Jury Denies Property Insurance Claim

After deliberating for three hours, a jury in California has denied an insurance claim because the property damaged was exaggerated, according to the law firm MacGregor & Berthel.

Reddy v. Allstate Insurance Co. involved a claim resulting from the Feb. 14, 2003 Bell Canyon, Calif., Fire, on which the carrier promptly paid more than $380,000 for lost rents and structure damage to the 3,000 square-foot, single-level residence, the law firm explained.

The problem, however, was that Allstate believed the insureds embellished their insurance claim by exaggerating – or fabricating – their report of damage to its contents, the law firm indicated. When the carrier dug into the claim for contents damage — four-and-a-half months after the insureds and their attorney were provided with a detailed inventory of contents prepared by the adjuster as she toured the burned remains of the house with the homeowner, the insureds added a claim for $245,000 worth of exotic artwork, statuary, hand-loomed carpets and unspecified antiques.

The claim for those additional items, which included about 50 framed oil paintings, 10 large solid rosewood statues and 10 Kashmere carpets, was not supported by the after-fire debris seen and photographed at the site, the insurer indicated. And, by the time the claim was asserted, the insureds had unilaterally demolished the structure and carted all debris away. So a Special Investigations Unit adjuster took over.

Although the insureds gave a recorded statement, months of attempts by Allstate to conduct examinations under oath (EUO) came to naught when the insureds’ attorney notified the carrier that the insureds would not appear as scheduled and, in fact, had no intention of appearing until their still-disputed claim on the structure was resolved, the law firm said.

After Allstate made several further unsuccessful attempts to secure the insureds’ EUOs, Allstate denied the claim. The insureds then filed the lawsuit for breach of contract and bad faith.

The action proceeded in the Ventura County, Calif., Superior Court, with the following issues being evaluated:
(1) Whether the contents claim for an amount in excess of policy limits of $236,000, was valid.

(2) Whether the plaintiffs were entitled to be paid more than the face limit of $315,000 plus code upgrades and debris removal that Allstate had paid less than three months after the fire.

At trial, Allstate questioned the plaintiffs on discrepancies between their various statements about their contents claim, citing irreconcilable factual claims made by the plaintiffs in their recorded statement, in their pre-trial depositions and in their trial testimony. On the structure claim, the carrier’s lawyers argued that the policy required payment of only the actual cash value of $315,000 (plus the code upgrades and debris removal of $23,000, also paid in 2003) unless and until the insureds did the repairs. At that point, Allstate would have paid the balance of the repair estimate it had agreed to, $395,000, the company’s lawyers said.

The plaintiffs did not dispute that they had never made the repairs. The plaintiffs argued first that Allstate was mistaken in its assessment that the house could be repaired; their experts opined that the house had to be torn down to the ground and rebuilt in its entirety, at a cost of just over $870,000. They argued, next, that the policy requirement to rebuild within six months to recover more than actual cash value had been waived by Allstate’s continuing to consider structure-related conduct well after the six-month time limit had expired, the law firm said.

Allstate moved for a nonsuit, arguing that:

(1) the structure claim could not be paid on the basis of the evidence presented because there was no dispute that the repairs had not been performed, a condition precedent to recovering anything over the actual cash value already long-since paid, and

(2) the refusal of the insureds to sit for their EUO’s was a failure of a condition precedent under the case of Brizuela v. Cal Farm Ins. Co.,116 Cal.App.4th 578, 583-587 (2004), invalidating the plaintiffs’ entire claim. The Court granted the motion in part, ruling that ADD, as a matter of law, the refusal to sit for the EUOs precluded recovery of the contents claim but not the balance of the claim, determining that the jury should decide whether the repair requirement condition had been waived.

The law firm said closing argument by plaintiffs’ counsel focused on the argument that the house could not have been repaired and that whatever “mistakes” the plaintiffs’ made in representing their contents claim – which the jury was told had been removed from the case – should not affect their right to recover on the structure part of their claim. Allstate countered that the house was repairable. The only witnesses who testified on that subject, who had actually seen the structure before the plaintiffs had unilaterally demolished it, were the adjuster and his structural engineer, both of whom found it fully repairable; failure to repair the damage precluded further payment on the claim. He argued that the misrepresentations regarding the contents claim infected the entire claim and constituted precisely the type of fraud that precludes any recovery on any aspect of the claim.

The jury agreed with Allstate, finding by 10-2 that the plaintiffs had committed fraud that precluded further recovery on any aspect of the claim, according to a statement by the law firm.

Source: MacGregor & Berthel