Heather Isringhausen Gvillo Oct. 15, 2014, 1:14pm

SAN FRANCISCO (Legal Newsline) – A California appeals court concluded that an asbestos bankruptcy trust seeking insurance relief may still bring a claim against one of its insurance companies because the statute of limitations has not run out.

Justice Stuart R. Pollak delivered the Sept. 17 opinion, reversing the lower court’s judgment, in the California Court of Appeals, First Appellate District. Justices Peter J. Siggins and Martin J. Jenkins concurred.

Pollak said this appeal involves the “difficult” issue of when a claim against California Insurance Guarantee Association arises, thus triggering the three-year statute of limitations for breach of CIGA’s statutory obligations.

Answering that question, the court determined that the three-year statute of limitations does not begin until the insured possesses a “covered claim.” In other words, CIGA must be presented with a claim for payment and affirmatively deny coverage before a breach of its duty can occur.

Furthermore, an insured’s complaint seeking a declaration of duty, and the defendant’s answer disputing its duty, does not constitute the submission and denial of a claim sufficient to trigger the statute of limitations.

In this case, trustees of the Western Asbestos Settlement Trust sought coverage under the companies’ insurance policies and, in 2004, after the insurer was declared insolvent, brought a declaratory relief action against CIGA to determine CIGA’s obligation to pay the insolvent insurers’ policy obligations.

However, CIGA denied such an obligation and the proceedings remained dormant for nearly six years.

The Western Trust later dismissed its complaint against CIGA in May 2011 when its settlement agreement with New Hampshire’s Insurance Commissioner was approved for $242.5 million.

The issue at hand in the appeal arises out of declaratory relief sought against CIGA in February 2013.

CIGA argues that coverage from additional solvent insurers is still available and has yet to be exhausted.

It ultimately responded to the claim with a demurrer and motion to strike portions of the complaint. The trial court sustained the demurrer, finding that the complaint was barred by the statute of limitations.

The trial court agreed and dismissed the claim, explaining that “it cannot in good faith construe Western’s demand for a judicial determination that CIGA is liable for covered claims as anything other than a demand for coverage.”

On appeal, CIGA argues that it is not responsible for the trust’s claims because of the three-year statute of limitations.

The Western Trust, on the other hand, argues that the statute of limitations period does not begin to run until CIGA denies a specific claim, which has not occurred. The appeals court agreed.

When addressing the statute of limitations argument, Pollak explained that the applicable time limit for breach of a statutory duty is three years. He added that an action for declaratory relief may be brought before a cause of action on the underlying obligation is breached, but not after the applicable time period following the breach.

As for this case, a cause of action accrued against CIGA “when all of the events necessary to create a covered claim have occurred,” the appeals court stated.

“If an insured timely submits a claim for coverage to CIGA, the point at which a cause of action accrues ordinarily is reasonably clear,” Pollak wrote. “The statute of limitations begins to run when CIGA rejects the claim.”

He added that the more difficult question to answer is when the limitations period begins for submitting a claim for coverage.

“Filing such a claim is a condition precedent to the accrual of a cause of action but the deadline for filing the insolvency claim is not necessarily the date at which the cause of action against CIGA accrues and does not determine the date by which such an action must be filed,” he wrote.

Typically a statute of limitations does not run on a claim for benefits until the claimant is entitled to receive those benefits.

Therefore, the trust does not have a right to recover from CIGA until the parties know what recovery the trust will obtain in the insolvency proceedings.

“We need not determine whether the uncertainty alone is sufficient to preclude accrual of the cause of action because … the insured does not have a ‘covered claim’ until the insured has exhausted all claims for coverage against other insurers,” the appeals court explained.

However, the complaint fails to allege whether all claims against other insurers were exhausted. In fact, the record fails to establish that the trust submitted or that CIGA denied a claim for coverage.

“Since it does not appear from matters properly considered upon demurrer either that a cause of action for payment upon a covered claim had accrued or that a claim for any such payment had been submitted more than three years before the present complaint was filed, the action was not shown to have been barred by the statute of limitations,” Pollak explained.

CIGA answered the request for declaratory relief stating that the trust had not submitted a covered claim,

“Moreover, while CIGA’s answer to the 2004 complaint obviously sought to preserve all possible defenses, having alleged that the complaint was premature because the trust was pursuing other insurance and had not exhausted its remedies in the Home liquidation proceeding, CIGA can hardly assert at this time that the prior action was, in fact, a timely demand for payment barring a claim when the former uncertainties have been eliminated,” Pollak wrote.

“It would be a perversion of the process to hold that the assertion of a dispute in a declaratory relief action, and a defendant’s answer acknowledging the controversy, constitutes either a claim that the defendant has already breached its obligations or an actionable repudiation of the alleged obligations,” he added.

As a result, the court reversed the trial court’s judgment and remanded the case with directions to overrule the demurrer in regards to the statute of limitations.

From Legal Newsline: Reach Heather Isringhausen Gvillo at asbestos@legalnewsline.com

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