A Brawley jury returned a verdict in excess of $7.5 million dollars against Smith-Kandal Insurance Agency for its professional negligence in failing to provide proper insurance coverage for the Planters Hotel. After an 8-week trial, a civil jury found in favor of the owner of the Planters Hotel, Mr. Allen Earley, Trustee of the Allen Earley 1998 Family Trust. Mr. Earley was represented by Peter C. Ward and Steven M. Nunez of Ward & Hagen, LLP.
The historic Planters Hotel was a landmark structure that had stood on the town square in the heart of Brawley since the 1920’s but was tragically destroyed by fire in March of 2007. At the time of the fire, the Planters Hotel was covered by a $3.1 million insurance policy with Chubb Custom Insurance Company. Mr. Earley had obtained the policy through Henry “Hank” Kuiper, an agent employed by Smith-Kandal. A claim was promptly submitted, but it was denied by Chubb based on exclusionary policy language regarding “protective safeguards” and Mr. Earley was left without any insurance coverage whatsoever for the total loss of the Hotel.
Mr. Earley and his lawyers at Ward & Hagen sued Chubb for breach of contract and bad faith denial of the claim. During the course of discovery, it was learned that Smith-Kandal had made a number of serious mistakes and badly mishandled the insurance coverage for the Planters Hotel. One of the more momentous discoveries was the fact that just a few months before the fire, representative of Chubb Insurance had done an inspection of the hotel and had sent an email with its findings and recommendations to Smith-Kandal but that this information was NOT forwarded on to Mr. Earley. Significantly, this email notified Smith-Kandal that the Hotel was “very much underinsured” and included a cost estimate showing the actual reconstruction costs would be in excess of $6.2 million. Based on this reconstruction cost estimate, Chubb offered to increase the limits of the policy to an amount in line with the true value of the property. In breach of its duties, Smith-Kandal failed to notify Mr. Earley of the fact that the hotel was “very much underinsured” and did not ever communicate Chubb’s offer to increase the limits to $6.2 million.
The email also attached two reports, which included certain “recommendations” specifically addressing issues relating to the “protective safeguards.” The text of the email referenced the attached recommendations and stated that they “need to be complied with.” Once again however, the evidence showed that Smith-Kandal failed to forward these recommendations and did not advise Mr. Earley regarding the contents of the email or the findings in the reports. Instead of forwarding this email and discussing the issues with Mr. Earley, Smith-Kandal on its own advised Chubb NOT to increase the limits and actually agreed to change the policy from the superior Replacement Cost (RC) coverage to the lesser coverage afforded under Actual Cash Value (ACV). As a result of this, instead of getting $6.2 million as an RC benefit, Mr. Earley was faced with an outright coverage denial by Chubb based on his failure to comply with the “recommendations” that were never forwarded to him; he was limited to a maximum recovery of $3.1 million based on the inadequate limits; and his recovery was reduced under the inferior ACV method of valuation which Chubb argued was actually less than $2 million.
In the later part of 2009, Mr. Earley reached an out-of-court settlement with Chubb Custom Insurance but proceeded to trial as against the Smith-Kandal Insurance Agency. At the end of a civil trial that lasted approximately 2 months, the jury returned a verdict in favor of Mr. Earley in the amount of $7,553,559. After applying credits for the prior settlement reached with Chubb, a net judgment against Smith-Kandall was entered.
While pleased with the jury’s verdict, Mr. Earley states that it still does not fully make up for the damage done to his life and the local business community: “If Smith-Kandal had simply done its job and forwarded that critical email, I would have had the funds needed to immediately begin rebuilding on the Planters site and that money would have gone back into the local economy and created jobs and opportunities at a time when the community could really have used a little help – instead, I had to endure a 3 year legal battle to protect my rights while the whole time on the brink of personal financial ruin.”
Partner Peter C. Ward is honored for his work on the case with the 2011 Consumer Attorneys of San Diego Trial Stars Award.