Amicus Curiae Brief — Allstate Insurance v. Noah

Supreme Court, US ,

FILED :

(3) OCT 6 2793 |

OFFIC ea

No. 03-341 EOF THE CLERh |

ee

IN THE

Supreme Court of the United States

ALLSTATE INSURANCE COMPANY,

Petitioner,

Vv.

WILLIAM NOAH, ET AL.,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF FOR HOMESTEAD INSURANCE

COMPANY AS AMICUS CURIAE |

SUPPORTING PETITIONER

HOWARD WOLLITZ MARK A. PERRY

ALLAN J. FAVISH Counsel of Record

CHARLSTON, REVICH & GIBSON, DUNN & CRUTCHER LLP

CHAMBERLIN LLP 1050 Connecticut Avenue, N.W.

1925 Century Park East Washington, D.C. 20036

Los Angeles, CA 90067 (202) 955-8500

(310) 551-7000

Counsel for Amicus Curiae

! pp

1

QUESTION PRESENTED

Whether the Ninth Circuit erred in concluding, in con-

travention of applicable decisions of this Court and other

courts, that the Constitution does not prohibit a State from

retroactively abrogating a limitations provision in a contract

for insurance.

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Cases

20th Century Insurance Co. v. Superior Court, 90

Cal. App. 4th 1247 (2001), cert. denied, 535 U.S.

ITI isc lisdis onic bctnlcolindeielivnombuiedbstamenvioeecnictiietinan shaken 5

Allied Structural Steel Co. v. Spannaus, 438 U.S. 234

lai ed al sccn de hiibadadnaaedinsnsipte cinantiobodheniinnd 6

Campanelli v. Allstate Insurance Co., 322 F.3d 1086

I ictus dcacas Ac cacatheshcsagseioansibheiapianeneennneesihies 6

Campbell v. Holt, 115 U.S. 620 (1885)... ceeseeseseeeeeeeees 2

Energy Reserves Corp. v. Kansas Power & Light Co.,

IIT otis cilsisiounennsnuhiinsinsveaseucboonnaasstoninnsircesesne 5

Fageol Truck & Coach Co. v. Pacific Indemnity Co.,

a I I os cccrecnn incioaindodsnoutbesntadaanseeeanevessneseones 2

Farmers’ Co-operative Creamery Co. v. Iowa State

Insurance Co., 84 N.W. 904 (Iowa 1900)............ceeeeeeeeees 4

Hellinger v. Farmers Group, Inc., 91 Cal. App. 4th

I thi: ieidicentaiitaddesccentibnesainannsnuianinasiceaeanNinbens 1,5

Home Insurance Co. v. Dick, 281 U.S. 397 (1930)....2, 3, 4, 5

Kee v. Shelter Insurance, 852 S.W.2d 226 (Tenn.

Tile et aciacish ah pcnanlassinaaivaunniianiaeniaveinenbentesaners 4

National Surety Co. v. Architectural Decorating Co.,

II si cin iicsicersesicvnoninsihdastonbeninitnebbianibinebbdeussonses 3

Riddlesbarger v. Hartford Insurance Co., 74 US.

ia i ciahelubiarinndsinicnahineseteladaonnbsseonaneen 2

Smith & Marsh v. Northern Neck Mutual Fire Ass’n,

Re I I sn scctcdiechnabieduniininenaenininnsvenweesbioncsohs 5

United States Trust Co. v. New Jersey, 431 US. 1

ELA RS IE eae Rees ene nie eae ee ROE 6

1V

Vu v. Prudential Property & Casualty Insurance Co.,

I a Faia iennaidines 5

Weisberg v. Royal Insurance Co., 464 N.E.2d 1170

es Fe. RINE ce donccotesicnnanereavnigeininesacmcianenentinibnns 3

Wells v. Union Central Life Insurance Co., 98 S.W.

BF Se cist asicaelaancacclinsinnnaiaiapenenmcinind 5

Statutes

OMe. Ce CRV, FG, SB OG avi cceviccvncviinsiccscontsncenssicsin 1, 2, 3,4

Other Authorities

PE, 15S Ti TH CE ictal ctnsacinaiaeintchdsnavisits 5

Anmot., 16 A.L.R. 3d 452 (1967) .cccccccsecccssessssesssseesssecsssesesses 5

BRIEF FOR HOMESTEAD INSURANCE

COMPANY AS AMICUS CURIAE

SUPPORTING PETITIONER

Amicus Curiae Homestead Insurance Company respect-

fully submits that the petition for a writ of certiorari should

be granted.

INTEREST OF AMICUS

Homestead wrote insurance policies on commercial

property in California that required all actions to be com-

menced within twelve months of the loss. In light of this

contractual limitation, Homestead has long since resolved all

claims arising out of the 1994 Northridge earthquake.

In 2000, the California Legislature purported to “revive”

Northridge claims notwithstanding the expiration of any ap-

plicable statute of limitations. Cal. Code Civ. Proc. § 340.9.

The state courts subsequently extended this “revival” feature

to actions barred by contractual limitations periods. Hellin-

ger v. Farmers Group, Inc., 91 Cal. App. 4th 1049, 1056-59

(2001). Under this new statute, several of Homestead’s in-

sureds have initiated actions seeking additional Northridge-

related damages.

Homestead agrees with petitioner Allstate Insurance

Company that Section 340.9 violates the Contracts Clause of

the United States Constitution. See infra at 5-6 & n.2.

Homestead respectfully submits this brief to further demon-

strate that the issue warrants this Court’s review.

' Pursuant to this Court’s Rule 37.6, amicus states that this

brief was not authored in whole or in part by counsel for any

party, and that no person or entity other than amicus and its

counsel made a monetary contribution to the preparation or

submission of this brief. Letters consenting to the filing of this

brief have been submitted to the Clerk.

ARGUMENT

This Court has long recognized that “insurers have a

right to designate the terms upon which they will be respon-

sible for losses,” including setting a reasonable time within

which the insured must initiate suit under the policy. Rid-

dlesbarger v. Hartford Ins. Co., 74 U.S. (7 Wall.) 386, 390

(1868). And California (like other American jurisdictions)

has concluded that requiring the insured to sue within one

year is a valid, reasonable, and enforceable contractual limi-

tation. Fageol Truck & Coach Co. v. Pacific Indem. Co., 18

Cal. 2d 748, 753 (1941). But California Code of Civil Pro-

cedure § 340.9 abrogates the one-year limitation included as

a material term of the contracts of insurance issued by Home-

stead and other insurers.

The decision below, in which the Ninth Circuit con-

cluded that Section 340.9’s wholesale abrogation of a con-

tractual obligation does not violate the Contracts Clause,

cannot be reconciled with this Court’s decision in Home In-

surance Co. v. Dick, 281 U.S. 397, 410 (1930). In Dick, the

Court held that a State could not constitutionally extend li-

ability under an insurance contract “beyond the limit ex-

pressly agreed upon by the parties.” Jd. at 409 n.6.

The Dick Court drew a sharp distinction between statutes

of limitation and contractual limitation periods, explaining

that a contractual provision “differ[s] from the statutory limi-

tation in .. . that it does not merely deny the remedy, but for-

feits the liability, when the suit is not brought within the

stipulated time.” 281 U.S. at 406 n.4 (quotation omitted).

As a result, a contractual limitation “deals neither with the

kind of remedy available nor with the mode in which it has to

be pursued”; rather, “[i]t purports to create rights and obliga-

tions.” Jd. at 410.

The distinction between statutory and contractual limita-

tions periods is critical. In cases such as Campbell v. Holt,

115 U.S. 620 (1885), this Court has sustained against consti-

3

tutional challenge changes to statutes of limitations. But the

Dick Court made clear that contractual limitations periods

are entitled to considerably more constitutional protection:

It is true that a state may extend the time within

which suit may be brought in its own courts, if, in

doing so, it violates no agreement of the parties... .

[But when] the parties have expressly agreed upon a

time limit on their obiigation, a statute which invali-

dates the agreement and directs enforcement after

the time has expired increases their obligation and

imposes a burden not contracted for.

281 U.S. at 408-09 & n.6 (emphasis added).

This Court, in Dick, held that a state law that attempted

to do precisely what Section 340.9 purports to do—i.e., im-

pose insurance liability after the contractual expiration period

has run—was unconstitutional. Although the Court’s deci-

sion ultimately rested on the Due Process Clause, the Court

left no doubt that the same result would obtain under the

Contracts Clause. Indeed, the Court cited a Contracts Clause

precedent for the principle that “[t]here is a clear difference

between the revival of a liability which is unenforceable only

because a statute has barred the remedy regardless of the will

of the parties, and the extension of a liability beyond the limit

expressly agreed by the parties.” 281 U.S. at 409 n.6 (citing

National Sur. Co. v. Architectural Decorating Co., 226 U.S.

276 (1912)).

Subsequent courts have relied on Dick to conclude that a

State may not constitutionally abrogate a contractual limita-

tions period: See Weisberg v. Royal Ins. Co., 464 N.E.2d

1170, 1174-75 (il. App. Ct. 1984). As the Tennessee Su-

preme Court has explained in refusing to enforce a statute

similar to Section 340.9:

At the time the insurance contract was executed and

at the time of loss, the law of this state, as incorpo-

rated into the contract, required that the suit [be]

commenced within the contractually limited time

The amendment, if applied retrospectively,

negates that requirement and allows the policy-

holder to extend his cause of action, despite the fact

that he failed to comply with the contractual obliga-

tion. Clearly, retrospective application of the

amendment would impair the accrued contractual

nights of the insuror.

Kee v. Shelter Ins., 852 S.W.2d 226, 229 (Tenn. 1993). The

decision below is irreconcilable with these euthorities.

The decision below also conflicts dramatically with the

Supreme Court of Iowa’s decision in Farmers’ Co-operative

Creamery Co. v. Iowa State Insurance Co., 84 N.W. 904

(Iowa 1900). The court there explained that a contractual

limitation “is plainly distinguishable from one created by

statute, and courts with great unanimity have so held.” Jd. at

904. In terms that this Court would echo in Dick, the court

elaborated:

Statutes of limitations are, of course, enacted by the

legislature, and pertain exclusively to the remedy,

and, with some exceptions not necessary to be

stated, may be changed by the legislature so as to af-

fect existing contracts. Contract nghts and obliga-

tions cannot, as a general rule, be changed by sub-

sequent legislation. ... [B]y the uniform holding of

the courts the contract relates, not simply to the

reinedy, but that it extinguishes rights. The statute

... undertakes to limit contract rights, and nothing

more.

Ibid. The court noted that “[t]hese views . . . have never been

questioned, so far as we have been able to discover.” Jbid.

And so the law remained for more than a century, until the

Ninth Circuit endorsed a contrary rule.

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The decision below, and the state cases construing Sec-

tion 340.9 (Hellinger and 20th Century Ins. Co. v. Superior

Court, 90 Cal. App. 4th 1247 (2001), cert. denied, 535 U.S.

1033 (2002)) that the Ninth Circuit ultimately endorsed, are

the only decisions of which amicus is aware in which a stat-

ute, enacted after the issuance of a policy with a contractual

limitations provision and after the occurrence of the loss that

forms the basis of the claim, has been held to validly “revive”

a contractually barred claim. See Wells v. Union Cent. Life

Ins. Co., 98 S.W. 697 (Ark. 196); cf Smith & Marsh v.

Northern Neck Mut. Fire Ass’n, 70 S.E. 482 (Va. 1911). The

invalidity of statutes like Section 340.9 has thus been settled

law for over a hundred years. See generally Annot., 16

A.L.R. 3d 452 (1967); Annot., 112 A.L.R. 1288 (1938).

The decision below contravenes a century of precedent,

including this Court’s decision in Dick. Under existing law,

a statute like Section 340.9 could not be applied in Arkansas,

Iowa, Tennessee, Illinois, Virginia, or a number of other ju-

risdictions. Yet, in California, Homestead and other insurers

are now subject to suit for claims that have long since been

extinguished by contract. This differential treatment should

not be allowed to stand unexamined.

Upon such examination, it is apparent that Section 340.9

fails each of the three Contracts Clause elements articulated

by this Court in Energy Reserves Corp. v. Kansas Power &

Light Co., 459 U.S. 400 (1983): The statute substantially

impairs—indeed it completely abrogates—contractual obli-

gations; it does not serve a legitimate public purpose; and it

is not reasonably tailored to such a purpose. Cf Vu v. Pru-

dential Prop. & Cas. Ins. Co., 26 Cal. 4th 1142, 1146 n.1

(2001) (“there is a substantial dispute ... whether [Section

340.9] is constitutional”). The court of appeals correctly

concluded that Sc_tion 340.9 effects a substantial impair-

ment, but erred in holding that impairment justified by the

circumstances surrounding the Northridge earthquake. Pet.

6

12-18; see Allied Structural Steel Co. v. Spannaus, 438 U.S.

234 (1978); United States Trust Co. v. New Jersey, 431 US.

1 (1977).

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

HOWARD WOLLITZ MARK A. PERRY

ALLAN J. FAVISH Counsel of Record

CHARLSTON, REVICH & GIBSON, DUNN & CRUTCHER LLP

CHAMBERLIN LLP 1050 Connecticut Avenue, N.W.

1925 Century Park East Washington, D.C. 20036

Los Angeles, CA 90067 (202) 955-8500

(310) 551-7000

Counsel for Amicus Curiae

October 6, 2003

2 The court below relied exclusively on “the highly-

regulated nature of the California insurance industry and the

statutory underpinnings of the contractual limitations clause” in

concluding that “§ 340.9’s interference with contracts, while

substantial, is not so severe as to render the statute unconstitu-

tional.” Campanelli v. Allstate Life Ins. Co., 322 F.3d 1086,

1098-99 (9th Cir. 2003). But Homestead is not licensed in or

regulated by the State of California, and its contractual limita-

tions provision is not required by any California statute. Thus, ~

even if the statute can constitutionally be applied to admitted in-

surers employing statutory forms, it violates the Contracts

Clause as applied to unregulated insurers such as Homestead.

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