Policy Limits Not Enough
Sometimes a person is not satisfied even when the insurer pays the insured everything that the policy promised to pay. Thomas v. Fire Insurance Exchange, Not Reported in Cal.Rptr.3d, 2015 WL 274068 (Cal.App. 6 Dist., 1/21/15) was just such a case that was filed even after the insurer paid its full policy limits.
Plaintiffs Anthony G. Thomas and Wendi Thomas (the Thomases) sued their homeowner’s insurer, defendant Fire Insurance Exchange (FIE), and their insurance broker/agent, defendant Edwin Higashi, for negligence, negligent misrepresentation, and conversion after their home and its contents were destroyed by fire. FIE had paid the Thomases the full policy limits under their homeowner’s insurance policy (the policy) for the dwelling and the full policy limits under the policy for the contents of the dwelling.
The Thomases claimed that Higashi had assured them that their policy would cover more than $20 million in loose emeralds and other collectibles stored in their home even though the policy’s contents limit was $207,750. The Thomases also claimed that FIE had negligently failed to secure the property after the fire and had taken some of the Thomases’ property from the debris.
The action was tried to a jury, and the jury returned a defense verdict.
On appeal, the Thomases make two claims of prejudicial error. They challenge the trial court’s exclusion of evidence that the Thomases’ dwelling had been undervalued by FIE for insurance purposes and the trial court’s response to a jury question during deliberations about FIE’s liability for actions taken by the salvage company that FIE hired to sift through some of the debris from the fire
The Thomases obtained a homeowner’s insurance policy from FIE through Higashi for their Morgan Hill residence. The policy limit for the dwelling was $277,000, and the limit for personal property was $207,750. A “personal article floater endorsement,” for which the Thomases paid an additional annual premium of about $650, provided $45,935 in coverage for several specific items of jewelry. The jewelry endorsement was the result of the Thomases obtaining supplemental coverage each time they acquired another item of jewelry. An appraisal was required for each jewelry item, and the premium increased for each item. Another of the policy’s endorsements provided coverage of $200 per card and $1,000 “in the aggregate” for “sports cards.”
THE PROPERTY CLAIMS
The Thomases had a large collection of sports “memorabilia” that they stored in their garage. This collection included hockey cards, baseball cards, and football cards that Anthony Thomas (Anthony) valued at $50,000 or $60,000. Anthony testified that he also had a collection of around 8,000 “cut and polished” emeralds weighing nearly 13 pounds, most of which he stored under a piece of plywood in his attic. Although he testified that he had acquired these emeralds for just under $300,000 (most of it in cash), he claimed that the emeralds were worth $25 million. Anthony stored about 100 of his emeralds in a gun safe and a few in his bedroom. He testified that he stored most of his emeralds in his attic because he wanted to ensure that even if someone stole his gun safe the thief would not get most of his emeralds. Anthony also had two emerald statutes.
The Thomases’ home was destroyed by fire on August 13, 2006 while they were on vacation. The Thomases immediately made a claim under their policy. By the day after the fire, the remains of the Thomases’ dwelling had been bulldozed at the direction of firefighters due to safety concerns. A neighbor retrieved the Thomases’ gun safe from the debris, and it was returned to Anthony. The day after the fire, a fire investigator visited the scene and saw nothing “salvageable.” Kristena Wilk, FIE’s claims adjuster, was assigned to the claim the day after the fire. When she inspected the site on August 16, she found piles of debris scattered around portions of the two-acre lot where the Thomases’ dwelling had been. She saw nothing salvageable or of value in the debris.
FIE hired ServiceMaster, a restoration company, to do some sifting of the debris on the property to see if any items could be recovered. The sifting occurred on August 29, 2006. A few items were found, and ServiceMaster took custody of some of these items to store for the Thomases to later retrieve. FIE ultimately paid the Thomases the $207,750 contents policy limits and $37,435 for the two of the three items of jewelry covered by the floater endorsement that had been lost in the fire.
Exclusion of “Undervalued Homes” Evidence
Both Higashi and FIE moved in limine to exclude evidence concerning the adequacy of the policy’s dwelling limits. The Thomases’ claims concerning the policy’s coverage for the dwelling had been settled. The settlement agreement included a release under which the Thomases released FIE and Higashi “from any legal theory that argues that the limits for anything other than the Coverage C—Personal Property portion of the claim are or should be different than on the declarations page … except the Coverage C Personal Property portion of the claim and all causes of action pertaining to the Coverage C Personal property claim….”
FIE sought exclusion of any evidence regarding the policy’s coverage limit for the dwelling including “allegations of under-insurance of the dwelling.” FIE’s motion identified as its targets an “ ‘undervalued homes report’ “ and certain potential testimony by Anthony’s brother. The “Undervalued Homes Report” was single-page list of about 50 FIE “insureds [including the Thomases] who had purchased their policies from defendant Higashi [and] who were possibly underinsured.” Higashi had been questioned at his deposition about this report. In a recorded statement, Higashi had stated that he believed that he had accurately valued the Thomases’ property using FIE’s computerized system based on the information available to him at that time.
An insurance expert testified at trial that the FIE contents coverage limit “is automatically 75 percent of” the dwelling coverage limit. Another insurance expert testified that the premium for a policy covering $25 million in jewelry would be about $300,000 per year. He explained that an insurance agent will generally be motivated to sell more coverage because the agent gets a portion of the premium. The only reason an agent would have for “underinsuring property” would be “to present a more attractive price to the insurance buyer.”
The evidence that the trial court excluded had very little, if any, probative value on the issues alleged by the Thomases in their operative complaint on the causes of action that went to the jury. The Thomases alleged that Higashi and FIE were liable for negligence because they had a duty to provide the Thomases with “full replacement cost insurance coverage,” represented that they had done so, but had failed to do so. They alleged that Higashi and FIE were liable for negligent misrepresentation because Higashi had affirmatively assured the Thomases that their emeralds, worth more than $20 million, “were already covered for their full replacement value under the terms of the Policy” and did not require “additional coverage,” that their other personal property was “insured for full replacement cost under the policy [,] and that their insurance coverage was adequate regardless of the specified limits.”
The determination of whether the Thomases’ dwelling was actually undervalued would have necessitated the presentation of a great deal of evidence on an issue that did not directly address any of the Thomases’ allegations. And, as the defense pointed out, it would confuse the jury because no questions concerning the policy’s dwelling coverage were before it.
While there could have been factual questions about whether ServiceMaster engaged in tortious conduct that caused harm to the Thomases, any such questions were not among the issues before the jury in this trial. Under these circumstances, the trial court did not prejudicially err in providing a response to the jury that properly excluded this unpleaded, untried, unargued issue from the jury’s purview.
The plaintiffs in this case knew that they needed a special coverage for jewelry with appraisals setting the value if they wished to exceed the policy limits scheduled in the policy. Had they advised FIE at the time they acquired the policy that present in the house was over $25 million in jewelry neither identified, appraised nor described the probability that a single loss would have been a total loss even if the house was only slightly damaged. A $25 million jewelry policy could have been obtained but not from FIE. It would require a surplus line broker, an appraisal, and a great deal of security. The premium could easily have been three percent of the value. The claim is obviously suspicious and since the insureds were paid the policy limits their suit was, in my opinion, frivolous.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available.
Mr. Zalma e-book, “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Diminution in Value Damages – 2013,”“Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.