In Lederer v. Schneider (No.B276266, filed 4/19/18), a California appeals court ruled that the statute of limitations on a cause of action for professional malpractice in failing to procure the full amount of uninsured/underinsured motorist (UM) coverage requested does not begin to run until the plaintiff suffers actual injury, which for underinsured motorist coverage is the time when the UM insurer pays its limit that is less than had been requested by the insured.
In Lederer, the defendant was an accounting firm performing financial management services for the plaintiffs. This included procuring insurance for the plaintiffs’ family, with $5 million in UM coverage. However, only $1.5 million in UM coverage was actually procured.
The family’s adult son had a serious motorcycle accident with an underinsured driver in February 2010. In January 2012 the other driver’s insurer paid its $15,000 limit. In June 2012, the plaintiff’s own insurer tendered the balance of its $1.5 million in UM coverage.
The plaintiffs sued the accounting firm in March 2013, alleging damages because of the son’s inability to collect more from the family’s own insurer. Plus, the mother alleged that she suffered damages because the diminished UM benefits forced her to support the son.
The accounting firm moved for summary adjudication, arguing that the lawsuit was time-barred because the cause of action had accrued shortly after the accident, when the plaintiffs first learned that the limits were lower than requested. The trial court agreed on the ground that the statute of limitations for accounting malpractice is two years, and begins to run when a plaintiff has knowledge of or should suspect that injury was caused by wrongdoing. The trial court found that the UM insurer’s actual payment of its lower limits was irrelevant in light of the fact that the mother had learned of the accounting firm’s failure to obtain the correct amount of coverage just after the accident.
The appeals court reversed. The court said that for a professional malpractice claim, including failure to procure coverage, “[t]he statute begins to run when (1) the aggrieved party discovers the negligent conduct causing the loss or damage and (2) the aggrieved party has suffered actual injury as a result of the negligent conduct.” (Quoting Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002) 98 Cal.App.4th 934, 942.) And according to the Lederer court, the “suffered actual injury” element had not been satisfied outside of two years, even if the mother had “discover[ed] the negligent conduct.”
The Lederer court pointed out that without actual injury there is no cause of action in tort – “[t]he mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm—not yet realized—does not suffice to create a cause of action for negligence.” (Quoting Budd v. Nixen (1971) 6 Cal.3d 195, 200.) And according to the Lederer court: “plaintiffs did not suffer the damages alleged to be caused by Gursey—diminished benefits under the underinsured motorist coverage—until Jonathan received that diminished benefit payment in June 2012.”
The court pointed out that under the UM statute and applicable case law, a right to underinsured motorist benefits does not even arise until after the tortfeasor’s insurer has paid its limits and exhausted coverage. (Citing Ins. Code, § 11580.2(p)(3) and Quintano v. Mercury Casualty Co. (1995) 11 Cal.4th 1049, 1057.) So as a preliminary matter, the son did not even have a right to UIM benefits until after he settled with the other driver’s insurer in January 2012. And the Lederer court ultimately concluded that:
“[B]ecause the insurance coverage at issue is underinsured motorist coverage, and Jonathan’s right to that coverage did not accrue until 2012 due to statutory restrictions, Jonathan’s actual injury did not occur until he received the limited benefits payment of $1.5 million…. A cause of action accrues when it is complete with all of its elements. Damages is an element of the torts alleged in this case. Jonathan did not incur actual damages arising from Gursey’s negligence until June 2012, when he recovered $1.5 million from the underinsured motorist policy instead of the higher amount he allegedly would have received in the absence of Gursey’s negligence.”
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