Insurers hoping for a definite answer regarding the limitations period for filing equitable contribution claims against one another were disappointed when, on April 11, 2012, the California Supreme Court refused to review the Fourth District Court of Appeal's recent decision in American States Ins. Co. v. National Fire Ins. Co. of Hartford, 202 Cal.App.4th 692 (2011). The Court of Appeal decided in December that the two-year statute of limitations under California Code of Civil Procedure ("CCP") section 339, rather than CCP section 337's four-year statute of limitations, should apply to one insurer's equitable contribution action against another. Justice Joyce Kennard dissented from the Supreme Court's denial of review.
The American States court was the second Court of Appeal to apply the two-year statute of limitations for actions not based on written agreements to insurers' equitable contribution claims. The Second District also found that CCP section 339 applied to such claims in Century Indemn. Co. v. Sup. Ct., 50 Cal.App.4th 1115 (1996). Decades prior to American States and Century, however, the First District Court of Appeal held that equitable contribution actions should be governed by section 337's four-year limitations period for actions based on written agreements. Liberty Mutual Ins. Co. v. Colonial Ins. Co., 8 Cal.App.3d 427 (1970).
The central dispute between these two lines of authority is whether an insurer's claim for equitable contribution is based on the defendant insurer's written agreement with the common insured. The Liberty court answered the question in the affirmative, stating that "[t]he promise which the law implies as an element of the contract is as much a part of the instrument as if it were written out."
The American States and Century courts disagreed. The Liberty court, they said, had inappropriately relied on decisions involving equitable subordination actions. In such actions, a plaintiff insurer receives an assignment of rights, steps into the shoes insured, and "sue[s] directly on the contract of insurance." To the contrary, an insurer's duty to contribute to the defense of a common insured "is one recognized as a matter of law and founded in principles of equity." Liberty, therefore, "was wrongly decided."
Despite the express rejection of the Liberty court's reasoning by the only two courts to address the issue subsequently, the Supreme Court's decision not to weigh in on the American States case leaves a split of authority in place. Thus, the possibility remains that a court reviewing the issue anew will follow Liberty and allow equitable contribution actions raised more than two years after they accrue.
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