2023 IL App (1st) 221104
FIFTH DIVISION November 3, 2023
No. 1-22-1104
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).
IN THE APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT
ACER AMERICA CORPORATION, ) ) Plaintiff-Appellant, ) v. ) ) Appeal from the SMITHAMUNDSEN LLC, ) Circuit Court of ) Cook County. Defendant-Appellee. ) ) ) No. 2019 L 001715 SMITHAMUNDSEN LLC, ) ) Third-Party Plaintiff/Cross-Appellant, ) Honorable v. ) Jerry A. Esrig, ) Judge Presiding ORRICK, HARRINGTON & SUTCLIFFE LLP, ) ) Third-Party Defendant/Cross-Appellee. )
JUSTICE MIKVA delivered the judgment of the court. Presiding Justice Mitchell and Justice Lyle concurred in the judgment.
ORDER
¶1 Held: The circuit court’s grant of summary judgment in defendant law firm’s favor is affirmed; the firm’s failure to file plaintiff’s lawsuit against its insurance broker in California rather than in Illinois could not form the basis for a claim of legal malpractice where that underlying suit was time-barred in both states. No. 1-22-1104
¶2 Plaintiff Acer America Corporation (Acer) engaged AON Trade Credit Insurance Services,
Inc., and AON Risk Services (collectively, Aon), to procure credit insurance protecting it against
the risk of default by its retail customers. One of those customers, Circuit City Stores, Inc. (Circuit
City), filed for bankruptcy, and the bankruptcy trustee filed a preference claim against Acer
seeking a return of payments Circuit City had made to Acer in the 90 days prior to the filing of the
bankruptcy petition. The policy Aon had procured for Acer did not cover such claims, and Acer
ultimately litigated the claim before settling it at a loss.
¶3 More than two years from the denial of coverage, but less than two years from the date on
which Acer settled the preference claim, Acer hired defendant SmithAmundsen to assert a
professional negligence claim against Aon, which the firm filed in Cook County, Illinois. That suit
was dismissed as time-barred, on the basis that the two-year statutory limitations period for such
claims began to run when the insurer denied coverage. We affirmed that dismissal on appeal. Acer
America Corp. v. AON Trade Credit Insurance Services, Inc., 2017 IL App (1st) 170830-U.
¶4 Acer then initiated this action against SmithAmundsen, alleging that the firm negligently
failed to file the lawsuit against Aon in California, where a two-year statute of limitations also
applies, but where claims do not accrue until a plaintiff has suffered actual damages. Acer
maintained that it was not damaged until it settled with the bankruptcy trustee, and a suit filed
against Aon in California would therefore have been timely. The circuit court granted
SmithAmundsen’s motion for summary judgment, agreeing with the firm that Acer suffered actual
damages shortly after the denial of coverage, when it incurred legal expenses to have outside
counsel advise it on the coverage problem and was forced to negotiate with the bankruptcy trustee
from a compromised position.
¶5 Acer now appeals and, for the reasons that follow, we affirm.
2 No. 1-22-1104
¶6 I. BACKGROUND
¶7 The underlying facts, summarized below from the parties’ pleadings and the affidavits and
supporting documents attached to their summary judgment briefing, are generally undisputed.
¶8 A. Acer’s Underlying Claim Against Aon
¶9 Acer is a California corporation that sells computers, monitors, tablets, and similar products
to large retail customers, often receiving payment for those goods 30-90 days after delivery. Acer
has historically obtained credit insurance to cover the risk of default by its customers, and in 2005
Aon, an insurance broker headquartered in Illinois, solicited Acer to become the company’s broker
for such coverage. Acer provided Aon with a copy of its then existing policy, which provided Acer
with, among other things, coverage in the event of default by a creditor who subsequently filed for
bankruptcy protection and an endorsement protecting Acer from preference claims made by a
bankruptcy trustee. Aon proposed a new policy, through insurer Euler Hermes (Euler), that Acer
understood would provide it with the same protections and a higher coverage limit. Acer agreed
to use Aon as its broker, and beginning in 2006, Aon placed Acer’s credit insurance with Euler.
¶ 10 On November 10, 2008, one of Acer’s retail customers, Circuit City, filed for Chapter 11
bankruptcy protection in the Eastern District of Virginia. Sections 547 and 550 of the United States
Bankruptcy Code allow a bankruptcy trustee to file a preference claim to recover any property
transferred by the debtor to another party in the 90 days preceding the filing of the bankruptcy
petition that the court determines constituted a “preferential transfer.” 11 U.S.C. § 547(b) (2006);
11 U.S.C. § 550 (2006). On November 5, 2010, the Circuit City bankruptcy trustee did just that,
seeking the return of approximately $32 million that Circuit City had paid to Acer in the 90 days
preceding the filing of Circuit City’s bankruptcy petition.
¶ 11 In an April 29, 2011, e-mail confirming their previous telephone conversations, Euler
3 No. 1-22-1104
informed Acer that because the credit insurance policy Aon had procured for it only covered
preference claims made and settled or adjudicated within 90 days of the filing of the bankruptcy
petition, the claim asserted by the Circuit City bankruptcy trustee “[did] not appear to be covered.”
However, due to what it viewed as its “excellent relationship” with Acer, Euler was willing to
contribute, as a “commercial gesture,” a portion of the total amount that Acer would have to pay
back to Circuit City.
¶ 12 Following this exchange, Acer consulted its outside counsel, Womble Carlyle Sandridge
& Rice, LLP (Womble), to assess the preference claim filed by the trustee against Acer and the
insurance issue. Womble prepared a detailed memorandum on May 3, 2011, outlining Acer’s
defenses to the preference claim and the likelihood of Acer obtaining coverage if required to pay
back the money it had received from Circuit City. Womble concluded that there was a good chance
that some but not all of the payments Acer received from Circuit City in the 90 days before it filed
for bankruptcy would be considered payments made in the ordinary course of business and not
preferential payments, but that the bankruptcy trustee was more than 60% likely to obtain a
judgment of at least $8 million against Acer. Because the Euler policy was an indemnification
policy, any settlement or judgment would be Acer’s responsibility, and Acer would then need to
seek indemnification from Euler. Womble did not agree with Euler that the policy provided no
coverage for preference claims but acknowledged that a preference claim “[did] not fit neatly
within the typical claims asserted under [that] Policy.” According to Womble, Acer’s chances of
prevailing on a claim against Euler were, “at best, 50% and more realistically around 40%.”
¶ 13 Acer attempted to mediate the claim with the bankruptcy trustee on May 11, 2011, but no
settlement was reached.
¶ 14 On June 4, 2013, a representative of Acer sent an email to a representative of Euler.
4 No. 1-22-1104
Although “nothing [had] been settled or agreed yet” because mediation was about to begin again
and it was “still possible that [Acer would] win [the] case and nothing [would] be lost,” the e-mail
stated, Acer’s chief financial officer wanted to better understand why Euler was “not fully covering
this case.” The Euler representative wrote back to explain that although Acer’s current policy
covered preference claims like the ones Acer faced, the policy in effect when Circuit City’s debt
to Acer arose did not.
¶ 15 The Acer representative forwarded this exchange to individuals at Aon, saying, “[o]f
course, we still hope that the court will find in our favour [sic] and there will be no loss, either to
Acer or to Euler Hermes,” but “if we lose the case, then the issues are now more clear for me.”
His understanding was that Acer had no coverage for the preference claim, that Euler’s offer to
make a partial payment as a commercial gesture was something the insurer had no legal obligation
to do, and that Acer would “suffer a loss” of any amount it was ordered to repay that exceeded the
amount of that voluntary payment. “I have to advise you,” the Acer representative went on, “that
we will hold Aon responsible for failing to ensure that [we were] properly covered against this
preference claim.” In the Acer representative’s view, Aon “had an obligation to identify potential
risks [and] make sure [Acer was] fully covered” but had “failed to do so.” He concluded by letting
the Aon representatives know that they should advise their company of this potential liability “in
case the court [did] not find in [Acer’s] favor.”
¶ 16 Over two years after Acer first engaged Womble to advise it in the wake of Euler’s denial
of coverage, Acer retained Orrick, Herrington & Sutcliffe (Orrick) to investigate a potential broker
negligence action against Aon. Orrick wrote to Aon on November 22, 2013, explaining that while
the preference claim remained unresolved, it might “ultimately result in a multi-million dollar loss
to Acer that should have been covered under the Policy.” Orrick had investigated the matter and
5 No. 1-22-1104
believed that such coverage was a standard feature typically included in trade credit policies and
that Aon’s failure to procure a policy including such coverage “may have breached the standard
of care owed to Acer.” Orrick invited Aon to discuss resolving the matter and, “[t]o allow those
discussions to take place,” asked if it would agree to enter into a tolling agreement. Aon did not
agree to the tolling agreement and no substantive discussions regarding the resolution of a potential
claim against Aon took place following that correspondence.
¶ 17 Acer eventually settled the preference claim with the bankruptcy trustee on June 27, 2014,
and as a result of that settlement, some of Acer’s invoices to Circuit City returned to the status of
unpaid.
¶ 18 Acer hired SmithAmundsen on April 11, 2016, and on May 26, 2016, the firm filed a
lawsuit asserting a single count of broker malpractice against Aon in the Circuit Court of Cook
County. The circuit court dismissed the suit as time-barred, on the basis that in Illinois the two-
year statutory limitations period for such claims (735 ILCS 5/13-214.4 (West 2014)) began to run
when Euler denied coverage for the preference claim. The court acknowledged that Acer’s
argument that its claim against the firm did not accrue until the settlement was signed and damages
were sustained “made a lot of sense,” but observed that Illinois courts had “drawn a bright line
which [the court] was bound to follow.” In Illinois, “the statute of limitations runs when the duty
is breached, not when the damages are sustained,” the court explained; the fact that “damages are
not immediately ascertainable does not postpone the accrual of a claim.” Acer America Corp. v.
AON Trade Credit Insurance Services, Inc., No. 16 L 5286 (Cir. Ct. Cook County, Feb. 27, 2017).
¶ 19 This court affirmed that dismissal on appeal. Acer America Corp., 2017 IL App (1st)
170830-U. We noted that “while June 27, 2014, may have been the date Acer’s damages were
sustained,” it was “on June 4, 2013, at the very latest,” that “Acer indisputably knew Euler had
6 No. 1-22-1104
denied coverage under the insurance policy,” and that was when, under Illinois law, “Acer knew
or should have known of its injury.” Id. ¶¶ 36, 38.
¶ 20 B. This Litigation
¶ 21 Acer initiated this legal malpractice action against SmithAmundsen on February 15, 2019,
alleging that the firm should have filed Acer’s lawsuit against Aon not in Illinois but in California,
where a two-year statute of limitations also applies (West’s Ann. Cal. C.C.P. § 339(1) (2014)), but
where claims do not accrue until a plaintiff has suffered actual damages. Acer maintained that it
was not damaged until it settled with the bankruptcy trustee, and a suit filed against Aon in
California would therefore have been timely.
¶ 22 SmithAmundsen moved to dismiss the complaint pursuant to section 2-615 of the Code of
Civil Procedure (735 ILCS 5/2-615 (West 2018)). It argued that Acer’s claim against Aon would
have been untimely even if filed in California. The circuit court denied the motion to dismiss in a
one-page handwritten order on November 1, 2019. No transcript from the hearing on the motion
appears in the record.
¶ 23 Following the denial of its motion to dismiss Acer’s complaint, SmithAmundsen sought
and was granted leave to file a third-party complaint for contribution against Orrick, the firm Acer
hired to investigate potential claims against Aon before it retained SmithAmundsen.
¶ 24 On December 21, 2021, Acer filed a motion for partial summary judgment asking the court
to reject SmithAmundsen’s defense that the claim against Aon would have been untimely even if
filed in California. SmithAmundsen countered with its own motion for summary judgment, and
the court stayed Acer’s motion while briefing was completed on SmithAmundsen’s motion. The
firm argued that under California law, Acer’s claim against Aon accrued in May 2011, when Acer
incurred legal fees to address Euler’s denial of coverage and when Acer’s ability to settle the
7 No. 1-22-1104
preference claim favorably was compromised. Acer argued in response that the fees it paid to
Womble were part of Womble’s representation of Acer in the Circuit City bankruptcy, were not
legally cognizable or recoverable under the Euler indemnity policy, and therefore could never have
been claimed as damages arising from Aon’s negligence in failing to secure a preference
endorsement.
¶ 25 Following a hearing held on July 22, 2022, the court granted SmithAmundsen’s motion for
summary judgment. The court agreed with SmithAmundsen that as early as May 2011, Acer had
suffered two types of damage. It had incurred legal expenses to have Womble assess its position
following Euler’s denial of coverage, something it only had to do “because [Aon] didn’t do what
it was supposed to do.” Although the court agreed with Acer’s counsel that no case cited by either
party was exactly on point, it explained that “the logical extension of what the [California] courts
[were] saying [was] that when you start incurring expenses because the broker hasn’t gotten you
the coverage that you think you are entitled to get that that’s when your damages begin to run.”
The court determined that Acer was also damaged as a result of its compromised negotiating
position, stating, “[y]ou know the day you get the memo from your own lawyer at the latest you
know that your claim for coverage is disputed and that you’re going to have to compromise that
claim. And that’s exactly what you then do. That’s your damage.”
¶ 26 The court denied as moot a motion filed by SmithAmundsen to strike the affidavit of
Beatriz Duenas, Acer’s Assistant General Counsel. Although the court noted several problems
with the affidavit—including the lack of an adequate foundation, the inclusion of legal
conclusions, and the failure to attach referenced documents—that would have led it to grant the
motion, Acer’s counsel conceded at argument that “as it relate[d] to the summary judgment”
motion, “the affidavit as framed [was] inconsequential.” The only information contained in the
8 No. 1-22-1104
affidavit that was relevant to the statute of limitations, counsel noted, was the date SmithAmundsen
was hired, and that was not disputed.
¶ 27 In light of its finding, as a matter of law, that SmithAmundsen had no liability to Acer, the
court also dismissed as moot the firm’s third-party complaint for contribution against Orrick.
¶ 28 Acer now appeals.
¶ 29 II. JURISDICTION
¶ 30 The circuit court entered its order granting SmithAmundsen’s motion for summary
judgment on July 27, 2022, and Acer timely filed its notice of appeal from that order the same day.
SmithAmundsen timely filed its notice of cross-appeal, challenging that portion of the circuit
court’s order dismissing its third-party complaint against Orrick as moot, on August 17, 2022. We
have jurisdiction over these appeals pursuant to Illinois Supreme Court Rules 301 (eff. Feb. 1,
1994) and 303 (eff. July 1, 2017), governing appeals from final judgments entered by the circuit
court in civil cases.
¶ 31 III. ANALYSIS
¶ 32 Acer urges us on appeal to reverse the circuit court’s grant of summary judgment in favor
of SmithAmundsen on Acer’s claim of legal malpractice. Summary judgment is proper where “the
pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to judgment as a
matter of law.” 735 ILCS 5/2-1005(c) (West 2020). We review an order granting or denying a
motion for summary judgment de novo. Pielet v. Pielet, 2012 IL 112064, ¶ 30.
¶ 33 Acer argues the circuit court erred as a matter of law by concluding that SmithAmundsen’s
decision to file suit against Aon in Illinois instead of California could not form the basis of a legal
malpractice claim because Acer’s claim against Aon was time-barred in either state. The parties
9 No. 1-22-1104
agree that if Acer had brought its claim for professional negligence against Aon in California, the
two-year limitations period set out in section 339(1) of the California Code of Civil Procedure
(California Code) would have applied. West’s Ann. Cal. C.C.P. § 339(1) (2014). They also agree
that California law governing the accrual of causes of action differs significantly from Illinois law.
As this court noted when it affirmed the dismissal of Acer’s complaint against Aon in the Circuit
Court of Cook County, “Illinois law is clear that the statute of limitations begins to run at the
moment coverage is denied, not when the damages are sustained.” Acer America Corp., 2017 IL
App (1st) 170830-U, ¶ 38 (citing West American Insurance Co. v. Sal E. Lobinco & Son Company,
Inc., 69 Ill. 2d 126, 132 (1977)).
¶ 34 Under California law, by contrast, a cause of action does not accrue until “the occurrence
of the last element essential to the cause of action.” (Internal quotation marks omitted.) Howard
Jarvis Taxpayers Association v. City of La Habra, 25 Cal. 4th 809, 815 (2001). And one element
of a claim for professional negligence is “actual loss or damage resulting from the negligence.”
Carlton v. Quint, 77 Cal. App. 4th 690, 699 (2000). As the California Supreme Court has
explained, “[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.” Budd v. Nixen, 6 Cal. 3d 195, 200 (1971).
¶ 35 The sole issue before us, then, is when, under the generally undisputed timeline of events
described above, Acer first suffered actual loss or damage as a result of Aon’s purported negligence
sufficient to trigger the limitations period in section 339(1) of the California Code. Acer insists
that it was not damaged until June 27, 2014, when the settlement it reached to resolve the
bankruptcy trustee’s preference claim was finalized, because only then did it become obligated to
return any of the money Circuit City had paid it. SmithAmundsen would have us conclude, as the
10 No. 1-22-1104
circuit court did, that Acer was damaged much sooner—in May 2011—when it incurred out-of-
pocket legal expenses to have Womble evaluate its position following Euler’s denial of coverage
and when it was forced to negotiate with the bankruptcy trustee from a significantly weakened
bargaining position. If Acer is correct, then when it hired SmithAmundsen in June 2014 it still had
a viable claim against Aon that the firm could have filed in California. If SmithAmundsen is
correct, then Acer had no viable claim against Aon in either state, and the decision to file in one
state rather than the other could not support a claim of legal malpractice.
¶ 36 Although our own supreme court has the ability to certify a question for the California
Supreme Court’s discretionary review, we have no similar authority (see Cal. R. Ct. 8.548 (eff.
Jan. 1, 2016) (providing that the court of last resort of any state may ask the California Supreme
Court to, in its discretion, decide a case-dispositive question of California law for which there is
no controlling precedent)). We must therefore consider this question of California law based on
the existing authorities, which we agree with Smith Amundsen answer the question before us but
which, we agree with the circuit court, do not present a case that is on all fours with this one.
¶ 37 Acer maintains that it suffered no actual damages until the preference claim was settled
with the bankruptcy trustee. That, Acer points out, was the first time that it became obligated to
return any of the money paid to it by Circuit City in the months leading up to the bankruptcy. In
support of this argument, Acer relies on Williams v. Hilb, Rogal & Hobbs Insurance Services of
California, Inc., 177 Cal. App. 4th 624 (2009), for the proposition that a cause of action for
insurance broker malpractice can never accrue until judgment is entered in the underlying case.
We do not read that case so broadly. In Williams, a business that dealt with hazardous materials
hired an insurance broker to procure for it all necessary insurance. Id. at 627. An employee of the
business who was injured in a fire obtained a multimillion dollar judgment against the owner of
11 No. 1-22-1104
the business, who then sued the insurance broker for negligence for failing to procure a policy that
included workers compensation coverage. Id. The broker contended on appeal that the claim was
barred by California’s two-year statute of limitations, which it argued began to run when the
employee was injured. Id. at 641. At that point, the broker maintained, liability was inescapable
and only the amount of that liability remained to be determined. Id. The California appellate court
disagreed. Relying on its decision in Walker v. Pacific Indemnity Co., 183 Cal. App. 2d 513, 514-
16 (1960), the court concluded that although the plaintiff “became aware of his potential exposure
shortly after the fire” and “knew of his potential liability when [the employee] filed his lawsuit, no
actual injury occurred until judgment was entered against him.” Williams, 177 Cal. App. 4th at
641-42. Because the plaintiff was defended by its insurer throughout the litigation and indemnified
in the amount of the policy limit despite the lack of workers compensation coverage, “[u]ntil
judgment was entered against him in excess of that amount, other litigation results were possible”
and “no appreciable harm from the lack of workers compensation insurance coverage” was
sustained. Id. at 642. As the court made clear, “ ‘it is uncertainty as to the fact of damage, rather
than its amount’ ” that delays the trigger of the statute of limitations. Id. (quoting Walker, 183 Cal
App. 2d at 517).
¶ 38 We agree with SmithAmundsen that, unlike the plaintiff in Williams, Acer incurred actual
out-of-pocket legal expenses as a direct result of its broker’s purported negligence long before any
judgment was entered against it in the bankruptcy action. Its counsel Womble not only represented
it in the bankruptcy proceedings—which it would have done in any event—but had to separately
expend time investigating the situation that the lack of coverage had placed Acer in. Because Acer
incurred reasonable expenses for that additional work, unlike in Williams, “the fact of any damage
at all” was not “completely uncertain until judgment in [the underlying action]” was entered.
12 No. 1-22-1104
(Internal quotation marks omitted.) Id. at 642.
¶ 39 The California Supreme Court’s analysis in Budd, 6 Cal. 3d 195, supports our
understanding that the expenditure of such legal fees can trigger the statute of limitations. The
plaintiff in Budd sued its attorney for failing to assert a viable defense when it was sued for
breaching a contract with a real estate broker to list certain property for sale. Id. at 197-99. The
plaintiff maintained that, for purposes of the two-year statute of limitations in section 339(1) of
the California Code, he did not suffer damage until the formal entry of judgment in the real estate
broker’s case against him. Id. at 202. The Budd court concluded, however, that the plaintiff may
have suffered damage earlier when, “as he alleged in his complaint, he was compelled to incur and
pay attorney’s fees and legal costs and expenditures” (internal quotation marks omitted) for a
second attorney to assist him with the matter. Id. at 201. He “would have had a viable claim, as
tort damages,” for the fees he paid his second attorney, the court explained, “to the extent that such
fees compensated that attorney for his efforts to extricate [the] plaintiff from the effect of [his first
attorney’s] negligence.” Id. at 202. Because neither party had briefed or submitted affidavits
relating to this issue, the court viewed the accrual of the plaintiff’s claim as a question of fact, the
resolution of which would have to await trial or a motion for summary judgment with declarations
directed to that issue. Id. at 203-204. The Budd court’s analysis makes clear, however, that such
fees, if established, constitute a cognizable injury sufficient to trigger California’s two-year statute
of limitations.
¶ 40 Here, billing entries contained in the record on appeal make clear what was left unresolved
in Budd: Acer incurred out-of-pocket legal expenses necessitated by Aon’s purported negligence.
Acer insists that it would always have been responsible for the payment of its own legal fees in the
bankruptcy action, regardless of whether the Euler policy provided coverage for preference claims,
13 No. 1-22-1104
and that those fees would simply not have been recoverable in an action against Aon for broker
negligence. While that may be true, at least some of the fees incurred by Acer were a direct result
of Aon’s failure to procure coverage for the preference claim. As the lengthy memorandum
Womble prepared for Acer in May 2011 makes clear, Womble was not simply representing Acer
in the bankruptcy proceedings. It was specifically tasked with assessing the fallout of Aon’s failure
to procure adequate coverage. Womble’s fees were incurred, at least in part, for advising Acer
regarding how it could, to use the Budd court’s words, “extricate itself” from the effects of Aon’s
negligence.
¶ 41 This is also consistent with the court’s analysis in Jordache Enterprises, Inc. v. Brobeck,
Phleger & Harrison, 18 Cal. 4th 739 (1998), relied on by SmithAmundsen. There, an apparel
manufacturer sued its former lawyers, who had been retained to defend it in an action brought by
a competitor, for failing to assert a timely claim for liability insurance benefits that would have
covered the underlying action. Id. at 739. The manufacturer hired new counsel to pursue coverage
and argued that its claim against its first lawyers did not accrue until that coverage litigation was
finally resolved. Id.at 739, 753. The Jordache court disagreed, concluding that the fees the
manufacturer had incurred to contest the insurer’s defense of late notice constituted an actual injury
sufficient to trigger the applicable statutory limitations period. Id. at 752. In the court’s view, “[t]he
coverage litigation’s resolution was relevant to [the lawyer’s] negligence only insofar as it
potentially affected the amount of damages [the manufacturer] might recover.” (Emphasis added.)
Id. at 753. The distinction, the court explained, was one between “an actual, existing injury that
might be remedied or reduced in the future, and a speculative or contingent injury that might or
might not arise in the future.” (Emphases in original.) Id.at 754.
¶ 42 Acer’s counsel attempted to distinguish Budd and Jordache at oral argument, on the basis
14 No. 1-22-1104
that those cases involved claims of legal malpractice governed, not by section 339(1) of the
California Code, which clearly governs the claim Acer could have had against Aon, but by section
340.6 (West’s Ann. Cal. C.C.P. § 340.6). This is not accurate, as the decision in Budd, which
predated the enactment of section 340.6 by some years, did indeed apply section 339 to a legal
malpractice claim. See Budd, 6 Cal. 3d at 199. Moreover, it does not matter. Although section
339(1) and section 340.6 have different limitation periods, both have the same trigger to start
those periods. They both provide that the limitations period does not begin to run until the plaintiff
has suffered an actual injury caused by the defendant’s conduct. See West’s Ann. Cal. C.C.P.
§ 339(1) (2014) (providing that a cause of action under that section must be brought “[w]ithin two
years” but “shall not be deemed to have accrued until the discovery of the loss or damage suffered
by the aggrieved party”); id. § 340.6 (providing that an action for the wrongful act or omission of
an attorney commences within one year of discovery or four years of the conduct, whichever
occurs first, but that the limitations period “shall be tolled during the time that *** (1) The plaintiff
has not sustained actual injury”). Thus, the court’s holding in Jordache that actual injury or damage
has occurred once a plaintiff has hired legal counsel to mitigate or investigate the alleged
professional negligence is applicable even if it was decided based on section 340.6 rather than
section 339(1).
¶ 43 Acer makes a number of other arguments for why its payments to Womble cannot be
considered damages in the claim it had against Aon. It points out that, under the American Rule,
attorney fees are distinct from and cannot be considered tort damages. See Prentice v. North
American Title Guaranty Corporation, Alameda Division, 59 Cal. 2d 618, 620 (1963) (“General
rule: In the absence of some special agreement, statutory provision, or exceptional circumstances,
attorney’s fees are to be paid by the party employing the attorney.” (Emphasis in original.)). And
15 No. 1-22-1104
it notes that the insurance policy itself was an indemnity only policy providing that Acer was
responsible for all of its own legal costs. But, as Acer acknowledges, fees can be recoverable tort
damages where, as in this case, they were incurred due to a dispute with some third party that is
the alleged fault of the tortfeasor. This “tort-of-another” doctrine is an established principal
recognized by the California Supreme Court in Budd and by the appellate court in Jordache. As
the appellate court put it: “Budd simply recognized the established rule that attorney fees incurred
as a direct result of another’s tort are recoverable damages.” Jordache, 18 Cal. 4th at 751.
¶ 44 The tort-of-another doctrine, as understood by the California courts, is well illustrated in
Third Eye Blind, Inc. v. Near North Entertainment Insurance Services, LLC, 127 Cal. App. 4th
1311 (2005). There, a music group sued its insurance broker for failing to warn it that its general
liability policy contained an exclusion that later resulted in a denial of coverage when the band
was sued by one of its former members. Id. at 1315-16. In the litigation against the broker, the
California appellate court held that the group could recover the attorney fees it had incurred to
litigate coverage with the insurer, even though it ultimately prevailed in that litigation. Id. at 1320-
26. Because the broker’s negligence caused the insurer to raise a reasonable defense to coverage
that would otherwise have been avoided, the band was damaged by having to incur additional fees
in connection with the coverage dispute. Id. at 1321-22. In so holding, the court was applying the
“well-established principle that attorney fees incurred through instituting or defending an action
as the direct result of the tort of another are recoverable damages.” (Internal quotation marks
omitted.) Id. at 1324. The court explained that “[a]ttorneys fees in this context are to be
distinguished from ‘attorney’s fees qua attorney’s fees,’ such as those the plaintiff incurs in suing
[a] tortfeasor defendant” and are instead akin to “medical fees [that] would be part of the damages
in a personal injury action.” Id. at 1325. The Third Eye Blind court saw no reason why this tort-
16 No. 1-22-1104
of-another doctrine should not apply “to fees incurred as a result of an insurance broker’s alleged
negligence” (id.), and we likewise see no reason why it should not apply here.
¶ 45 Although Acer acknowledges this authority, it insists that the tort-of-another doctrine does
not apply here. According to Acer, the California Supreme Court’s explanation of that doctrine in
Prentice, 59 Cal. 2d at 620, limits it to situations in which litigation must be initiated or defended
against as a result of the defendant’s negligence. The Prentice court noted, citing section 914 of
the Restatement of Torts (Restatement (First) of Torts § 914 (1939)), that “[a] person who through
the tort of another has been required to act in the protection of his interests by bringing or defending
an action against a third person is entitled to recover compensation for the reasonably necessary
loss of time, attorney’s fees, and other expenditures thereby suffered or incurred.” Id. at 620. Acer
argues that it was never required to “institute or defend” an action because it “never sued Euler.”
And although it did defend itself against the preference complaint filed by the bankruptcy trustee,
it points out that the bankruptcy action would have been instituted regardless of Aon’s negligent
failure to procure coverage for such claims. Thus, according to Acer, these fees do not come within
the tort-of-another exception.
¶ 46 What Acer fails to appreciate, however, is the broader rule that reasonably incurred
expenses proximately caused by a defendant’s wrongful conduct generally are recoverable as
damages. See Stearman v. Centex Homes, 78 Cal. App. 4th 611, 625 (2000) (holding that the
plaintiffs in a construction defect case could recover as damages fees paid to professionals who
investigated the problems in order to formulate an appropriate repair plan). As we read the relevant
authorities, the tort-of-another doctrine arose where this general rule intersected with the American
Rule, which holds that parties to litigation are generally responsible for their own attorney fees.
¶ 47 The California supreme court recognized this in Oasis West Realty, LLC v. Goldman, 51
17 No. 1-22-1104
Cal. 4th 811, 826 (2011), where it held that a plaintiff’s complaint for breach of fiduciary duty and
professional negligence filed against its former lawyer could proceed in the face of a challenge
under California’s anti-SLAPP (strategic lawsuit against public participation) statute. Id.at 827.
The court concluded that the plaintiff had “set forth a prima facie case of actual injury and
entitlement to damages” when it alleged that its former lawyer’s conduct had made it necessary
for the plaintiff to “to protect its rights by retaining legal counsel,” not to file suit on its behalf, but
“to prepare a letter demanding that [the lawyer] cease and desist from further misconduct.” Id. The
court referenced “the established rule that attorney fees incurred as a direct result of another’s tort
are recoverable damages,” when they constitute an attempt “to avoid, minimize, or reduce the
damage caused by [a tortfeasor’s] wrongful conduct. (Internal quotation marks omitted.) Id.
¶ 48 Apple Valley Unified School District v. Vavrinek, Trine, Day & Co., 98 Cal. App. 4th 934
(2002), cited by SmithAmundsen, provides another instructive example. The plaintiff there was a
school district that sued its accounting firm, alleging that the firm’s misrepresentations in an audit
report induced it to provide state funds to a charter school that was not entitled to those funds. Id.
at 934. The California appellate court concluded, for purposes of determining when the statutory
limitations period was triggered, that “the out-of-pocket expenses the District incurred when it
engaged its accountant and legal counsel, in an effort to determine the extent of the improper
payments and arrange for reimbursement of funds improperly received, constituted actual injury
for limitations purposes.” (Emphasis added.) Id. at 949. Here, Acer likewise incurred expenses, in
the form of nonlitigation legal fees for Womble’s assessment of its position following Euler’s
denial of coverage, that it would not have incurred absent Aon’s purported negligence. And just
as in Oasis and Apple Valley, those fees constitute recoverable damages.
¶ 49 Acer repeatedly insisted at oral argument in this court that in Lederer v. Gursey Schneider
18 No. 1-22-1104
LLP, 22 Cal. App. 5th 508 (2018), the California appellate court flatly rejected the notion that fees
incurred for a lawyer to perform investigative work can ever amount to damages sufficient to
trigger a statute of limitations. This is a misreading of that case. The defendant in Lederer procured
uninsured motorist coverage for the plaintiff with a policy limit well below what the plaintiff had
requested, and the plaintiff sued the broker when her son was injured by an uninsured motorist. Id.
at 512. The broker successfully moved for summary judgment, on the grounds that the cause of
action accrued when the lack of coverage was discovered, and not later, when the insufficient funds
were finally collected. Id. at 513. The California appellate court reversed. Id. It rejected the
defendant’s argument that the plaintiff suffered damages when her attorney first began to
investigate the scope of her insurance coverage, on the grounds that the evidence in that case did
not suggest that the attorney did anything more than represent the plaintiff and her son in his
personal injury action and inquire into the existence of coverage as a routine discovery matter. Id.
at 527. The decision in Lederer cited Apple Valley with approval as standing for the proposition
that fees paid to attorneys to investigate can be the damages that trigger the statute of limitations.
Id. at 526. However, Lederer distinguished Apple Valley on the basis that the facts in Lederer did
not align with those in Apple Valley. Id. at 527.
¶ 50 Finally, we note that secondary sources support our reading of these California cases.
Section 25.3 of California Affirmative Defenses, for example, titled “Accrual of causes of action
generally,” warns that overly simplified statements regarding the accrual of causes of action in
California “belie the complexity of the subject.” 2 Cal. Affirmative Def. § 25:3 (2d ed.). The
authors note that “both a prospective plaintiff’s uncertainty of the amount of damage and the fact
that part or even most of the damages have not yet occurred are irrelevant.” (Emphasis added.) Id.
They advise that where a plaintiff “may be justifiably uncertain as to whether sufficient harm has
19 No. 1-22-1104
occurred to trigger the running of the statute of limitations,” there are “two safe alternatives: file
suit within the statutory period calculated from the first date on which any damage may have
occurred or obtain a tolling agreement.” Id. The authors go on, citing both Jordache and Apple
Valley, to specify that “[t]he ‘damage’ that may be sufficient to trigger accrual may be the
obligation to pay an attorney or other person to attempt correction of the problem or to investigate
the problem” (emphasis added), such that “accrual may occur even if the larger part of the damage
is still prospective.” Id. Although secondary sources like this one are not binding, in this court or
in the California courts, we find that they serve as a beneficial check on our reading of another
state’s authorities.
¶ 51 In sum, we agree with the circuit court that Acer was damaged in May 2011 when it
incurred legal expenses to have Womble investigate and advise it specifically on how to deal with
the lack of coverage for preference claims caused by Aon’s purported negligence. This was work
in addition to what Womble would otherwise have done if such coverage had been in place and
was sufficient to trigger the two-year statute of limitations found in section 339(1) of the California
Code. Any claim Acer could have asserted against Aon in California would thus have expired in
May 2013, well before Acer hired SmithAmundsen to represent it. Summary judgment in
SmithAmundsen’s favor was proper.
¶ 52 Given this holding, we need not consider whether Acer was independently damaged
following Euler’s denial of coverage because it was forced to negotiate with the bankruptcy trustee
¶ 53 And because we hold that SmithAmundsen was entitled as a matter of law to summary
judgment in its favor on Acer’s legal malpractice claim, we affirm the dismissal of the firm’s third-
party complaint for contribution against Orrick as moot.
20 No. 1-22-1104
¶ 54 We likewise affirm the denial of SmithAmundsen’s motion to strike one of Acer’s
affidavits as moot, which Acer’s counsel acknowledged contained no information relevant to the
court’s summary judgment ruling.
¶ 55 IV. CONCLUSION
¶ 56 For all of the above reasons, we affirm the circuit court’s grant of summary judgment in
favor of SmithAmundsen on Acer’s claim of legal malpractice. Acer cannot establish that it was
harmed by SmithAmundsen’s decision to file Acer’s lawsuit against its insurance broker in Illinois,
rather than in California, where its claim was time-barred in both states when Acer retained
SmithAmundsen to represent it.
¶ 57 Affirmed.