Unpublished Disposition, 930 F.2d 28 (9th Cir. 1988)

MEMORANDUM^* 

Michael McHugh, David Harned, and Norma Heimerman appeal the district court's grant of summary judgment against them in their action for breach of an insurance contract, breach of the covenant of good faith and fair dealing, and for fraud and misrepresentation. This is a diversity case and California law controls. We reverse.

BACKGROUND

On September 23, 1985, a pipe burst in appellants' building causing flooding, subsidence, and damage to the structure. Soon after, appellants filed a claim with the appellee, Safeco Insurance Company. Further damage was discovered November 18, 1985. Both Safeco and appellants conducted investigations and submitted reports during the following year concerning the condition of the property and cause of the damage. Each of these reports suggested that an unspecified amount of the property damage came from a source other than the broken pipe. Consequently, Safeco continued to investigate in an effort to determine the amount of their liability.

Appellants engaged an attorney, Nathan Haut, to assist in their collection efforts in September, 1986. In the ensuing discussions and correspondence, Safeco made two payments to appellants--$25,000 on January 8, 1987 and $15,000 on August 10, 1987. Appellants accepted the first payment, but rejected the second as insufficient to cover the claim, which they put at $45,250.59 in a December 15, 1987 letter to Safeco. In that same letter, appellants asked for an additional $3,700 in attorney fees, and $100,000 in compensation for the delay in processing the claim and resulting damages.

Safeco again tendered the $15,000 in February 1988, but stated that the remainder of appellants' claim was unreasonable. Appellants filed suit on November 30, 1988. The district court granted summary judgment against appellants.

DISCUSSION

This court reviews the grant of summary judgment de novo. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1540 (9th Cir.), cert. denied, 110 S. Ct. 51 (1989). The district court granted summary judgment against the plaintiffs because it concluded that the one-year limitation period for bringing actions on the policy, which began when the plaintiffs discovered the damage, had expired. That result was consistent with California law at the time. However, in November, 1990, the California Supreme Court issued an opinion that clearly dictates reversal of summary judgment in this case. Prudential-LMI Commercial Ins. v. Superior Court, 51 Cal. 3d 674, 274 Cal. Rptr. 387, 798 F.2d 1230 (1990) (en banc).

For our purposes, the facts in Prudential are the same as in this case in that the plaintiffs filed a claim with their insurance company soon after they discovered the damage. Investigations and negotiations concerning the claim continued beyond one year after the filing of the claim. In Prudential, the California Court of Appeal granted summary judgment against the plaintiffs because the one-year limitation period in the policy had expired before they brought suit. The California Supreme Court reversed, holding that when the insured files a timely claim, the policy limitation period is equitably tolled until the insurer denies coverage. Id., 274 Cal. Rptr. at 399.

Safeco argues that summary judgment continues to be appropriate in this case after Prudential because Safeco did not deny coverage. Safeco simply paid what it believed to be the extent of its liability in two installments, the last of which was tendered on August 10, 1987. Therefore, Safeco argues, equitable tolling of the limitation period should have ended at least on August 24, 1987 when the plaintiffs rejected Safeco's tender as insufficient to cover the claim. The plaintiffs did not bring their action until November 1988, more than one year after that time.

Safeco's argument is not supported by its letters during that period, which showed that it had not yet reached a final determination of the claim. In the August 10 letter, Safeco said that it believed coverage to be very questionable, but that it "continues to give every benefit of doubt to your clients.... In the event that you disagree with this amount, or have additional information that may cause us to re-evaluate our position on this matter, please send it to my attention for review along with the appropriate documentation to support your position." Similarly, in Prudential, the insurance company sent a letter in January 1987 proposing that coverage be denied "unless the insureds had any additional information that would favor coverage." Id. This letter did not end the tolling of the limitation period because it did not state the insurer's unequivocal position on the claim. The court found that tolling of the limitation period ended in September 1987 when the insurance company denied the claim "unequivocally." Id.

In this case, Safeco did not state an unequivocal position even in its February 1988 letter when it again tendered the $15,000 to the plaintiffs. Although Safeco stated that the plaintiffs' claim for $128,000 was unreasonable, it said,

We are sorry about the disagreement as to the proper amount to be paid. This payment is being made with the expressed intention that your acceptance will not in any way prevent your right to contend more is owed you.

We will continue to be available and willing to further consider anything you believe important on any issues. If you believe anything has been overlooked, or if anything new comes up, please contact me to discuss so that we can reach an agreement.

We hold that the policy limitation period was tolled until sometime beyond February 1988. Therefore, the November 1988 breach of contract action was not untimely. We decline to decide whether the bad faith and fraudulent misrepresentation actions are "on the policy" and, thus, subject to the one-year limitation period. Such a determination is unnecessary to our decision to reverse summary judgment on those actions in this case, as it appears that they would not be barred under any of the limitation periods that may apply to them.

The district court's grant of summary judgment is REVERSED.