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State Compensation Insurance Fund v. Walldesign Incorporated

October 20, 2011

STATE COMPENSATION INSURANCE FUND, PLAINTIFF AND APPELLANT,
v.
WALLDESIGN INCORPORATED, DEFENDANT AND RESPONDENT.



Appeal from a judgment of the Superior Court of Orange County, Gregory H. Lewis, Judge. (Super. Ct. No. 30-2009-00309793)

The opinion of the court was delivered by: Fybel, J.

CERTIFIED FOR PUBLICATION

OPINION

Reversed.

INTRODUCTION

State Compensation Insurance Fund (the Fund) provided workers' compensation insurance to WallDesign Incorporated (WallDesign) under two insurance policies. WallDesign failed to pay the premium the Fund claimed was owing; the amount of the final premium was determined through an audit of WallDesign's records by the Fund. The Fund (through its collection agent) sued WallDesign to recover the unpaid premium. WallDesign demurred to the Fund's complaint; the trial court sustained the demurrer on the ground the complaint was not timely filed.

We reverse. The insurance policies were executory contracts. Under the terms of the insurance policies, we hold the statute of limitations on the Fund's cause of action for breach of contract to recover the unpaid premium did not accrue until the Fund demanded payment of the premium after completion of the audit. The complaint was filed within the four-year limitations period and was not time-barred. We publish our opinion in this case of first impression to make clear that where an insurance policy states that the insurer has three years after the end of the policy period to complete an audit of the insured's records in order to determine the final premium due, and the insurer completes that audit within the three-year period and timely submits a final bill to the insured, the statute of limitations begins to run on the date the final bill is sent.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

The Fund issued two workers' compensation insurance policies to WallDesign. Both policies provided coverage from January 1, 2003 to January 1, 2004, and both were cancelled on December 15, 2003, due to nonpayment of premiums.

Under the terms of the policies, WallDesign paid an estimated monthly premium based on its payroll for the previous month, multiplied by a set rate determined by the classifications of WallDesign's employees. Rates are different based on job classifications, which take into account the physical hazards of the industry, occupation, and type of employment. (Ins. Code, §§ 11820, 11821.)

The final premium due on the policies was determined by an audit of WallDesign's records relating to the policies. By the terms of the policies, the audit was required to take place within three years after the end of the policy period. The final premium was calculated "by using the actual premium basis and the proper classifications, rates and rating plans that lawfully apply to the business and work covered by this policy."

As noted, the policy period ended on January 1, 2004. The audit of WallDesign's payroll records was conducted between June 2004 and August 2005, and a final bill, based on the results of the audit and the final reconciliation of WallDesign's account, was issued on October 25, 2005, in the amount of $1,045,905.35. Thus, the audit was completed and the final bill was presented well within three years after the end of the policy period. WallDesign failed to pay the final bill.

F.D. DeLeon & Associates, Inc. (DeLeon), as the assigned collection agency for the Fund, filed a complaint against WallDesign on October 6, 2009, within four years after the issuance of the final bill on October 25, 2005. DeLeon filed a first amended complaint on May 17, 2010, seeking $1,045,905.35 in damages for the unpaid workers' compensation premium. Causes of action for breach of contract and the common counts of services rendered and quantum meruit were alleged in the first amended complaint.*fn1 WallDesign demurred to the first amended complaint, arguing the applicable four-year statute of limitations for breach of a written contract--Code of Civil Procedure section 337--barred all the causes of action.

The trial court sustained the demurrer without leave to amend. An order of dismissal was filed on August 23, 2010, and DeLeon appealed. This court granted the Fund's motion to substitute in as plaintiff and appellant. Judgment was entered on August 23, 2011.*fn2 We will treat the notice of appeal as having been ...


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