Opinion
Rehearing Granted Nov. 6, 1990.
Appeal Dismissed Dec. 27, 1990.
Previously published at 224 Cal.App.3d 833
Michael D. Nelson, Nelson & Leighton, Danville, Cal., for plaintiffs and appellants.
Stephen G. Schrey, Marilyn A. Moberg, Michelle R. Bernard, James C. Martin, Crosby, Heafey, Roach & May, Oakland, Cal., for defendant and respondent.
POCHE, Associate Justice.
Plaintiffs Roger O. Stanley and Linda Stanley filed this action to recover on two nonsequential homeowner's policies they had with defendant and respondent, Fire Insurance Exchange ("FIE"). The trial court found by way of summary judgment that the second policy excluded the loss, and that as to each policy plaintiffs' claims were barred by their failure to comply with the policy's requirement that suit be brought "within twelve months next after inception of the loss." From the ensuing judgment in favor of FIE, plaintiffs appeal.
Plaintiffs also purport to appeal from an order denying their motion for reconsideration of the order granting summary judgment (Code Civ.Proc., § 1008). While the order is not separately appealable, its merits are reviewable on the appeal from the judgment. (Rojes v. Riverside General Hospital (1988) 203 Cal.App.3d 1151, 1160-1161, 250 Cal.Rptr. 435.)
Two primary issues are presented on appeal. First, does a homeowner's insurance policy in effect at the time damage begins but whose policy period elapses before the damage becomes apparent to the homeowner provide coverage for the loss incurred during the policy period? Second, is the one-year period of limitations contained in a homeowner's policy tolled from the time in which an insured files a claim with the insurance company until the company formally denies it? We answer both questions in the affirmative and reverse.
Factual and Procedural History.
In April of 1977 plaintiff Linda Stanley (then Linda Horton) purchased a new home in Concord from the Hofmann Company. At that time she obtained a homeowner's insurance policy from FIE known as the Sixth Edition Dwelling Package ("Sixth Edition" policy) which did not exclude structural damage to the home caused by earth movement or a loss caused by third party negligence. The policy period of the Sixth Edition policy ran from April 1977 to April 1982.
Upon moving into the house, plaintiff and her then husband, Verne Horton, noticed some defects: squeaking floors, leaking in the family room, cracking of the exterior wall. The defects were reported to the builder who made repairs, but defects persisted and the builder made at least a second visit. None of the defects was reported to the insurer.
In March of 1982 plaintiff changed her homeowner's coverage to State Farm Fire & Casualty Company, a policy which she renewed until March of 1984.
In November of 1983 plaintiff, by then divorced from Verne Horton, married plaintiff Roger Stanley. According to Stanley, he began to notice damage to the house in 1982. Specifically, he saw doors that would not close, cracking on the garage floor, the driveway, the fireplace, and on the exterior stucco near the patio door. He tried to make repairs himself. In March of 1984 the Stanleys returned to FIE and obtained a homeowner's policy called Third Edition Protector Plus Homeowner's Package Policy ("Protector Plus"). This policy expressly excluded losses arising from earth movement.
Sometime prior to November of 1985 plaintiffs went to a neighborhood meeting where numerous complaints were aired about structural and other defects in the construction of the houses.
Thereafter Mr. Stanley told his FIE agent about the problems with the house. On November 14, an FIE adjustor inspected the house.
FIE then hired a soils engineering firm, Seidelman Associates, to inspect the property. Their first report, completed February 6, 1986, tentatively concluded that the home's foundation was undergoing movement in response to soil movement, "likely the result of expansive soils undergoing seasonal moisture changes and/or the settlement of a poorly compacted fill." The report also cited a poorly designed and constructed foundation and poor drainage conditions. Before definite conclusions were reached, Seidelman needed further investigation. A comprehensive report, completed July 21, 1986, confirmed the earlier opinions.
Despite numerous telephone requests by plaintiffs for a decision on their claim, by January of 1987 FIE had not taken a position. By letters dated January 27, and February 18, 1987, plaintiffs formally requested FIE to make "a decision of settlement or a denial of the claim" in order for plaintiffs to preserve their rights to sue Hofmann company as they believed the statute of limitations for latent construction defects would run in March. Plaintiffs were first told orally that their claim would be denied. Subsequent letters from FIE dated March 27 and December 9, 1987, formally advised plaintiffs of the basis of the denial.
Some sixteen months after the first claim with FIE was made, the instant lawsuit was filed March 13, 1987. As against FIE plaintiffs alleged causes of action for breach of contract and breach of the covenant of good faith and fair dealing, and breach of fiduciary duties, and breach of statutory duties under Insurance Code section 790.03 in the denial of benefits under either the Sixth Edition policy or the Protector Plus policy.
Plaintiffs also sued the Hofmann Company on various theories for faulty construction of their home. On the motion of FIE, those claims were severed and tried first. Plaintiffs recovered approximately $107,000 against Hofmann.
FIE moved for summary judgment contending that as a matter of law it was not responsible for the damage to plaintiffs' home. With respect to the Protector Plus policy, FIE argued there was no coverage because it expressly excluded damage caused by earth movement. As to each policy, FIE argued that plaintiffs' action was barred because plaintiffs had failed to file suit within one year of inception of the loss as required by the policies.
In opposition to the motion, plaintiffs argued that their claim was timely because their property damage did not become apparent until November of 1985 the time of the homeowner's meeting. Plaintiffs then argued that the one-year provision was tolled during the time that FIE investigated the claim; alternatively, plaintiffs argued that because FIE took so long to deny their claim, FIE should be estopped to assert the one-year provision.
The trial court concluded that there was a triable issue of fact as to whether plaintiffs should have discovered their loss prior to the November 1985 meeting. That issue, however, was mooted in that the 1984 Protector Plus policy excluded coverage for the earth movement loss. To the extent plaintiffs sought coverage under the 1977 Sixth Edition policy, plaintiffs' action was barred by the one-year suit provision of the contract. On motion for reconsideration, the court made its ruling explicit: there was no basis to apply any theory of estoppel to the running of the one-year period.
I. Standard of Review.
Because this case comes to us on appeal from a summary judgment (Code Civ.Proc., A motion for summary judgment must be granted where the papers demonstrate that there is no issue of material fact to be tried and that the moving party is entitled to judgment in his favor as a matter of law. (Code Civ.Proc., § 437c, subd. (c); AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203.) The affidavits of the moving party are to be strictly construed and those of the opposing party, liberally construed; doubts as to the propriety of the motion should be resolved in favor of a trial on the merits. (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417, 42 Cal.Rptr. 449, 398 P.2d 785; Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35-36, 210 Cal.Rptr. 762, 694 P.2d 1134.) Resolution of a statute of limitations issue is normally a question of fact; but where the uncontradicted evidence established through discovery is susceptible of only one reasonable inference, the matter may be resolved by way of summary judgment. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112, 245 Cal.Rptr. 658, 751 P.2d 923.)
II. Coverage for the Loss.
The trial court found that a triable issue of fact existed as to whether plaintiffs should have discovered their loss prior to the November 1985 homeowner's meeting. For purposes of appeal, therefore, both sides take that date as the date of discovery of the loss. We do the same.
FIE argues that the only policy whose policy period had not expired by November 1985 was the Protector Plus, which expressly excluded coverage for losses occasioned by third party negligence and/or earth movement, and therefore as a matter of law there was no coverage for plaintiffs' loss. Plaintiffs counter that the Sixth Edition policy, which does not exclude coverage for losses caused by either earth movement or the negligence of third parties, covers any loss which occurred during 1977 and 1982, even though the loss was not discovered until 1985. We agree.
Plaintiffs make this argument in their reply brief, leading FIE to move to strike the portions of the reply brief on this point. (Cal. Rules of Court, rule 18.) We find nothing offensive or violative of the Rules of Court in plaintiffs' argument which directly responds to FIE's responsive brief. We therefore deny the motion to strike.
The starting point is the contract. The Sixth Edition policy is divided into two Divisions. Division I provides coverage for real and personal property; Division II provides for comprehensive personal liability. In the section entitled "GENERAL CONDITIONS APPLICABLE TO THE ENTIRE POLICY", paragraph "75 3" defines the "Policy Term": "This policy applies only to loss under Division I or occurrences or accidents under Division II which happen during the policy term." Thus the very simple question before this court is whether the loss for which the Stanleys seek compensation "happen[ed] during the policy term" i.e., 1977-1982.
Under well-established principles, an insurance policy will be interpreted in a manner consistent with the reasonable expectations of the insured. (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807-808, 180 Cal.Rptr. 628, 640 P.2d 764; Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 267, 54 Cal.Rptr. 104, 419 P.2d 168.) Any ambiguous language will be construed in favor of the insured and against the insurer. (Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437, 296 P.2d 801; Bartlome v. State Farm Fire & Casualty Co. (1989) 208 Cal.App.3d 1235, 1239, 256 Cal.Rptr. 719.) No one can dispute that settlement was "happening" during the Sixth Edition policy period. Squeaking floors, leaks in the family room and minor cracking on the exterior wall were observed as early as 1977 when the house was first purchased, but neither Linda Stanley nor her then husband suspected what the cracks meant. A reasonable person would conclude the Stanleys had suffered and were suffering losses which had not yet become apparent. (See e.g., American Home Products Corp. v. Liberty Mut. Ins. (2d Cir.1984) 748 F.2d 760, 764.) Here, FIE contends in effect that the Sixth Edition's coverage ended for all losses on the day the policy period elapsed, even if those losses had not become apparent to the naked eye, much less to a reasonable person. Had FIE intended to issue a claims made liability policy, it could have easily drafted one. Similarly, had FIE wished to exclude coverage for an unmanifested continuing loss, it would have been a simple matter to provide that in the case of progressive damage, the damage must be reasonably discoverable during the policy period for coverage to apply. Instead, it provided for coverage for losses which "happen" during the policy period. Under the circumstances here, the policy language can be reasonably read to provide the Stanleys with coverage for at least that portion of the continuing damage which occurred during 1977 and 1982, the policy period of the Sixth Edition policy. We therefore conclude that the Sixth Edition policy provided plaintiffs with coverage for that portion of their continuing damage which happened between 1977 and 1982 but was not discovered until 1985.
A "claims made" policy "is one whereby the carrier agrees to assume liability for any errors, including those made prior to the inception of the policy as long as a claim is made during the policy period." (Chamberlin v. Smith (1977) 72 Cal.App.3d 835, 845, fn. 5, 140 Cal.Rptr. 493.)
A distinct question is whether a policy period of limitation commences running upon discovery of the cause of the property damage or when a reasonable person should have discovered the property damage. That issue is presently pending before the California Supreme Court. (See Prudential-LMI Commercial Insurance v. Superior Court (1989) 211 Cal.App.3d 1131, 260 Cal.Rptr. 85, review granted Sept. 21, 1989 (SO11415); Fire Ins. Exchange v. Superior Court (1989) 212 Cal.App.3d 39, 260 Cal.Rptr. 299, review granted Sept. 21, 1989 (SO11489); see also Jekot v. State Farm Fire & Casualty Co. (1990) 222 Cal.App.3d 1492, 272 Cal.Rptr. 463.)
III. One-Year Statute of Limitations.
FIE argues that even if the Sixth Edition policy can be read to provide coverage for some portion of the loss, plaintiffs' action is barred because they failed to comply with the one-year period of limitations provided for the policy and required by Insurance Code section 2071.
Although the one-year suit provision is much shorter than the four-year statute of limitations for actions on a written contract (Code Civ.Proc., § 337, subd. 1) the shortened provision has long been deemed reasonable and valid. (See e.g., C. & H. Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1064, 211 Cal.Rptr. 765; cf. Fageol T. & C. Co. v. Pacific Indemnity Co. (1941) 18 Cal.2d 748, 753, 117 P.2d 669.)
Again we refer to the contract. It provides: "Suit. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss." Thus if November 1985 is assumed to be the date of the inception of the loss, the contract required the suit to be commenced by November of 1986. While the plaintiffs promptly filed their claim with FIE in November of 1985, they did not file suit until FIE formally denied their claim in January of 1987.
Plaintiffs argue that the statute of limitations should be tolled for the period of time that FIE took to formally deny their claim. There is no California authority for that proposition, but many other jurisdictions have taken such an approach. We conclude that such an approach is consistent with the well-established California doctrine of equitable tolling of periods of limitations.
A.
Many states have considered the question of interpretation of the period of limitation at issue here, i.e., that suit must be The traditional, and apparently majority, view holds that the limitation period commences immediately upon the happening of the insured peril. (See e.g., Closser v. Penn Mut. Fire Ins. Co. (Del.1983) 457 A.2d 1081, 1083-1087; Brunner v. United Fire & Cas. Co. (Iowa 1983) 338 N.W.2d 151, 152; Scheetz v. IMT Ins. Co. (Mut.) (Iowa 1982) 324 N.W.2d 302, 305-306; Gremillion v. Travelers Indemnity Company (1970) 256 La. 974, 240 So.2d 727, 731-732 (overruling Finkelstein v. American Ins. Co. of Newark, N.J. (1952) 222 La. 516, 62 So.2d 820); Proc v. Home Insurance Company (1966) 17 N.Y.2d 239, 270 N.Y.S.2d 412, 217 N.E.2d 136; Kelley v. Travelers Ins. Co. (1983) 9 Ohio App.3d 58, 458 N.E.2d 406, 407; Florsheim v. Travelers Indem. Co. of Illinois (1979) 75 Ill.App.3d 298, 30 Ill.Dec. 876, 884-885, 393 N.E.2d 1223, 1231-1232; Stansbury v. Smith (Ct.App.Ky.1968) 424 S.W.2d 571, 572.)
Illinois has a statutory tolling provision in their Insurance Code (Ill.Rev.Stat.1985, ch. 73, para. 755.1) tolling the period of limitation from the date proof of loss is filed until the claim is denied. (See Kondourajian v. Millers Nat. Ins. Co. (1987) 151 Ill.App.3d 870, 104 Ill.Dec. 913, 915, 503 N.E.2d 775, 777.)
Other courts have interpreted the provision as allowing the period of limitations to run from the date of the casualty, but the period is tolled from the time the insured gives notice of the loss until the insurance company formally denies liability. (See e.g., Ford Motor Co. v. Lumbermen's Mut. Cas. Co. (1982) 413 Mich. 22, 319 N.W.2d 320; Tom Thomas Organization v. Reliance Ins. Co. (1976) 396 Mich. 588, 242 N.W.2d 396, 399-400; Clark v. Truck Ins. Exchange (1979) 95 Nev. 544, 598 P.2d 628, 629; Peloso v. Hartford Fire Insurance Co. (1970) 56 N.J. 514, 267 A.2d 498, 501; see also Nicholson v. Nationwide Mut. Fire Ins. Co. (N.D.Ga.1981) 517 F.Supp. 1046, 1050-1052 [applying Georgia law; tolling for at least the period of time it takes the insured to file proof of loss].)
The rationale for this line of cases is that the standard policy purports to afford the insured a period of 12 months in which to commence suit, but substantial delays are built in under the terms of the policy. For instance, the policy requires the insured to provide proof of loss: "[W]ithin 60 days after the loss, unless such time is extended in writing by this company, the insured shall render to this company a proof of loss, signed and sworn to by the insured, ..." (Ins.Code, § 2071.) The policy also contains a payment provision, affording the insurance company an essentially open ended time frame: "The amount of loss for which this company may be liable shall be payable 60 days after proof of loss, as herein provided, is received by this company and ascertainment of the loss is made either by agreement between the insured and this company expressed in writing or by the filing with this company of an award as herein provided." (Ins.Code, § 2071.)
Thus as the Supreme Court of Michigan recognized in the leading case of Tom Thomas Organization v. Reliance Ins. Co., an insured really does not have a full 12 months in which to file a claim: "Notwithstanding diligence by both parties at all stages of the claim procedure, considerable time often elapses before the insured learns whether the insurer will pay. Even if the insured promptly reports a loss to his insurance agent, discussions concerning resolution of the claim may take weeks. Additional time often passes before the insurance company provides a form for filing proof of loss. Even then the insured does not know whether it will be necessary to start an action; under the policy in this case, payment is not required until sixty days after 'acceptance' by the insurer of the proof of loss. No time limit for acceptance is imposed." (Id. 242 N.W.2d at p. 398.) The substantial delays inherent in the standard insurance policies led the New Jersey Supreme Court in Peloso v. Hartford Fire Insurance Co., supra, 267 A.2d 498, to conclude that the period of limitation should be tolled from the time an insured gives notice of loss until the insurer formally denies liability: "In this manner, the literal language of the limitation provision is given effect; the insured is not penalized for the time consumed by the company while it pursues its contractual and statutory rights to have a proof of loss, call the insured in for examination, and consider what amount to pay; and the central idea of the limitation provision is preserved since an insured will have only 12 months to institute suit. We think this approach is more satisfactory, and more easily applied, than the pursuit of the concepts of waiver and estoppel in each of the many factual patterns which may arise." (Id. at pp. 501-502.)
While the Tom Thomas court was construing an inland marine insurance policy, the Supreme Court of Michigan, more recently had occasion to adopt its reasoning to the standard fire insurance policy at issue in our case in Ford Motor Co. v. Lumbermen's Mut. Cas. Co., supra, 319 N.W.2d 320.
In adopting that approach the Nevada Supreme Court noted that it "preserves the literal language of the limitation provision by providing that the insured will have only 12 months to institute suit, but does not penalize the insured for the time consumed by the insurer while it pursues contractual rights to receive a proof of loss or negotiates payment with the insured." (Clark v. Truck Ins. Exchange (1979) 95 Nev. 544, 598 P.2d 628, 629-630; accord Davenport v. Republic Ins. Co. (1981) 97 Nev. 152, 625 P.2d 574, 575.)
Led by the Supreme Court of Alaska another line of cases holds that the period of limitation does not commence until a cause of action accrues, i.e., until the insurance company formally denies the claim. The court reached this conclusion in Fireman's Fund Ins. Co. v. Sand Lake Lounge, Inc. (Alaska 1973) 514 P.2d 223, by analogizing to the Uniform Commercial Code which permits reduction of the four-year statute of limitation by agreement of the parties but not to less than one year. In so doing the court held that the insured must be allowed a full year from the accrual of the cause of action to sue and that a cause of action does not accrue until formal denial of the claim. Other courts have also followed that course. (See e.g., Meadows v. Employers' Fire Ins. Co. (W.Va.1982) 298 S.E.2d 874, 879; Phoenix Insurance Company v. Brown (1964) 53 Tenn.App. 240, 381 S.W.2d 573, 574-575.) While the result is somewhat different from the Tom Thomas--Peloso line of cases, the rationale for Sand Lake Lounge holding is the same: the substantial delays inherent in the claims policy. "Were we to read 'inception of the loss' as meaning the date of the fire, the operational effect of that decision would be to reduce the limitation period to considerably less than one year from the date the cause of action accrued." (Fireman's Fund Ins. Co. v. Sand Lake Lounge, Inc., supra, 514 P.2d at p. 227.)
Last but not least, is the unique enforcement on a case-by-case basis position taken by the Arizona Supreme Court in Zuckerman v. Transamerica Ins. Co. (1982) 133 Ariz. 139, 650 P.2d 441. Noting that a one-year suit provision is generally deemed enforceable, the court recognized that "with the modern-day business methods of the insurance industry" in most cases the contractual provision is adhesive in nature, the result of neither choice nor negotiation. (Id. 650 P.2d at pp. 447, 448.) Refusing to "rewrite the contract" and find the provision unenforceable, the court held that in certain circumstances an insurer may be estopped to assert the provision: "The clause will be enforced when the reasons for its existence are thereby served and will not be applied when to do so would be to defeat the basic intent of the parties in entering into the insurance transaction." (Id. 650 P.2d at p. 448.)
B.
There is very little case law in California regarding the tolling of the 12-month period of limitation provision. FIE argues that California follows the majority view; i.e., that the 12-month period commences upon the date of the loss and there is no tolling. But cases relied upon by FIE to support that argument are inapposite or as FIE in another context puts it, "involve[d] significantly different facts." In two of the cases, Jackson v. Andco Farms, Inc. (1982) 130 Cal.App.3d 475, 181 Cal.Rptr. 815, and Kunstman v. Mirizzi (1965) 234 Cal.App.2d 753, 44 Cal.Rptr. 707, the question was whether the statute of limitations for a personal injury action should be tolled during the plaintiff's attorney's negotiations with a third party insurance carrier. In the third case, Tubbs v. Southern Cal. Rapid Transit Dist. (1967) 67 Cal.2d 671, 63 Cal.Rptr. 377, 433 P.2d 169, the plaintiff failed to commence her suit against the governmental authorities within six months as required by the Tort Claims Act. It is hardly surprising that in the absence of evidence of fraud or misrepresentation, the court in each case found no basis for estopping the defendant from asserting the statute of limitations, noting in passing that in each case the plaintiff's attorney was charged with knowing the relevant statute of limitations. (Jackson v. Andco Farms, Inc., supra, 130 Cal.App.3d at p. 475, 181 Cal.Rptr. 815; Kunstman v. Mirizzi, supra, 234 Cal.App.2d at pp. 757-758, 44 Cal.Rptr. 707; Tubbs v. Southern California Rapid Transit Dist., supra, 67 Cal.2d at p. 679, 63 Cal.Rptr. 377, 433 P.2d 169.)
That situation is different in kind from the case at bar where a homeowner is negotiating directly with its own insurance company with which it has a contractual obligation to file a claim and who in turn has a contractual obligation to thoroughly investigate that claim before rendering a decision. We thus find Jackson, Kunstman, and Tubbs of no help to us in resolving the question at hand.
More in the ballpark but less than dispositive are Zurn Engineers v. Eagle Star Ins. Co. (1976) 61 Cal.App.3d 493, 132 Cal.Rptr. 206, and Case v. Sun Insurance Co. (1890) 83 Cal. 473, 23 P. 534.
In Zurn Engineers v. Eagle Star Ins. Co., supra, 61 Cal.App.3d 493, 132 Cal.Rptr. 206, the insured could not submit the required sworn statement of loss until the liability of a third party was determined, and that determination was made more than 12 months after the loss. To "avoid[ ] a rule which will require the insured to file a lawsuit which may prove unnecessary" the Court of Appeal interpreted the "inception of the loss" language of Insurance Code section 2071 to mean "the point after a physical loss has occurred when the insured has had a reasonable opportunity to comply with conditions precedent to suit upon the policy in the form of notice to the insurer and the filing of a proof of loss covered by the policy." (Id. at p. 500, 132 Cal.Rptr. 206.) Put plainly, Zurn seems to hold that the 12-month period of limitation does not commence until the insured has had the opportunity to comply with his contractual obligations to file a proof of loss. Zurn, however, confined its holding to "the context of the policy and factual situation which is here involved." (Id. at p. 495, 132 Cal.Rptr. 206.) It has not been applied outside that factual context as far as we can determine.
Then there is Case v. Sun Insurance Co., supra, 83 Cal. 473, 23 P. 534, an 1890 opinion by the California Supreme Court which has been honored by being basically ignored for 100 years. In Case, the insurance contract provided for so many requirements on the part of the insured for purposes of proving the loss that by the time he had completed them, 13 months had lapsed since the fire. While the court did not spell out its reasoning, it concluded that the action was not barred by the 12-month suit provision of the policy. Sole reliance for that conclusion was placed on Spare v. Home Mut. Ins. Co. (C.C.D.Ore.1883) 17 F. 568, another case involving a suit commenced more than 12 months after a fire. The relevant portions of Spare as quoted in Case are as follows: " 'On the authority of adjudged cases [citations], it is admitted by counsel for plaintiff that this clause in the policy, limiting the time within which a suit may be commenced thereon against the defendant, is valid; but they contend that it must be read in connection with that other clause which provides that a loss does not become payable until sixty days after the proof of that fact is made; and that taken together, the reasonable construction of law is, that the right to sue on the policy being postponed until the loss is payable,--namely, sixty days Case, like Zurn, has no following in California. But, neither the paucity of admirers nor the senility of the opinion dilutes the obligation of this court to follow the dictates of stare decisis. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.) Exactly what is the holding of Case, we are not sure. But a fair reading is that under the facts before the court, the 12-month period of limitation did not commence to run until the insured had had an adequate opportunity to comply with his contractual obligation to provide proof of loss to the insurance company, and the insurance company had had an adequate time to process and determine whether to pay the claim.
Thus, we think it fair to characterize both Case and Zurn as employing equitable principles to postpone the commencement of the one-year suit provision under the particular factual situation before them.
C.
Judicial tolling of periods of limitations is nothing new in this state. Such tolling is but an expression both of the strong public policy to dispose of litigation on the merits rather than on procedural grounds and of the rule that statutes of limitations being disfavored defense are strictly construed to avoid a forfeiture of rights. (Barrington v. A.H. Robins Co. (1985) 39 Cal.3d 146, 152, 216 Cal.Rptr. 405, 702 P.2d 563; Appalachian Ins. Co. v. McDonnell Douglas Corp. (1989) 214 Cal.App.3d 1, 38, 262 Cal.Rptr. 716; Sidney v. Superior Court (1988) 198 Cal.App.3d 710, 716, 244 Cal.Rptr. 31.)
Curiously enough the doctrine was first applied in an insurance case, Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 154 P.2d 399. In Bollinger the plaintiff had timely filed an action against his insurer but the action had been erroneously dismissed by the trial court as being premature under the terms of the contract. The plaintiff promptly filed a second action, but by then the period of limitations had expired. Concluding that it would be "a perversion of the policy of the statute of limitation to deny a trial on the merits" (at p. 406, 154 P.2d 399), the California Supreme Court permitted the action to proceed, on the basis of the broad policy implicit in Code of Civil Procedure section 355, which permits the plaintiff to file a new action within one year if a judgment in his favor is reversed on appeal.
Code of Civil Procedure section 355, obviously, has nothing to do with this case. But the rule announced in Bollinger was not confined to that statute. Instead, it expressed a general rule of equity which operates independently of the literal wording of the statute of limitations. In so doing the Supreme Court explained in Bollinger: "[T]his court is not powerless to formulate rules of procedure where justice demands it. Indeed, it has shown itself ready to adapt rules of procedure to serve the ends of justice where technical forfeitures would unjustifiably prevent a trial on the merits." (Id. 25 Cal.2d at p. 410, 154 P.2d 399; accord Addison v. State of California (1978) 21 Cal.3d 313, 318-319, 146 Cal.Rptr. 224, 578 P.2d 941.)
A somewhat related contention--i.e., that the period should be tolled during negotiations with another insurance company--was summarily rejected as without precedent in State Farm Fire & Casualty Co. v. Superior Court, supra, 210 Cal.App.3d 604, 611, 258 Cal.Rptr. 413.
In subsequent decisions our high court has made it plain that the doctrine of equitable tolling announced in Bollinger is not a rare sport of insurance law but is instead a doctrine of fairness that is unrestrained by subject matter. For instance, in Elkins v. Derby (1974) 12 Cal.3d 410, 115 Cal.Rptr. 641, 525 P.2d 81, the California Supreme Court held that the statute of Similarly, in Addison v. State of California, supra, 21 Cal.3d 313, 146 Cal.Rptr. 224, 578 P.2d 941, the court approved the tolling of state court actions against governmental entities while the plaintiff seeks alternative remedies in federal court. (Accord Jones v. Tracy School Dist. (1980) 27 Cal.3d 99, 108-109, 165 Cal.Rptr. 100, 611 P.2d 441.) The court reasoned: "As demonstrated by Bollinger and Elkins, application of the doctrine of equitable tolling requires timely notice, and lack of prejudice, to the defendant, and reasonable and good faith conduct on the part of the plaintiff. These elements seemingly are present here. As noted, the federal court, without prejudice, declined to assert jurisdiction over a timely filed state law cause of action and plaintiffs thereafter promptly asserted that cause in the proper state court. Unquestionably, the same set of facts may be the basis for claims under both federal and state law. We discern no reason of policy which would require plaintiffs to file simultaneously two separate actions based upon the same facts in both state and federal courts since 'duplicative proceedings are surely inefficient, awkward and laborious.' [Citations.] [p] Furthermore, since the federal court action was timely filed, defendants were notified of the action and had the opportunity to begin gathering their evidence and preparing their defense. No prejudice to defendants is shown, for plaintiffs' state court action was filed within one week of the dismissal of the federal suit. To apply the doctrine of equitable tolling in this case, in our view, satisfies the policy underlying the statute of limitations without ignoring the competing policy of avoiding technical and unjust forfeitures." (Addison v. State of California, supra, 21 Cal.3d at p. 319, 146 Cal.Rptr. 224, 578 P.2d 941.)
The doctrine of equitable tolling has been utilized by the Court of Appeal as well. For instance, in Nichols v. Canoga Industries (1978) 83 Cal.App.3d 956, 148 Cal.Rptr. 459, a state court action was held to be equitably tolled during the pendency of a federal action even though the remedies were not inconsistent and the actions could have been pursued simultaneously. In Collier v. City of Pasadena (1983) 142 Cal.App.3d 917, 191 Cal.Rptr. 681, the Court of Appeal held that the filing of a workers' compensation claim equitably tolled the statute of limitations for the filing of a disability pension claim arising out of the same injury. Similarly, in Appalachian Ins. Co. v. McDonnell Douglas Corp., supra, 214 Cal.App.3d 1, 262 Cal.Rptr. 716, the court applied the equitable tolling doctrine to a state court action where the defendant had moved to remove the earlier state court action to federal court and rather than petitioning for remand, the plaintiff had dismissed the case and filed anew in the trial court.
A three-part test for determining whether equitable tolling should be applied to a particular period of limitations has evolved: (1) timely notice to the defendant in the filing of the first claim; (2) a lack of prejudice to the defendant in gathering evidence to defend against the second claim; and (3) good faith and reasonable conduct by the plaintiff in the filing of the second claim. (Addison v. State of California, supra, 21 Cal.3d at p. 319, 146 Cal.Rptr. 224, 578 P.2d 941; Collier v. City of Pasadena, supra, 142 Cal.App.3d 917, 924, 191 Cal.Rptr. 681; Loehr v. Ventura County Community College Dist. (1983) 147 Cal.App.3d 1071, 1084-1085, 195 Cal.Rptr. 576.) This case more than satisfies each requirement. Again taking as true November 1985 as the date plaintiffs discovered the loss, plaintiffs promptly thereafter notified FIE of the loss and of their claim. The record indicates, and FIE does not suggest anything to the contrary, that plaintiffs furnished all necessary information to FIE. FIE in turn, undertook what appears to be a good faith investigation of the claim to determine what if any liability it might have. That determination took much longer than the one-year period of the limitations contained in the policy. Plaintiffs repeatedly contacted FIE for a decision, but were kept waiting for an answer. It appears that plaintiffs forbearance from commencing suit was a direct result of the delays of FIE in determining the claim. There can be no question but that plaintiffs were acting both in good faith and reasonably in waiting for the formal denial of their claim before commencing suit against FIE. No prejudice to FIE appears from application of the doctrine here: it was timely notified of the claim and commenced its investigation and gathering of evidence. All the prerequisites for equitable tolling appear to be met in this case. (Cf. Decell v. Northwestern Nat. Ins. Co. (D.Nev.1983) 570 F.Supp. 431 [Nevada court interpreting California Law applies the doctrine of equitable tolling to an insurance contract period of limitations.].)
Thus on this record, we find a triable issue of fact existed as to whether plaintiffs met the requirement for invocation of the equitable tolling doctrine. The trial court therefore erred in granting FIE's motion for summary judgment and not allowing plaintiffs to litigate the question. (Cf. Jones v. Tracy School Dist., supra, 27 Cal.3d at p. 109, 165 Cal.Rptr. 100, 611 P.2d 441.)
Finally, we note that application of a rigid rule against tolling would serve no laudable goal. If a rigid approach is followed an insured with complicated legal or factual claims such as were involved here would be required to commence suit against his or her insurer before the insurer completed its investigation of the claim. In such situations because the insurer has not rendered a decision on the policy, it has not yet breached the insurance contract. Thus, the only legal remedy available to the insured is an action for declaratory relief. While such actions are technically available, resorting to litigation before the insurance company has taken a position on the claim is "inefficient, awkward and laborious." (Cf. Elkins v. Derby, supra, 12 Cal.3d at p. 420, 115 Cal.Rptr. 641, 525 P.2d 81.) At a time in which the courts are severely overburdened as they are with the processing of justiciable controversies, adoption of a rule requiring litigation before a cause of action has accrued makes little sense. We refuse to follow such a course.
We therefore hold that the one year contractual period of limitation requiring suit to be commenced "within twelve months next after inception of the loss" begins to run upon inception of the loss, but may be equitably tolled from the time the insured gives timely notice of its loss and until the insurance company formally acts upon the claim.
While our analysis applies with equal force in theory to both the Sixth Edition and the Protector Plus policies, plaintiffs only legal recourse for their losses is to the Sixth Edition policy. The trial court found the Protector Plus specifically excluded their loss. That finding has not been challenged on appeal.
The judgment is reversed insofar as it holds that plaintiffs' action under the Sixth Edition policy is barred by the one-year suit provision, and the cause is remanded for further proceedings consistent with this opinion. In all other respects, the judgment is affirmed. Plaintiffs to recover their costs on appeal.
ANDERSON, P.J., and PERLEY, J., concur.
Also distinct is the case where the policy holder recognizes the damage but belatedly discovers that his policy might cover the loss. It has been held that ignorance of legal rights does not toll the one-year policy period of limitation. (See e.g., Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1143, 1145-1146, 271 Cal.Rptr. 246; State Farm Fire & Casualty Co. v. Superior Court (1989) 210 Cal.App.3d 604, 608-610, 258 Cal.Rptr. 413; Abari v. State Farm Fire & Casualty Co. (1988) 205 Cal.App.3d 530, 535, 252 Cal.Rptr. 565; Lawrence v. Western Mutual Ins. Co. (1988) 204 Cal.App.3d 565, 572-573, 251 Cal.Rptr. 319.)