Art Damage Award: $8 Million

A jury has ordered an insurance company to pay more than $8 million--including $5 million in punitive damages--to a Santa Monica couple for refusing to honor the couple’s Northridge earthquake damage claim.

At issue was 15 pieces of the couple’s multimillion-dollar art collection, including the $2.3-million oil painting “Expressionist Head” by pop artist Roy Lichtenstein.

The Los Angeles Superior Court jury awarded Gary and Donna Freedman the punitive damages and $900,000 in attorney’s fees Monday after granting their $2.5-million damage claim against Fireman’s Fund Insurance Co. last Wednesday.

“I think this jury was telling the insurance industry that no matter who the policyholder is and no matter how wealthy they may be, they expect the insurance company will treat people with decency and respect and not withhold benefits without good cause,” said Bruce A. Friedman, the couple’s attorney.

A spokesman for Fireman’s Fund--which contended that the Freedman’s policy excluded quake damage--described the jury’s punitive damage award as “unjust” and said the Novato, Calif.-based company plans to appeal.

“We are very disappointed with the results of the case,” spokesman John Kozero said.

Of the damage to the 5-by-6 foot “Expressionist Head,” Kozero said: “There was a minor scratch in this painting that could easily have been remedied through art restoration, which can perform miracles on damaged art.”

The Freedmans had taken out an all-risk policy for their collection of paintings and ceramics from American Business Insurance Brokers in Encino, which sold them the Fireman’s Fund policy.

The Freedmans sued both companies in May 1994, four months after the quake, for negligence and breach of contract after Fireman’s Fund refused to pay for the damage.

The couple had purchased the Lichtenstein painting from a New York art dealer for $75,000 in 1980. The painting’s value grew, as have many pieces by Lichtenstein, whose works have been auctioned for as much as $6 million.

The couple contended that the painting, which at the time was the centerpiece of their collection, suffered several scrapes and damage to its canvas when a hanging wire broke during the earthquake.

American Business, which was subsequently purchased by Acordia Insurance Services, settled with the Freedmans for $1 million last year and was dropped from the lawsuit, according to the couple’s attorney. A spokesman for Acordia would not confirm or deny that there was such a settlement.

Fireman’s Fund, however, let the case go to trial, where a judge ruled that the policy’s exclusion of the art collection was unenforceable and instructed the jury to decide whether the art was damaged. The jury declared it was, the couple’s attorney said.

Plaintiff Gary Freedman, a Santa Monica attorney, declined Monday to comment on the jury’s award. But in an interview in 1994, Freedman said he was shocked when an insurance adjuster from Fireman’s Fund said he had no coverage for his art collection.

According to the lawsuit, Freedman called his broker at American Business and was told that his policy did not exclude earthquake damage. The agency sent a letter to Fireman’s Fund stating as much.

Nevertheless, Fireman’s Fund denied the claim, the lawsuit alleged. Freedman said he was told by the company that an amendment had been added to his policy excluding earthquake damage.

Freedman said American Business apparently discovered a copy of the amendment to the 1992 policy in its files when the dispute began. He contended that he had not been told of the amendment until after he filed his claim.

Freedman’s lawyer said he proved that after the Loma Prieta earthquake in 1989, Fireman’s Fund ended up paying $600,000 to between 75 to 100 policyholders who had made claims for fine art damage but were initially told by the insurance company that their polices excluded quake damage.

Said trial attorney Friedman: “I think that was a factor in the punitive damage award--that they knew there was a problem and didn’t change their practice.”

Kozero said his company has never released “numbers on that matter.”