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Tuesday, April 4, 2000

Insurer Hit Hard by Jury

Farmers Insurance must pay $31 million to a former Orange car dealer who was forced to defend himself in court despite holding a liability policy.


In one of the largest jury awards against an insurance company in the state, an Orange County panel on Monday ordered Farmers Insurance Group to pay $31 million to a former car dealership owner who accused the firm of not honoring its policy.

According to a recently published list of multimillion-dollar jury verdicts in 1999, Monday's amount would have ranked among the 10 largest in California.

"I had been shoved around and disregarded for so many years [by Farmers], it was just unbelievable how jurors made me feel today," said an elated Bill Earnest, 75.

"I thought I was retired until this thing came along," Earnest said of his seven-year battle with the insurer.

Earnest sued the Los Angeles-based insurance giant in 1993, alleging that the company failed to live up to the terms of a liability policy that protected him from lawsuits brought against his business, Earnest Ford Inc., once located on Main Street in Orange.

Through a spokeswoman, Farmers denied any wrongdoing and said it will appeal to the judge in the case to overrule the jury verdict.

The case stemmed from another lawsuit brought by a third party against Earnest in 1991. Earnest had sold his car dealership in 1986. His lawyer, Richard Farnell, said a number of car dealers subsequently occupied the site after the sale.

In 1991, officials discovered that the soil beneath the land had been contaminated with gasoline byproducts. The tenant at the time sued the landlord and previous tenants, including Earnest, holding them responsible for the contamination and the cleanup.

Earnest eventually prevailed in that lawsuit after a judge dismissed the case for lack of evidence, but he said he had to endure a dizzying ordeal with Farmers, which refused to cover him against the contamination lawsuit. Under such policies, insurers must indemnify policyholders for any losses and also for the cost of defending them against lawsuits.

Farnell said Earnest signed a $100,000-a-year policy with Farmers in 1985 to guard against such liability, but when the time came to pay, the insurance company balked.

"They were basically creating some hoops for him to jump through so they can blame him for not cooperating," Farnell said.

He said the insurance company first said it could not find the policy, then requested myriad information from Earnest and finally said the soil contamination was not a covered item under his policy.

Kitty Miller, Farmers' spokeswoman, denied that the company acted in bad faith. She maintained that Earnest's policy did not cover such a case, therefore the company did not have the duty to come to his legal rescue in the 1991 lawsuit. She said an Orange County Superior Court judge had sided with Farmers in 1995. But Earnest appealed, and the 4th District Court in Santa Ana reversed the decision.

Farnell said Monday's verdict sends a message to large insurance companies: "It is time they pay attention to the duty they have to their insured."

Others, however, said the verdict's punitive damage portion, which accounted for $30 million of the award, may be excessive. Legal experts said persuasive plaintiffs' attorneys can play on the emotions of jurors by casting lawsuits as a battle between ordinary people and large, powerful corporations.

"Juries are awarding huge punitive damages, and this is encouraging other attorneys to try for more," said John Sullivan, president of the Civil Justice Assn., a Sacramento-based tort reform group. "It's like gambling. The more people play, the bigger the chance for someone to hit the jackpot."


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