Facts

Plaintiffs Larry Stone and his wife, Linda Della Pelle suffered substantial damage to their Claremont home in the October 2003 wildfires. After the loss, the plaintiffs submitted a claim to their homeowners insurer, Fidelity National Insurance Company (FNIC).

Fidelity paid plaintiffs $240,000 for personal property, all claims for other structures, and $72,000 for two years of additional living expenses. The plaintiffs' policy also provided dwelling coverage of $320,000, with an extended replacement value of 150 percent.

After the fire plaintiffs worked with Oakwood Construction to prepare a repair estimate for their home. Based on that estimate, in December 2003, FNIC determined that the cost to repair the home was $314,141, which was later increased to $331,602 by January 2004. The plaintiffs believed that FNIC had undervalued the claim and had missed several items so they hired Bob Rettig Construction Company to prepare an estimate.

Meanwhile, because the plaintiffs did not hire Oakwood, FNIC hired an independent contractor, HARBRO Construction, to prepare another estimate. On April 13, 2004, HARBRO estimated the cost to rebuild the home to be $460,462, which was later increased to $467,034. That estimate included costs to repair additional damage caused by post-fire water and mold. Both of the HARBRO estimates also identified many "open" items to be addressed during construction.

After reviewing HARBRO estimates, FNIC ultimately increased its replacement cost value to $433,195 and paid a total of $418,446 as an "actual cash value" advance under the policy. After receiving the payment, the plaintiffs submitted an estimate prepared by Bog Rettig, which totaled $704,277 based on a tear down of the building. FNIC rejected that estimate and offered appraisal or mediation. During litigation, after inspecting the house Bob Rettig revised his estimate to a repair estimate of $600,296 plus a five percent contingency for a total of $630,000.

PLAINTIFFS' CONTENTIONS:
The plaintiffs contended that FNIC acted in bad faith by engaging in the practice of "lowballing" and intentionally undervaluing their claim. Plaintiffs also contended that 2004 amendments to the Insurance Code applied retroactively to require FNIC to pay as actual cash value the amount of replacement cost less depreciation.

In addition, the plaintiffs asserted that FNIC misrepresented the available policy limit for their claim. Specifically, the policy issued to the plaintiffs had a stated Coverage A Dwelling limit of $320,000. The policy also contained an endorsement which extended the policy limit by 150 percent, or, by $480,000. Early in the claim process, FNIC asserted that the total available policy limit was $480,000, and the plaintiffs disputed this, contending that their total available policy limit was $800,000 (i.e. $320,000 plus $480,000). At trial the Court instructed the jury that the policy limit was $800,000. Finally, the plaintiffs asserted that FNIC's conduct amounted to malice, oppression, and fraud such that punitive damages should be imposed.

DEFENDANT'S CONTENTIONS:
The defendant denied that it breached the contract or that it acted in bad faith. The defendant asserted that it acted reasonably in adjusting the claim and that it was always prepared to pay plaintiffs more than its initial payments if and as additional costs were ascertained during repairs. The defendant also asserted that it had paid the plaintiffs what they were entitled to receive under the policy and that there was, at most, a genuine and good faith dispute as to the cost to repair plaintiffs' house.

Defendant contended that plaintiffs could recover as damages only "actual cash value" as defined by the policy (replacement cost coverage less depreciation, taxes and contractor's overhead and profit) and denied it was required to pay sums for taxes and contractor's overhead and profit. Defendant contended that the payment made to plaintiffs represented the full amount of "actual cash value" as properly calculated. The defendant also denied that its conduct warranted the imposition of punitive damages and contended that punitive damages could not be awarded based on damages arising from contract.

Settlement Discussions

The plaintiffs demanded $500,000. The defendant offered $50,000.

Result

On special verdict forms, the jury found that, as defined by the 2004 amendments, the replacement cost of plaintiffs' loss was $616,385.61 and its actual cash value was $579,402.27. The jury also found that FNIC had breached the implied covenant and acted with fraud, malice and oppression, and awarded punitive damages in the amount of $5,324,173. On April 10, 2006, the court awarded plaintiffs $197,939.56 as actual cash value and replacement cost value damages under the contract and reduced the punitive damages award to $1.6 million.

Deliberation

1.5 days

Poll

11-1 (bad faith), 11-1 (fraud), 10-2 (oppression), 9-3 (malice), 11-1 (punitive damages)

Length

3.5 weeks