FEBRUARY
13, 2015
Everest
Indemnity Insurance Co. was hit with a $4.5 million verdict after a Nevada
state court jury on Thursday said the insurer acted in bad faith by refusing to
cover a construction company’s defense costs in a class action stemming from a
levee collapse that caused the flooding of hundreds of homes.
Courtroom
View Network reported that jurors deliberated for only a few hours before
deciding that Everest had no basis for refusing to cover defense costs referred
to them by Matthews Homes, which held a $2 million commercial general liability
policy from the insurer, after Matthews was sued by a class of homeowners
claiming poorly designed drains exacerbated the effects of a flood in 2008.
The next
phase of the trial will consider punitive damages and is scheduled to begin Feb
20.
The
litigation began with the collapse of a levee in Fernley, Nev. in 2008. The
plaintiff class claimed the levee failed because of over pumping ordered by the
Truckee-Carson Irrigation District, but Everest said the levee’s walls gave due
to heavy rain, Courtroom View Network reported.
Everest
initially denied coverage on the basis Matthews’ contractor’s general
liability policy had expired at the time of the flood, but plaintiffs’
attorneys argued the insurer knew Matthews had tail coverage that would apply
to the flood even though the CGL policy ended in 2007.
After
acknowledging the error, Everest subsequently denied coverage because
of an earth movement exclusion in the CGL policy. That decision was made
in bad faith, because they failed to adequately investigate the cause of the
levee failure, plaintiffs said.
Everest
argued the company reasonably concluded the exclusion applied since the
movement of earth and soil caused the levee breach, and that the plaintiffs’
complaint states mud entered their homes. The insurer claimed the exclusion applied even
if earth movement is only one of several factors that cause property
damage.
Matthews
settled the underlying suit for $5 million in 2012, and as part of the deal the
class plaintiffs were assigned any breach of contract and bad faith claims
Matthews held against Everest.
Attorneys
for Everest did not respond to a request for comment from Courtroom View
Network.
The case is
Elizabeth Reimers, et al. v. Everest Indemnity Insurance Co. and is being heard
in the Second Judicial District Court of Nevada in Washoe County.