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United States: California Supreme Court Declines To Review Case Involving Whether Equitable Contribution Actions Are Subject To 2 Or 4-Year Limitations Periods
Insurers hoping for a definite answer regarding the limitations
period for filing equitable contribution claims against one another
were disappointed when, on April 11, 2012, the California Supreme
Court refused to review the Fourth District Court of Appeal's
recent decision in American States Ins. Co. v. National Fire
Ins. Co. of Hartford, 202 Cal.App.4th 692 (2011). The
Court of Appeal decided in December that the two-year statute of
limitations under California Code of Civil Procedure
("CCP") section 339, rather than CCP section 337's
four-year statute of limitations, should apply to one insurer's
equitable contribution action against another. Justice Joyce
Kennard dissented from the Supreme Court's denial of
review.
The American States court was the second Court of
Appeal to apply the two-year statute of limitations for actions not
based on written agreements to insurers' equitable contribution
claims. The Second District also found that CCP section 339
applied to such claims in Century Indemn. Co. v. Sup.
Ct., 50 Cal.App.4th 1115 (1996). Decades prior to
American States and Century, however, the First
District Court of Appeal held that equitable contribution actions
should be governed by section 337's four-year limitations
period for actions based on written agreements. Liberty
Mutual Ins. Co. v. Colonial Ins. Co., 8 Cal.App.3d 427
(1970).
The central dispute between these two lines of authority is
whether an insurer's claim for equitable contribution is based
on the defendant insurer's written agreement with the common
insured. The Liberty court answered the question in
the affirmative, stating that "[t]he promise which the law
implies as an element of the contract is as much a part of the
instrument as if it were written out."
The American States and Century courts
disagreed. The Liberty court, they said, had
inappropriately relied on decisions involving equitable
subordination actions. In such actions, a plaintiff insurer
receives an assignment of rights, steps into the shoes insured, and
"sue[s] directly on the contract of insurance." To
the contrary, an insurer's duty to contribute to the defense of
a common insured "is one recognized as a matter of law and
founded in principles of equity." Liberty,
therefore, "was wrongly decided."
Despite the express rejection of the Liberty
court's reasoning by the only two courts to address the issue
subsequently, the Supreme Court's decision not to weigh in on
the American States case leaves a split of authority in
place. Thus, the possibility remains that a court reviewing
the issue anew will follow Liberty and allow equitable
contribution actions raised more than two years after they
accrue.
This article is for general information and does not include
full legal analysis of the matters presented. It should not be
construed or relied upon as legal advice or legal opinion on any
specific facts or circumstances. The description of the results of
any specific case or transaction contained herein does not mean or
suggest that similar results can or could be obtained in any other
matter. Each legal matter should be considered to be unique and
subject to varying results. The invitation to contact the authors
or attorneys in our firm is not a solicitation to provide
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in which such attorney is not permitted to practice.
Duane Morris LLP, a full-service law firm with more than 700
attorneys in 24 offices in the United States and internationally,
offers innovative solutions to the legal and business challenges
presented by today's evolving global markets. Duane Morris LLP,
a full-service law firm with more than 700 attorneys in 24 offices
in the United States and internationally, offers innovative
solutions to the legal and business challenges presented by
today's evolving global markets. The
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