will be deemed timely if it is filed within one year after `inception of the loss, defined as that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered." (Id. at pp. 686-687.)
Though the Lyons noticed the damage to their glass in 1996, they assert the one-year suit limitation period was tolled until July 2001 when they learned that wind, a covered peril, caused the damage. In other words, they contend it is the discovery of an insured cause of the damage, rather than discovery of the appreciable damage itself, which triggers the notification duty under a homeowners policy. The Lyons are wrong.
Courts have repeatedly rejected this very argument. A good example is the case of Lawrence v. Western Mutual Ins. Co. (1988) 204 Cal.App.3d 565 (Lawrence). Following heavy winter rains, Lawrence discovered extensive interior and exterior damage to his home from earth subsidence. A geotechnical engineer informed Lawrence the subsidence was caused by inadequate compaction of deep fill under the house. After studying his homeowners policy, which contained exclusions for damage caused by earth movement or water below the surface of the ground, Lawrence concluded the damage to his home was excluded from coverage. He thus filed no claim under his policy.
Approximately two years later, an attorney told Lawrence his insurance policy might cover the damage if it resulted from the negligence of a third party. Lawrence thereafter filed a claim under his policy, asserting the negligent compaction of the fill under his house caused the subsidence. The insurer denied the claim as untimely and Lawrence sued. The insurer obtained summary judgment based on the policys one-year limitation on the filing of a lawsuit.
Lawrences argument on appeal mirrors the argument of the Lyons in the present case. Lawrence argued "that the `inception of the loss is the point not when the damage is discovered, but rather when the insured knew or should have known that a loss has occurred which is covered by his insurance policy." (Lawrence , supra, 204 Cal.App.3d at pp. 571-572.) Put differently, Lawrence contended (as do the Lyons) that his notification duty was triggered not by his discovery of the property damage, but by his discovery of the possibility of insurance coverage for that damage.
The appellate court rejected Lawrences contention that his cause of action accrued only "when [he] learned from his attorney that the loss might be covered by his insurance policy under principles of concurrent proximate causation." The court explained, "`It is the occurrence of some . . . cognizable event rather than knowledge of its legal significance that starts the running of the statute of limitations. [Citation.] . . . It is as irrelevant to the one-year commencement of suit provision as it is to the accrual of a cause of action `that the plaintiff is ignorant of his legal remedy or the legal theories underlying his cause of action. [Citation.]" (Id. at p. 573; cited with approval in Prudential-LMI, supra, 51 Cal.3d at pp. 685-686.)
Likewise, in Abari v. State Farm Fire & Casualty Co. (1988) 205 Cal.App.3d 530 (Abari), the court rejected the homeowners argument that his ignorance of the possibility of insurance coverage for subsidence damage tolled accrual of the loss. The court held the homeowner was on notice of his duty to notify his insurer of the loss once he saw the cracks in his house and driveway. The court described as "without import" the homeowners "belated discovery" five years later that his loss might be insured. (Id. at p. 535.)
More recently, Larkspur Isle Condominium Owners Assn. v. Farmers Ins. Group (1994) 31 Cal.App.4th 106 (Larkspur) relied on both Prudential-LMI and Lawrence in rejecting the argument that inception of the loss is delayed until discovery of insurance coverage. The court stated, "The occurrence of `appreciable damage . . . does not depend upon discovery that the damage constitutes a covered loss under a particular policy." (Id. at pp. 111-112, citing Prudential-LMI at pp. 685, 687, 699, and Lawrence, supra, 204 Cal.App.3d at pp. 571-573.)
The Lyons turn this case law on its head and argue it actually supports their position. They contend both Lawrence and Abari implicitly allow tolling of the one-year limitation period where the insured is ignorant "of the facts about the actual cause of loss . . . ." The Lyons assert Lawrence and Abari bar tolling of the limitation period only where the insureds ignorance concerns "the legal interpretation of the terms of the policy[.]" Essentially, then, the Lyons redefine the delayed discovery rule to mean the limitation period is tolled until the policyholder discovers a factual basis for claiming a covered peril caused the loss. Or, as the Lyons put it, "[I]t is not just knowledge of the damage; it is knowledge of facts showing that the damage may be covered that creates the notice to a reasonable insured that a `potentially insured loss exists."
Neither Lawrence nor Abari draws the distinction between ignorance of "facts" and ignorance of "legal interpretation" that the Lyons draw. Instead, Lawrence, Abari, and Larkspur all broadly reject the notion that discovering a loss is insured starts the running of the limitation period. Only Lawrence mentions the insureds knowledge of "the factual cause of the damage" in connection with the accrual of the insureds cause of action. Nevertheless, even under the Lyons own nuanced interpretation of the delayed discovery rule, their lawsuit would still be time-barred.
The Lyons assert they only learned "of facts showing that the damage may be covered" when they received the report of their glass expert "showing, for the first time, the cause of window damage was, factually, not the negligent construction or installation of third parties, but rather the covered risk of wind." The argument proves baseless upon examination of the underlying facts.
Hales initial report to the Lyons in 1999 revealed that the glass was damaged by "[p]rolonged exposure to water and solvents[.]" Hale further explained the cause of this damaging "[p]rolonged exposure" was inadequate drainage of water that collected within the wood frames. Hale explained the water did not drain because of "[t]he absence of weep holes," "the several coats of exterior paint" on the wood, and the use of putty around the edges of the glass.
Hales subsequent report in 2001 specifically confirmed this original report and added one new "fact": that "the penetration and prolonged accumulation of water" was "associated with wind driven rain[.]" (Italics added.) In other words, wind brought the water to the windows.
Hale is a glass expert, not a meteorologist. His lack of expertise in weather, however, did not disqualify him from opining that wind was a causative factor in the damage here. Far from it. Anyone who has experienced a rainstorm could safely opine that wind plays a role in delivering water to windows. The Lyons did not need Hales report in 2001 to discover the fact that wind was a contributing cause of the damage to their windows. They had at least constructive knowledge of that fact in 1999. Consequently, under the Lyons interpretation of the delayed discovery rule, tolling of the limitation period stopped in 1999 when they had a factual basis for claiming the damage was caused by wind, a covered peril. When the Lyons sued on the policy two years later, the limitation period had run.
Prudential-LMI requires an insured to be diligent in notifying the insurer of a potentially covered loss: "To take advantage of the benefits of a delayed discovery rule, . . . the insured is required to be diligent in the face of discovered facts. The more substantial or unusual the nature of the damage discovered by the insured (e.g., the greater its deviation from what a reasonable person would consider normal wear and tear), the greater the insureds duty to notify his insurer of the loss promptly and diligently. [Citation.]" (Prudential-LMI, supra, 51 Cal.3d at p. 687.) The Lyons failure to notify Firemans Fund promptly of their loss cannot be blamed on ignorance of the "factual cause" of the damage. Instead, it appears they, like the insureds in Lawrence, Abari, and Larkspur, simply did not realize the potential for insurance coverage until too late.
The Lyons have an alternate argument for tolling in the event they fail to come within the ambit of Prudential-LMIs delayed discovery rule. They argue Zurn Engineers v. Eagle Star Ins. Co. (1976) 61 Cal.App.3d 493 (Zurn), cited with approval in Prudential-LMI, creates a specific tolling exception for situations where the assertion of insurance coverage of a loss would conflict with a claim the insured is then pursuing against a third party for having caused the same damage.
In Zurn, the City of Palo Alto hired Zurn, a general contractor, to construct a waste water treatment plant. When pipes Zurn had laid became disconnected, causing substantial damage to the project, Zurn blamed the disconnection on the citys design and/or specifications for the pipes, and sought additional compensation from the city to fix the damage. Zurns all risk insurance policy for the project excluded damage resulting from defects in design or specifications, and so Zurn did not file an insurance claim for the damage.
More than a year later, the city denied any defect in the pipes design or specifications and took the position Zurn was responsible for the damage, which exceeded $600,000. Zurn then filed a claim with its insurer. When the claim was denied, Zurn sued on the policy. The trial court granted summary judgment for the insurer on the ground the one-year limitation period had run. The court of appeal reversed, recognizing a tolling condition existed so long as Zurn was asserting a claim against a third party (the city) which conflicted with first party insurance coverage. Significant here was the insurance policys requirement that the insured file a sworn proof of loss attesting to a nonexcluded cause of the damage. Zurn could not meet that requirement so long as it was asserting the damage was caused solely by the citys defective design and specifications for the pipes — an excluded cause of loss. (Zurn Engineers v. Eagle Star Ins. Co., supra, 61 Cal.App.3d at pp. 499-500.)
There is a fundamental problem with the Lyons reliance on the Zurn tolling exception: The factual predicate for its applicability is unmet here. The Lyons insurance claim for wind damage does not conflict in the least with their third party liability action against the manufacturer/installer of the glass.
As explained earlier, the 1999 report of the Lyons glass expert, Hale, laid out their case for the manufacturer/installers liability based on inadequate drainage of water from the wood frames around the glass. Hale subsequently identified wind as a contributing factor in this causation scenario. Consequently, the Lyons assertion of first party insurance coverage for the wind damage would not have conflicted with their third party claims in the product liability case. We conclude the Zurn tolling exception does not apply here and the trial court properly granted summary judgment for Firemans Fund.
Disposition
The judgment is affirmed. Respondent is entitled to its costs on appeal.
WE CONCUR: MOORE, J. and FYBEL, J.