Lompoc Developer Wins $85 Million in Insurance Dispute : Lawsuit: A Costa Mesa insurer is sued for breach of contract after it failed to pay claims arising from construction work on a condominium project.

An Orange County jury has awarded more than $85 million to a developer who sued a Costa Mesa-based insurance company for breach of contract after it failed to honor his policy.

The mammoth award came in a suit developer Louis A. Montalvo brought against American States Insurance Co. The jury last Friday awarded Montalvo, 74, of Lompoc, $80.5 million in punitive damages, $5.2 million for emotional distress, and $250,000 for breach of contract.

“The company did not honor its contract with a customer, and it just seemed as though this was the sort of thing that could happen to anyone,” said juror Charles Reince, 45, of Huntington Beach.

Montalvo’s attorney, Gerald L. Kroll of Beverly Hills, said he asked jurors for at least $80 million in punitive damages because that was 50% of American States’ investment income last year.

“We wanted a big enough award to make sure that it makes a difference and that (the company) won’t breach a contract again,” Kroll said.

Attorneys for American States, an affiliate of Lincoln National Corp. of Fort Wayne, Ind., could not be reached for comment. Bob Jones, a spokesman with Lincoln National, also declined to comment, saying only: “We intend to pursue all of our legal remedies and don’t agree with the verdict.”

Montalvo sued American States in March, 1991, alleging that the company reneged on its comprehensive policy contract bought in 1979 to provide indemnification if claims arose from his construction work on a condominium project in Lompoc. The project was completed in June, 1980, and was immediately occupied, court documents showed.

In March, 1990, Montalvo was sued by a group of homeowners at the condominium complex who contended that the work on the complex had been shoddy from the beginning and caused ongoing water leakage. Montalvo turned the case over to American States, asking for a defense and indemnification from the claims.

According to court documents, American refused to defend Montalvo, arguing that the defects occurred long after the policy had expired.

Last May, a Santa Barbara County Superior Court judge found that Montalvo’s work on the condominium project had been defective and ordered him to pay $1.7 million to the homeowners.

Based upon the Santa Barbara judgment that the defects occurred during the policy year, Kroll argued in Orange County Superior Court that American States breached its contract.