Unpublished Disposition, 904 F.2d 710 (9th Cir. 1988)

MEMORANDUM^** 

David and Carol Anderson appeal from a grant of summary judgment in this diversity action in favor of Allstate Insurance Company (Allstate). The district court concluded that the Andersons' bad faith claim was time-barred by a one-year contractual limitation for the filing of an action regarding a dispute arising out of the insurance policy. On appeal, the Andersons raise four arguments: (1) the one-year provision must be construed against Allstate; (2) they were not required to file this action when they first discovered the damage to their home because of its continuing nature; (3) the limitation period did not begin to run until they discovered the cause of the damage; and (4) Allstate waived the one-year provision by not asserting it in its letter denying the Andersons' claim. We affirm.

PERTINENT FACTS

The facts are not in dispute. The Andersons obtained a homeowner's insurance policy from Allstate after purchasing their home in 1977. In 1980, they became aware of serious cracking problems in the walls, doors, and windows of their home and garage. During the next five years the damage increased; the Andersons admit that by 1982 they realized that their residence suffered from "serious problems." By 1986, the damage was so severe that the Andersons estimated their house was worth only half of its undamaged market value.

On or about April 24, 1987, the Andersons submitted a claim to Allstate for the loss to the value of their home. Allstate denied the claim on September 15, 1987. Two reasons for the denial were asserted: (1) the claim was barred by the four-year statute of limitations in Cal.Civ.Proc.Code Sec. 337 and (2) the insured failed to present timely proof of the cost of repairs to their home. The Andersons filed this action on February 3, 1988.

DISCUSSION

The Andersons contend that their policy authorized them to file an action within one year after the damage to their home was complete. We review an order granting summary judgment de novo. Masson v. New Yorker Magazine, Inc., 895 F.2d 1535, 1537 (9th Cir. 1989). Summary judgment is proper where " 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' " High Tech Gays v. Defense Indus. Sec. Clearance Office, 895 F.2d 563, 570 (9th Cir. 1990) (quoting Fed. R. Civ. P. 56(c)). A dispute over a material fact is genuine only if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The Andersons' policy contained the following provision:

NO SUIT OR ACTION MAY BE BROUGHT AGAINST US UNLESS THERE HAS BEEN FULL COMPLIANCE WITH ALL THE TERMS OF THIS POLICY. ANY SUIT OR ACTION MUST BE BROUGHT WITHIN ONE YEAR AFTER THE LOSS.

The Andersons argue that the words "after the loss" permit the filing of an action after the cessation of the damage. Allstate contends, however, that the policy's wording is a mere simplification of the standard insurance policy set forth in Section 2071 of the California Insurance Code. Section 2071 contains the following required provision:

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 12 months next after the inception of the loss.

Cal.Ins.Code Sec. 2071 (West 1972). The Andersons suggest that Allstate's changes in the wording of this provision amount to abandonment of the "inception of the loss" provision contained in the statute and a grant of additional rights to the insured. See Cal.Ins.Code Sec. 2079(c) (West 1972) (insurer may " [g]rant [ ] insured permits and privileges not otherwise provided" in the standard policy).

The Andersons' first argument in support of their claim is that the provision should be construed against the insurer. This rule of contract interpretation is not applicable in California in construing contractual provisions mandated by statute. " [W]here the language is that of the Legislature, then that rule does not apply. In interpreting the statute then it must be given a reasonable construction according to the Legislature's real or apparent intention." Interinsurance Exchange of the Auto. Club of So. Cal. v. Marquez, 116 Cal. App. 3d 652, 656, 172 Cal. Rptr. 263, 264 (1981). Because Insurance Code Section 2070, as in effect in 1977, required that Allstate's policy contain a one-year provision that is "the substantial equivalent" of the one-year provision in Section 2071, Cal.Ins.Code Sec. 2070 (West 1977), the policy must be interpreted to require the filing of an action within one year after discovery of the loss. See Cal.Civil Code Sec. 1643 (West 1985) (" [A] contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect...."). Insurance Code Section 2079, which the Andersons claim permits extension of the limitations period, merely codifies an insurer's right to insert additional clauses in the policy that address issues not covered in the standard form. Cal.Ins.Code Sec. 2079 (West 1972) ("Clauses may be added to the standard form ... [g]ranting insured permits and privileges not otherwise provided.") ; See Ichthys, Inc. v. Guarantee Ins. Co., 249 Cal. App. 2d 555, 558, 57 Cal. Rptr. 734, 737 (1967) (the provisions mandated by Sec. 2071 are "a matter beyond the control of either party to the contract"). We reject the Anderson's strained interpretation of the one-year limitation set forth in the policy.

The Andersons next argue, without citation, that they had the right to wait until the continuing damage to their home was complete because courts must adopt an interpretation that gives coverage to the public. California courts do not follow this rule. " ' [I]nception of the loss,' as the phrase is used in Insurance Code section 2071, means 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." Zurn Engineers v. Eagle Star Ins. Co., Ltd., 61 Cal. App. 3d 493, 500, 132 Cal. Rptr. 206, 210 (1976); see also Abari v. State Farm Fire & Casualty Co., 205 Cal. App. 3d 530, 535, 252 Cal. Rptr. 565, 567 (1988) (suit brought in 1984 was barred by policy's one-year commencement of suit provision when insured noticed cracks in 1979). The Andersons do not allege that they did not have an opportunity to notify Allstate or to file proof of the damage to their home prior to 1987.

The Andersons' argument that knowledge of the cause of the damage was required for the one-year period to run is also without merit. "It is the occurrence of some ... cognizable event rather than knowledge of its legal significance that starts the running of the statute of limitations." Abari, 205 Cal. App. 3d at 535, 252 Cal. Rptr. at 567 (quoting McGee v. Weinberg, 97 Cal. App. 3d 798, 804, 159 Cal. Rptr. 86, 90 (1979)); see also Matsumoto v. Republic Ins. Co., 792 F.2d 869, 872 (9th Cir. 1986) (per curiam) (" [W]e are unable to mark the accrual of the Matsumotos' action by the date upon which they discovered the cause of their earth movement.").

The Andersons' final argument is that Allstate's failure to include the contractual limitations provision in its denial letter serves as a waiver of this requirement. Although courts have held that an insurer can waive its right to rely on a grounds for denying a claim that were not set forth in its denial letter, see, e.g., Intel Corp. v. Hartford Accident & Indem. Co., 692 F. Supp. 1171, 1176-80 (N.D. Cal. 1988); McLaughlin v. Connecticut General Life Ins. Co., 565 F. Supp. 434, 451-53 (N.D. Cal. 1983), the Andersons provide no authority that requires an insurer to assert a provision barring a legal action in a letter denying a claim. Indeed, courts have uniformly rejected this type of claim. As the Second District of the California Courts of Appeal has stated: "We do not find authority which supports plaintiff's contention that denial of liability under a policy of insurance of itself constitutes a waiver by the insurer of a condition of the policy limiting the time for the commencement of an action." Genuser v. Ocean Accident & Guarantee Corp., Ltd., 57 Cal. App. 2d 979, 983, 135 P.2d 670, 672 (1943); see also Becker v. State Farm Fire & Casualty Co., 664 F. Supp. 460, 462 (N.D. Cal. 1987) ("The rationale is that a waiver rule gives the insurer incentive to investigate claims before denying them. The defenses subject to the waiver rule go to whether the claimed loss is covered by the policy. Here, the twelve-month limit for bringing suit is unrelated to any investigation of whether the claimed loss is covered by the policies."); Zumbrun v. United Servs. Auto. Ass'n, 719 F. Supp. 890, 896 (E.D. Cal. 1989) (waiver rule does not apply to statute of limitations defense, which "relates to the conduct of th [e] litigation and not the validity of the claim").

Because we find that the one-year commencement of suit provision in the Andersons' policy barred their 1988 suit, we need not address the applicability of California's four-year statute of limitations for breach of contract. Cal.Civ.Proc.Code Sec. 337 (West 1972).

AFFIRMED.