Confidential
Settlement – $3,250,000Judge
Court
L.A. Superior Central
Attorneys
Plaintiff
Defendant
Facts
The plaintiffs own high-rise office buildings and shopping centers throughout the United States and Canada, including properties in California. Effective January 1993, California surplus line insurance laws changed dramatically, imposing stringent new investigatory and reporting requirements on all surplus line brokers and strict financial requirements on all non-admitted insurers wishing to do business in California. Beginning in February 1993, the plaintiffs obtained insurance through the defendant insurance brokers. In 1993, the plaintiffs purchased, through the retail broker and its wholesale brokers, a $5 million "difference in conditions" (earthquake) insurance policy issued by the insurer, effective Dec. 31, 1993. The premium was $200,000. The policy constituted 25 percent of the $20 million primary layer of a multi-layered property insurance program which the defendant brokers placed for the plaintiffs. The insurer was a non-admitted insurer and a syndicate of the Illinois Insurance Exchange. Six months earlier, the California Department of Insurance had rejected the insurer to do business in California due to financial insufficiency. As a result of the Jan. 17, 1994 Northridge earthquake, the plaintiffs suffered millions of dollars in property damage to their California properties. $1.75 million of those damages were covered by the insurer's policy. During the lengthy evaluation of the nature and extent of the plaintiffs' earthquake damages, the insurer's policy came up for renewal. The defendants renewed the policy for the plaintiffs, effective Dec. 31, 1994, at a 150 percent increase in premium ($500,000). Five months after the renewal, the insurer's financial inadequacies became publicly known, and the Illinois Insurance Exchange declared that the insurer's further issuance of policies constituted a hazard to its policyholders and to the public. In 1995, the insurer made an interim payment of $137,500. In July 1996, the insurer became insolvent and was placed in liquidation. The plaintiffs brought this action against the retail broker and its wholesale brokers for negligence, breach of contract, fraud and breach of fiduciary duty.
Settlement Discussions
At mediation, the defendants made a joint settlement offer of $1.2 million, which plaintiff rejected. At the subsequent mandatory settlement conferences, the defendants raised their settlement offer to $2 million. On the eve of the hearing on cross motions for summary judgment, the plaintiffs and the wholesale brokers reached the reported settlement, which included assignment of those brokers' indemnity and contribution claims, and its insurer's subrogation claims, against the retail broker. Thereafter, the retail broker made a separate C.C.P. º998 offer of compromise for $1 million. At a second mediation, following the trial court's ruling upholding the punitive damages claims, the plaintiffs and the retail broker reached the reported settlement.
Damages
The plaintiffs claimed $2,790,412 in actual damages, including $1,747,940 for the net amount of the non-admitted insurer claim; $500,000 for the 1994 renewal premium; and $542,472 for the seven-and-one-half percent gap in coverage and prejudgment interest.
Other Information
The settlement was reached two years and four months after the case was filed. The court ruled that the retail broker owed the plaintiffs the statutory duty to comply with the California surplus line insurance law, including the required disclosures and filings with the Department of Insurance and the Surplus Line Association. An all-day mediation was held on Jan. 9, 1999 before Mediator Linda Meyer, resulting in a joint settlement offer of $1.2 million, but no settlement. Mandatory settlement conferences were held on July 9 and Aug. 9, 1999 before Hon. S. James Otero, resulting in a joint offer of $2 million, but no settlement. After the retail brokers settled, a second mediation was held between the plaintiffs and the defendant retail broker. The mediation was held on Oct. 1, 1999 before Hon. William E. Burby, retired, of Alternative Dispute Resolution Services, resulting in the reported settlement between the plaintiffs and the retail broker.
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