Huge Judgment Against Farmers Is Overturned

A state appeals court has overturned a $58-million judgment against the Farmers Insurance Group of Companies and one of its members, reversing one of the largest jury awards in county history.

The Fourth District Court of Appeal ruled that Truck Insurance Exchange and its parent company, Farmers Insurance, were not obligated to cover an Orange County-based engineering firm, Marmac, its founder and four stockholders in a third-party lawsuit.

The ruling, handed down last Thursday, reversed a 1991 Orange County jury verdict that Truck Insurance Exchange and Farmers acted in bad faith and committed “malice, fraud or oppression” toward the engineering firm and the others, who contended that their insurance company failed to honor a liability claim.

“This completely vindicates the fundamental position of Farmers and Truck Insurance Exchange, members of Farmers Group, that there was no coverage provided for the alleged loss of the plaintiff and thus no basis whatsoever for the original judgment,” John C. Millen, a spokesman for Farmers Insurance, said Monday in a statement.

William H. Ford III, who represents Marmac founder James R. Waller Jr., said the decision will be appealed to the state Supreme Court.

“We remain extremely confident that all of the numerous bases of bad faith and every penny of the award will ultimately be upheld,” Ford said in a statement. He said he believes the appeals court erred in basing a large part of its decision on a relatively new appellate ruling that he described as “flawed.”

The case began in 1986 when Waller sold his Marmac 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 was exonerated in a trial stemming from the initial lawsuit.

Meanwhile, the firm and officials said they were unable to get Farmers and Truck Insurance Exchange to honor their claim. They filed suit against their insurer in 1987.

Following the end of a 10-week trial presided by Judge Byron K. McMillan in 1991, an Orange County jury awarded $62 million, mostly in punitive damages, to the plaintiffs. A juror at the time said she hoped the verdict would serve as an example that “insurance companies have to look out for their policyholders.” The judgment was later reduced to just over $58 million.

In its decision, the appeals court cited previous rulings that say an insurer’s duty to defend policyholders in lawsuits is not absolute, but depends on the nature and kinds of risks covered by the policy. In Marmac’s case, the court ruled that its insurance policy did not cover the liability claim being made.

The court reversed all the judgments and ordered the Superior Court to enter a judgment in favor of Truck Insurance Exchange and Farmers.