Couple Get $17 Million in Fire Insurance Case

A jury Monday awarded $17 million to a Santa Ana Heights couple who contended that their insurance company tried to cheat them out of a fair settlement for their fire-ravaged home.

The verdict in Orange County Superior Court, which included $15 million in punitive damages, is one of the largest involving an insurance dispute over a fire loss, according to Santa Ana attorney Wylie A. Aitken, who represented the couple.

“This sends a clear message to insurance companies that they need to help people get back into their homes instead of stringing out negotiations,” Aitken said. “This verdict is especially significant in light of the Laguna fires.”

A lawyer for Federal Insurance Co. did not return calls seeking comment, but contended during the three-week trial that the insurer tried to deal fairly with the couple.

Aitken contended that the company put his clients, Lewis and Judith Schmid, through “every legal torture test” after their Santa Ana Heights home was nearly destroyed in an April 1991 fire started by a faulty electrical heater.

The Schmids requested $1.2 million to rebuild their home, where they had lived since 1969. They believed that the amount was within their policy limits, Aitken said.

The insurance firm, one of the giant Chubb Group of Insurance Cos., offered them about $700,000, according to the Schmids’ court papers.

The couple held firm, and during the next three years, the parties wrangled in a costly arbitration process.

The insurance company ultimately paid them about $1.3 million, and the Schmids moved into their rebuilt home last August.

The couple pursued a “bad faith” lawsuit against the insurance company, alleging that the firm had failed to make a “prompt, fair and reasonable settlement offer.”

Aitken said the insurance company probably “thought they were dealing with somebody they could starve out and save anywhere up to $500,000. They misjudged the fact that [the Schmids] kept fighting. So many people don’t have the wherewithal to stay and fight.”