Unpublished Disposition, 933 F.2d 1014 (9th Cir. 1986)

MEMORANDUM^** 

State Farm Fire and Casualty Company appeals a judgment awarding William and Nancy Marten damages in their action alleging breach of contract and bad faith denial of their claim. State Farm argues that the Martens' claim is either time-barred or excluded from coverage. We reverse.

Beginning in February or March 1983, the Martens observed cracking in the walls and floors of their home. In November 1984, they discovered that their home was built on defectively compacted landfill. On November 13, 1984 the Martens filed a claim on their State Farm homeowner's policy, which State Farm denied on February 7, 1986. The Martens filed this action on December 30, 1986.

From 1983 through 1984, the Martens were insured under two successive State Farm policies. The policy in effect in 1984 excluded from coverage loss caused by earth movement ensuing from defective design, construction, grading or compaction. There is no dispute that under the 1984 policy the Martens' loss is excluded.

The policy in effect in 1983 excluded loss caused by earth movement, but did not specifically exclude such loss ensuing from defective design, construction, grading or compaction. It is at least arguable that under the 1983 policy, the Martens' claim would be covered.

Under California Insurance Code Sec. 2071, the one-year contractual limitation period for filing a claim began running on the date of "inception of the loss," defined as the point when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his duty to notify the insurer was triggered. Prudential-LMI Commercial Ins. v. Superior Court, 51 Cal. 3d 674, 687, 798 P.2d 1230, 1238, 274 Cal. Rptr. 387, 395 (1990). The date of inception of the loss occurred either in February or March 1983 when the Martens first noticed cracks in their home, or as the district court held, in November 1984, when the Martens discovered that the house was built on defective fill.

If the 1983 policy applies, the date of inception must have been no later than March 1983. See Prudential, 51 Cal. 3d at 699, 798 P.2d at 1247, 274 Cal. Rptr. at 404 (coverage determined by policy in effect on date of "manifestation of the loss," defined as same as date of "inception of the loss"). Since the Martens did not file the action or make any claim on the policy until November 13, 1984, the one year filing period under that policy had run.

If as the district court found the date of inception occurred in November 1984, less than one year had expired when the action was filed.¹  The action therefore was timely, but the 1984 policy, not the 1983 policy, determined the rights and obligations of the parties.

The district court's holding that the 1983 policy controlled coverage was error. That result is precluded by California law. See Prudential, 51 Cal. 3d at 699, 798 P.2d at 1247, 274 Cal. at 404.²  The date of inception of the loss and manifestation of the loss occurred in November, 1984. The policy in effect on that date excluded coverage.

REVERSED.