Introduction

In this case, the United States District Court for the Central District in California considered how the interplay between notice of a claim made under a title policy and subsequent coverage investigation impacts statute of limitations defenses. At the heart of the decision was that the statute of limitations is equitably tolled during the insurer’s coverage investigation.  In the end, the Court granted the Defendant's motion to dismiss, but with leave to replead the second amended complaint one last time. Gennaro v. N. Am. Title Ins. Co., No. CV 23-3991-MWF (AGRx), 2023 U.S. Dist. LEXIS 212820 (C.D. Cal. Oct. 23, 2023)

Background

In 2011, Myrian Gennaro (“Gennaro”) purchased a title insurance Policy from North American Title Insurance Company (“North American”) for property located at 8848 Farralone Ave., in Canoga Park, California (the “Property”). The Policy provided coverage for damage and losses due to recorded violations of municipal code affecting the Property as of the date of the Policy.[i]

In April 2017, the City of Los Angeles began an investigation into the Property. In September 2017, Gennaro notified North American that the City of Los Angeles was seeking to enforce land use violations on the Property. Shortly thereafter, the City of Los Angeles recorded a Notice of Abatement in October 2017 against the Property in the public record because the Property did not have permits or certificates for occupancy required under the Los Angeles Municipal Code.

On March 26, 2021, North American denied the claim as the municipal code violation occurred after the date of the Policy. And on March 12, 2023, Gennaro sued North American for breach of contract and breach of covenant of good faith dealing.

In addition to moving on its defense under the Policy that land use violations occurring after the date of the Policy were not covered, North American moved to dismiss pursuant to Rule 12(b)(6) based on Gennaro’s claims being time-barred under the California Code 339(1), which provides for a two-year statute of limitations to bring a claim under a title policy and that failed to sufficiently allege equitable tolling, which was granted. Gennaro filed her second amended complaint, which North American again moved to dismiss, stating that the policy's plain language shows that the policy does not cover Plaintiff’s damages and that the statute of limitations has run.

The Decision

The Court first limited its decision to the statute of limitations argument, as it found that if the action was time-barred, it need not reach the merits of North American’s seemingly sound argument that coverage was only provided for recorded violations of land use regulations as of the date of the Policy. Addressing the limitations arguments of the parties, the Court addressed a host of contradictory facts and statements in the pleadings. Again, Gennaro argued that the statute of limitations had not run and only began to accrue on March 26, 2023, when the Defendant first sent her a letter denying coverage. Defendant argued that time began accruing when the City of Los Angeles began investigating the property in April 2017.

The Court quickly denied Gennaro’s claim, stating that “a cause of action under title insurance policy accrues upon discovery of the adverse claim.” That said, it also dismissed North American’s claim that the investigation alone gave notice of a claim. Instead, based on her second amended complaint, Gennaro only indisputably had knowledge of the facts underlying the insurance claim (September 2017) when she advised North American of the same. In any event, as Gennaro did not file this action until March 14, 2022, her claims are thus time-barred unless equitable tolling was at issue.

The Court found equitable tolling was at issue, but there was confusion about the timeline and what occurred, principally due to the inadequacies of Gennaro’s pleadings. That is, Gennaro alleged in the second amended complaint that the limitations period was tolled while North American investigated Plaintiff’s claims between September 2017 and March 12, 2021. But even taking this at face value, the action was filed on March 26, 2023. In that vein, Gennaro omitted crucial information: the date she first learned the facts underlying the insurance claim. This was a deficiency that the Court could not ignore and one the Court used to grant the Defendant’s 12(b)(6) motion to dismiss, but gave leave to replead to show that she had notice of the title claim “at least 12 days prior to filing her insurance claim.” The Court concludes that it is granting Plaintiff time to amend her complaint while granting Defendant’s motion to dismiss. However, in so doing,  the Court noted that there may be a third amended complaint, but not a fourth.

The Court also addresses Section 2695.7 of the California Code, which requires insurers to “provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim.” (Cal. Code. Regs. Tit. 10, Section 2695.7(f)). The Court dismissed the notification argument handily, saying that this statute applies when related to possible denial of a claim, “not statutes of limitations that an insurer may raise to defeat a subsequent…lawsuit arising out of the denial of a claim.”

Takeaway

This case is an excellent primer of what constitutes knowledge of a title claim and how equitable tolling plays into coverage investigations.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Thomas Persico at tpersico@riker.com, Kevin Hakansson at khakansson@riker.com, or Kori Pruett at kpruett@riker.com.

[i] Covered Risk 14 of the Policy provided coverage “[t]he violation or enforcement of those portions of any law or government regulation concerning: a. building; b. zoning; c. land use; d. improvements on the land; e. land division; or f. environmental protection, if there is a notice recorded in the Public Records, describing any part of the Land, claiming a violation exists or declaring the intention to enforce the law or regulation.” Gennaro v. N. Am. Title Ins. Co., No. CV 23-3991-MWF (AGRx), 2023 U.S. Dist. LEXIS 140799 (C.D. Cal. Aug. 10, 2023)