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February 2012

Transport Insurance Company v. TIG Insurance Company, et al. ? Insurer Invited Error as to Reinsurance Statute of Limitations Instruction

Insurer Invited Error By Agreeing to Statute of Limitations Jury Instruction Regarding Whether Lawsuits Against Reinsurers Were Timely

(January 13, 2012) ___ Cal.App.4th ___; 12 C.D.O.S. 653

The California Court of Appeal, First Appellate District declined to rule on issues of first impression in California involving the statute of limitations in reinsurance claims.  Rather, the Court of Appeal affirmed the trial court's judgment based on the doctrine of invited error.

Transport Insurance Company ("Transport") insured Aerojet-General Corporation ("Aerojet") under a liability policy issued in 1973.  That same year, Transport entered into three reinsurance contracts.  The first two contracts were with International Surplus Lines Insurance Co., a predecessor to TIG Insurance Company ("TIG").  The third reinsurance contract was with Unigard Mutual Insurance Co., a predecessor to Seaton Insurance Co. ("Seaton").

Aerojet was sued in a number of actions alleging damages caused by toxic contamination of groundwater.  Aerojet submitted claims for loss and expense to Transport as early as 1980.  Transport denied the claims for loss based on a pollution exclusion.  Subsequent coverage litigation culminated in a $26,655,000 settlement in September 1999 between Aerojet and Transport.

Under the TIG reinsurance contract, losses were to be paid "following receipt of proof of loss."  Under the Seaton reinsurance contract, losses were to be paid "upon receipt and approval by [Seaton] of proof of loss in form satisfactory to [Seaton]."  On or about December 20, 1999, Transport submitted its final billing and initial proof of loss to TIG and Seaton.  The reinsurers did not pay any share of the Aerojet settlement.  Transport did not file its complaints against TIG and Seaton until January 2006 even though Transport knew a statute of limitations issue might arise.  Both complaints alleged causes of action for declaratory relief and breach of contract based on the reinsurers' failure to pay their proportionate share of the Aerojet settlement.  TIG and Seaton asserted the affirmative defense that Transport's claims were barred by the four-year statute of limitations applicable to breach of contract claims.

Transport moved for summary adjudication as to the reinsurers' statute of limitations affirmative defense.  In turn, the reinsurers, TIG and Seaton, sought summary judgment based on the statute of limitations defense.  The trial court cited Continental Cas. Co. v. Stronghold Ins. Co., Ltd. (2d Cir. 1996) 77 F.3d 16 as persuasive authority that a plaintiff's cause of action accrues after the plaintiff submits its claims to the defendant, and either (1) the defendant denies the claim; or (2) a reasonable period of time elapses without a decision from the defendant.  The trial court denied the motions on the ground that triable issues existed as to whether the reinsurers ever formally denied Transport's claims reflected in Transport's 1999 proofs of loss.

At trial, the jury was given instructions on the statute of limitations as follows:  "Transport's claims against the defendant accrued after Transport submitted its claims to defendants and when, one, defendants denied the claims, or, two, a reasonable period of time elapsed after the submission of the claims without a decision by the defendants.  If [Seaton / TIG] either denied the claims or a reasonable period of time elapsed following submission of the claims by January 26, 2002, Transport's claims against [Seaton / TIG] were filed too late and are time barred."  On June 5, 2008, the jury found Transport's lawsuits to be untimely.

Transport's appeal contended the trial court erred because California precedent does not peg the length of the statutory limitations period to something as vague as a reasonable time after the insured submits a claim.  However, prior to trial, Transport insisted the parties use the trial court's specific summary judgment order language (derived from the Stronghold decision) to fashion the statute of limitations jury instruction. 

The Court of Appeal concluded Transport's argument to be barred by the doctrine of invited error.  Citing Mary M. v. City of Los Angeles, the Court of Appeal determined a party may not claim on appeal that judgment should be reversed when that party, by its own conduct, induces the commission of that error.  Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 212.  Moreover, the Court of Appeal explained, in the context of jury instructions, a party who requests, or acquiesces to, a particular jury instruction cannot appeal the giving of that instruction.  Nevis v. Pacific Gas & Electric co. (1954) 43 Cal.2d 626, 629-630.

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This opinion is not final.  It may be modified on rehearing or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.

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