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Editor’s note: Robert Bruss passed away on Sept. 26, 2007. This was one of the last real estate columns he wrote. Inman News is publishing Bob’s last work as a final salute to the nation’s most well-known real estate writer.

Betty Jo Walker, age 76, and Linda Williams are lifelong friends who own a unit at the Village Green Condominiums. Walker’s income is $800 per month from Social Security. Williams’ income is $2,000 monthly from an office job.

Walker owned a 1990 Honda. As she was walking toward her detached garage to get her car, she pressed the remote control garage door opener. Another resident, Juanita Wasson, was struck by the garage door as it opened. She was thrown to the ground and suffered a broken hip.

Purchase Bob Bruss reports online.

Farmers Insurance Exchange insures the Village Green Homeowners Association (HOA). The “Condominium — Premier” insurance policy provides coverage for bodily injuries occurring in the association’s common areas such as the garage area.

The policy says an “insured” is each unit owner regarding that person’s liability arising from ownership, maintenance or repair of the common area owned by the HOA.

Several months after the accident, Wasson made a claim against the HOA, which reported it to Farmers. Claims adjustor John Hughes investigated. His report concluded “liability questionable.” He noted Walker had no personal liability insurance.

Wasson incurred about $75,000 in medical bills. Her attorney offered to settle the claim for medical expenses. But Hughes refused to let Farmers pay anything.

She then sued the HOA, Walker and Williams. Farmers assumed the HOA’s defense without reservation. The attorney for Farmers, Michael O’Connor, estimated in his litigation report probable liability of $250,000 to $350,000 to Wasson.

Because Farmers refused to defend them, Walker and Williams retained a lawyer, Theresa Powell. They charged the $4,000 retainer fee to a credit card and continued to pay their legal fees on credit, eventually owing $45,000 in legal defense fees. Powell settled their case by paying Wasson $6,500, primarily because they couldn’t afford any more.

In Wasson’s lawsuit against the HOA, the jury awarded her $321,406.

Walker and Williams then filed this lawsuit against Farmers Insurance Exchange for breach of duty to defend them in the Wasson lawsuit, which cost them $45,432 in legal defense fees plus the $6,500 settlement.

If you were the judge would you rule Farmers had a duty to defend condo owners Walker and Williams in the Wasson lawsuit?

The judge said yes!

The HOA insurance policy says an “insured” is the association and its condo unit owners for claims arising from ownership, maintenance or repair of the common areas, the judge began. That means Farmers had a duty to defend Walker and Williams when they were sued, along with the HOA, for the accidental garage-door injury to Wasson, he continued.

Although Farmers engaged in conduct with oppression, there was no evidence it was malicious or fraudulent as to Walker and Williams, the judge explained. One or more of the Farmers officials knew of the refusal to defend them, he noted.

The penalty for an insurer’s failure to defend an insured, the judge emphasized, can be both compensatory damages and punitive damages. The only reprehensibility factor in this case is Walker and Williams were financially vulnerable, and Farmers knew that, he added.

The failure to defend caused them economic harm and emotional distress, the judge commented. Therefore, Walker and Williams shall be awarded $750,000 each for their emotional distress damages due to Farmers’ refusal to defend them, plus $1.5 million in punitive damages, the judge ruled.

Based on the California Court of Appeal decision in Walker v. Farmers Insurance Exchange, 153 Cal.App.4th 965.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).