Unpublished Disposition, 924 F.2d 1063 (9th Cir. 1990)

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US Court of Appeals for the Ninth Circuit - 924 F.2d 1063 (9th Cir. 1990)

Roy MEDINA and Rowena Medina, Plaintiffs-Appellants,v.STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Appellee.

No. 89-56067.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 6, 1990.Decided Jan. 28, 1991.



Plaintiffs-appellants the Medinas appeal the district court's 12(b) (6) dismissal of their suit for tort and contract damages on statute of limitations grounds. The Medinas contend that the district court's decision was in error because defendant-appellee State Farm Fire and Casualty Company is equitably estopped from asserting a statute of limitations defense based on its fraudulent nondisclosure and affirmative misrepresentation of material facts relating to their claim. We affirm.


In April 1980, the Medinas' residential property was damaged by earth movement and land subsidence. During all relevant times, a State Farm all-risk homeowners' insurance policy was in full force and effect. The Medinas immediately reported a claim under their policy for the loss to a State Farm agent. State Farm summarily denied their claim, without any investigation, stating that there was no coverage for the loss.

In June 1988, the Medinas learned that California courts had required insurance companies to cover losses such as theirs if the proximate cause of the damage was a peril covered by the policy. They then retained legal counsel and resubmitted their claim to State Farm. In December 1988, State Farm again denied any obligation to pay for the damage. The Medinas responded by filing an action in state court for tort and contract damages against State Farm on March 20, 1989.

State Farm removed the case to federal court and filed a 12(b) (6) dismissal motion contending the entire action was barred by the statute of limitations. Under California law, the longest applicable statute requires actions based on written contracts to be brought within four years. The Medinas defended the motion on the grounds that their complaint alleged facts sufficient to equitably estop State Farm from relying on the statute of limitations. The district court granted the motion to dismiss. The Medinas timely appeal.


A dismissal for failure to state a claim pursuant to Fed. R. Civ. P. 12(b) (6) is a ruling on a question of law and as such is reviewed de novo. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, 110 S. Ct. 3217 (1990). We review the district court's interpretation of state law de novo. Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984) (en banc). "When interpreting state law, a federal court is bound by the decision of the highest state court." In re Kirkland, 915 F.2d 1236, 1238 (9th Cir. 1990) (citing Dimidowich v. Bell & Howell, 803 F.2d 1473, 1482 (9th Cir. 1986), reh'g denied, op. modified, 810 F.2d 1517 (9th Cir. 1987)). However, when the state supreme court has not spoken on an issue, we are obligated to follow the state's appellate court decisions, absent evidence that the supreme court would hold differently. Id. at 1239 (citations omitted).


Under California case law, a defendant is equitably estopped from asserting the defense of the statute of limitations when the plaintiff has been induced to delay filing an action through reliance on the defendant's conduct. See Carruth v. Fritch, 36 Cal. 2d 426, 433, 224 P.2d 702 (1950). Equitable estoppel may toll the statute of limitations when either the defendant was under a duty, e.g., fiduciary, to disclose information to the plaintiff, or the defendant actively misrepresented or fraudulently concealed material facts. See 3 Witkin, Cal. Procedure, Actions, Secs. 530-535, at 559-63 (3rd ed. 1985 & 1990 Supp.). At the time the Medinas submitted their claim for damages, the California courts required insurance companies to cover claims for earth movement damage if the proximate cause of the damage was a covered peril under the policy. See Sabella v. Wisler, 59 Cal. 2d 21, 377 P.2d 889, 27 Cal. Rptr. 689 (1963). This possibility of coverage is the material fact which the Medinas contend State Farm failed to disclose to them.

The Medinas ask this court to hold that under California law the insurer-insured relationship is a fiduciary one1  and, therefore, State Farm was under a duty to inform them of the possibility of coverage. While it has not directly ruled on whether an insurer and its insured have a fiduciary relationship, the California Supreme Court has held that the insurer-insured relationship is a "special" one and the insurer must protect its insured's interests on a basis equal to its own. See Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 819, 620 P.2d 141, 145, 169 Cal. Rptr. 691 (1979), cert. denied and appeal dismissed, 445 U.S. 912 (1980). However, in a fiduciary relationship, the fiduciary is obligated to put the interests of its beneficiary above its own. The California courts have held that such a trust relationship reduces the beneficiary's duty to investigate facts relevant to its own claims, thus tolling the statute of limitations. See, e.g., Stafford v. Shultz, 42 Cal. 2d 767, 778, 270 P.2d 1 (1954) (because of their fiduciary relationship, the statute of limitations is tolled when a physician does not inform the patient of material facts relating to a malpractice claim); Knapp v. Knapp, 15 Cal. 2d 237, 241, 100 P.2d 759 (1940) (trustee is obligated to inform beneficiary of material facts related to claims against the trustee).

Although the state supreme court has not addressed this exact issue, a California appellate court has recently refused to accept an almost identical claim. See Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 271 Cal. Rptr. 246, petition for review denied, 1990 Cal.LEXIS 4195 (Sept. 13, 1990). The Loves submitted a claim to their insurance company in 1981 for damage from earth movement, which was denied based on an exclusion for "acts of god." Id. at 1141. Four years later, Mr. Love discovered that neighbors suffering the same damage had been compensated by their insurance companies. He submitted another claim with his insurance company which again refused to cover the damages. In 1988, seven years after the first claim, the Loves filed a tort and contract action against their insurer. The suit was dismissed on statute of limitations grounds.

Like the Medinas, the Loves argued that the insurance company should be equitably estopped from asserting a statute of limitations defense based on the fiduciary relationship between an insurer and its insured. The court rejected this argument. It relied upon the California Supreme Court's opinion in Neff v. New York Life Ins. Co., 30 Cal. 2d 165, 180 P.2d 900 (1947), which held that once an insured was aware of the operative facts of his claim and of his policy, the statute of limitations could not be tolled based on the insurer's denial of the claim. Love, 221 Cal. App. 3d at 1145 (quoting Neff, 30 Cal.2d at 172-173). See also Gutierrez v. Mofid, 39 Cal. 3d 892, 898, 705 P.2d 886, 889, 18 Cal. Rptr. 313 (1985) ("limitations period ... begins to run no later than the time the plaintiff learns, or should have learned, the facts essential to his claim.") (emphasis in original). The court noted numerous cases which held that "ignorance of legal theories does not toll the statute of limitations." Love, 221 Cal. App. 3d at 1146 (citations omitted).

As the Medinas do here, the Loves contended that Neff was no longer good law because the California courts had since implicitly recognized a fiduciary relationship between an insurer and an insured, which would require the insurance company to disclose possible legal theories when it denied their claim. Id. at 1146-47. The appellate court found little merit in this argument. It reviewed all of the cases presented by the Loves that noted the similarity between a fiduciary relationship and that between an insurer and its insured.2  The court concluded that while the California Supreme Court had found a "special relationship" between an insurance company and its insured based upon the "unique" nature of insurance contracts, insurance companies had not been deemed true fiduciaries. Id. at 1147-48.

To avoid or discourage conduct which would thus frustrate realization of the contract's principal benefit (i.e., peace of mind), special and heightened implied duties of good faith are imposed on insurers and made enforceable in tort. While these "special" duties are akin to, and often resemble, duties which are also owed by fiduciaries, the fiduciary-like duties arise because of the unique nature of the insurance contract, not because an insurer is a fiduciary.

Id. at 1148. The appellate court refused to "import ... the entire cargo of fiduciary obligations into the port of insurance law." Id. at 1149. It held that " [n]either the insured's ignorance of nor the insurer's failure to explain the different legal theories upon which suit might be filed extends the time within which the insured is required to file his action." Id. at 1150.

This holding was echoed recently by the California Supreme Court in Prudential-LMI Commercial Ins. v. Superior Court (Lundberg), 51 Cal. 3d 674, 798 P.2d 1230, 274 Cal. Rptr. 387 (1990). Ruling that the statute of limitations for an insurance claim was tolled from the time the insured submitted its claim until the insurer denied the claim, the court noted "an insurer is not required ... to advise its insured concerning what legal arguments to make...." Id. at 12494 (emphasis added). In light of this statement and absent convincing evidence that the California Supreme Court would rule otherwise, we conclude that the Love decision disposes of the Medinas' claim regarding fiduciary duty.

The Medinas alternatively contend that State Farm is estopped from relying on the statute of limitations under the "active misrepresentation and concealment" theory, i.e., that State Farm committed actual fraud when it denied their claim in 1980. Specifically, the Medinas claim that despite the company's knowledge of its legal duties under California case law, it intentionally misrepresented to all its customers that earth movement damages, regardless of their causes, were not covered by their policies.

However, in Matsumoto v. Republic Ins. Co., 792 F.2d 869 (9th Cir. 1986), we held that the statutory period of limitations in California may be tolled only when "the factual predicate for the plaintiff's injuries was concealed or misrepresented." Id. at 872 (emphasis in the original) (footnote and citations omitted). In Matsumoto, the insurance company had denied the plaintiff's claim for earth movement damage. After the statutory period had run, the plaintiff discovered that the movement had been caused by the negligence of a third party, a peril covered by the policy. The action was dismissed on statute of limitations grounds. The Matsumoto court relied on the California Supreme Court's opinion in Neff that an insurer's denial of a claim could not toll the statute of limitations, even if that conduct may dissuade an insured from filing a cause of action. Id.

The Medinas' assertion that Matsumoto is not good law because it relies on Neff, a 1947 opinion, is meritless. The Love court's recent reliance on Neff affirms that its continuing precedential value. Love, 221 Cal. App. 3d at 1145. Because the appellants have failed to show that the statute of limitations should be tolled, the district court's judgment is AFFIRMED.


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


The Medinas acknowledge that one federal district court has recently held that no fiduciary relationship exists between an insurer and its insured under California law. See Almon v. State Farm Fire and Cas. Co., 724 F. Supp. 765 (S.D. Cal. 1989). See also Kanne v. Connecticut General Life Ins. Co., 607 F. Supp. 899 (C.D. Cal. 1985) (insurer's duty to act in good faith and deal fairly does not rise to the level of a fiduciary duty), rev'd on other grounds, 819 F.2d 204 (9th Cir. 1986). They ask this court to disregard the Almon holding on the grounds it misinterprets California law. However, our independent analysis of the issue leads us to the same conclusion as that of the Almon court


To support their argument, the Medinas cite many of the same California cases. See Frommoethelydo v. Fire Ins. Exchange, 42 Cal. 3d 208, 215, 721 P.2d 41, 44-45, 228 Cal. Rptr. 160 (1986) (insurer has responsibilities akin to that of a fiduciary, but these duties are limited by other legal obligations); Seaman's Direct Buying Service, Inc. v. Standard Oil Co., 36 Cal. 3d 752, 768-69, 686 P.2d 1158, 1166, 206 Cal. Rptr. 354 (1984) (the "special relationship" between an insurer and its insured based on their unequal bargaining positions includes elements of a fiduciary relationship); Gibson v. Government Employees Ins. Co., 162 Cal. App. 3d 441, 449-50, 208 Cal. Rptr. 511 (1984) (assuming a fiduciary relationship, the court found an insurer is not required to inform an insured of the inadequacy of his or her current policy coverage). However, in each of those cases, the courts declined to find that the insurer's responsibility to its insured was as broad as that of a fiduciary. More recent opinions by the California courts further limit the impact of these earlier findings. See, e.g., State Farm v. Superior Court, 216 Cal. App. 3d 1222, 1226-27, 265 Cal. Rptr. 372, 374 (1989) (while the insurer-insured relationship may be akin to a fiduciary one, an insured is not required to completely disregard its interests when they conflict with the insured's interests), reh'g denied, 1989 WL 155292, 1990 Cal App LEXIS 25 (1990)