Probe of Insurance Firm’s Conduct OKd

A federal judge has rejected the bid of the nation’s eighth-largest insurance company to dismiss a suit charging that it failed to honor a claim made by a Hancock Park couple after their home was devastated by fire in December, 1990.

U.S. District Judge William F. Nielsen also granted the couple’s attorneys the right to subpoena records of United Services Automobile Assn. and to take depositions of officials of the Texas-based company about contradictory positions that USAA has taken in court for many years in an apparent attempt to eliminate bad-faith suits.

The litigation tactics of USAA emerged in a suit against it by U.S. District Judge Laughlin E. Waters and his wife, Voula, whose home was severely damaged by fire. The couple filed a suit in U.S. District Court in Los Angeles last July, alleging that USAA acted in bad faith by stonewalling them when they filed a claim after the fire.

Their suit states that there is federal jurisdiction because they are California residents and USAA is a Texas corporation. But USAA contended that it is an unincorporated association with 280,000 members in California--its policyholders--and thus the case did not belong in federal court.

But the Waters’ attorney, William Shernoff of Claremont, responded by citing 172 instances in which USAA had taken contradictory positions on its corporate status, arguing to state and federal judges that it was being sued in the wrong court--while at the same time failing to reveal that it had argued the other way in previous cases.