Hotel Awarded $23 Million From Insurer

A Los Angeles Superior Court jury Tuesday ordered Harbor Insurance to pay $23 million in damages to a client hotel firm that the insurance company had pressured into sharing the burden of a multimillion-dollar personal injury settlement.

The case involved a 1977 diving accident in a swimming pool at a hotel owned by a subsidiary of American Motor Inns in the U.S. Virgin Islands that left a Navy man a paraplegic. According to court testimony, Los Angeles-based Harbor Insurance refused to settle for $2 million unless the subsidiary, Flamboyant Investment, paid $500,000 toward the settlement.

As a result, the case went to trial and the victim, Richard Utesch, was awarded $6.8 million. Because of the $6.8-million judgment, attorneys for the hotel company argued that the firm was unable for three years to qualify for financing for a planned business expansion and that it lost up to $20 million in revenue.

While the $6.8-million award was on appeal, Harbor Insurance offered the victim a $2-million settlement and the possibility of further compensation, if he would pursue additional settlement money from the hotel company’s subsidiary, according to testimony.

“One thing Harbor did wrong was that they failed to settle in the first place, and then they compounded the error by settling in a way that injured their own policyholder,” said William M. Shernoff, an attorney for American Motor Inns.

Shernoff said the bad-faith lawsuit was being monitored by the business community, “which is just beginning to awaken to the fact that insurance companies don’t treat businesses any better than they treat the little guys.”

He said he expects attorneys for the defendant to appeal.

Attorneys at Bodkin, McCarthy, Sargent & Smith, who represented Harbor Insurance during the month-long trial, did not return phone messages left by The Times on Tuesday.