The State of California ex rel. Metz v. CCC Information Services, Inc.
(2007) ___ Cal.App.4th ____, 07 C.D.O.S. 3584e

Statute of Limitation Period For Claims Brought Under Insurance Code Section 1871.7 is Triggered By “Inquiry Notice.”

In a case of first impression, the California Court of Appeal for the Second District affirmed a trial court’s sustaining of a demurrer because the complaint, which alleged a violation of Ins. Code section 1871.7, was filed more than three years after the insured acquired inquiry notice of the alleged violations. The court also held that the complaint was barred by application of section 1871.7’s limitation on the filing of related actions.

Plaintiff John Metz filed a qui tam action on behalf of the State of California on April 29, 2004, alleging defendant CCC Information Services (“CCC”) violated Insurance Code section 1871.7 by making false or misleading statements in connection with the settlement of Metz’s 1999 automobile insurance claim (“CCC action”). Metz’s insurer, Farmers Insurance Company (“Farmers”), obtained a price valuation from CCC in connection with Metz’s claim. Metz alleged CCC violated section 1871.7(b) by providing Farmers with a false and misleading valuation of Metz’s automobile. Specifically, Metz alleged CCC used arbitrary and illegal criteria to improperly diminish the value for a replacement vehicle to compensate Metz for the total loss of his car under the Farmers policy.

Prior to filing the action against CCC, on July 24, 2002, Metz had filed an earlier action against Farmers, alleging that Farmers and others violated section 1871.7 (“Farmers action”). CCC was not named as a defendant in the Farmers action. The Farmers action was based on the same set of general facts as later alleged in the CCC action, although CCC was not named as a defendant.

In the CCC action, CCC demurred to Metz’s complaint and the trial court sustained the demurrer on alternative grounds. First, the trial court ruled the CCC action was time barred because the complaint in the earlier Farmers action conclusively demonstrated Metz had discovered facts in January 2000 to support his claim against CCC. The CCC action was filed more that three years after this discovery, thereby violating the three year statute of limitations under section 1871.7. Second, the trial court ruled the CCC action was based on the same facts underlying the Farmers action, which had been previously filed and which remained pending. As a result, the action against CCC was bared by the requirement set forth in section 1871(e)(5) that only the district attorney or insurance commissioner may bring a related action based on the facts underlying a pending action.

On appeal, Metz argued the statue of limitations did not begin to run until he had actual notice of every fact alleged in his complaint, including facts he discovered from June 2001 through February 2004, less than three years before he filed the CCC action. The appellate court disagreed. After acknowledging that no California case has yet addressed whether the statute of limitations under section 1871.7 requires actual notice or inquiry notice, the court held that the statute of limitations period is triggered by inquiry notice. In reaching this conclusion, the court found persuasive California Supreme Court decisions establishing the inquiry notice standard as the general rule for determining when tort claims, including those for fraud, accrue. The court noted the gravamen of Metz’s claim against CCC was insurance fraud.

Based on the allegations in the Farmers complaint detailing Metz’s 2000 investigation of the fraudulent conduct by Farmers and CCC, the court concluded Metz had inquiry notice more than three years before he filed the CCC action. The court also rejected Metz’s argument that the continual accrual rule authorized his delayed filing of the complaint against CCC. The court held that every fraudulent statement or admission alleged by Metz arose out of a single transaction—the insurance claim—which was resolved before the limitations period began to run.

The appellate court also upheld the trial court’s finding that the CCC action was based on the same facts underlying the Farmers action, in violation of section 1871.7(e)(5). Under this code section, only the district attorney or insurance commissioner may bring a related action under section 1871.7 based on the facts underlying a pending action. The court rejected Metz’s argument that “related” means “identical.” The court held the Farmers action and the CCC action both arose out of the same insurance transaction and in each action Metz alleged CCC participated in making the same fraudulent valuations.

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This opinion is not final. It may be depublished, modified on rehearing, or review could be granted. This events would render this decision 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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This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.