Bennett v. Ohio National Life Assurance Corp.

Filed 6/20/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
MARK BENNETT,
Plaintiff and Appellant, A166049
v.
OHIO NATIONAL LIFE (Marin County Super. Ct.
ASSURANCE CORPORATION, No. CIV1903075)
Defendant and Respondent.
This appeal arises out of plaintiff Mark Bennett’s action against
respondent Ohio National Life Assurance Corporation (Ohio National).
Under Bennett’s disability insurance policies, monthly benefits were payable
for life if he was totally disabled due to injury; if due to sickness, benefits
would only be paid until the age of 65. Ohio National initially approved
Bennett’s January 2014 claim that he was totally disabled due to an injury
sustained when thrown from his horse. But on June 8, 2015, Ohio National
notified him of its determination that his disability was due to a sickness, not
an injury. Ohio National continued to pay disability benefits until September
3, 2018, the policy year Bennett turned 65 years old.
On August 13, 2019, Bennett sued for breach of contract and breach of
the implied covenant of good faith and fair dealing. The trial court granted
summary judgment to Ohio National after concluding the claims were barred
by the statutes of limitation — four years for breach of contract and two years
for breach of the implied covenant of good faith and fair dealing. Both causes
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of action, the court concluded, accrued when Ohio National issued an
unconditional denial of liability on June 8, 2015, not when benefits ceased on
September 3, 2018.
On appeal, Bennett argues the trial court erred because his causes of
action did not accrue until all elements — including actual damages — were
complete. Bennett contends he suffered no harm as of June 8, 2015, because
Ohio National continued to pay disability benefits. Only on September 3,
2018 — when Ohio National began withholding benefits, and Bennett
thereby incurred damages — did his causes of action accrue. We agree and
reverse.
BACKGROUND
Bennett, an oral and maxillofacial surgeon, purchased three disability
income insurance policies from Ohio National in 1984, 1991, and 1995. The
policies provided coverage if he became totally disabled or had a total
disability — the inability “to do the substantial and material tasks” of his job
due to injury or sickness. Injury is defined as an “[a]ccidental injury
sustained while this policy is in force,” and sickness is defined as a “[s]ickness
diagnosed or treated while this policy is in force.” Income, defined as the
monthly benefit amount to be paid under the contract, “is paid at the end of
each month of Disability for which it is due.”
The policies each articulated a maximum benefit period, the “longest
period of time that Income will be paid for one Disability or for a combined
period of Residual and Total Disability from the same or related cause.”
Bennett would receive lifetime benefit payments if the total disability either
“(a) starts before Age 55 due to Sickness; or (b) starts before Age 65 due to
Injury.” Total disability due to sickness starting on or after age 55, however,
would result in payments ending at age 65.
2
In 2006, when Bennett was 53 years old, he was thrown from a horse.
He sustained injuries to his left shoulder and collarbone. He underwent
surgery to repair a tear in his shoulder but had ongoing numbness and
tingling in his left hand. Initially, he was able to continue working by
changing certain operating techniques and using different tools. Despite
accommodations, medication, and physical therapy, he later developed pain
in his left hand. By 2012, he had chronic pain and later reduced the number
of surgeries he performed and decreased his patient load. He stopped
working entirely in 2014.
Bennett filed a claim with Ohio National reporting he was totally
disabled; that is, he was unable to work as an oral surgeon because of
a physical condition he developed from his 2006 accident. In a letter dated
April 2014, Ohio National approved the claim for total disability, effective
January 2, 2014, and provided him benefits beginning on that date. The
letter noted Ohio National would continue to evaluate the cause of the
claimed disabling condition to determine whether it was due to sickness or
injury.
On June 8, 2015, Ohio National sent Bennett another letter. This one
stated it had determined his condition was due to sickness — a degenerative
disc disease, causing compression of nerve roots and thus tingling and
numbness in the left hand — rather than injury. Because his total disability
started after the age of 55, Bennett’s benefit would not be paid for life, but
would instead terminate on the first day of the policy year upon reaching age
65 — September 3, 2018.
On several occasions between June 2015 and September 2018, Ohio
National requested Bennett complete a “Continuance of Disability
Statement,” documenting his current work status, and provide a physician’s
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progress statement certifying his restrictions, limitations, and treatments.
Bennett complied with the requests and received monthly benefits until
September 2018. Bennett also asked Ohio National to reconsider its decision,
disputing its conclusion that his disability was due to sickness. In April
2019, after reviewing previously available information as well as new
information submitted by Bennett, Ohio National informed him its
determination remained unchanged.
In August 2019, Bennett sued for breach of contract and breach of the
implied covenant of good faith and fair dealing. Ohio National moved for
summary judgment arguing the statutes of limitation barred the claims. In
opposition, Bennett argued the time to sue did not begin to run until
September 3, 2018, when he suffered actual damages in the form of losing
replacement income and assets essential to his health and welfare.
The trial court granted summary judgment. Relying on Neff v. New
York Life Insurance Co. (1947) 30 Cal.2d 165 (Neff), the court explained
a “suit may be commenced upon an insured’s claim after the insurance
company’s unconditional denial of liability thereon, when all facts essential to
the statement of a cause of action are within the knowledge of the aggrieved
party.” (Id. at p. 175.) The court also noted an unreported federal decision,
Flynn v. Paul Revere Ins. Group (9th Cir. 2001) 2 Fed.Appx. 885 (Flynn), in
which the court determined the plaintiff’s causes of action related to lifetime
disability benefits accrued when the insurance company denied the right to
benefits, not when the insurance company stopped making monthly
payments. (Id. at p. 886.) Because there was nothing ambiguous or tentative
in Ohio National’s June 2015 letter indicating it had determined Bennett’s
total disability was due to sickness nor any indication it was reserving final
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judgment, the court determined Bennett’s claims accrued in June 2015 and
were time-barred.
DISCUSSION
The parties dispute the date the claims accrued. A breach of contract
claim is subject to a four-year statute of limitations. (Code Civ. Proc. § 337,
subd. (a), undesignated statutory references are to this code.) A claim for the
breach of the implied covenant of good faith and fair dealing is subject to
a two-year statute of limitations. (§ 339(1).) Ohio National contends the
claims accrued on June 8, 2015 — the date it denied his disability was due to
injury. Bennett contends his claims accrued on September 3, 2018 — the
date Ohio National stopped paying benefits. Who is correct resolves whether
the August 13, 2019 complaint was filed too late. Bennett has the better
argument.
Summary judgment is proper when there is “no triable issue as to any
material fact” and “the moving party is entitled to a judgment as a matter of
law.” (§ 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th
826, 850.) A defendant may demonstrate the plaintiff’s cause of action has no
merit by showing one or more elements cannot be established or there is
a complete defense to the cause of action. (§ 437c, subd. (p)(2); Aguilar,
at p. 849.) For example, a defendant moving for summary judgment based
on statute of limitation grounds must demonstrate the limitation period
has expired. (County of Santa Clara v. Atlantic Richfield Co. (2006)
137 Cal.App.4th 292, 316.) Summary judgment is proper where the
undisputed material facts demonstrate a claim is time-barred. (Love v. Fire
Ins. Exchange (1990) 221 Cal.App.3d 1136, 1142 (Love).) We independently
review a trial court’s order granting summary judgment. (County of Santa
Clara, at p. 316.)
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The statutes of limitation “dictate the time period within which a cause
of action may be commenced.” (Thomson v. Canyon (2011) 198 Cal.App.4th
594, 604; § 312.) But the statutes of limitation “do not begin to run until
a cause of action accrues.” (Fox v. Ethicon Endo-Surgery, Inc. (2005)
35 Cal.4th 797, 806.) Generally, a cause of action accrues when it is
“complete with all of its elements.” (Ibid.) Where damages are an element of
a cause of action, the claim “ ‘does not accrue until the damages have been
sustained.’ ” (Thomson, at p. 604.) Both breach of contract and breach of the
implied covenant of good faith and fair dealing, i.e., bad faith, include
a damages element. (CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th
1226, 1239 [breach of contract requires “(1) existence of the contract;
(2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s
breach; and (4) damages to plaintiff as a result of the breach”]; Vu v.
California Commerce Club, Inc. (1997) 58 Cal.App.4th 229, 233 [bad faith
claim requires damages be proximately caused by the defendant’s breach].)
Under these principles, claims for breach of contract and bad faith
regarding disability insurance payments do not accrue until there is a breach
and the plaintiff sustains damages. (Cf. Love, supra, 221 Cal.App.3d
at pp. 1151–1152, fn.10 [requiring plaintiff to show benefits were delayed or
withheld for breach of implied covenant].) “ ‘Where benefits are fully and
promptly paid, no action lies for breach of the implied covenant—no matter
how hostile or egregious the insurer’s conduct toward the insured may have
been prior to such payment.’ ” (Ibid., italics omitted.) “ ‘[A]bsent an actual
withholding of benefits due, there is no breach of contract and likewise no
breach of the insurer’s implied covenant.’ ” (Ibid., italics omitted.) In Erreca
v. Western States Life Insurance Co. (1942) 19 Cal.2d 388 (Erreca), the court
explained a disability insurance policy is “a continuing contract for periodic
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installment payments depending upon the insured’s continued disability.”
(Id. at p. 402.) Accordingly, an insured “has no cause of action, nor the
insurer any liability, except for benefits which have accrued.” (Ibid.) “This
rule makes sense. Plaintiff’s right to collect is contingent on: (1) his
remaining totally disabled; and (2) his remaining alive.” (Austero v. National
Cas. Co. (1978) 84 Cal.App.3d 1, 24 [“there is no such thing as a ‘future’
benefit payable under the policy” since it is “legally impossible” for insurer to
breach a contract by refusing to pay benefits that have not yet accrued under
the terms of the policy “and which may never become due”], italics omitted,
overruled on other grounds in Egan v. Mutual of Omaha Insurance Co. (1979)
24 Cal.3d 809, 824, fn. 7.)1
On the facts here, the elements of Bennett’s causes of action were not
complete until September 3, 2018, when Ohio National ceased making its
monthly disability payments. (Thomson, supra, 198 Cal.App.4th at p. 604
[“ ‘when the wrongful act does not result in immediate damage, “the cause of
action does not accrue prior to the maturation of perceptible harm” ’ ”].)
Despite indicating in June 2015 that it had determined Bennett’s disability
was due to sickness rather than injury, Ohio National continued to pay
monthly benefits for more than three additional years. Ohio National’s
determination did not alter or diminish the payments. And the amount of
the monthly payment was not affected by Ohio National’s determination of
the underlying cause — the amount was the same whether the disability was
1 For the first time at oral argument, Ohio National cited Schwartz v.
State Farm Fire & Casualty Co. (2001) 88 Cal.App.4th 1329. That case
concerned an excess insurance policy and did not address whether a cause of
action had accrued for statute of limitations purposes; it is inapposite. In the
disability insurance context and under the facts of this case, “whether the
policy will eventually cover the claim” is an unknown event. (Id. at p. 1335.)
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caused by injury or sickness. To the extent Ohio National argues their
determination did result in damages because the policies only authorized
compensation for “one Disability” at a time and different rights arose out of
that characterization, we disagree. Bennett only submitted a claim for one
disability — a total disability related to his left arm. And Ohio National
simply paid a single “total disability” benefit each month without identifying
it as a “sickness benefit” or “injury benefit.” Thus, until payments ceased,
Bennett did not sustain any damages.
Rather than addressing the concept of accrual in contract and bad faith
claims, Ohio National argues a “suit may be commenced upon an insured’s
claim after the insurance company’s unconditional denial of liability.” (Neff,
supra, 30 Cal.2d at p. 175.) Because its June 2015 letter unequivocally
denied lifetime benefits, Ohio National argues Bennett had all the facts
necessary to sue.2 But in Neff, the insurer denied the insured’s claim that he
was totally disabled due to tuberculosis and concluded he was not entitled to
disability benefits; he thereby incurred damages when the insurer withheld
benefits. (Id. at p. 170.) His claim thus accrued, and the statute of limitation
barred a lawsuit filed 16 years later seeking unpaid disability benefits. (Id.
at p. 172.) When the insurer originally denied liability, the insured had all
the facts — including damages in the form of withheld benefits — essential to
maintaining the causes of action.
Indeed, the other cases cited by Ohio National — all involving insured
parties suffering economic loss in conjunction with the unequivocal denial of
a benefit that was due (rather than future potential loss, as Ohio National
2 Ohio National’s willingness to entertain Bennett’s request that it
reconsider its decision does not alter the unequivocal nature of the denial.
(Migliore v. Mid-Century Ins. Co. (2002) 97 Cal.App.4th 592, 605 [“statement
of willingness to reconsider does not render a denial equivocal”].)
8
conceded at oral argument) — are also distinguishable.3 (See, e.g., Vu v.
Prudential Property & Casualty Ins. Co., supra, 26 Cal.4th at pp. 1146–1147
[benefits for earthquake damage withheld where insurer’s inspector told
insured property damage did not exceed the policy’s deductible, and insured
did not immediately file a claim]; Bollinger v. National Fire Insurance (1944)
25 Cal.2d 399, 402, 404 [insurer denied liability under fire insurance policy
because plaintiff was not the sole and unconditional owner of the property],
superseded by statute on other grounds as stated in American Broadcasting
Cos. v. Walter Reade-Sterling, Inc. (1974) 43 Cal.App.3d 401, 406; Singh v.
Allstate Ins. Co. (1998) 63 Cal.App.4th 135, 138 [denial of claim and
withholding benefits for fire damage because insured breached their policy by
failing to secure the property following previous losses]; State Farm Fire &
3 Notably, the rule — “ ‘an unconditional denial of liability by the
insurer after the insured has incurred loss and made claim under the policy
gives rise to an immediate right of action’ ” — has generally been expressed
when addressing the doctrine of estoppel, not whether an action accrues in
the absence of any actual damage. (Vu v. Prudential Property & Casualty
Ins. Co. (2001) 26 Cal.4th 1142, 1149.) Specifically, “under some
circumstances a misrepresentation or concealment by a defendant might bar
it from raising the defense of the statute of limitations.” (Ibid.) In the
context of estoppel, the court in Neff determined an insurer’s letter stating
the insured was not wholly and permanently disabled within the meaning of
the disability policy did not constitute a misrepresentation of fact that
estopped the insurer from using the statute of limitations defense. (Neff,
supra, 30 Cal.2d at p. 170.) Likewise in Vu, the court explained that an
insurer may be estopped from asserting a statute of limitations defense if the
insured refrained from bringing a timely action based on the reasonable
reliance on the insurer’s factual misrepresentation about the claim of
damages. (Vu, at p. 1146.) The court reaffirmed the holding in Neff “that
a denial of coverage, even if phrased as a ‘representation’ that the policy does
not cover the insured’s claim, or words to that effect, offers no grounds for
estopping the insurer from raising a statute of limitations defense.” (Vu, at
p. 1152.) Here, Bennett does not make any argument regarding estoppel.
9
Casualty Co. v. Superior Court (1989) 210 Cal.App.3d 604, 607, 609 (State
Farm) [denial of benefits for structural damage to home].) Here, in contrast
and despite denying Bennett’s claim for disability payments based on injury,
Ohio National continued to pay Bennett the full amount of his monthly
disability benefits until September 2018.
Particularly regarding the breach of contract claim, Bennett did not
have all the facts necessary to state a cause of action as of June 2015.
Bennett’s disability insurance policy was a “continuing contract for periodic
installment payments” on a monthly basis contingent on proof of ongoing
loss — his continued disability — at regular intervals. (Erreca, supra,
19 Cal.2d at p. 402.) Even after Ohio National notified Bennett in June 2015
it would terminate his benefits in September 2018, it nonetheless required
him to complete a continuing disability statement on a regular basis,
updating his current restrictions, limitations, and treatment, and providing
a physician’s progress statement certifying the same. Ohio National
acknowledged that “should [Bennett] remain disabled under the terms of the
policies, his disability income benefits will end when he reaches Age 65
(September 3, 2018).” (Italics added.) Bennett was not entitled to a lump
sum of lifetime benefits under his disability insurance policies. Thus, he had
no breach of contract cause of action for future benefits that might accrue
after September 3, 2018. (Erreca, at p. 402.)
Relying on Spellis v. Lawn (1988) 200 Cal.App.3d 1075, Ohio National
suggests sustaining actual damages is immaterial to a cause of action’s
accrual date. We disagree. Spellis is not so expansive. The court noted
where “ ‘ “an injury, although slight, is sustained in consequence of the
wrongful act of another, and the law affords a remedy therefor, the statute of
limitations attaches at once.” ’ ” (Id. at pp. 1079–1081, italics added.) But
10
some actual damages must be incurred before the statute of limitations runs.
The court explained, it “ ‘ “is not material that all the damages resulting from
the act shall have been sustained at that time, and the running of the statute
is not postponed by the fact that the actual or substantial damages do not
occur until a later date.” ’ ” (Id. at p. 1081, some italics omitted.) For that
reason, the cause of action in Spellis accrued when the defendant ex-husband
disappeared and “failed to make the first support payment due” —
withholding a benefit, thus causing some damage. (Id. at p. 1079.) We do not
read Spellis to deviate from the principle that the statute of limitations
“ ‘begins to run upon the occurrence of the last element essential to the cause
of action,’ ” including damages. (Ibid.)
Flynn, supra, 2 Fed.Appx. 885 — holding plaintiff’s claims accrued
when insurer denied disability payments rather than when insurer stopped
making monthly disability payments — does not alter our conclusion. (Id.
at p. 886.) First, we are not bound by federal appellate decisions. (People v.
Brooks (2017) 3 Cal.5th 1, 90.) Moreover, while federal decisions may have
persuasive weight, we find little in Flynn. (Brooks, at p. 90.) The court
simply states, with little analysis, that “the statute of limitations began
running when [the plaintiff] knew or had reason to know that his claim for
disability payments under the accident provision had been denied.” (Flynn,
at p. 886.) But both cases Flynn cites in support of this premise — Love and
State Farm — involve plaintiffs immediately incurring damages as a result of
the insurer’s alleged breach. (Flynn, at p. 886; Love, supra, 221 Cal.App.3d
at p. 1143 [insurer denying any coverage and withholding benefits for
property damage]; State Farm, supra, 210 Cal.App.3d at p. 607, 609 [same].)
More importantly, Flynn fails to grapple with state law that “actual harm is
required before a cause of action accrues,” the critical issue here. (Lederer v.
11
Gursey Schneider LLP (2018) 22 Cal.App.5th 508, 521, 530–531; Flynn, at
p. 886.)
We are similarly unpersuaded by the other mostly unreported federal
district court cases cited by Ohio National, all of which rely on Flynn or case
law already distinguished above. (See, e.g., Finnell v. Equitable Life Assur.
Soc’y (E.D.Cal., Nov. 19, 2007, No. Civ. S-07-0129) 2007 U.S.Dist. Lexis
85355 [relying on the same statements in Love, supra, 221 Cal.App.3d
at p.1143 and State Farm, supra, 210 Cal.App.3d at p. 609, as relied on in
Flynn]; Hong v. AXA Equitable Life Ins. Co. (N.D.Cal., Dec. 4, 2018, No. 18-
cv-04039-JST) 2018 U.S.Dist. Lexis 205336 [relying on State Farm];
Finkelstein v. AXA Equitable Life Ins. Co. (N.D.Cal. 2018) 325 F.Supp.3d
1061, 1067 [relying entirely on Flynn for determining when statutes of
limitation accrue, and rejecting argument a letter denying disability benefits
was not a final decision]; Albers v. Paul Revere Ins. Grp. (N.D.Cal., Dec. 23,
2021, No. 20-cv-08674 NC) 2021 U.S.Dist. Lexis 251731 [relying on
Finkelstein and Flynn for statute of limitations discussion], revd. in part by
Albers v. Paul Revere Ins. Group (9th Cir., June 7, 2023, No. 22-15100) 2023
U.S.App. Lexis 14122 [holding statutes of limitations did not begin to run
until the plaintiff sustained damages, which first occurred when her lifetime
benefits were withheld].)
Indeed, other unreported federal district court cases have concluded
claims accrue when the insurer defendant withholds a benefit under the
insurance policy, not when the insurer notifies the insured they will not
receive the payment or benefit at issue at a future date. (Wren v.
Transamerica Life Ins. Co. (C.D.Cal., May 21, 2021, No. EDCV 21-178 JGB
(SPx)) 2021 U.S.Dist. Lexis 99103 at p. *11 [until insurer withheld payment,
there was a possibility the insurer would issue the benefit under the policy,
12
“or that the insured would pass away before the cash value bonus became
due, mooting the issue”]; Rizer v. Mut. of Omaha Ins. Co. (C.D.Cal., Oct. 22,
2012, No. CV 12-7465-GW(FFMx)) 2012 U.S.Dist. Lexis 196327 [noting that
the limitations period for breach of contract and bad faith claims do not run
until plaintiff incurred damages, when insurer failed to pay lifetime
benefits].) We decline Ohio National’s invitation to rely on various out-of-
state decisions.
In sum, we conclude Bennett’s breach of contract and breach of implied
covenant of good faith and fair dealing claims are not barred by the statute of
limitations.4
DISPOSITION
The judgment is reversed. Bennett is to recover his costs on appeal.
In light of this conclusion, we need not consider Bennett’s additional
4
argument his disability policies extended the statutes of limitation period.
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_________________________
Rodríguez, J.
WE CONCUR:
_________________________
Fujisaki, Acting P. J.
_________________________
Petrou, J.
A166049
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Marin County Superior Court, Hon. Andrew E. Sweet.
Pillsbury & Coleman, Terrence Joseph Coleman and Ryan H. Opgenorth, for
Plaintiff and Appellant.
Kantor & Kantor, Glenn R. Kantor and Peter S. Sessions for United
Policyholders, as Amicus Curiae on behalf of Plaintiff and Appellant.
Maynard Cooper & Gale, Misty Ann Murray and Ophir Johna, for Defendant
and Respondent.
Maynard Nexsen, Misty Ann Murray and Ophir Johna, for Defendant and
Respondent.
15