Court Overturns Judgment Against Lloyd’s

A state appeals court has overturned what was believed to be the largest bad-faith punitive damages award in California history, a $106-million judgment against Lloyd’s of London and other insurers.

The 2nd District Court of Appeal in Los Angeles on Tuesday reversed the highly publicized 1993 verdict on grounds that the judge who presided over the two-month trial gave the jury an erroneous instruction that was “clearly prejudicial” to the defendant, Amoco Chemical Co.

Amoco sued its insurers in 1991 for failing to reimburse it for more than $40 million in legal costs. The costs arose from lawsuits over allegedly defective fiberglass pipe the company had sold to municipal water and sewer districts in the mid-1980s.

After Amoco’s attorney described “a six-year stonewall” by the insurers, a Los Angeles County Superior Court jury awarded Amoco $35 million in compensatory damages plus a stunning $386 million in punitive damages. The trial judge, Ernest M. Hiroshige, later reduced the punitive damages to $71 million.

The appeals court overturned the entire $106-million award, however, ruling that Hiroshige had failed in his instructions to jurors to properly define the word “accident.”

The insurers argued that their policies did not cover design or manufacturing flaws in Amoco’s pipe, but because of the faulty instructions, the jury believed that any leaks in the pipe were accidental and thus should have been covered, the appeals court ruled.

The case was sent back to the trial court, where Lloyd’s attorney, Deborah Pitts, said she is “confident that we will obtain a ruling that there is no coverage for these claims.”

Amoco’s lawyers could not be reached for comment Thursday.