In Snyder v. California Insurance Guarantee Association, the California Court of Appeal, First Appellate District, considered when the three-year statute of limitations for a cause of action against the California Insurance Guarantee Association (CIGA) accrues.  The statute does not begin to run until a “covered claim” matures and is denied.  CIGA’s denial in an answer to a complaint for declaratory relief did not satisfy this requirement.

Western Asbestos Co. distributed building materials containing asbestos.  Western filed for Chapter 11 bankruptcy in 2002 to establish an asbestos claimants’ trust, given the substantial exposure.  The trust, funded by settlements with Western’s insurers, would pay claims, and an injunction would bar future suits against Western.  Western’s insurers included Home Insurance Co., which became insolvent in 2003 and was liquidated in another state.  Western filed a timely claim in the liquidation and provided notice of the claim to CIGA. 

In 2004, the trust and Western sued Home’s parent and asserted a declaratory relief cause of action against CIGA.  The trust alleged it sought “to determine the existence and scope of CIGA’s obligations” given Home’s liquidation.  CIGA filed an answer denying that the trust’s claims were within the statutory definition of “covered claims” for which CIGA would be responsible.  As to CIGA, the lawsuit was pending but dormant for six years.  The trust settled its claim in Home’s liquidation in 2011 and dismissed CIGA from the lawsuit without prejudice. 

The trust filed a second declaratory relief action against CIGA in 2013.  The trust alleged it held rights under the Home policies, Home is insolvent, and the trust settled its $1 billion claim for insurance proceeds in Home’s liquidation for $242.5 million.  Thus, the trust sought a declaration that CIGA is responsible for the trust’s liability for asbestos bodily injury claims, to the extent Home would cover them if it were solvent.  The court sustained a demurrer by CIGA asserting the statute of limitations barred the action.  This appeal followed.

The parties agreed claims against CIGA are subject to a three-year statute of limitations.  A limitations period runs from the moment a claim accrues, and the issue on appeal was when this occurred.  CIGA argued the statute of limitations began to run when it disputed coverage in its answer in the 2004 action, and this would bar the trust’s 2013 action.  The trust argued no specific claim had been denied or even submitted, so the limitations period had not begun to run.

CIGA’s obligation by statute is to pay “covered claims,” meaning an insolvent insurer’s obligations that are covered and unpaid despite a claim in the insurer’s liquidation proceeding.  Filing a timely claim in the insurer’s insolvency proceeding is a prerequisite for a claim against CIGA, but that deadline is not the point at which a cause of action against CIGA accrues.

On Sept. 17, the Court of Appeal applied the basic principle that a statute of limitations does not begin to run until all elements of a cause of action are present.  Thus, a cause of action against CIGA does not accrue until an insured has acquired a “covered claim” within the meaning of the statute.  A claim accrues when CIGA’s payment obligation matures, and this is uncertain until the extent of the insured’s recovery in the insurer’s insolvency proceeding is determined.  

The trust generally alleged in its lawsuits that it submitted a “claim” to CIGA, but nowhere did it allege CIGA was obligated to pay any particular amount.  Even if the trust was deemed to have submitted a claim, there was no showing CIGA evaluated and denied it.  The trust’s 2004 action sought an advance ruling that CIGA would be responsible for the trust’s covered liabilities beyond its recovery in the Home liquidation.  CIGA, in its answer, asserted only that the trust had not submitted a “covered claim.”  To consider the 2004 complaint as a claim for payment and CIGA’s answer as a coverage denial misconstrues the nature of a declaratory relief action.  Further, since CIGA argued the trust’s claims were premature in 2004, the court noted it could hardly argue they were time-barred now.  

The court therefore held that, to preserve a claim against CIGA, an insured must give notice of a potential claim before the deadline to file a claim in the insolvent insurer’s liquidation.  But the time to submit a claim for payment does not begin to run until the insured possesses a “covered claim” as defined by statute, and CIGA must affirmatively deny a timely claim for payment for a breach to occur.  An insured’s declaratory relief complaint and CIGA’s answer denying a duty do not constitute submission and denial of a claim for statute of limitations purposes.

The Court of Appeal reversed the judgment and remanded the case with directions to overrule CIGA’s demurrer.

Click here for the opinion.