Suppose your business is destroyed by fire or some other catastrophe? You have lost the building where you operated and all the furniture, equipment, records and inventory needed to stay in business is now gone. You are heartbroken. All the work you put into making your business a success.

But wait, as bad as the loss is, you have INSURANCE. As part of your normal business expenses, you insured your business and that gave you the peace of mind to know that if such a catastrophe occurred, you would be provided with the resources to get operating again.

NOT SO FAST!! While you paid all your premiums on time and were assured by your business insurance company that they “had your back,” you get a letter from their lawyer telling you that you shouldn’t have bought the coverage in the first place because you didn’t own, but rather were leasing the building where your business was located.

THEY ARE TELLING YOU THAT YOU HAVE NO COVERAGE AND THEY RETURN YOUR PREMIUM PAYMENTS TO YOU.

Who Should Provide Fire Insurance Coverage; The Owner or the Lessee?

This is sadly a set of facts that our client, an automobile dealer, faced after a fire destroyed his business in 2014. No matter how he pleaded with the insurance company to change its mind, its attorney told him that he didn’t have an “insurable interest” in the building and that it was up to the building owner to provide fire insurance. Our client was upset and brought the matter to attorneys who handle insurance issues like these.

It took almost five years, and the grit and determination of our client to get the matter before a jury in Monterey County Superior Court.

Should The Insurance Company Have Written The Policy?

In representing our client, we took the position that his business did have an “insurable interest” in the building where it was located because our client had franchise agreements with auto manufacturers which required him to operate from that location. Additionally, the insurance company knew when it wrote the policy, and later renewed it, that our client was a tenant and not the owner of the building. We also argued that, if the insurance company believed at that time that our client did not have an interest in the property, the company never should have written the policy in the first place or accepted our client’s premium payments.

In the discovery phase of the lead up to the trial, we found out that the insurance company’s underwriting department, the part of the company that accesses risk and determines if the company should write the policy, had been informed that a nearby trailer park posed a significant risk of fire to our client’s property. Nonetheless, the company violated its own underwriting standards and issued the policy anyway, even going so far as to renew it after twelve months. Additionally, the insurance company knew that our client had a lease on the building, but never reviewed it to determine whether our client or the landlord was responsible to purchase insurance for the building.

Nonetheless, with all these red flags in its file, the insurance company issued a fire policy and only when a catastrophic fire occurred, putting our client out of business, did the company determine that our client should not have purchased the policy.

Finally, and most poignantly, we discovered an e-mail where, on the very first day the insurance company’s adjuster inspected the fire scene, the CEO of the company okayed an e-mail indicating that the company might be able to “walk away” from the loss. This was startling due to the fact an insurance company, under California law, must give equal weight to its insured’s interest as to its own.

The Verdict

After a trial lasting a full month, the jury returned a verdict giving our client the full value of his “insurable interest” and additionally found the company had acted in bad faith and with malice, fraud, and oppression. As a result, the jury was asked to evaluate the amount of punitive damages to award the plaintiff on the grounds that such an award would punish the company and ensure it would not act in such a manner again.

During deliberations, the jury sent a note to the judge asking for information about the total compensation package the CEO of the insurance company had been paid in 2018. That gave us an idea of how mad and upset that the jury was with the conduct of the company.

The jury returned a verdict awarding our client the sum of Six Million Two Hundred Forty Thousand dollars ($6,240,000). When attorneys’ fees and interest are added, the entire verdict will reach over $9,000,000.

If you have been injured by similar bad faith acts by an insurance company, please contact the Biegel Law Firm at 831-373-3700.