O.C. Jury Hits Insurance Firm for $62 Million

An Orange County jury Wednesday awarded $62 million--mostly in punitive damages--to a Cypress engineering firm and four individuals who contended that their insurance company failed to honor a liability claim.

At the end of a 10-week trial, jurors said they found that Truck Insurance Exchange and its parent company, Farmers Insurance Co., acted in bad faith and committed “malice, fraud or oppression” toward the engineering firm, Marmac, its founder and four stockholders in rejecting their claim for legal defense.

The huge award is one of the largest judgments ever in Orange County.

A Farmers spokesman said the company will file an appeal.

“It is an extremely excessive award and out of line with the facts of the case,” said John C. Millen, director of media relations for Farmers Insurance Group. “We would expect a more favorable decision upon appeal.”

The jury award constituted only about $1 million in actual damages and more than $60 million in punitive damages.

“We feel the insurance company really wronged all the plaintiffs, and this was going on for more than 4 1/2 years since they asked for defense,” said jury member Sheila E. Popely, a nurse from Fountain Valley. “It seems like an example has to be made that insurance companies have to look out for their policyholders.”

After seeing the assets of Farmers, Popely said, it was clear that damages of “1 or 2 million would not have made an impression.”

“This is hopefully to deter future things like this from happening,” she said.

In addition, the jury verdict contradicts recent trends to let insurance companies slip out of their responsibilities, said Jennifer King, past president of the Orange County Bar Assn.

“Everybody is taken in by insurance company propaganda that they are barely making ends meet,” King said. “When you see their books, it’s ridiculous. It’s important that any punitive damage be significant enough to hurt.”

The case began in 1986 when Marmac’s founder, James R. Waller of Huntington Beach, sold his stock to four buyers. When an unhappy minority stockholder sued, alleging a conspiracy between Waller and the buyers, the defendants sought to finance their legal defense through their insurance by filing a claim.

Waller, 58, was exonerated in the original trial, but the case against the others is proceeding in Orange County Superior Court.

Meanwhile, the defendants were unable to get Farmers to honor their claim.

“They slammed the door,” Waller said. “I waited almost a year in hopes it would get resolved, but it didn’t work. I couldn’t even get anybody to answer my letters or sit down and talk with me, period.”

Representing the plaintiffs, Brentwood attorney William H. Ford called Farmers’ rejection of the claim “economic knee-jerk,” saying the insurer did not honor the claim because of the expense.

“There was also sandbagging--nonspecific denial for the claim. ‘We’ll deny, but not tell you the reasons,’ ” he said.

Over four years, Ford said, the plaintiffs heard “serial denials. New and different reasons were coming all the time. All to defeat coverage and keep Waller out of court.”

Waller said, “They hoped I would go away. I just believed in a principle stronger than the cost.”

The suit was filed against the insurance company in 1987.

Farmers’ chief executive, Leo E. Denlea Jr., declined to comment.

Ford said he hoped the case would establish a legal principle. “The case will stand hopefully for the proposition that when an insurance company denies a claim, it must do so with specific reasons for the denial,” he said. “They can’t sandbag the insured, as done in this case.”

Waller said the jury’s decision vindicates his decision to persist with the suit: “Maybe in the future, insurance companies will stop, look and listen before they leap.”