Superior Dispatch, Inc. v. Insurance Corporation of New York - Represented Claimants Must Be Notified of All Policy Limitations


February 2010

Superior Dispatch, Inc. ("Superior") is a trucking company that provides short-haul services.  The Insurance Company of New York ("Inscorp") issued an insurance policy to Superior in August 2002.  The policy conditions included a one-year contractual limitations provision.  In the policy application, Superior stated that it hauled "P[r]oduce," "food goods & canned foods beer/wine," "textiles," and "paper products." Nowhere did Superior state that it hauled autos.

Matson Navigation Company "Matson" hired Superior to carry freight by truck from a terminal at the Port of Los Angeles.  The freight included a dump truck on a flat rack trailer. The cab of the dump truck struck an overpass on July 10, 2003, while the trailer was passing under the bridge.  Superior submitted a claim to Inscorp on July 17, 2003.  Inscorp sent a letter to Superior on November 5, 2003, stating that there was no coverage under the terms of the policy and that the claim was denied.  The letter did not notify Superior of the one-year contractual limitations provision.

Superior retained legal counsel, who sent a letter to Inscorp on January 7, 2004, challenging the claim denial and alleging that the denial was in bad faith.  Inscorp again denied the claim and did not refer to the policy's one-year contractual limitations provision. 

Superior subsequently filed a complaint against Inscorp.  Superior alleged that the policy provided coverage for its liability, that Inscorp failed to adequately investigate the claim, and that the denial of its claim was wrongful and in bad faith. It also alleged that Inscorp failed to provide notice of the one–year contractual limitations provision at any time, that Superior had no actual knowledge of the provision, that Inscorp was equitably estopped from relying on the provision, and that the contractual limitations period was equitably tolled. 

Inscorp filed a motion for summary judgment in July 2007. It argued the one-year contractual limitations period barred the complaint in its entirety.  The trial court concluded the claims against Inscorp were barred by the one-year contractual limitations period and granted summary judgment, entering judgment in favor of Inscorp.  Superior appealed. 

Regulations enacted by the California Department of Insurance require certain disclosures by insurers in connection with claims presented.  Section 2695.4, subdivision (a) ("Section 2659.4 (a)") states, in pertinent part: "Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant." The term "first party claimant" is defined as "any person asserting a right under an insurance policy as a named insured, other insured or beneficiary under the terms of that insurance policy, and including any person seeking recovery of uninsured motorist benefits."  Thus, the term includes not only insureds making claims under first party policies, but also insureds making claims under third party liability policies.

Section 2695.7, subdivision (f) ("Section 2695.7(f)") requires an insurer to notify a claimant of any statute of limitations and any "other time period requirement upon which the insurer may rely to deny a claim." Section 2695.7(f) states in pertinent part: "Except where a claim has been settled by payment, every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim. Such notice shall be given to the claimant not less than sixty (60) days prior to the expiration date; except, if notice of claim is first received by the insurer within that sixty days, then notice of the expiration date must be given to the claimant immediately? . This subsection shall not apply to a claimant represented by counsel on the claim matter."

Thus, Section 2695.4(a) requires that the insurer disclose all policy limitations to any claimant.  In contrast, Section 2695.7(f) requires that insurers disclose all contractual limitations provisions – except where the insured is represented by counsel.

On appeal, Superior argued that trial court was in error in enforcing the policy's contractual limitations provision because Inscorp was required by Section 2695.4(a) to notify it of any contractual limitation provisions.  Inscorp countered by arguing that because Superior was represented by counsel, Section 2695.7(f) did not require it to notify Superior of the contractual limitation provisions. 

The Court of Appeal analyzed these two provisions and concluded that it must give concurrent effect to both provisions.  As such, the Court of Appeal noted that while Section 2695.7(f) stated that it need not give notice to a claimant represented by counsel, it does not state that the insurer is barred from giving notice or that the requirements of Section 2695.4(a) are inapplicable.  As such, an insurer is required to comply with both sections.  Here, because Inscorp did not give notice of the contractual limitations provision to Superior it violated Section 2695.4(a) and was barred from asserting the contractual limitations provision.

While the Court of Appeal ruled that the trial court erred in granting summary judgment based on the contractual limitations provision, it affirmed summary judgment based on the misrepresentations in the policy application.  The policy application requested a list of all commodities hauled.  Nowhere did Superior state that it hauled autos.  However, a misrepresentation is only a complete defense in an action on the policy if there is evidence that the mistake was material.  Here, Inscorp presented a declaration from its underwriter stating that if Superior had disclosed the fact that it was hauling autos, it would have either declined to issue the policy, or charged a much higher premium.  The Court of Appeal found that this declaration established materiality and barred Superior's claims. 

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This opinion is not final. It may be withdrawn from publication, 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.

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