Facts

This case arises out of a major fire at Jalisco Restaurant on Dec. 14, 2007. The owners of the restaurant filed a claim under their property insurance policy issued by Century Surety Company. The claim was denied 13 days later.

The restaurant had two cooking areas. The front cooking area had an automatic fire suppression system and the rear cooking area had no automatic suppression system. The fire started in the back rear cooking area.

Motz allegedly provided insurance applications to Century, three years in a row, that represented that the entire cooking area was covered by an automatic fire suppression system. Defendant Century contends that at least one of the applications was actually signed by the insured.

The sole basis for the denial was the Protective Safeguards Endorsement (PSE). The PSE required a "fully functional and actively engaged fire extinguishing system over the entire cooking area with an automatic shut off for the heat source with a semi-annual service contract." However, the rear kitchen did not have the required system.

Century Surety had issued two prior insurance policies to plaintiff. The prior policies did not have the PSE. Century Surety allegedly did not provide plain, clear and conspicuous notice of the new endorsement that essentially eliminated coverage in the event of a fire before the loss. Plaintiff contended that Century Surety claimed that it did not need to provide notice of the new endorsement; defendant Century denies making that claim.

During trial, the court ruled that Century Surety was precluded from relying on the PSE because it was not plain, clear and conspicuous. The jury was instructed they could not consider the PSE as a basis for determining whether plaintiff was entitled to insurance benefits.

Upon the issuance of the 2007 policy, Century Surety hired an independent inspection company to inspect the restaurant. The stated purpose of the inspection was to evaluate the risk and to confirm the information in plaintiff's insurance application.

Century Surety specifically instructed the inspector to warrant an automatic fire suppression system over the entire cooking area. However, the inspector's report made no reference to the rear cooking area. The inspector claimed he never saw the rear cooking area, the three freestanding stoves or the large metal hood and vent over the cooking area. Numerous witnesses, including a County Health Inspector, testified that the rear cooking area had been used for at least 20 years. This same inspector had inspected the restaurant on two prior occasions in 2004 and 2005. All three reports did not identify a rear cooking area.

After all three inspections, the owners of the restaurant were notified that the inspector had found items of non-compliance. The owners were told their policy would be cancelled if they did not bring the property into compliance. On each occasion, the owners allegedly took steps to comply with the requested corrections. The owners allegedly relied on the insurance company to inform them if there were any issues of non-compliance that would result in a denial of coverage.

After the case was filed, Century Surety alleged that the policy was void due to misrepresentations in the insurance applications.

The applications indicated that there was a suppression system over all cooking areas. Century Surety's claims adjuster and manager testified the initial denial of coverage was not based on the incorrect information in the application.

Settlement Discussions

Plaintiffs made a CCP 998 demand of $1 million. At mediation, Century Surety offered a waiver of costs.

Result

The jury returned a verdict totaling $1,882,498 against Century Surety. Plaintiff was awarded insurance benefits of $382,498, and punitive damages of $1.5 million. Century Surety prevailed on its cross-complaints against the Motz entities and against Pacific Inspections. Specifically, the jury found that the inspection company breached its contract with Century Surety by failing to perform an accurate inspection. Furthermore, Century Surety prevailed on its cross-complaint against the Motz Entities for negligent misrepresentation and was awarded damages and attorney fees.

Other Information

The owners of the restaurant were Spanish-speaking immigrants from Mexico. They could not read the insurance applications. Their insurance broker did not read the questions in the applications, nor did he inform them of his answers to the questions. Century has filed a notice of appeal.

Length

10 weeks