$8 Million Awarded in Quake Claim

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 their claim for damage to a multimillion-dollar art collection by the Northridge earthquake.

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. on Wednesday. The couple sued the insurance company over its refusal to pay for quake damage to 15 pieces of their collection, including the $2.3-million oil painting “Expressionist Head” by pop artist Roy Lichtenstein.

“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 described the jury’s punitive damage award as “unjust” and said that the Novato-based company plans to appeal.

“We are very disappointed with the results of the case,” said John Kozero, a company spokesman. “The court’s ruling took away issues that the jury should have been permitted to consider.

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 for negligence and breach of contract after Fireman’s Fund refused to pay for the quake damage.

The couple had purchased the Lichtenstein painting from a New York art dealer for $75,000 in 1980, when it was first offered for sale and they were starting their art collection. Over the years the painting’s value grew, as have the values of 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, then worth $3.2 million, suffered several scrapes and damage to its canvas when the wire it was hanging from on their living room wall broke during the Northridge earthquake.

But Fireman’s Fund denied the claim, saying that the Freedmans’ policy excluded quake damage.

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, said Friedman, 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 earthquake damage was unenforceable and instructed the jury that its job was to decide whether the art was damaged, and the jury declared that it was, Friedman said.

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

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

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

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