Insurer Ordered to Pay Couple $7 Million

A jury Monday ordered 20th Century Insurance to pay a Tarzana couple $6.75 million in punitive damages because the company had refused to pay for Northridge earthquake damage to the couple’s home.

The award is believed to be the largest in punitive damages for any homeowner policy case stemming from the 1994 earthquake.

The Los Angeles Superior Court jury found 20th Century guilty of bad faith and fraud, and also ordered the company to pay $306,000 to cover home repairs and emotional distress suffered by James and Lorraine Meyer, plus $174,000 in attorney fees and expenses.

The total award in the Meyers’ case is $7.2 million.

James Meyer, who has been a public schoolteacher for 40 years, said the eight-week trial was exhausting. “I need some time. This has been a long thing for me. My health isn’t too good. I’m just not feeling too well,” he said.

His wife, Lorraine, who has been a schoolteacher for 23 years, said, “We hope we have saved others from the emotional, physical and financial pain we have suffered as a result of 20th Century’s unfair denial of our claim.”

The Meyers said they have made only the most basic repairs on their home because they don’t have the money to pay for the rest.

David Prestholt, one of the Meyers’ attorneys, said he hoped the verdict “will convince 20th Century to do the right thing on all the other cases out there. Pay them.”

In a statement, 20th Century’s spokesman Ric Hill said he was “very disappointed to learn of the verdict in the Meyer case.”

20th Century has paid out about $1 billion in quake claims, and Hill noted that less than 0.5% of the company’s 46,000 Northridge quake claims ended up in litigation. “We . . . continue to make reasonable efforts to resolve remaining claims,” Hill said.

The company would not comment on whether it plans to appeal.

But Tod Hindin, a Meyer attorney, said he expects “they will appeal it as high as they can go.”

If an appeal is filed, it may be two years before a ruling.

The Meyers’ case is similar to scores of other suits filed after 20th Century refused to pay for quake repairs based on its controversial interpretation of a one-year time limit to file a damage claim.

The issue of time limits has been a complicated legal matter. Last spring, state Insurance Commissioner Chuck Quackenbush, appearing at the Woodland Hills home of a woman who is suing 20th Century, came out in support of consumers who have been denied quake damage claims. He said various insurance companies were hiding behind an inexcusable interpretation of the one-year statute to avoid paying claims.

Since then, 20th Century has sued Quackenbush in an effort to stop him from issuing comment letters on specific quake damage lawsuits.

The Meyers story began in March 1994, two months after the temblor, when James Meyer talked to a 20th Century claims adjuster over the phone. According to Hindin, 20th Century’s claims adjuster told Meyer, “ ‘I’m an expert. The [home] damage is below the deductible. Don’t worry about it.’ If damage is found later, ‘We’ll consider the claim.’

“So they were lulled into a false sense of security,” Hindin said, even though no inspector was sent to look over the Meyers’ home.

More than a year later, the Meyers became concerned when a contractor told them about damaged plumbing and other serious quake-related problems throughout their home, Hindin said.

20th Century then sent out a claims adjuster to the home, and according to court documents, he found quake damage cracks in the foundation, swimming pool, fireplace, stucco walls and tile, and plumbing leaks.

But 20th Century denied the Meyers’ damage claim based on its interpretation of a one-year time limit. “[20th Century] said, ‘Sorry, you’re too late,’ ” Hindin said.

At the trial, several past and current 20th Century executives testified, including Paul Castellani, former head of the company’s claims department.

According to depositions before the trial, Castellani alleged that he was ordered by 20th Century’s then-chief executive, Neil Ashley, not to inspect every quake damage claim in order to save money. Instead, Castellani said, he was told to have claims adjusters call policyholders, and if they agreed their damage was below their deductible limit, not to inspect the home but to have them call later if they found more damage.

Castellani contends this went against the company’s own plan to inspect every quake claim. He also said quake claims are harder to process than wind or fire damage, and until homes were fully inspected, damage might be hidden.

Before Castellani left 20th Century, he issued an order that damage claims filed after the one-year anniversary of the Northridge quake would be paid based on the guiding principal of reasonable discovery. So that if quake damage had just recently been found, the company would probably honor the claim.

But in January 1995, 20th Centurybegan denying 1,500 to 2,000 “late” quake claims. 20th Century continues to settle many cases out of court, and now faces about 150 quake lawsuits.

Other insurers have also been sued over Northridge quake claims, including Allstate, State Farm and others.

In a case last year against Fireman’s Fund, a jury awarded a Santa Monica couple $8 million, including $5 million in punitive damages, for not honoring a Northridge damage claim on a policy covering their valuable art collection.

George Kehrer, founder of CARe, a nonprofit homeowners group, said the Meyer case indicates that “juries have more understanding of the homeowners’ plight and realize that 20th Century wasn’t the victim, but homeowners were victimized by the quake and by 20th Century.”