Mid-Century v. Superior Court (Bandek)
(Cal.App. 2006) ____ Cal.App.5th____, 06 C.D.O.S. 3160

Homeowner Could Revive Northridge Earthquake Claim Previously Dismissed As Untimely

The Court of Appeal for the Second Appellate District Court denied an insurer's petition for a writ of mandate directing the trial court to vacate its order denying the insurer's motion for judgment on the pleadings in the insured's second lawsuit against his insurer. The Court of Appeal held California Code of Civil Procedure section 340.9 ("Section 340.9") revived the insured's prior 1997 lawsuit because the lawsuit was not "litigated to finality" but dismissed without prejudice after the insurer's demurrer was sustained without leave to amend solely on statute of limitations grounds.¹

Insured Bandek owned a residence that was insured by Mid-Century Insurance Company when it was damaged in the Northridge earthquake in 1994. Bandek contacted his agent and was advised not to make a first-party property claim because the building repair costs might be less than the deductible. Bandek's property sustained additional damage in an aftershock in June 1995, and Bandek again contacted his insurer. After investigating the loss, Mid-Century denied coverage for Bandek's claim.

In 1997, Bandek filed a lawsuit against Mid-Century for breach of contract, negligence, breach of the implied covenant of good faith and fair dealing, and fraud. Mid-Century demurred to the complaint. The trial court sustained the demurrer without leave to amend because the contractual statute of limitations period had expired. Before the trial court entered judgment dismissing the action pursuant to Code of Civil Procedure section 581(d), Bandek dismissed his lawsuit without prejudice.

On December 28, 2001, after enactment of Section 340.9, Bandek filed a second lawsuit against Mid-Century arising out of the company's coverage denial for his first-party property claim. Mid-Century moved for judgment on the pleadings, arguing that Section 340.9 did not revive Bandek's claim because his 1997 lawsuit had been "litigated to finality" under subdivision (d)(1). Mid-Century also argued that the 2001 lawsuit was barred by the doctrines of res judicata and collateral estoppel.

Bandek responded that the earlier 1997 action had been dismissed without prejudice based solely on the one-year time period in the Mid-Century policy and so Section 340.9 revived it. Bandek also argued that none of the issues in the 1997 lawsuit were decided on the merits with the result that neither res judicata nor collateral estoppel barred his action.

The trial court denied Mid-Century's motion, explaining that "[a]pplication of the 'litigated to finality' exception [in] [Section 340.9(d)(1)] on the facts of this case would be inconsistent with the purpose and intent of the statute." The trial court also found that res judicata and collateral estoppel did not apply. Mid-Century filed a petition for writ of mandate.

The Court of Appeal has previously addressed the meaning of "litigated to finality" as this phrase is used in Section 340.9. In 20th Century Ins. Co. v. Superior Court (2001) 90 Cal.App.4th 1247, the court found "the Legislature has emphasized its intention that 'finality' in the res judicata sense is required before [Section 340.9(d)(1)] exception will apply." The court explained that "'[a]n action is deemed to be pending from the time of its commencement until its final determination upon appeal, or until the time for appeal has passed," and, thus, a "judgment in California is not final for all purposes until 'all possibility of direct attack thereon by way of (1) appeal, (2) motion for a new trial, or (3) motion to vacate the judgment has been exhausted.'"

The Court of Appeal has similarly interpreted Insurance Code section 11580(b)(2): "'[T]he statute and the standard policy language permit an action against an insurer only when the underlying judgment is final, and 'final' for this purpose, means an appeal from the underlying judgment has been concluded or the time within which to appeal has passed.'" See McKee v. National Union Fire Ins. Co. (1993) 15 Cal.App.4th 282, 285-288.

In denying Mid-Century's writ petition, the Court of Appeal for the Second Appellate District explained that "[b]y not using the ambiguous term, 'final judgment,' but rather limiting the exception to cases which have been 'litigated to finality,' the Legislature has in our view, made it clear that it intends section 340.9 to apply to all cases which have not been finally decided on appeal. ... Indeed, by not using the word 'judgment' in section 340.9, subdivision (d)(1), the Legislature avoided any suggestion that a 'final' (for notice of appeal purposes) trial court judgment might make section 340.9 inapplicable." 20th Century Ins. Co. v. Superior Court, supra, 90 Cal.App.4th at p. 1278. Thus, "final" in "litigated to finality" means final as applied under the doctrine of res judicata.

The Court of Appeal held that "Bandek's 1997 lawsuit was 'final' in the sense that the time for direct attack by appeal, motion for a new trial, or motion to vacate the judgment [had] lapsed," but that Bandek had no right to dismiss his case without prejudice to preserve his right to refile because the trial court had already issued its tentative ruling sustaining Mid-Century's demurrer without amendment. See Code Civ. Proc., § 581, subd. (c); Gray v. Superior Court (1997) 52 Cal.App.4th 165, 173. Consequently, the court held Bandek's "case was not final 'in the res judicata sense,'" as the court has defined "litigated to finality," because it was not litigated on the merits but disposed of solely on technical grounds.

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.

Click here for opinion.

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