Blue Shield of California Life & Health Insurance Company ("Blue Shield") sought a peremptory writ of mandate directing the trial court to reverse its order denying Blue Shield's motion for summary adjudication of plaintiff Myrna Kawakita's ("Plaintiff") tort cause of action for bad faith breach of her Blue Shield health insurance policy. Plaintiff brought suit against Blue Shield for breach of contract, tortious breach of the implied covenant of good faith and fair dealing, and declaratory relief. Plaintiff alleged Blue Shield rescinded her policy after initially approving the gastric bypass surgery she underwent. Blue Shield rescinded Plaintiff's policy on the basis of inaccuracies on Plaintiff's application, including height and weight, as well as failure to disclose various ailments.
Blue Shield brought a motion contending the action was barred by the two-year statute of limitations for such claims under California Code of Civil Procedure ("CCP") section 339, subd. (1). Anticipating Plaintiff would argue Insurance Code section 10350.11 requires all health insurance policies to include a provision stating, in essence, that all actions on a policy must be brought within three years of the date on which written proofs of loss must be furnished, Blue Shield argued the three-year provision only applied to breach of contract and contractual bad faith claims. Plaintiff argued that Blue Shield had modified the statutorily mandated language, and, under the language it used, the time to sue for any matter arising out of the contract had been effectively extended to three years. Further, Plaintiff contended Blue Shield had used language different from the statutory language and such language was permissible as not being less favorable to the insured under Insurance Code Section 10350.
The trial court rejected Blue Shield's argument and denied the motion on the grounds that the language in Blue Shield's limitation provision was "exactly the same" as that in Insurance Code § 10350.11. Because tortious bad faith claims were considered to be actions "on the policy" for purposes of the catch-all one year limitations provision mandated by statute for fire insurance policies, the trial court reasoned that such claims were also on the policy for purposes of health insurance policies under section 10350.11. Blue Shield filed a petition for peremptory writ to reverse the trial court's order.
Without addressing whether inclusion of section 10350.11's language in a policy lengthens the two-year statute of limitations for tortious bad faith claims, the Second Appellate District Court denied the writ on the basis that, instead of using the language set forth in Insurance Code § 13050.11, Blue Shield drafted a policy provision that a reasonable insured would read as providing a three-year time limit to sue for any matters arising out of the policy, regardless of the nature of remedies sought.
Insurance Code § 10350.11 requires health insurance policies to state: "No action at law or in equity shall be brought to recover on this policy prior to the expiration of 60 days after written proof of loss has been furnished in accordance with the requirements of this policy. No such action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished." With exceptions, Insurance Code § 10350.7 requires written proof of loss to be furnished to an insurer at its office for any claim covered by the policy within 90 days of loss. Insurance Code § 10350.12 provides, "the insurer may, at its option, substitute for one or more of such provisions of different wording approved by the [Insurance] commissioner which are in each instance not less favorable in any respect to the insured of the beneficiary."
Under the heading "Commencement of Legal Action," the policy issued to Plaintiff provided: "Any suit or action to recover benefits under this Plan, or damages concerning the provision of coverage or benefits, the processing of claims, or any other matter arising out of this Plan, may not be brought prior to the expiration of 60 days after written proof claim has been furnished and must be commenced no later than three years after the date the coverage for benefits in question were first denied."
The appellate court found the policy's language deviated so completely from the Insurance Code's mandated language that the statutory language did not apply to Blue Shield's policy and the court did not need to address whether the inclusion of section 10350.11's language in a policy lengthens the two-year statue of limitations for tortious bad faith claims. The court held the Blue Shield policy language was not limited to an action "on this policy." It applied to "any other matter arising out of this Plan." Thus, in addition to actions to recover contractual benefits, Blue Shield's limitations provision applies to "damages concerning the provision of benefits or the processing of claims, or anything else arising out of the plan."
Further, instead of keying the limitations period to the time by which proofs of loss must be filed, Blue Shield also chose to have the three-year period run from the time coverage was first denied, an event which triggers the running of tortious bad faith claims under Frazier v. Metropolitan Life Insurance Company (1985) 169 Cal. App. 3rd 90, 103-104. Thus, Blue Shield, by choosing language that was not substantially identical to the statutory provision on which it was based, made the language it did choose subject to the rule that ambiguities are construed against the drafter. The Court then relied on judicial interpretations of similarly broad "any" language in contractual arbitration and attorneys fees provisions to find that the language should be read as applying to bad faith claims whose limitations period was thereby extended by contract to three years.
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