Facts

Plaintiffs had a homeowner policy with the Interinsurance Exchange of the Automobile Club and suffered an extensive water loss on May 19, 2003 when a toilet line in an upstairs bathroom broke and ran for several hours before it was discovered. The Auto Club dispatched one of their preferred contractors to perform a dry down of the plaintiff's property and within 14 days of the loss, indicated that the home was dry and estimated that the cost of the repairs was approximately $65,000.

Plaintiffs' family, which consisted of 3 adults and 4 children, were allocated $400 a day for additional living expenses and moved into a two-bedroom suite at the Ritz-Carlton in Pasadena. They refused to accept the Auto Club preferred contractor's estimate of $65,000 and insisted that any work performed should include a guarantee that there was no mold on the property. Defendant Auto Club refused and ultimately cashed out the plaintiffs by tendering the $65,000 that their contractor had estimated would be the cost of repairs. Further, the Automobile Club indicated they would no longer pay additional living expenses to the plaintiff after Sept. 1, 2003.

In August of 2003 the plaintiffs retained a public adjuster. The public adjuster hired a hygienist who visited the property and performed tests and indicated that the property had developed mold. Ultimately in November of 2003, the Auto Club agreed to perform the necessary mold remediation and reinstate the plaintiff's additional living expenses. The plaintiffs were reimbursed the additional moneys they had paid for their continued stay at the Ritz-Carlton. Ultimately, the plaintiffs were moved into a rental home in Pasadena in December of 2003. The plaintiffs were still in that rental home during the trial. The Auto Club continued to pay the monthly living expenses for the plaintiffs even though the policy limits available for same had been exceeded.

After the mold remediation was performed on the plaintiff's home in the spring of 2004, the Auto Club brought another of their preferred contractors onto the premises to create an estimate for restoration of the home. The new estimate was $243,000. Before repairs could commence, termites were discovered in the premises in the spring of 2004. The plaintiffs insisted that all remaining drywall and ceilings in the home that had no been removed for mold remediation be further removed to address the termite damage. Further, the plaintiffs took the position that the termite damage was related to the water loss and the fact that the home had been allowed to stand vacant for more than a year.

The Auto Club disputed that the termites were related to the original water loss but advanced $6,500 to cover the cost of tenting the home to remove the termites. The plaintiffs refused and insisted that all remaining walls and ceilings be removed, which was estimated to cost $100,000. Plaintiffs refused to move forward with any further repairs.

In the fall of 2004, while efforts were being made to come to some sort of agreement over the extent of termite repairs required, additional mold was found in an upstairs master bathroom. The original water loss had not reached this master bathroom and the Auto Club took the position that the new mold was unrelated to the water loss. The plaintiffs contended that it was. The Auto Club paid for the remediation of the new mold that was found in the upstairs master bathroom while reserving their rights to contend that it was unrelated to the original loss.

In early 2005, investigation into continued excessive moisture into the slab on the first floor of the home was undertaken. The Auto Club paid for the sandblasting of the floor and efforts to employ fans and dehumidifiers to attempt to sufficiently remove the moisture from the slab. However, excessive moisture remained in the slab. The expert retained by the Automobile Club ultimately concluded that the remaining moisture in the slab was due to the absence of a vapor barrier under the slab when the slab was originally poured.

After the slab had been investigated in May of 2005, the Auto Club's retained contractor had revised their estimate for the repairs to the home from $243,000 to $287,000. This was based upon a list of over 450 items that the plaintiffs had submitted challenging the original estimate. Additionally, the Auto Club contractor estimated an additional $32,000 for repairs to the master bathroom and another $51,000 for repairs that were now necessary in the older front part of the plaintiffs' home that was unaffected by the original flood. The Auto Club agreed to cover $29,000 of the additional damages in the front portion of the home based upon the fact that the house had now been vacant for more than two years. The Auto Club refused to pay the $32,000 estimate to restore the master bathroom.

The Auto Club preferred contractor ultimately quit and refused to do any further work for the plaintiffs in June of 2005. The plaintiffs selected a new contractor, Leo Yao, who was scheduled to commence reconstruction of the home on Sept. 1, 2005 and estimated he would complete the work by May 30, 2006. On Aug. 15, 2005, the plaintiffs suffered another water leak in a portion of the home that was unaffected by the first water leak in May of 2003. The plaintiffs claimed that that the new water leak, which was again covered by the Automobile Club, delayed their commencement of the restoration to their home. In fact, restoration to the home did not start until January of 2006. The home was still being restored by the plaintiffs' new contractor during the trial in May of 2006. The Auto Club took the position that they would continue to pay for the storage of plaintiffs' contents and the additional living expenses incurred by the plaintiff through May 30, 2006.

PLAINTIFF'S CONTENTIONS:
Plaintiffs contended that given the vast amount of water that had spread throughout the plaintiffs' home, and the fact that it was nine days before the Auto Club preferred contractor actually installed equipment in the plaintiffs home to commence the drying process, the Auto Club should have hired an industrial hygienist while the property was being dried down to investigate the possibility of mold developing.

Plaintiffs contended that it was only after their public adjuster hired a hygienist some five months following the loss, that the Auto Club took seriously the claim of mold in the home. The plaintiffs further contended that the Auto Club at all times reacted slowly to attempting to remediate the mold and reconstruct their home and only responded after several complaint letter were written.

Plaintiffs contended that the Auto Club preferred contractor drastically underestimated the cost of repair to the home that was initially estimated to be $243,000 and then raised to $287,000. Plaintiff's construction expert testified at trial that the cost of repair to the home would exceed $500,000.

DEFENDANT'S CONTENTIONS:
Defendant, Auto Club contended that it relied upon their preferred contractor who conducted the initial dry down and reported that the property was dry and fee of mold within three weeks of the incident. When mold was subsequently discovered by plaintiff's hygienist, the Auto Club immediately agreed to accept the remediation of all mold in the home and to employ the plaintiffs hygienist to oversee the mold remediation.

Further, the Auto Club policy had a $5,000 mold limitation cap, that the Auto Club waived. Additionally, the Auto Club waived the policy limits for additional living expenses and paid for the plaintiffs and their family to live at the Ritz-Carlton hotel for seven months and thereafter paid for a rental home in Pasadena through and including May 30, 2006.

The Auto Club contended that at all times the plaintiffs were difficult and had set out from the beginning to do everything in their power to "build" a lawsuit for bad faith. The plaintiffs wrote over 100 letters to the Auto Club during the pendency of the claim, many of the letters more than 10 pages in length.

Further, the plaintiffs were unreasonable in contending that the termite infestation at the home was related somehow to the May 19, 2003 water loss. At time of trial, the plaintiffs dropped that claim and stipulated that they were not seeking damages as a result of the termite infestations. Similarly, the plaintiffs stipulated at trial that they were making no claim that remaining moisture in the slab under the home was in any way related to the May 19, 2003 water loss. Further, the plaintiffs presented no evidence that the mold in the upstairs master bathroom was in any way related to the original covered water loss.

Settlement Discussions

Plaintiffs' demand prior to trial was $7 million. Plaintiffs filed a C.C.P. 998 offer for $251,000.

Injuries

Both plaintiffs had pre-existing rheumatoid arthritis and plaintiff Po-Jen Chen suffered from preexisting hepatitis C. The plaintiffs presented medical testimony through treating doctors that the stress they endured during the claims handling process exacerbated the preexisting rheumatoid arthritis in both plaintiffs.

Result

The jury filled out a special verdict form and found no breach of contract, yet found that the Auto Club acted unreasonably and in bad faith and awarded the plaintiffs jointly $150,000 in damages. However, because the plaintiffs' verdict did not exceed the prior 998 Offer to Compromise, the Court ultimately awarded defendant costs, including expert fees of $310,000. This left a net verdict in favor of the defendant in the amount of $150,949.

Other Information

Plaintiffs have appealed from the post-judgment award of costs to the defendant based upon the 998 Offer to Compromise. The defendant has appealed from the verdict form challenging the fact that the jury was allowed to consider whether or not the defendant acted in bad faith after finding that there was no breach of the insurance contract.

Deliberation

four days.

Length

27 days