Jose Lugo and Esperanza Lugo v. Allstate Insurance Co.
Published: Jan. 30, 1999 | Result Date: Oct. 19, 1998 | Filing Date: Jan. 1, 1900 |Case number: 96AS03475 Verdict – $3,275,000
Judge
Court
Sacramento Superior
Attorneys
Plaintiff
Paul P. Burdick
(ADR Services)
Defendant
Ross R. Nott
(Spinelli, Donald & Nott)
Experts
Plaintiff
Jeff Mooresh
(technical)
Bernard Boyd
(technical)
Doug Allen
(technical)
Thomas J. Corridan
(technical)
Joseph Kelly
(technical)
Defendant
Gordon Neuman
(technical)
Wayne Miller
(technical)
Paul Hamilton
(technical)
Harry Powell
(technical)
Facts
Plaintiffs Jose and Esperanza Lugo were residents of the small rural town of Chester in Plumas County. Jose Lugo, the owner of an automotive repair shop, had been personally remodeling the family residence in stages over the twelve-year period. On March 18, 1995, he was repairing the duct work leading from the diesel fuel furnance in the utility room of the home when he stepped on the copper supply line feeding the furnance. The supply line broke causing diesel fuel to leak onto the floor of the utility room. While he was attempting to stop the leak, an automotive drop light he had placed on the top of the furnance fell off the furnance. The light bulb broke next to a piece of paper backed insulation that had gotten wet from the diesel fuel leak. The broken light bulb ignited the piece of paper backed insulation and the utility room was shortly thereafter engulfed in fire. Jose Lugo called 911 from his neighbor's home, and the Chester Fire District responded within four minutes of the call. The fire spread rapidly because the majority of the home was not sheetrocked but rather consisted of open studs with insulation covered by plastic Visquene. The home and all of the family's personal contents were totally destroyed by the fire. The local fire chief performed a routine investigation after the fire and determined that the fire was caused by the accidental occurrence described by Jose Lugo. Jose Lugo reported the fire to his homeowner's insurance carrier, Allstate Insurance Company. The claim was assigned to the Roseville Market Claims Office. Pursuant to its usual practice, Allstate retained an independent fire cause and origin investigator to determine how the fire had started. The responsible adjuster described the reported circumstances to the fire investigator, Harry Powell, of Ron Hall and Associates. The fire investigator immediately responded by stating, "that event does not sound likely - those circumstances would be difficult at best." Powell and his employer, Ron Hall & Associates, had a long standing, pre-existing relationship with Allstate, having investigated approximately 100 fires for Allstate over the prior ten year period. Harry Powell went to the scene with an accelerant detecting canine. The dog "alerted" at various sites throughout the home. On the basis of these alerts, and Powell's interpretation that the burn patterns were produced by flammable liquid pours, he concluded that the fire was intentionally set and had multiple points of origin. On the basis of the dog's alerts, and Powell's interpretation of the burn patterns, he persuaded the local fire chief that this was a case of arson. The chief changed his opinion from accidental occurrence to arson and he brought the case to the Plumas County District Attorney's office for prosecution. The homeowners' insurance claim was then assigned to Alltstate's "Special Investigation Unit". In May 1995, a criminal complaint was filed against Jose Lugo alleging the felony offenses of arson and insurance fraud. Harry Powell testifed for the prosecution as its fire cause and origin expert at the preliminary hearing. Jose Lugo was held to answer on the basis of Powell's testimony and the fire chief's testimony. Allstate wrote to the Lugos' advising them that their Proof of Loss was rejected because it was excessive and undocumented. It advised the Lugos that because the fire was considered to be arson, that the Special Investigation Unit was now involved. It requested an Examination Under Oath. It neither denied or affirmed coverage. It thereafter paid the Lugos $600 per month for Additional Living Expense benefits, but it paid nothing under the contents portion of the policy or under the dwelling portion of the policy. Because Jose Lugo was forced to hire criminal defense counsel and his own fire cause and origin experts to defend against the criminal charges, he could not afford to keep up with his mortgage payments on his home. *** (FOR MORE FACTS)
Settlement Discussions
The plaintiffs demanded $5 million at the mandatory settlement conference. Allstate made a C.C.P. º998 offer of $50,000 ten days prior to trial. Prior to the commencement of the punitive damages phase of trial, plaintiffs demanded $2.5 million. Allstate rejected the demand and made no offer.
Damages
The plaintiffs claimed they suffered the loss of the dwelling benefits of the policy in amounts ranging from $100,000 to $150,000 depending on the approach to valuation. The plaintiff's attorney suggested to the jury that $150,000 in general damages for emotional distress for each plaintiff was reasonable. The plaintiffs claimed that Allstate's conduct was malicious, oppressive and fraudulent such that punitive damages were warranted. The plaintiffs then established that Allstate had net, after tax earnings in 1997 of $2.5 billion and net worth as of 1997 of $13.1 billion. The plaintiffs' counsel suggested that an appropriate award to deter future conduct and to set an example would be something between one day's net earnings ($6 million) and 1% of net earnings ($25 million).
Injuries
The plaintiffs claimed that they were deprived of the replacement cost benefits of the dwelling provisions of the policy and that they suffered emotional distress as a result of Allstate's bad faith claims handling and the loss of their home in foreclosure.
Result
*** (CONTINUATION OF FACTS) The home was lost in foreclosure in December 1995 despite that the mortgagee, Ford Consumer Finance, gave Allstate notice of the impending foreclosure sale and requested Allstate to bring the mortgage current. The homeowners' policy contained a standard mortgagee clause which protected the mortgagee regardless of the intentional acts of the named insured. The Lugos filed the lawsuit against Allstate, Ron Hall & Associates, Harry Powell and Canine Detection Services, Inc. in June 1996, alleging causes of action for bad faith, breach of insurance contract, civil conspiracy, negligence and intentional infliction of emotional distress. The criminal case proceeded by way of court trial wherein Jose Lugo was found not guilty of all charges in September 1996. Powell testified for the prosecution as its expert on fire cause and origin. He sat through the entire trial and assisted the prosecutor in cross-examining the defense experts. All of his time in assisting the prosecution was paid for by Allstate. Two weeks folowing the acquittal, in early October 1996, the Lugos submitted to an Examination Under Oath conducted by Allstate's coverage counsel. Despite the acquittal, Allstate still had not affirmed coverage. Despite repeated demand by the Lugos' counsel that Allstate communicate its position on coverage, Allstate still had not made a coverage decision by January 1997. Finally, in early March 1997 (five months after acquittal), Allstate, through its bad faith defense counsel, informed the Lugos, through their counsel, that it would pay the policy limits of $132,000 on the contents portion of the claim. Allstate denied any coverage for the benefit of the Lugos under the dwelling portion of the policy contending that the home had no value at the time of the fire cause of numerous and substantial building code violations. This position was based on the opinion of Allstate's retained real estate appraiser who was specifically instructed by Allstate's adjuster not to use the "cost approach" in determining the fair market value of the home. Allstate ultimately settled the independent claim of the mortgagee, Ford Consumer Finance, for the sum of $67,500 on its $86,000 loan. By permitting the home to be lost in foreclosure, Allstate was able to settle the claim with the mortgagee for the fair market value of the dwelling as opposed to paying the Lugos for the full replacement costs of reconstructing the home. On these facts, the Lugos ultimately dismissed their claims against Canine Detection Services (the owner and handler of the accelerant detecting canine) because it was uninsured. They settled with Powell and his employer, Ron Hall & Associates, on their claims for civil conspiracy, negligence and intentional infliction of emotional distress for the sum of $112,500. The case proceeded to trial against Allstate only on the cause of action for breach of the covenant of good faith and fair dealing.
Other Information
The verdict was reached approximately two years and four months after the case was filed. The defendant's motion for new trial, judgment notwithstanding the verdict and remittitur of the punitive damages award were denied. The plaintiffs' motion to add attorney fees and non-statutory costs to the judgment were granted. The additional sum of $112,769.51 for fees and costs were added to the judgment. After credits for the pretrial settlement, the total judgment rendered against Allstate was $3,280,207.01. Allstate has filed its Notice of Appeal.
Deliberation
three days
Poll
10-2 (bad faith), 10-2 (compensatory damages), 11-1 (punitive damages)
Length
seven weeks
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