In 2017 and 2018, California experienced devastating wildfires, during which thousands of structures, homes, and businesses were destroyed. California insurers scrambled to adjust the thousands of claims but it was quickly recognized that they were not prepared to timely handle losses due to a large-scale natural disaster. The California legislature responded, enacting several amendments to the law extending the time policyholders had to collect additional living expenses and replacement costs.

One change relates to the time limits policyholders have to sue their insurers for damage to their homes. Under the “Suits” section of Insurance Code 2071 (which is the standard form fire policy that all California homeowner policies must either conform to or be substantially equivalent to), it was previously held that an insurer could contractually reduce the statute of limitations period to one year, sometimes even from the date of loss itself. Most insurance carriers in California have this condition specifically stated in the policies they issue to their policyholders.

But the recent change extended this time to two years when the loss is related to a state of emergency, which many of the wildfires have been. The change was made to resolve a potential (although unlikely) conflict that could occur between two sections of the Insurance Code. First, the section regarding statute of limitations previously held that a 12 months statute of limitations applied to disputes between carriers and their insured. Yet a second provision allowed a homeowner up to 24 months to complete the repair/reconstruction of a home and collect the full replacement value. Such a conflict is unlikely because California has equitable tolling rules which may prevent the statute of limitations period from running by “stopping the clock” on the limitation period. These tolling provisions protect a party from being unfairly deprived of their right to seek judicial resolution by either a slow administrative process or dilatory behavior of the other party. Generally, this tolling occurs while an insurer completes its claim investigation. Tolling calculations can be complicated, and you should consult an attorney to determine when tolling occurred, if at all, to determine the appropriate statute of limitations.

As an example, a recently had an inquiry regarding damaged homes following the “Creek Fire” in Southern California that began on December 5, 2017, exactly two years ago. The insured’s policy held that the insured agrees to bring any action against the insurer within one year after a loss occurs. Under such a policy, many policyholders would interpret their statute of limitations to run exactly one year from the date of their loss. In the case of the Creek Fire, which occurred on December 5, 2017, the statute of limitations would have run on December 5, 2018, under such a draconian interpretation. The policyholder was concerned that they had blown the statute by a year. However, equitable tolling laws strictly prohibit such a harsh interpretation. Here, the insurer continued to adjust and investigate the claim. In fact, they continue to investigate the claim to date. As such, the statute of limitation period under the policy has not even started to run.

Moreover, under the changes to the “Suits” section of Insurance Code 2071 that went into effect on September 21, 2018, the existing statute of limitations for a homeowner to sue their insurer was changed from 12 months to 24 months if the loss is related to a declared state of emergency. For wildfires that occur after September 2018, the statute of limitations, at a minimum, would not run until two years after the date of the wildfire.

But, do the changes to “Suits” apply retroactively to fires that occurred before September 21, 2018? For example, would our Creek Fire victim be entitled (at a minimum) to have a statute of limitations run until December 5, 2019? Probably not.

Generally, statutes operate prospectively only, and “retroactive legislation” is frowned upon. Therefore, it is presumed that a statute operates prospectively only unless the Legislature plainly directed otherwise with express language of retroactivity or other sources that provide a clear and unavoidable implication that the Legislature intended retroactive application. While the changes to Insurance Code section 2071 took effect immediately on September 21, 2018, there is no language to suggest a retroactive application, and therefore, the change would not apply to the Creek Fire. This statute of limitations would need to be calculated based on when his claim was reported, when (if any) tolling occurred, and when his claim was closed or finalized in the eyes of his insurer.

To make sure your statute has not been passed, contact a Merlin Law Group attorney so they can analyze your specific situation.