Lambert v. Commonwealth Land Title Ins. Co

In Lambert v. Commonwealth Land Title Ins. Co. (1991) 53 Cal.3d 1072, the insured property owner was sued by the adjoining property owner seeking a judicial determination that he owned an easement over the insured's property. The insured's title insurer denied a defense and coverage under the policy. Less than one year after successfully defending the easement action, and more than two years after the insurer denied the claim, the insured sued the insurer for wrongful denial of the claim. The trial court sustained the insurer's demurrer on the ground that the action was barred by the two-year statute of limitations for actions based on a title insurance policy. The Supreme Court reversed, holding that, although the cause of action accrued at the time the insurer denied the claim, the statute of limitations was equitably tolled until resolution of the underlying claim. The duty to defend is a continuing duty, and thus "it is equitable and consistent with the legislative intent to toll the limitations period in which this duty continues from the date of accrual of a cause of action to final judgment." (Id. at p. 1079.) To hold otherwise could "allow expiration of the statute of limitations on a lawsuit to vindicate the duty to defend even before the duty itself expires. This grim result is untenable. The insured must be allowed the option of waiting until the duty to defend has expired before filing suit to vindicate that duty." (Id. at p. 1077.) The Lambert court further observed: "It is harsh to require an insured--often a private homeowner--to defend the underlying action, at the homeowner's own expense, and simultaneously to prosecute -- again at the homeowner's own expense -- a separate action against the title company for failure to defend. 'The unexpected burden of defending an action may itself make it impractical to immediately bear the additional cost and hardship of prosecuting a collateral action against an insurer.' " (Id. at p. 1078.)