Facts

On Aug. 26, 2012, a fire broke out in an outbuilding across the alley from the rear of the Mi Pueblito Market, owned by plaintiff Ibrahim Mohammed. The fire reached the back of the market, causing damage to plaintiff's property.

Plaintiff filed a claim with its insurance carrier defendant Leading Insurance Services Inc., which provides fire liability coverage, for loss including a 20 ft. x 20 ft., assembled walk-in cooler, valued at approximately $17,000, and the not yet assembled components of another walk-in cooler, valued at approximately $12,000. Leading Insurance denied plaintiff's claim and plaintiff filed suit.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that the initial denial of the claim was erroneous and in bad faith. Once the initial denial was retracted, plaintiff claimed that Leading Insurance's handling of the claim was improper and unreasonably delayed, and that it failed to pay all policy benefits due.

DEFENDANT'S CONTENTIONS:
Defendant Leading Insurance argued, that according to an investigative report of the fire cause and origin, the damage to the market's property was due to radiant heat exposure. The investigator wrote that the fire damage was isolated to the walk in cooler and that "no fire or heat damage was observed in the interior." The independent adjuster who responded to the loss on behalf of Leading Insurance reported that the owner of the market, Ibrahim Mohammed, advised that there were fixtures, equipment, shelves, parts, a freezer (working) and another freezer that had not yet been assembled, in the area where the fire occurred, and that none of his food stock was affected. Both the fire cause and origin investigator and the independent adjuster indicated that there was little to no damage to the building itself, and no damage of any consequence to the interior of the market.

After receiving the independent adjuster's report confirming that there was no sprinkler system or fire alarm at the insured premises, contrary to information contained in the application for the Leading Insurance policy and as required by the policy, Leading Insurance sent plaintiff a letter denying the claim because it failed to comply with requirements in the Protective Safeguards endorsement. In that letter, Leading Insurance invited plaintiff to bring to its attention any information it thought might affect Leading Insurance's coverage decision. Plaintiff did not respond to this letter, and Leading Insurance subsequently closed its file.

Leading Insurance claimed it heard nothing further about the denial until more than four months later, in January 2013, when it received a letter from plaintiff's attorney in which plaintiff disputed the basis of the denial and contended that the denial was improper and in bad faith. On Feb. 5, 2013, less than two weeks after sending the letter and without waiting for a response, plaintiff filed suit against Leading Insurance. After considering plaintiff's argument and the information provided by the fire cause and origin consultant, Leading Insurance elected to reconsider its decision to deny the claim. After doing so, Leading Insurance retracted its denial of the claim, despite the clear language of the policy supporting the denial. Leading Insurance reopened its file and re-commenced its investigation and evaluation of this claim, and issued to plaintiff a $50,000 advance, in large part to compensate for the damage to the two walk-in coolers.

On March 2014, Leading Insurance communicated its determination that plaintiff had already been substantially compensated for its loss with the $50,000 advance, but was entitled to an additional $5,350 in policy benefits. Included in the total of $56,350 (less the $1,000 deductible) paid to plaintiff was the supported replacement cost for two damaged walk-in coolers, a fence, some meat and produce, clean-up costs, and shopping carts and food displays.

Leading Insurance contended that its initial denial of the claim was proper and reasonable. It also contended that once that initial denial was retracted, it handled this claim properly and timely and that all of the issues and disputes that followed were caused by plaintiff and its attorneys, who essentially misrepresented and concealed material information throughout the process. Leading Insurance claimed that it paid all policy benefits that were due.

Settlement Discussions

Leading Insurance served a CCP 998 Offer to Compromise in the amount of $100,000. Plaintiff served a CCP 998 demand in the amount of $1.5 million.

Damages

Plaintiff claimed in excess of $200,000 in damage to its personal property, including damage to shelving, and a meat refrigerator inside the market. Plaintiff also claimed $444,000 in business income loss, in excess of $1 million bad faith, $587,151 in attorney fees, and $23,303 in costs.

Result

The jury awarded contract damages of $69,565, and bad faith damages of $2. The court denied plaintiff's claim for attorney fees, and awarded plaintiff $9,122 in costs under Brandt. The total amount awarded to plaintiff was $78,689.

Other Information

Leading Insurance claimed it was entitled to recover its costs of $55,501 because plaintiff did not recover at trial an amount in excess of Leading Insurance's CCP section 998 Offer to Compromise of $100,000. Plaintiff has moved to tax Leading Insurance's costs, and also has filed a motion for a new trial. Leading Insurance's motion for Judgment Notwithstanding the Verdict was denied. Plaintiffs' motion for attorney fees and costs under Brandt was denied with the exception that plaintiff was awarded $9,122 in costs. EXPERT TESTIMONY: Plaintiff's expert David Frangiamore testified that Leading Insurance's denial of the claim was not within industry standards. He also testified that once Leading Insurance initially denied the claim, notwithstanding its later retraction of that denial, the insured had no obligation to comply with any duties in the event of loss under the policy or California law. Defendant's expert Paul Hamilton testified that Leading Insurance's initial denial and subsequent position with regard to the claim were consistent with industry standards, that plaintiff did not satisfy its duties in the event of loss. FILING DATE: Feb. 15, 2013.

Deliberation

two days

Poll

9-3 (breach of contract), 9-3 (bad faith)

Length

18 days