(One Year Statute of Limitations period required by Insurance Code Section 2071 in Fire Insurance Policies Does Not Apply to Bar a Claim Based on the California Unfair Competition Act)
(October 2024) - In Katherine Rosenberg-Wohl v. State Farm Fire and Cas. Co., 16 Cal.5th 520 (July 18, 2024), the California Supreme Court reversed the California Court of Appeal's decision in favor of State Farm Fire and Casualty Company ("State Farm") barring a lawsuit based on California Business and Professions Code Section 17200, the Unfair Competition Law ("UCL") under Section 2071, finding that lawsuits against insurers must be filed within one year of the denial of the claim giving rise to such lawsuit. The Supreme Court found that the four-year statute of limitations applicable to the UCL applied, rather than Section 2071, applicable to fire insurance policies. The Supreme Court reasoned that the UCL lawsuit did not pray for damages based on State Farm's denial of policy benefits under a homeowner's policy issued to plaintiff, Katherine Rosenberg-Wohl (the "plaintiff"). Rather, it prayed for non-monetary injunctive relief intended to prevent State Farm from engaging in unfair practices related to the adjustment of property claims. Hence, the plaintiff's claim was not based "on the policy" as it did not seek to recover policy benefits.
The parties' dispute initially arose out of State Farm's denial of a property claim related to the plaintiff's home involving the improper pitch of the staircase in her home, requiring it to be replaced. State Farm denied the claim on August 26, 2019 and the plaintiff filed a bad faith lawsuit against State Farm in October 2020. Because the lawsuit was filed over one year after the denial of the claim, the trial court sustained State Farm's demurrer to the complaint. The plaintiff than filed a Second Amended Complaint ("SAC") seeking injunctive relieve pursuant to the UCL intended to require State Farm to properly investigate and adjust property claims. State Farm demurred again to the plaintiff's SAC based on the one- year statute of limitations in Section 2071 of the Insurance Code and dismissed the lawsuit. The Court of Appeal affirmed the trial court's decision finding that the lawsuit was based on the denial of policy benefits and therefore barred by Section 2071.
In reversing the Court of Appeal's decision, the Supreme Court found as follows:
As previously stated, section 2071 provides in relevant part, "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 inception of the loss." The one-year timeliness provision thus applies when a cause of action is "on [the] policy" and "for the recovery of [a] claim." (§ 2071.)
Prior decisions that have addressed limitations provisions in insurance policies covered by section 2071 have focused upon whether the plaintiff's suit or action was "'on the policy,'" in which case the policy's limitations period would apply. (Velasquez, supra, 1 Cal.App.4th at p. 722 ["Among the damages sought by appellants are the policy benefits plus interest, revealing that their action ... is an 'attempt to recover on the policy'"]; see also Jang, supra, 80 Cal.App.4th at pp. 1302–1304; Prieto, supra, 225 Cal.App.3d at p. 1195 [regarding a plaintiff's suit alleging bad faith denial of coverage and intentional infliction of emotional distress as subject to "the legislatively prescribed limitation for actions that are 'on the policy' because [it was] grounded in a failure to pay benefits that are due under the policy and indeed constitute its very reason for being"]; Abari, supra, 205 Cal.App.3d at p. 536 [rejecting what the court regarded as "a transparent attempt to recover on the policy, notwithstanding [the plaintiff's] failure to commence suit within one year of accrual"].)
The parties here have likewise focused primarily although not exclusively on section 2071's "on this policy" language. State Farm asserts that this language captures "any theory arising out of the insurer's handling of claims for policy benefits." Plaintiff argues that her action is not "on [the] policy" (§ 2071) insofar as it challenges State Farm's business practices generally, not the insurer's rejection of her claim specifically. Similarly, the Attorney General, appearing as amicus curiae in support of plaintiff, argues that plaintiff's suit is not "on [the] policy" (ibid.) because "it does not seek to enforce the terms of the insurance policy."
Although section 2071's "on this policy" text is relevant here, we do not limit our review to any particular word or phrase appearing in a statute, but instead consider the language of a statute as a whole. (See, e.g., Skidgel v. California Unemployment Ins. Appeals Bd. (2021) 12 Cal.5th 1, 20 [282 Cal. Rptr. 3d 639, 493 P.3d 196]; People v. Castillolopez (2016) 63 Cal.4th 322, 329 [202 Cal. Rptr. 3d 703, 371 P.3d 216].) The limitations provision found within section 2071 does not apply without further qualification to all suits or actions "on this policy"; it applies to suits or actions "on this policy for the recovery of any claim."
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Regardless of what "on this policy" (§ 2071) and "for the recovery of any claim" (ibid.) might mean in isolation, we conclude that this lawsuit is not a "suit or action on [the] policy for the recovery of any claim" (ibid.). We regard this language, read in the context of the statute as a whole, as concerned with causes of action that in some manner seek a financial recovery attributable to a claimed loss that was coverable under a policy. Plaintiff, however, pursues only broad declaratory relief pertaining to State Farm's alleged claims-handling practices and an injunction that would require State Farm to "give at least as much consideration to the interests of its insured as to its own interests." These requests for declaratory and injunctive relief do not directly or indirectly pursue the recovery of benefits under plaintiff's insurance policy, or for that matter any financial recovery for plaintiff. Instead, these forms of relief are being invoked here on behalf of consumers generally and in service of the UCL's protective and preventive functions. (See Nationwide Biweekly, supra, 9 Cal.5th at p. 326 [describing the UCL's "primary objective" as "preventive, authorizing the exercise of broad equitable authority to protect consumers"]; Zhang v. Superior Court (2013) 57 Cal.4th 364, 382 [159 Cal. Rptr. 3d 672, 304 P.3d 163] (Zhang) ["[a] UCL claim does not duplicate the contract and tort causes of action involved in bad faith litigation"]; Kwikset, supra, 51 Cal.4th at p. 337 [explaining that injunctive relief "'under the UCL ... protect[s] consumers from unfair business practices'"]; In re Tobacco II Cases (2009) 46 Cal.4th 298, 320 [93 Cal. Rptr. 3d 559, 207 P.3d 20] ["The purpose of [injunctive] relief, in the context of a UCL action, is to protect California's consumers against unfair business practices by stopping such practices in their tracks"].)
It follows from the analysis above, together with State Farm's acknowledgement that the limitations provision within plaintiff's insurance policy is equivalent to the timeliness language appearing in section 2071, that the one-year deadline found in both that statute and the policy does not apply to plaintiff's cause of action under the UCL.
Because the one-year statute of limitations did not apply to bar plaintiff's lawsuit, the Supreme Court found that the lawsuit was timely filed under the four-year statute of limitations applicable to the UCL.
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