Allstate wins reversal of $2.5M mold judgment (to Tom )

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http://sacramento.bizjournals.com/sacramento/stories/2002/10/07/story2.html

October 4, 2002

Allstate wins reversal of $2.5M mold judgment

Staff Writer

Allstate Insurance Co. botched its response to the mold problem that ruined

98-year-old Tom 's Placerville house, an appeals court has agreed.

But the court has stripped him of $2.5 million in punitive damages.

The 9th Circuit U.S. Court of Appeals, saying there wasn't substantial

evidence that the insurer acted with malice or fraud, has ruled that

is entitled to $628,646 to cover rebuilding the house, court fees

and three years of work by attorneys. But no punitive award.

decided last week to accept the reduced settlement. " I'm certainly

disappointed, " he said. " Justice has to be redefined. You can't depend on it

the way it's written right now. "

Allstate isn't all that happy itself.

" We are pleased the court found Allstate did not act maliciously,

fraudulently or with extreme indifference in the handling of Mr. 's

claim, " said spokeswoman Wannamaker. " However, we are clearly

disappointed that the court affirmed the lower court's verdict regarding bad

faith.

" We stand by the claims practices that Allstate employs in California, " she

said, " and are proud of our long-standing reputation for fairness in our

claims processes. "

The appeals court made its decision in September, 10 months after receiving

the case. The outcome affirmed the trial court's award of compensatory

damages. " Substantial evidence supports the jury's finding that Allstate

breached its duty of good faith and fair dealing in handling 's

claim, " the appeals court wrote.

The three-judge panel did not sign the decision, which it said could not be

cited as precedent in future court cases.

After a long trial that ended in 2000, jurors decided deserved $18

million in punitive damages. Presiding Judge Nowinski later cut the

award to $2.5 million, but thought the decision for some punitive damages

was justified.

The appellate decision " makes no sense, " said one of 's attorneys,

Stanley Parrish of Shepard & Haven LLP in Sacramento. " What they have done

is usurped the role of the jury. "

As the appeals court noted, Allstate argued during the trial that its

handling of the case was reasonable because less was known at the

time about how to treat mold damage to buildings.

It began with a broken pipe: 's problems began in January 1997 when

a pipe in his attic broke and sprayed water, causing mold to take hold

throughout the home. rejected Allstate's offer of $17,300 to repair

his modest house and sued Allstate, one of the largest personal lines

insurers in the state and nation, in the summer of 1999.

Two years ago this month, was awarded $18 million in punitive

damages and $484,854 in compensatory damages. Two months later, Judge

Nowinski reduced the punitive damages to about $2.5 million.

accepted a small sum from Allstate in 1999 to use with his Social

Security payments to rebuild his house. His son Alan rebuilt the house from

the stick frame, and treated it for mold. Weeks after moved back

in, the mold returned. The elder has lived with his son ever since.

The s are rebuilding again. Originally Tom wanted to move

back into the house. But his lady neighbor friend died recently, and at

981/2, living alone again might not be a good idea, Alan said.

The house presents a complication. If Tom sells or rents it, the

proceeds would disqualify him for state-provided Medi-Cal health insurance,

Alan said.

A relative could move into the house to care for the elder . After

Tom died, Medi-Cal could recover money left over from the Allstate

verdict as reimbursement for what the agency paid in benefits, said the

younger .

'Very proud of my father': The s decided against trying for a U.S.

Supreme Court hearing because of Tom 's advanced age and the tiny

odds that the court would hear the case, Alan said.

Even if the court agreed to hear it, getting on the calendar could take a

long time. Besides, the appellate court did not publish the decision, and

its ruling is not based upon constitutional issues.

Years before, Allstate offered to settle, but Tom wanted to take

the matter to a jury.

" He doesn't believe in that system any more, " Alan said. " How can

he? "

Still, the younger said he was impressed with how his father

handled himself. " I'm very proud of my father, " he said, " for standing up

for his rights. "

Didn't reach the despicable level: In their request for a rehearing, which

the court rejected, 's attorneys argued that the three justices

overstepped their bounds. " The role of an appellate court reviewing a jury's

finding is strictly limited, " they wrote.

" This court mistakenly overturned the verdict simply because there was also

evidence to the contrary. Instead of accepting the jury's verdict, this

court reweighed the facts and determined " that some of Allstate's actions

did not constitute malice or extreme indifference to 's rights.

Contrary evidence is irrelevant in an appeal, they wrote.

Furthermore, the attorneys wrote, " For this court to have found that there

is no substantial evidence to support the jury's decision to award punitive

damages in this case can only be described as mind-boggling. "

The jury found that Allstate acted with " conscious disregard for Tom's

rights and safety. "

The appeals court decision will send a message to Allstate, the attorneys

wrote, " that it may deliberately deny policyholders the rights without

penalty. "

Shepard & Haven and the Sacramento law firm of Eisen & ston represented

.

In its decision, the appeals court wrote that Allstate's actions must be

" evil, criminal or recklessly indifferent " to deserve punitive damages.

Although Allstate didn't warn of asbestos exposure, refused to deal

with the mold problem and tried to coerce a settlement, that behavior " does

not reach the level of 'despicable conduct,' " the court wrote.

Allstate even paid Alan more per hour for cleanup work than the

claim requested, the court noted, and the insurer advised Tom 's

contractor to raise his original estimate to meet Allstate's.

© 2002 American City Business Journals Inc.