California Supreme Court Rules Companies Can Be Sued

November 7, 2001

The California Supreme Court ruled on Nov. 5 that insurance companies may be sued in their failure to cover damage that their adjusters mistakenly overlooked, even if the legal deadlines for such lawsuits have expired.

According to a report in The Los Angeles Times, in a case resulting from the 1994 Northridge earthquake, the court decided that a quake victim whose insurer discovered only minor losses may now go to court to look for reimbursement for hundreds of thousands of dollars in damage discovered at a later date.

Policyholders in such instances must prove only that they did not file a lawsuit or second claim sooner because they “reasonably relied” on the insurance company’s evaluation of the damage. Policyholders typically have a year based on state law to sue an insurer following a loss or denial of a claim.

A number of attorneys indicated that the decision will make insurance adjusters more careful in evaluating losses.

Jerry Whitfield, a spokesman for California Insurance Commissioner Harry Low, commented that the ruling was significant because it clarifies that insurers may be sued if their adjusters mistakenly underestimate damage. Evidence of fraudulent misrepresentation is not required, he added.

Attorney Glenn Kantor, who represented the plaintiff in the case, said the decision will affect thousands of insurance disputes, noting it solidifies the insurance company’s obligation to thoroughly and fairly look into claims. If not, Kantor indicated they cannot hide behind the statute of limitations.

The ruling also will affect insurance disputes that are unrelated to the Northridge earthquake, including claims for fire and other kinds of damage.

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