$5.1 million verdict awarded in California wildfire bad faith case

Daily Record and the Kansas City Daily News-Press, Jan 2, 2006 by Natalie White

In the first verdict of more than 200 bad faith claims related to the 2003 California wildfires, a jury recently ordered Fidelity National Insurance to $5.1 million in punitive damages to a couple who said they were not fairly reimbursed for their destroyed home.

Larry Stone and Linda Della Pelle's Claremont home was severely damaged on Oct. 25, 2003 when it was burned by a wildfire. The couple's attorney, Ricardo Echeverria, said the family was victimized a second time by their insurer.

They were taking advantage of people at their most vulnerable, Echeverria said.

The company denies any wrongdoing and plans to appeal both the verdict and the amount of the punitive damage award.

It's a case we think is riddled with errors and one we think will be reversed, said Fidelity's attorney John Hennelly. He said court decisions that kept certain evidence out and allowed other evidence in meant that the jury heard a lopsided version of events.

This was a case about bad faith, yet all the good faith acts we did were kept out, Hennelly said. The jury was given a distorted version of the facts and the law.

Echeverria said this family was not the only one subject to bad faith practices after the 2003 wildfire season that swept through southern California. He said the case highlights the unsavory practice of insurers lowballing claims, especially when policy holders are faced with natural disasters.

More than 100 of the claims have already settled, but about 130 lawsuits are awaiting trial against several different insurers, said Echeverria.

This verdict sends a message that this kind of conduct will not be tolerated by a jury and a jury will punish you for it, said Echeverria. I think all the insurance companies will take notice of this case.

Fidelity argued that it treated the couple fairly, but that their demands were unreasonable because their policy had payment limits and did not include replacement costs. Fidelity pointed out that Stone is a licensed insurance agent and fully understood the limitations of his policy.

The company said that the couple's claim was based on lies and sham estimates that, at one point reached $800,000 - an amount the company contends was clearly outside of the policy limits.

Hennelly said the judge allowed the jury to hear evidence of an estimate based on an insurance formula adopted by the state legislature after the wildfires, despite the fact that it did not apply to the wildfire victims. He said the judge disallowed evidence showing that the insurance company made early payments to the couple to compensate for lost personal property and for living expenses.

He would not allow in all the good acts we did to get them compensated and rebuilding, Hennelly said.

Echeverria told the jury that the insurer did not live up to its responsibility. He said the insurance company's first offer was for $433,000 to replace the home, far below the actual cost to return the house to its pre-fire condition. He said the couple rejected the offer and hired their own contractor to come up with a counter estimate. The insurance company also hired a contractor to do the same.

The couple's contractor reported the house and contents would cost about $630,000 to replace, give or take 5 percent. The insurance company's contractor said the cost would be at least $467,000 plus a laundry list of open items that weren't addressed or that could cost more at the time of construction, such as flooring and architectural fees, Ehceverria said.

The insurance company then came back with an offer of $433,000, he said.

That was it. They were trying to pay off their insured on the cheap and were even ignoring their own contractor's estimates, Echeverria said.

Echeverria said he argued that the company acted in bad faith when it offered less than its own contractor's estimate.

I think that's what did it for the jurors. They said at trial that they never meant the $433,000 to be the be all and end all, that if that's not the actual cost, the couple could come back to the insurance company and it would reevaluate, said Echeverria. But that's not the way it's supposed to be, you get some payment and then have to go back and argue for more. The policy calls for true replacement costs, not, 'Here's some and if it costs more let us know.'

He said one of the problems with the fallback of supplemental claims was that if the couple accepted the offer and construction took more than a year, which is not uncommon, the time limit for suing the company might pass before the construction was completed.

You have a one year limit to bring a lawsuit, he said. If it goes past, you have no remedy. Our argument was that the company was obligated to pay the full and fair price and basically everyone said that their offer just wouldn't do it.

Jurors decided that the replacement cost should have been $616,000, so the couple will get an additional $180,000 in compensatory to make up the difference between what the insurance company actually paid for the damage and what they should have paid. They determined that Fidelity breached its contract and that its conduct met the standard of fraud, malice and oppression.