Unpublished Disposition, 930 F.2d 28 (9th Cir. 1986)

No. 90-55358.

United States Court of Appeals, Ninth Circuit.

Before CANBY and RYMER, Circuit Judges, and LEVI^*  District Judge.

MEMORANDUM^** 

Alfred and Barbara Lally appeal the entry of summary judgment in favor of Allstate Insurance Company (Allstate) in their action for insurance bad faith. On appeal the Lallys argue that genuine issues of material fact exist as to: (1) the date on which they were put on notice of the loss and (2) whether Allstate waived the one-year limitation provision contained in the insurance contract. Reviewing the dismissal de novo, we affirm.

The district court concluded that the limitations period began to run by Thanksgiving of 1984 when Mrs. Lally discovered cracks in the ceilings, floors and in the cement slab beneath the tile floor. The court noted that the damage was severe enough for Mrs. Lally's son-in-law to suggest that she consult a geologist to determine the cause of the soil subsidence, which she did. Because the Lallys did not commence the present action until October 1986, the trial court held that the action was time barred by the one-year limitations clause.

On appeal, the Lallys argue that the trial court erred in holding that appreciable damage occurred by Thanksgiving 1984. According to the Lallys, the damage to their home consisted of minor hairline cracks which were not sufficient to alert them that substantial damage had occurred. The Lallys contend that they did not have actual notice of the loss until they received the geotechnical report identifying the cause of the damage.

In Prudential-LMI Ins. v. Superior Court, 51 Cal. 3d 674, 798 P.2d 1230, 274 Cal. Rptr. 387 (Cal.1990), the California Supreme Court recently held that courts should apply the delayed discovery rule to determine the date of loss in cases of progressive property loss. Under this rule:

The insured's suit on the policy will be deemed timely if it is filed within one year after the "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.

51 Cal. 3d at 686-87, 798 P.2d at 1238, 274 Cal. Rptr. at 395.

In explaining its holding, the court warned:

To take advantage of the benefits of a delayed discovery rule, however, 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 insured's duty to notify his insurer of the loss promptly and diligently.

51 Cal. 3d at 687, 798 P.2d at 1238, 274 Cal. Rptr. at 395.

Applying the test announced by the California Supreme Court, we conclude that the Lallys were or should have been aware that their house had incurred appreciable damage by November 1984.²  The undisputed evidence shows that the Lallys observed hairline cracks in various ceilings and floors in their San Diego home beginning in September 1984. By Thanksgiving, the cracks in the floors had worsened. The parquet floor was pulling apart and the tile in the kitchen was separating. In her May 1989 deposition, Mrs. Lally stated that the cracks in the tile had become so wide that she was able to observe the slab below which was also cracked. Mrs. Lally testified that the cracked slab was "a big concern."³  Shortly thereafter, upon the suggestion of their son-in-law, the Lallys retained a geologist to investigate the cause of the damage.

It is evident that the damage discovered by the Lallys by Thanksgiving 1984, was "substantial" and "unusual," greatly deviating "from what a reasonable person would consider normal wear and tear." Mrs. Lally's May 1989 deposition testimony indicates such an understanding. See Abari v. State Farm Fire & Casualty Co., 205 Cal. App. 3d 530, 252 Cal. Rptr. 565 (Cal.Ct.App.1988) (cited with approval in Prudential-LMI, 51 Cal. 3d at 685, 798 P.2d at 1237, 274 Cal. Rptr. at 394.)

The appellants point to Mrs. Lally's later declaration in opposition to the motion for summary judgment as evidence that the damage to the house was minor. In opposition to the motion for summary judgment, Mrs. Lally stated that the cracks she saw in November 1984 were minor hairline cracks which did not worsen until much later. This statement, however, does not create an issue of material fact. A party's contradictory testimony cannot be used to defeat a motion for summary judgment where the only issue of fact results from the necessity of choosing between the party's two conflicting statements. Radobenko v. Automated Equipment Corp., 520 F.2d 540 (9th Cir. 1975).

The Lallys rely on Love v. Fire Ins. Exchange, 221 Cal.App.3d. 1136, 271 Cal. Rptr. 246 (Cal.Ct.App.1990), to support their claim that they were not aware that appreciable damage had occurred until they received the geotechnical report. In Love, a California court of appeals held that: "Where an insured observes abnormal damage, hires an engineering firm to investigate, and obtains a report stating earth movement and third party negligence are causes of the damage, his causes of action against the insurer accrue on receipt of such report, because the statute of limitations commences when a party knows or should know the facts essential to his claim. 221 Cal. App. 3d at 1143, 271 Cal. Rptr. at 249 (citations omitted; emphasis in the original).

We do not read Love as holding that the date of loss should be determined by the receipt of a geologist's report. In Love, the court did not consider whether the limitations period began to run prior to the receipt of the engineering report. It was obvious that the plaintiffs' action was time-barred because seven years had passed since the plaintiffs received the report. We agree that there may be some cases in which the plaintiffs might be unaware that appreciable damage has occurred until the receipt of an investigative report; however, we do not find this to be such a case.

Although we sympathize with the Lallys, we conclude that the trial court did not err in holding that their action is barred by the one-year limitations provision.

The Lallys next argue that there is an issue of fact as to whether Allstate's conduct from July 1986 through September 1988 constitutes an implied waiver of the limitations period.

To establish an implied waiver, the Lallys must show that Allstate's conduct was so inconsistent with the intent to enforce the limitations condition as to induce a reasonable belief that it had been relinquished. Dalzell v. Northwestern Mut. Ins. Co., 218 Cal. App. 2d 96, 107, 32 Cal. Rptr. 125, 127 (Cal.Ct.App.1963). The conduct "should be so manifestly consistent with and indicative of an intent to relinquish voluntarily a particular right that no other reasonable explanation of [the] conduct is possible." Central Bank Nat'l Ass'n. v. Superior Court, 81 Cal. App. 3d 592, 600-601, 146 Cal. Rptr. 503, 506 (Cal.Ct.App.1978).

In support of their claim that Allstate's conduct was inconsistent with an intent to enforce the condition, the Lallys point to Allstate's investigation of the claim, admission of coverage, and payment of the undisputed portion of the claim. After considering additional evidence of Allstate's conduct, we reject the Lallys' argument.

Allstate's conduct included sending a reservation of rights letter on July 1, 1986. In this letter Allstate specifically stated that its investigation or settlement of the claim did not constitute a waiver of any rights.⁴  Moreover, Allstate specifically rejected the Lallys' July 28, 1986 request to "toll" the one-year limitation period in the insurance contract, stating that it would not "waive" the limitations period and suggesting that the Lallys file suit to preserve their rights.

In the cases finding an implied waiver, the insurance company, by its conduct, induced the insured to delay in bringing an action. See e.g., Elliano v. Assurance Co. of America, 3 Cal. App. 3d 446, 83 Cal. Rptr. 509 (Cal.Ct.App.1970). There are no facts in the present action which would indicate that Allstate did anything to prevent the plaintiffs from filing their suit before the limitations period had expired. Here, the limitations period had run before Allstate was aware of the Lallys' claim. Consequently, we conclude that the subsequent investigation and partial settlement of the Lallys' claim by Allstate does not constitute an implied waiver of the limitations condition.

The judgment is AFFIRMED.