Torrance Sues Its Insurer for Refusing Payment on Claim

Torrance city officials, outraged that their insurance carrier has refused to pay a $7.7-million judgment against the city, filed suit against the company Wednesday in Los Angeles Superior Court.

The judgment was ordered in the highly publicized case in which a 19-year-old San Pedro youth was killed in a 1984 traffic collision with off-duty Torrance Police Sgt. Rollo Green. Jurors found that the Police Department covered up for Green.

In its lawsuit, the city alleges that Protective National Insurance Co. of Omaha, Neb., and its parent companies have cheated a number of California cities and counties in recent years by refusing to make payments on legitimate claims. The other municipalities include the cities of Fullerton and Hawthorne and Sacramento County.

The company “has engaged and continues to engage in a pattern and practice of fraudulent and illegal activity . . . in order to retain for itself and its members funds that are legitimately owing to its insureds,” the suit contends.

The suit, which alleges fraud, breach of faith and breach of contract, also cites federal anti-racketeering laws.

“You have a financially strapped city that bought insurance against this very thing,” said David Pettit, one of the attorneys who filed the suit for the city. “Now Protective National has just walked away from their responsibilities.

“This is one of the worst bad-faith cases I’ve ever seen.”

The lawsuit charges that Protective National has acted deliberately to withhold money from a number of agencies holding its policies.

Protective National vice president Jack Gaffigan, who signed a Sept. 27, 1989, letter rejecting the city’s claim, refused to comment and referred questions to Los Angeles attorney Robert Baker. Baker’s secretary said he was out of town and unavailable for comment.

In the Rollo Green case, which went to trial last year, a Los Angeles Superior Court jury found that the Police Department covered up for Green, who had been drinking before the accident, by delaying a field sobriety test for more than an hour and by failing to measure Green’s blood-alcohol level. The jury also concluded that the cover-up followed a Police Department “custom and policy” of condoning misbehavior by officers.

The judge in the case later ordered the city to pay an additional $2.1 million in fees and expenses to attorneys for John Rastello, whose 19-year-old son, Kelly, died in the 1984 collision.

The city has been forced to set aside nearly $12 million of its own money--the cost of the judgments plus any interest that might accrue--while it appeals the case, Pettit said. Protective National early this year reimbursed the city for the $67,000 cost of the appeal bond.

Torrance officials charge that Protective National, which carried a $20-million policy for the city from 1982 through 1984, selected and paid the attorneys who defended the city and rejected numerous settlement offers before, during and after the trial.

Immediately after the jury’s decision, Rastello’s attorneys offered to accept $7.5 million, including all fees and expenses, to avoid the additional cost of an appeal.

Torrance officials say they demanded that Protective National accept that offer, but the insurance company refused.

Two weeks later, Gaffigan sent a letter to the city saying that Protective National would not pay the judgments, alleging that the jury’s verdict was based on a finding that the Police Department and the officers had committed intentional acts.

The letter said Torrance was insured only for accidents.

But Torrance’s attorneys, who dispute the company’s contention that the incident was intentional, said the point is moot anyway, because Protective National representatives in 1982 deleted a provision of the insurance policy that would have barred payment for intentional acts.

“They have made up this problem that doesn’t even exist,” Pettit said. “What we are alleging in this complaint is that they’re putting their own financial interests ahead of the interests of the insured.”

Shortly after the city received Gaffigan’s letter, attorney Baker notified Torrance attorneys that Protective National does not have enough money to pay the judgment.

Protective National, Pettit said, “has been pleading poverty . . . but we believe they have enough money to pay this claim if they want to.”

The company has been under state supervision for nearly four years, according to Nebraska insurance regulators, who have barred the company from writing any new policies since 1986.

Dan Quine, assistant chief examiner in the Nebraska Department of Insurance, said that as of March 31, the company reported net assets of $18.6 million.