The state of California has always suffered from wildfires. However, the scope of the fires in November of 2018 was historical. They destroyed nearly 1.9 million acres of land, caused over $3.5 billion in damages, and cost 104 people their lives. Fires at this scale inevitably lead to a flood of litigation over the amount of money due to private property owners by their insurance companies. However, convincing a court your insurance company owes you more than you were insured for can be tricky.
With experts predicting that climate change in California will only increase the frequency and severity of wildfires, it felt like the right time to look at a sampling of local court decisions in the Trellis database that show off different approaches plaintiffs took to this problem, and where they came up short.
Andrew v. State Farm General Insurance Company, Judge René Auguste Chouteau, Sonoma County
In an action arising out of the October 2017 wildfires in Sonoma County, Plaintiffs, whose home and property were completely destroyed, alleged that the Defendants failed to properly calculate the replacement costs of the buildings in accordance with statutory law. Plaintiffs relied on these calculations, leaving them financially unable to rebuild after the fire. Defendants demurred to an allegation of intentional misrepresentation on the ground the Plaintiffs had failed to identify which specific representations were fraudulent. Judge Chouteau sustained the demurrer (with leave to amend), stating that the Plaintiffs’ general statements about how the alleged misrepresentations occurred lacked the required specificity. The takeaway here is that a Plaintiff must directly and specifically identify the fraud in order to support a claim of intentional misrepresentation.
Alvarez, JR v. United Services Automobile Association, Judge Arthur A. Wick, Sonoma County
In an action arising out of the Sonoma County Fires of October 2017, Plaintiffs alleged Defendant had underinsured many of their policyholders by using valuation software that systematically underestimated the replacement cost of those policyholders’ homes. Defendant demurred to Plaintiff’s claims of fraud (false promise), negligent misrepresentation, negligence, and reformation, on the grounds that they were barred by the “Economic Loss Rule” which precludes recovery in tort for purely economic loss due to disappointed expectations, unless a plaintiff can demonstrate harm above and beyond a broken contractual promise. Judge Wick agreed, citing authority for the proposition that an omission to perform a contract obligation is never a tort unless that omission is also an omission of a legal duty. Holding that Plaintiffs had failed to allege facts establishing the Defendant owed them a duty of care sounding in tort, the demurrer was sustained. This case is a reminder that the Economic Loss Rule presents a high bar to any Plaintiff of this type attempting to prevail via tort, rather than contract law.
Bivin v. United Services Automobile Association, Judge Arthur A. Wick, Sonoma County:
In another case arising out of the Sonoma County fires of 2017, the Plaintiff alleged that their insurance company drastically underestimated the cost of rebuilding their homes. Despite the Defendant affirmatively undertaking the duty of calculating policy limits sufficient to cover those costs, and representing that it could accurately do so, the amount paid came up short. Plaintiff demurred to the eight causes of action, among them, an action for breach of implied covenant of good faith and fair dealing. Judge Wick (the same judge as from the Alvarez case mentioned above) sustained the demurrer on the ground that the Plaintiff’s allegation that the policy was insufficient to cover the loss was not the same as alleging benefits actually due under terms of the policy were withheld. As it can never be unreasonable for a Defendant to pay a contracted amount, there could be no breach of implied covenant of good faith and fair dealing. Interestingly, the Defendant also demurred to a claim of fraud, which was sustained, as in the Andrew case mentioned above, for a failure to identify the fraudulent misrepresentations specifically enough.
Key TakeawaysProperty Owners
Judging from a sampling of the vast array of claims that resulted from fire damage, it is probably worthwhile to spend the extra time and resources to make sure your insurance coverage against wildfire damage is adequate.Insurance & Bad Faith Attorneys
Keep in mind the bar to recovering in tort is very high. General misrepresentations do not generally rise to the level of fraud under contract law and a breach of the implied covenant of good faith and fair dealing requires some unreasonable behavior on the part of the Plaintiff. At the end of the day, courts aren’t itching to second guess insurance companies after the fact of a disaster. So do your research, know your judges, and make your pleadings specific to avoid demurrer!