Insurer Hit With $4.5M Class Action Bad Faith Verdict in Nevada

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.

contractorsThe 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.

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