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Insurance Law News - February 2015

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Where Insurer's Failure to Pay Property Claim Prevents Insured From Making Repairs, Insured is Entitled to "Conditional" Award of Replacement Cost, But Ultimately Must Still Complete Repairs in Order to Recover Replacement Cost Benefits

Where an insurer's failure to pay a property claim prevents the insured from making repairs, the insured is entitled to a "conditional" award of replacement cost, but the insured ultimately must still complete repairs in order to qualify for replacement cost benefits. (Stephens & Stephens XII, LLC v. Fireman's Fund Insurance Company (2014) 231 Cal.App.4th 1131)


Stephens & Stephens XII, LLC (Stephens XII) owned a building and purchased a property insurance policy from Fireman's Fund Insurance Company (Fireman's Fund). While the policy was in force, Stephens XII discovered that burglars had damaged the building by stripping electrical wiring, plumbing pipes and other components from the building.

Stephens XII sought reimbursement for the damage from Fireman's Fund, but Fireman's Fund delayed resolving the claim for a period of years. Stephens XII then filed suit. Fireman's Fund ultimately denied coverage, but not until one month before trial. At the time trial started, Stephens XII still had not repaired the damage.

The policy provided two different measures for payment of covered damages.  The first measure was the actual cash value of the damaged portions of the building (i.e., replacement cost less depreciation). The second measure was the full cost of repairing or replacing the damaged property if repairs were actually made "as soon as reasonably possible" after the loss or damage.

During trial, Stephens XII presented no evidence of the actual cash value of the damaged property and, in fact, expressly disclaimed any intent to seek recovery under this measure. Nevertheless, the jury awarded Stephens XII the full cost of repairing or replacing the property. The trial court granted Fireman's Fund judgment notwithstanding the verdict, finding that the award was not permitted under the policy.


The Court of Appeal reversed. The Court concluded that Stephens XII was not entitled to an immediate award for the costs of repairing the damage, but that Stephens XII was entitled to a conditional judgment awarding these costs if the repairs are actually made. The Court concluded that Fireman's Fund's delayed resolution and ultimate denial of the claim materially hindered Stephens XII's ability to repair or even make plans for the property. As a result, Stephens XII was excused from the requirement that the damage be repaired "as soon as reasonably possible after the loss or damage."

When Stephens XII expressly disclaimed recovery of actual cost value damages, it waived an award based on this measure. However, Stephens XII nonetheless remained entitled to a judgment awarding replacement cost consistent with the repair requirement if Stephen XII actually completed the repairs "as soon as reasonably possible" after the judgment becomes final.


Courts in some jurisdictions have excused the insured from repairing damaged property when the insurer failed to pay the claim or otherwise hindered repairs. However, courts in other jurisdictions have concluded that an insurer's failure to pay a claim excuses the insured from complying with the policy's procedural requirements, such as time restrictions, but do not entirely excuse the insured from the underlying obligation to repair the property. These courts have held that the insured was entitled to a judgment requiring the insurer to pay actual cost value immediately and to pay replacement costs conditionally on the insured's completion of repairs promptly from the date of the judgment. In effect, these courts have granted specific performance of the insurance policy, requiring the insurer to make good on its contractual obligation to pay full replacement cost only upon the insured's satisfaction of the condition precedent of repairing the property.

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Statute of Limitations May Be Tolled Where Alleged Tortfeasor or Liability Insurer Makes Advance Payment to Injured Person Without Notifying Such Person of Applicable Limitations Period

The statute of limitations may be tolled where an alleged tortfeasor or its liability insurer makes an advance payment to an injured person without notifying such person of the applicable limitations period. (Blevin v. Coastal Surgical Institute (2015) 232 Cal.App.4th 1321)


On September 1, 2010, Charles Blevin had knee surgery at Coastal Surgical Institute. After the surgery, Blevin's knee became infected allegedly due to unsterile surgical equipment used during the surgery.

On October 12, 2010, Coastal paid Blevins over $4,000 for the medical expenses he had incurred in treating the knee infection. At the time Coastal made the payment, Blevins was not represented by counsel, and Coastal did not give Blevins written notice of the applicable statute of limitations for a medical malpractice action. Blevins did not sign any agreement releasing Coastal from liability.

On January 24, 2012, more than 15 months after Blevin's receipt of Coastal's payment, Blevins filed a medical malpractice action against Coastal. Coastal responded by asserting that Blevin's lawsuit was time-barred by Code of Civil Procedure section 340.5. That section provides that the statute of limitations in a medical malpractice action is "three years after the date of injury, or one year after the plaintiff discovers or through the use of reasonable diligence should have discovered the injury, whichever occurs first."

The trial court concluded that the shorter one-year period in Code of Civil Procedure section 340.5 was "tolled" because Coastal had paid Blevin's medical expenses without simultaneously informing Blevin of the applicable statute of limitations. The trial court thus allowed Blevin's case against Coastal to be heard by a jury, which returned a verdict in favor of Blevin and against Coastal. Coastal appealed, again asserting that Blevin's lawsuit was barred by the applicable statute of limitations.


The Court of Appeal affirmed. The appellate court reasoned that pursuant to Insurance Code section 11583, "[n]o advance payment or partial payment of damages made by any person, or made by his insurer ..., as an accommodation to an injured person ... shall be construed as an admission of liability by the person claimed against, or of that person's or the insurer's recognition of such liability.... Any person, including any insurer, who makes such an advance or partial payment, shall at the time of beginning payment, notify the recipient thereof in writing of the statute of limitations applicable to the cause of action which such recipient may bring against such person as a result of such injury.... Failure to provide such written notice shall operate to toll any such applicable statute of limitations or time limitations from the time of such advance or partial payment until such written notice is actually given. That notification shall not be required if the recipient is represented by an attorney." (Italics added.)

According the appellate court, the tolling provisions of Insurance Code section 11583 could extend the shorter one-year statute of limitations set forth in Code of Civil Procedure section 340.5 up to a maximum of three years from the date of injury. Here, at the time Coastal had made the advance payment to Blevin, Blevin did not have a lawyer, and Coastal did not inform Blevin of the applicable statute of limitation. That had the effect of tolling the statute of limitations applicable to Blevin's claim against Coast. Blevin ultimately filed his medical malpractice lawsuit against Coastal after the shorter one-year statutory period had expired, but before the three-year maximum period had expired. As such, Blevin's lawsuit against Coastal was timely.


As Insurance Code section 11583 make clear, if an alleged tortfeasor or its insurer makes an advance or partial payment of damages to an injured party who is not represented by counsel, the alleged tortfeasor or its insurer is required to give the injured party written notice of the applicable statute of limitations. A failure to do so tolls the statute of limitations until notice is actually given. The rationale is that an advance or partial payment by the alleged tortfeasor or its insurer reasonably suggests that the alleged tortfeasor or its insurer intend to cooperate with the injured party, which can thus lull the injured party into a false sense of complacency about the need to sue.

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Among the topics we have covered in recent seminars are the following:

  • The Foreclosure Process and Its Effect on Mortgagee/Loss Payee Claims
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