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Durbin v. Hartford Life Insurance Co.

United States District Court, S.D. California

August 11, 2014

DOROTHY DURBIN, Plaintiff,
v.
HARTFORD LIFE INSURANCE COMPANY; and DOES 1 through 10, Defendants.

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT [Docket No. 30]

ROGER T. BENITEZ, District Judge.

Before the Court is a Motion for Summary Judgment or Partial Summary Judgment filed by Defendant Hartford Life Insurance Company's ("Hartford"). (Docket No. 30.) For the reasons stated below, the Motion is GRANTED.

BACKGROUND

Except where otherwise noted, the following facts are undisputed. In 1988, Plaintiff Dorothy Durbin purchased a single-premium adjustable life insurance policy ("the Policy") from Pacific Standard Life Insurance Company ("Pacific Standard"). (Pl.'s Opp'n to Mot. for Summ. J. ("Pl.'s Opp'n") 2; Def.'s Mot. for Summ. J. ("Def.'s Mot.") 1.) The Policy issued for a one-time payment of $100, 000 and had a face value of $326, 000. (Pl.'s Opp'n 2, Craig Miller Decl. ("Miller Decl.") ¶ 2, Ex. 1; Def.'s Mot. 2.) The Policy was purchased through a relative, Gary Jenkins. (Pl.'s Opp'n 2; Def.'s Mot. 2-3.) Hartford assumed Pacific Standard's contractual obligations under the Policy on May 11, 1994. (Notice of Removal, Ex. A [Compl.], Ex. B ("Certificate of Assumption").)

The Policy's terms allow Durbin to borrow funds against it, using the Policy as collateral. (Miller Decl. ¶ 2, Ex. 1; Def.'s Mot. 3.) On October 3, 1990 and April 28, 1992, Pacific Standard issued loans against the Policy ("Loan 1" and "Loan 2"). (Pl.'s Opp'n 2; Def.'s Mot. 3.) Loan 1 and Loan 2 were in the principal amounts of $9, 274.17 and $8, 894.00, respectively. (Pl.'s Opp'n 2; Def.'s Mot. 3.) Hartford issued a third loan ("Loan 3") in the amount of $30, 000.00 on October 13, 1997. (Pl.'s Opp'n 2; Def.'s Mot. 3.)

Information about the loans was sent to Durbin at her residence. Durbin recalled receiving the checks for Loans 1 and 2 and sending them to Jenkins. (Miller Decl., Ex. 9 [Dorothy Durbin's July 28, 2011 Statement].)[1] Annual statements reflecting the outstanding loan balances were sent to Durbin's home from 1995-1997, 2002-2004, and 2008-2012. (Def.'s Mot., Kari Clasen Decl. ("Clasen Decl."), ¶¶ 4-5, Ex. A.) Additionally, loan payment notices which stated the amount of interest due on the loans were sent to Durbin at her home in at least 1997, 2003, and 2005. ( Id. at ¶¶ 6-7, Ex. B.)[2] In addition, Durbin's son, Richard Durbin, testified that Durbin was upset about loan payment notices she received sometime before 2007 because she did not generally borrow money. (Def.'s Mot., Michael Barnes Decl. ("Barnes Decl.") ¶ 2, Ex. A at 19-25, 39-40.)

In early 2009, Durbin learned that Jenkins had been arrested and charged with defrauding an elderly couple. (Pl.'s Opp'n 3; Def.'s Mot. 5.) Upon review of her life insurance statements from Hartford, Durbin took note of the three loans against the Policy. (Pl.'s Opp'n 3; Def.'s Mot. 5.) On May 7, 2009, Durbin notified Hartford by phone that she thought Jenkins took her money through the loans. (Miller Decl., Ex. 4.)

Hartford conducted an investigation. (Pl.'s Opp'n 3-8; Def.'s Mot. 6.) Hartford assigned the case to Brian Erickson in its Investigations Unit. (Pl.'s Opp'n 3; Def.'s Mot. 6.) Erickson interviewed Durbin, Jenkins, Jenkins' wife, and Jenkins' former assistant. (Def.'s Mot. 6; Pl.'s Opp'n 4-7.) Based on his investigation, Erickson opined that there was credible evidence to support Durbin's claim that she did not request or receive the proceeds of the loans, and that he thought that "Durbin most likely did not" receive the loans. (Miller Decl. ¶ 8, Ex. 7.) He also indicated he was unable to determine who did receive the loan proceeds. ( Id. ) The facts concerning Erickson's investigation and his opinions are undisputed. It is the significance of his opinions that the parties dispute.

On July 28, 2011, Durbin asked Hartford to put "my policy back to what it was before the loans were taken." (Miller Decl., Ex. 8.) On October 28, 2011, Hartford offered to pay off Loan 3, which at that time, including interest, totaled $79, 026.78, in exchange for a release of liability with regard to all three loans. ( Id., Ex. 10.) Following multiple extensions of the deadline to accept the offer, the offer was withdrawn on June 29, 2012. ( Id. Ex. 15.)

On November 13, 2012, Durbin filed suit in San Diego County Superior Court against Hartford. (Notice of Removal, Ex. A [Compl.].) The complaint alleges: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) financial elder abuse. ( Id. ) Hartford removed the action to this Court on January 9, 2013. ( Id. ) Hartford subsequently joined Jenkins as a third-party defendant. (Docket No. 14).

LEGAL STANDARD

Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In considering a summary judgment motion, a court examines the evidence in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

A moving party bears the initial burden of showing there are no genuine issues of material fact. Horphag Research Ltd. v. Garcia, 475 F.3d 1029, 1035 (9th Cir. 2007) (citing T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987)). The moving party can do so by negating an essential element of the non-moving party's case, or by showing that the non-moving party failed to make a showing sufficient to establish an element essential to that party's case, and on which the party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). The burden then shifts to the non-moving party to show that there is a genuine issue for trial. Horphag Research Ltd., 475 F.3d at 1035.

"Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. As a general rule, the "mere existence of a scintilla of evidence" will be insufficient to raise a genuine issue of material fact; there must be evidence on which the jury could reasonably find for the non-moving party. Id. at 252. "Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp., 477 U.S. at 327 (quoting FED. R. CIV. P. 1).

DISCUSSION

As noted above, the facts of this case are largely undisputed and the few facts that are in dispute are not material. The real dispute in this case, and the issue this Court must resolve, is when Durbin's claims accrued. In moving for summary judgment, Hartford argues that Durbin's claims are barred by the applicable statutes of limitation because her claims are based on loans issued in 1990, 1992, and 1997, and Durbin did not file this action until 2012. Durbin argues that her claims are not based on the issuance of the loans, but rather on Hartford's refusal, in 2011-2012, to repay the loans.

As discussed in more detail below, the Court finds Durbin's claims are barred by the statutes of limitation. Despite Durbin's efforts to characterize her claims as arising in 2011-2012, her claims arose when each of the allegedly unauthorized loans was issued.[3] Hartford's offer to repay only the third loan and the eventual withdrawal of that offer does not trigger a new statute of limitations.

Additionally, even if Durbin's claims were independently based on Hartford's 2011-2012 conduct, the claims would fail. Hartford had no obligation to repay the loans in 2011-2012 because any claim based on the issuance of the loans was time-barred. Refusing to pay a time-barred claim is not a breach of either the Policy or the covenant of good faith and fair dealing, and is also not a violation of the financial elder abuse statute.

I. Statutes of Limitation

A. Policy Underlying Statutes of Limitation

Statutes of limitation are neither favored or disfavored by the courts and exist to "protect defendants from the stale claims of dilatory plaintiffs" and "to stimulate plaintiffs to assert fresh claims against defendants in a diligent fashion." Norgart v. Upjohn Co., 21 Cal.4th 383, 395 (1999). "The purpose of statutes of limitation is to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared." Cutujian v. Benedict Hills Estates Ass'n, 41 Cal.App.4th 1379, 1387 (2d Dist. 1996); see also Mo., Kan. & Tex. Ry. Co. v. Harriman Bros., 227 U.S. 657, 672 (1913) ("The policy of statutes of limitation is to encourage promptness in the bringing of actions, that the parties shall not suffer by loss of evidence from death or disappearance of witnesses, destruction of documents, or failure of memory.").

Here, memories have faded, a witness is missing, and documents have been lost. Durbin's memory has faded. She did not recall the factual basis for her claims in this action during her deposition. She denied that she wrote the premium checks to purchase the Policy, denied that any loans have ever been taken against the Policy, and denied that she communicated with Hartford about any alleged wrongdoing by Jenkins. (Barnes Decl., Ex. B, at 37-38, 41, 81-82.) Additionally, Durbin's counsel acknowledged at oral argument that his client now suffers from dementia. (June 30, 2014 Hearing Tr. 5:15-17.)

Further, witnesses are unavailable and documents have been lost. Hartford's investigators were unable to locate and interview Kim Jones, who was Jenkins' assistant at the time the loans were taken out. The checks with the allegedly forged endorsements are also no longer available. Hartford's investigator attempted, but was unable, to locate the checks. ( Id. at 12:2-10; Miller Decl., Ex. 10.) Durbin's counsel noted at oral argument that Durbin did not have the checks. (June 30, 2014 Hearing Tr. 7:12-15.) These practical problems illustrate the purpose and need for statutes of limitation. Relevant and important evidence has been lost in the twenty years since the first loan was issued.

Additionally, even if all the evidence were fresh and available, the statutes of limitation must still be applied. During oral argument, Durbin's counsel attempted to minimize the significance of this missing evidence and suggested that she should not be precluded from pursuing her claims because this evidence, the checks in particular, might have been lost within days of being issued. ( Id. at 40:12-16.) However, statutes of limitation are not applied "flexibly on a case-by-case basis." Norgart, 21 Cal.4th at 395. They "operate[] conclusively across the board." Id. As the Norgart court explained,

a cause of action brought by a plaintiff within the limitations period applicable thereto is not barred, even if, in fact, the former is stale and the latter dilatory; contrariwise, a cause of action brought by a plaintiff outside such period is barred, even if, in fact, the former is fresh and the latter diligent.

Id. Here, not only is the policy behind statutes of limitation illustrated by the state of the available evidence, but, as explained below, each claim was brought outside the applicable limitations period.

B. Accrual of Statutes of Limitation

"[T]he statute of limitations commences when a party knows or should know the facts essential to his claim." Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1143 (4th Dist. 1990) (emphasis in original to distinguish knowledge of facts from legal theories or remedies which are not necessary for accrual of the claim) (citing Gutierrez v. Mofid, 39 Cal.3d 892, 894-98 (1985)). A claim accrues, i.e. the statute of limitations begins to run, when the "wrongful act is done or the wrongful result occurs." Norgart, 21 Cal.4th at 397 (internal quotes omitted). A defendant bears the burden of establishing that a claim is time-barred. Cal. Sansome Co. v. Gypsum, 55 F.3d 1402, 1406 (9th Cir. 1995) (citing Permanente Med. Grp./Kaiser Found. Hosp. v. Workers' Comp. Appeals Bd., 171 Cal.App.3d 1171, 1178 (3d Dist. 1985)).

Under the "discovery rule, " accrual may be postponed until the plaintiff "either discovers, or has reason to discover" the basis for a claim. Soliman v. Philip Morris Inc., 311 F.3d 966, 971 (9th Cir. 2002) (citing Norgart, 21 Cal.4th at 397). It is only delayed until the plaintiff "at least suspects that someone has done something wrong to him." Id. at 971-72 (quoting Jolly, 44 Cal.3d at 1110). However, accrual is not delayed until the plaintiff knows all "the specific facts necessary to establish a [claim]." Id. (quoting Jolly v. Eli Lilly & Co., 44 Cal.3d 1103, 1111 (1988)). Nor is it delayed until "the plaintiff[] suspects facts supporting each specific legal element of a particular cause of action." Fox v. Ethion Endo-Surgery, Inc., 35 Cal.4th 797, 807 (2005). A plaintiff bears the burden of establishing that the discovery rule delays accrual of the plaintiff's claim. Cal. Sansome Co., 55 F.3d at 1406.

II. Breach of Contract

Durbin argues that Hartford breached the Policy in 2012 by reducing the value of her Policy by the amounts of the allegedly unauthorized loans and associated interest when it knew that she did not request or receive the proceeds of the loans. Durbin identifies Hartford's June 29, 2012 letter withdrawing its previous offer as the point when her breach of contract claim arose. Hartford argues that any claim Durbin had for breach of the Policy occurred when the loans were issued.

A. Accrual

The parties both point the Court to the "primary rights doctrine" to determine whether Durbin's claims arose when the loans were issued in the 1990s, or when Hartford refused to repay the loans in full in 2012. Although generally applied to determine which statute of limitations applies, it is instructive here. Under the doctrine, "the essence of a cause of action is the invasion of a plaintiff's primary right, not the number of acts or omissions that constitute the invasion." McCoy v. Gustafson, 180 Cal.App.4th 56, 75-76 (6th Dist. 2009); see also Barton v. New United Motor Mfg., 43 Cal.App.4th 1200, 1207 (1st Dist. 1996) ("What is significant for statute of limitations purposes is the primary interest invaded by defendant's wrongful conduct.").

The Court finds that the basis of Durbin's breach of contract claim is the allegedly unauthorized issuance of the loans. Any harm Durbin suffered, i.e. the issuance of the loans against her Policy without her authorization, happened when the loans were issued.

At best, Hartford's refusal to repay all of the loans is an additional harm resulting from the earlier breach. "If the statute of limitations bars an action based upon harm immediately caused by defendant's wrongdoing, a separate cause of action based on a subsequent harm arising from the wrongdoing' is normally barred." Soliman, 311 F.3d at 972 (quoting Miller v. Lakeside Vill, Condo. Ass'n, 1 Cal.App.4th 1611, 1622 (2d Dist. 1991)). Here, as explained below, a claim based on the issuance of the loans without Durbin's authorization is barred by the statute of limitations. The subsequent harm, Hartford's refusal to repay all three loans, arises from the same wrongdoing.

Additionally, even if the Court found that Hartford's withdrawal of its offer to repay Loan 3 in exchange for a release of liability for all three loans could be a separate breach of the Policy, the breach of contract claim would still fail. Hartford had no obligation to repay the loans. As discussed in more detail below, a claim based on the issuance of the loans without Durbin's authorization is time-barred. Refusing to pay a time-barred claim is not a breach of the Policy.

B. Four-Year Statute of Limitations

The statute of limitations for an action upon a written contract, such as an insurance policy, is four years. CAL. CIV. PROC. CODE § 337. "[A] cause of action for breach of contract ordinarily accrues at the time of breach." Menefee v. Ostawari, 228 Cal.App.3d 239, 244 (1st Dist. 1991).

Because any breach of the Policy occurred when the loans were issued, the claim is barred by the four-year statute of limitations. It is undisputed that the loans were issued in 1990, 1992, and 1997. Absent delayed accrual under the discovery rule, the statute of limitations ran in 1994, 1996, and 2001, respectively, more than ten years before Durbin filed this action in 2012.

C. Discovery Rule

Although Durbin did not argue for application of the discovery rule to delay the accrual of her claim, [4] the Court finds that Durbin "discovere[d] or had reason to discover" the basis for her breach of contact claim as to Loans 1 and 2 shortly after each was issued, and as to Loan 3 in 2002. See Soliman, 311 F.3d at 971 (citing Norgart, 21 Cal.4th at 397).

Durbin received the checks for Loans 1 and 2 at her home. (Miller Decl., Ex. 9.) Given that she asserts that she never authorized any loans being issued against her Policy, receiving the two loan checks was sufficient for Durbin to "at least suspect that someone ha[d] do[ne] something wrong to [her]." Id. at 971-72 (quoting Jolly, 44 Cal.3d at 1110). As to Loan 3, Durbin received an annual statement at her home in 2002 that included amounts owed for all three loans. (Clasen Decl., ¶¶ 4-5, Ex. A.)

Even if the Court found that the loan checks and the 2002 annual statement did not give Durbin "reason to discover" the basis for her claim, Durbin had reason to discover the loans numerous times in the following years. See Soliman, 311 F.3d at 971. Annual statements were sent to her at her home in 1995, 1996, 1997, 2002, 2003, 2004, 2008, and beyond. (Clasen Decl., ¶¶ 4-5, Ex. A.) Payment notices, reflecting the interest due on the loans, were also sent to Durbin at her home in 1997, 2003, and 2005. ( Id. at ¶¶ 6-7, Ex. B.) Additionally, Durbin was upset about the loan notices she was receiving no later than 2004.[5] Giving her every benefit of the doubt, the statue of limitations on her breach of contract claim still expired in 2008, four years before this action was filed. Durbin's breach of contract claim is barred by the four-year statute of limitations.

III. Covenant of Good Faith and Fair Dealing

Durbin argues that her claim for breach of the covenant of good faith and fair dealing did not arise until Hartford offered to repay Loan 3, including interest, in exchange for a release from liability for all three loans in Hartford's October 28, 2011 letter. Like the breach of contract claim, Hartford argues that any claim Durbin has for breach of the covenant of good faith and fair dealing occurred when the loans were issued.

The analysis applicable to Durbin's breach of contract claim is equally applicable to her claim for breach of the covenant of good faith and fair dealing. Hartford's offer to repay the only loan it issued in exchange for a release of liability for all three loans is a "subsequent harm arising from" the earlier wrongdoing. Soliman, 311 F.3d at 972. Because the earlier wrongdoing, allegedly issuing the loans without Durbin's authorization, is barred by the statue of limitations, a claim based on the subsequent harm is as well. Id.

As with Durbin's breach of contract claim, giving Durbin the benefit of the discovery rule, any claim Durbin had accrued in 1990, 1992, and 2002 based on Loans 1, 2, and 3, respectively. Durbin's claim for breach of the covenant of good faith and fair dealing was barred by the statute of limitations two years earlier than her breach of contract claim. The statute of limitations for breach of the covenant of good faith and fair dealing is two years, rather than four years. CAL. CIV. PROC. CODE § 339. The Court only provides analysis of two additional points specific to this claim.

Putting aside the statute of limitations, it is not a breach of the covenant of good faith and fair dealing for Hartford to offer to repay the loan it issued, Loan 3, and refuse to repay loans it took no part in issuing, Loans 1 and 2. "The linchpin of a bad faith claim is that the denial of coverage was unreasonable. " See Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 434 (9th Cir. 2011) (emphasis added). Hartford has a reasonable claim that it is not liable for Loans 1 and 2 because it only assumed contract liabilities from Pacific Standard. (Def.'s Mot., Karen Melhorn Decl., Ex A [Agreement and Plan of Rehabilitation in Connection with the Rehabilitation of Pacific Standard].) The Court need not resolve whether the allegedly unauthorized loans constitute contract liabilities, which Hartford assumed, or retained liabilities, which it did not. ( Id. ) It is sufficient that Hartford could reasonably deny repayment of Loans 1 and 2 on this basis without acting in bad faith. See Griffin Dewatering Corp. v. N. Ins. Co. of N.Y., 176 Cal.App.4th 172, 207 (4th Dist. 2009) (finding an insurer can take a legal position benefitting its own interest, contrary to its insured's position on a matter of contract interpretation without acting in bad faith).

Additionally, like Durbin's breach of contract claim, this claim would fail even if based on Hartford's October 28, 2011 letter. Hartford had no obligation to repay any of the loans because any claim based on them was barred by the statutes of limitation. Hartford did not violate the covenant of good faith and fair dealing by requiring a release of liability for two time-barred claims, repayment of Loans 1 and 2, in exchange for repaying another time-barred claim, repayment of Loan 3.

IV. Financial Elder Abuse

Like Durbin's claim for breach of the covenant of good faith and fair dealing, she argues her financial elder abuse claim did not accrue until October 28, 2011, when Hartford offered to repay only Loan 3 and failed to offer to repay the value of Loans 1 and 2. As with the prior claims, Hartford argues that any violation of the financial elder abuse statute occurred when the loans were issued.

Durbin asserts that the financial elder abuse claim did not accrue until Hartford discovered the loans were unauthorized and did not repay the loans. The financial elder abuse statute prohibits "retaining... personal property of an elder for a wrongful use." CAL. WELF. & INST. CODE § 15610.30(a)(1). Property is taken for a wrongful use when the "entity... retains the property and the... entity knew or should have known that this conduct is likely to be harmful to the elder." CAL. WELF. & INST. CODE § 15610.30(b) (emphasis added). Durbin asserts that Hartford did not know that its conduct was likely to be harmful to Durbin until Erickson investigated the loans and Hartford did not retain Durbin's property for a wrongful purpose until Hartford offered to repay only Loan 3 in the October 28, 2011 letter.

It is not clear whether Hartford ever determined the loans were unauthorized based on one investigator's opinion that Durbin most likely did not receive the loans. Even if the Court assumes that Hartford determined that the loans were unauthorized as Durbin claims, this argument fails for three reasons.

First, Hartford did not retain Durbin's property, i.e. the value of the loans. As explained with regard to the breach of contract and breach of the covenant of good faith and fair dealing claims, Hartford was not obligated to repay the loans because any claim based on the loans being issued without her authorization was barred by the statute of limitations.

Second, to accept Durbin's theory would create a reverse discovery rule. By her logic, the financial elder abuse was not committed until Hartford discovered the loans were unauthorized and refused to repay all three with interest. This would be a particularly troubling approach in this case because Durbin was the only one in a position to know the loans were issued without her authorization, and she failed to bring it to Hartford's attention for almost twenty years. Allowing this theory of relief to proceed also completely eviscerates the purpose of statutes of limitation. Cutujian, 41 Cal.App.4th at 1387 ("The purpose of statutes of limitations is... preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared."). A plaintiff could simply take out loans against her policy, use the proceeds, and then wait until evidence of the events (cancelled checks with valid signature and witnesses that remember relevant events) is gone, much like it is here. Then, the plaintiff could claim the loans were unauthorized, demand repayment, and sue the insurance company for financial elder abuse if it failed to repay in full.

Third, the statute of limitations for a claim for financial elder abuse "commence[s] within four years after the plaintiff discovers or, through the exercise of reasonable diligence, should have discovered, the facts constituting financial elder abuse." CAL. WELF. & INST. CODE § 15657.7. The "facts constituting financial elder abuse" that Durbin "should have discovered" if acting with "reasonable diligence" were the issuance of the loans she claims she did not authorize in the 1990s. Id.

CONCLUSION

For the reasons stated above, Hartford's motion for summary judgment is GRANTED.

IT IS SO ORDERED.


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