Jury Awards $4.5 Million To Homeowners’ Class For Insurer’s Bad Faith (Watch The Videos)

Jury Awards $4.5 Million To Homeowners’ Class For Insurer’s Bad Faith (Watch The Videos)

 

RENO, Nev. — (Mealey’s) A jury in the Washoe County, Nevada, Second Judicial District Court on Feb. 13 awarded $4.5 million in compensatory damages for a commercial general liability insurer’s breach of its duty of good faith and fair dealing in declining a defense and indemnity for property damage sustained to a class of homeowners (Elizabeth Reimers, et al. v. Everest Indemnity Insurance Co., No. CV13-00737, Nev. Dist., 2nd Dist., Washoe Co.). 

The jury also awarded $1 for Everest Indemnity Insurance Co.’s violation of Nevada’s unfair insurance practices act.  The jury found fraud and malice by Everest in its reliance on the earth movement exclusion to deny coverage, requiring a punitive award. 

Proceedings on punitives are scheduled to start Feb. 17, 2015. 

Flooding 

Following a Jan. 5, 2008, flood that caused property damage to homes, a group of residents filed a class action lawsuit (the Reimers lawsuit) against Matthews Homes, a developer that allegedly developed their neighborhood and surrounding areas.  The class alleged that Matthews Homes had negligently and improperly constructed the drainage system surrounding the neighborhood and that a failure of the drainage system, combined with the heavy rain water, caused damages. 

Matthews Homes tendered coverage to its CGL insurer, Everest, which denied coverage based upon the earth movement exclusion.  The Reimers class and Matthews Homes settled for $5 million.  Matthews Homes assigned to the Reimers class all rights it had against Everest.  The Reimers class sued Everest, alleging that the insurer owed Matthews Homes a duty to defend and indemnify and that its reliance on the earth movement exclusion was misplaced. 

The Reimers class sought tort damages for alleged bad faith, based on Everest's decision to rely on the earth movement exclusion.  On Jan. 30, 2014, Judge Janet J. Berry granted partial summary judgment to the Reimers class on the earth movement exclusion, and on Sept. 4, the judge granted partial summary judgment on the issue of the duty to defend. 

The case proceeded to a jury to hear the bad faith issue. 

Earth Movement Exclusion 

In closing arguments, counsel for Matthews Homes argued that Everest’s interpretation on the earth movement exclusion was unreasonable because that interpretation would apply to too broad a range of building damage. 

(Watch a video excerpt of plaintiff’s closings.) 

Matthews Homes asserted that the earth movement exclusion started as an exclusion for earthquakes in homeowners policies but “grew into being used for commercial general liability policies.”  Matthews Homes noted that a building itself could not be built without earth movement so, applying Everest’s approach, “there is no end” to the earth movement exclusion’s’ application.

Bad Faith 

In closing arguments, counsel for Everest responded that the insurer’s mistake in applying a time-bar exclusion against Matthews Homes did not rise to bad faith.  The insurer asserted that its refusal to cover Matthews Homes based upon the earth movement exclusion was also reasonable. 

(Watch a video excerpt of defendant’s closing.) 

Everest’s counsel said it “almost becomes a logic problem” because the homeowners alleged failure to maintain, so the levee became weak and fell apart.  Everest argued that several reports suggested that it was soil erosion and vegetation that caused the levee’s weakness. 

“In other words, it kind of becomes a logic game to say because you were negligent in not maintaining, magically that is the sole reason it happened,” Everest said. 

Robert Maddox of Maddox, Segerblom, & Canepa in Reno and Patrick Leverty of Leverty & Associates Law Chtd. in Reno represent the Reimers class.  Jamie Carsey of Thompson Coe in Houston and Ryan Mandel of Georgeson Angaran in Reno represent Everest.

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