Some 18,000 policyholders are suing their insurer, The Hartford, in a breach-of-contract class action that accuses the company of systematically underpaying property-damage claims filed by California residents.
Ivo Labar, who practices insurance-coverage law at Kerr & Wagstaffe in San Francisco, is the lead attorney in the case, which he is handling along with colleague Michael von Loewenfeldt, an appellate attorney at the same firm.
The suit, Labar says, claims that The Hartford is “in violation of California law because it is taking depreciation on intangible items—like sales tax; or structural items, like foundations and framing, that are not normally replaced during the life of a structure.”
G. Grant Johnson, the lead plaintiff, filed a claim with The Hartford after a fire in 2013 damaged a 100-year-old commercial building, which he had renovated, located on Divisadero Street in the Lower Haight. The insurance company paid him $731,000, based on its determination of the “actual cash value.” Johnson’s suit claims that payment was too low because of improper depreciations on items including plumbing, drywall and insulation. Labar thinks Johnson should have received about $100,000 more than he did.
Johnson spent $644,000 repairing the damage to the lower two stories but has not repaired the third floor. The Hartford wanted the suit tossed, saying Johnson had not spent the full amount he had been paid.
“Our response is, ‘No, as a matter of law, it has nothing to do with what you spend,’” says Labar. “And in this case, Grant Johnson would say, ‘I spent less money because the insurance company strung me along and didn’t give me enough in the first place. So instead of replacing my framing with the redwood I originally had, I was forced to get something of a lesser quality.’ He also never fully completed his repairs.”
Federal Judge William H. Orrick agreed that what Johnson spent was irrelevant. He denied in May Hartford’s summary judgment motion and certified a class for trial.
Class discovery is currently under way, and Labar expects the case to go to trial in early 2019. It is limited to California class members because it is based on a state insurance code that prohibits depreciation of items that aren’t normally subject to repair and replacement.
“This state’s exceptional consumer-protection laws provide basic minimum protections for California residents,” says Labar. “Insurance companies ignore these consumer safeguards at their own peril.”
The case may have ramifications for other jurisdictions. “It sends a message to national insurance companies,” says Labar, “that they have to follow the law in local jurisdictions, even if it does not comport with their ‘national policies.’”