Judge Overturns Builder’s Award in Insurance Suit
SANTA ANA — An Orange County Superior Court judge ordered a new trial and set aside a jury’s $85-million verdict against a Costa Mesa-based insurance company charged with breach of contract when it refused to defend a developer against claims of shoddy work.
Judge Floyd H. Schenk ruled Tuesday that the jury’s award to Lompoc developer Louis A. Montalvo was excessive, and he found a lack of evidence to support Montalvo’s claim that American States Insurance Co. acted in bad faith when a group of homeowners sued him for faulty construction.
“We are obviously pleased by this ruling,†Ian M. Rolland, chairman and chief executive of Lincoln National Corp. in Ft. Wayne, Ind., said in a statement. American States is an affiliate of Lincoln National. Neither company’s attorneys could be reached for comment.
In June, a jury awarded Montalvo everything he sought at trial: $5.2 million for emotional distress, $250,000 for breach of contract and $80 million in punitive damages. The total award made up about 7.6% of American States’ net worth, Montalvo’s attorney, Gerald L. Kroll, said at the time.
Kroll said he asked for $80 million in punitive damages because it was half of American States’ investment income in 1991.
Montalvo, in a telephone interview Wednesday, said “there’s a few options that can be taken.†He declined to elaborate and referred all questions to Kroll, who was unavailable for comment.
Montalvo sued American States in March, 1991, alleging that the company reneged on its policy to indemnify the developer for any claims resulting from his construction work on a condominium project in Lompoc that was completed in 1980.
A decade later, a group of homeowners at the complex sued Montalvo. The homeowners contended that the construction work had been shoddy and resulted in serious water damage during storms in 1983 and 1988.
American refused to defend Montalvo, arguing that the policy had expired by the time any damage occurred. A Superior Court judge in Santa Barbara ruled against the builder, finding that the work was defective and ordering him to pay $1.7 million to the homeowners.
Shares of Lincoln closed at $65.125, down 25 cents in trading Wednesday on the New York Stock Exchange.
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