The California Court of Appeals recently held that plaintiffs’ claims against their accounting firm for negligently obtaining an insurance policy with insufficient limits accrued only after plaintiffs received payment of the insurance benefit that was less than they would have received in the absence of the defendants’ alleged negligence, even though plaintiffs discovered defendants’ malfeasance years prior. Joyce Lederer et al. v. Gursey Schneider et al., C.A. 2nd. April 19, 2018, B276266.

Lederer Facts

Plaintiff Joyce Lederer hired accounting firm Gursey Schneider LLP and its employee Spencer Inada to manage her finances (collectively “Gursey”). Id. 2. Joyce directed Gursey to procure an uninsured/underinsured motorist insurance policy with a $5 million policy limit. Gursey obtained an uninsured/underinsured motorist policy with only a $1.5 million limit, and then misrepresented to Joyce that the insurance coverage totaled $5 million. Id. 4.

In February 2010, Jonathan Lederer, Joyce’s adult son, suffered severe and permanent injuries in a motorcycle accident. The driver of the other vehicle involved had an insurance policy limit of $15,000. Id. 5. In April 2010, Jonathan’s attorney in the personal injury case researched available insurance following a demand made by Jonathan’s passenger on the motorcycle during the accident. Id. 8. At that time, plaintiffs discovered that the insurance policy Gursey purchased had a lower limit than Joyce had requested. Id. 6.

In January 2012, Jonathan settled all claims with the other driver’s insurance company and received the $15,000 limit of the driver’s policy. Id. 2. Thereafter Jonathan pursued a claim under his underinsured motorist policy. On June 22, 2012, his underinsured motorist claim was concluded and he received $1.5 million, the maximum amount available under the policy obtained by Gursey.

Plaintiffs filed suit against Gursey in March 2013 asserting causes of action for negligence, negligent misrepresentation, breach of written contract, breach of oral or implied contract, and breach of fiduciary duty. Defendants moved for summary adjudication claiming, among other things, that Plaintiffs’ lawsuit was untimely.

The trial court granted Gursey’s motion for summary adjudication holding in part that “because plaintiffs did not file their complaint until March 2013, their action was time-barred under the applicable two-year statute of limitation.” Plaintiffs timely appealed the trial court’s ruling.

Defendants’ Arguments Regarding the Statute of Limitations

Defendants argue that the statute of limitations began to run on plaintiffs’ claims in April 2010 when they learned that defendants did not obtain the policy limit they claimed to have obtained.

Defendants also contend that plaintiffs knew that the damages resulting from Jonathan’s injuries would exceed the amount of available insurance coverage based on a $10 million demand letter Jonathan’s attorney sent to the other driver’s insurance company.

Plaintiffs’ Arguments Regarding the Statute of Limitations

Plaintiffs argued that Jonathan did not suffer actual damages as a result of Gursey’s negligence until he received an insurance benefit payment that was less than the amount he would have received but for Gursey’s negligence. They filed the lawsuit less than two years after the date of payment, and thus the suit was timely.

Plaintiffs pointed out that “injuries caused by the vehicle accident should not be conflated with the injury caused by Gursey’s negligence.” Plaintiffs further asserted that “even though they knew of Gursey’s wrongdoing in 2010, ‘mere knowledge of wrongdoing is not damages.'”

Appeals Court Requires Actual Damages to Start the Limitations Period

The Court of Appeals reversed in part, holding that “[t]he trial court erred by granting summary adjudication on the bases that plaintiffs’ causes of action were time-barred.” Since damages are a necessary element of the torts alleged in this case, Jonathan’s causes of action could not accrue until he incurred actual damages arising from Gursey’s conduct. The Court held that Jonathan’s actual damages occurred in June 2012 when he recovered $1.5 million for the underinsured motorist policy instead of the higher amount he allegedly would have received but for Gursey’s negligence.

The Court found that until Jonathan received the benefit payment from the underinsured motorist policy, his damages were merely speculative. “It was not clear that Jonathan would suffer damages resulting from Gursey’s negligence until a finding was made that he was entitled to the upper limit of the underinsured motorist coverage.”

Moreover, in this case liability was contested. The Court reasons that if the underinsured motorist policy insurer had been able to demonstrate that Jonathan was at fault for causing the accident, then the payout to Jonathan could have been for less than $1.5 million. In that situation, Gursey’s negligent action in purchasing the lower-limit policy would not have caused Jonathan any actual injury. Jonathan’s cause of action could not accrue until there was certainty that he had a right to the insurance coverage and that he would receive the policy limit, because only then can he demonstrate actual injury resulting from Gursey’s negligence.

The Takeaway

Statute of limitations in professional malpractice cases are tricky because sometimes the client “suspects someone did something wrong” long before any harm is actually suffered. The statute of limitations commences to run once the plaintiff “suspects wrongdoing” and “actual injury” occurs.