Landlord Jack Combs was sued by a county fair-housing organization for alleged racial discrimination. Combs tendered defense of the lawsuit to his landlord’s liability insurer, State Farm, which agreed to defend under a reservation of rights.

The U.S. District Court entered a default judgment against Combs for his failure to produce documents in a “willful and bad faith attempt to obfuscate the discovery process and mislead (the fair-housing organization) and the court.”

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The court awarded compensatory and punitive damages for Combs’ intentional acts. Because the acts were intentional rather than negligent, State Farm did not have to pay those damages.

However, Combs sued State Farm, arguing the insurer is obligated to pay the $508,000 attorney fees, plus $131,000 additional attorney fees for appeals, to the fair-housing organization.

State Farm refused to pay the prevailing party’s attorney fees, which Combs claims are owed under a supplementary payments clause in his apartment owner’s insurance policy.

If you were the judge would you rule State Farm must pay the attorney fees of the prevailing party in the racial discrimination case?

The judge said no!

Although State Farm had an obligation under its apartment owner’s policy to defend landlord Combs in the racial discrimination lawsuit, the judge began, the policy does not cover liability for intentional acts. Therefore, State Farm had no obligation to pay the judgment against defendant Jack Combs, he clarified.

As for payment of the insured’s obligation to pay the prevailing party plaintiff’s $508,000 attorney fees, plus $131,000 additional attorney fees for appeals, the judge emphasized, the insurance policy exclusion for coverage of intentional acts also precludes payment of attorney fees. Therefore, State Farm is not required to pay the attorney fees to the prevailing party fair-housing organization, the judge ruled.

Based on the 2006 California Court of Appeal decision in Combs v. State Farm, 49 Cal.Rptr.3d 917.

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

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