Property insurer refuses to pay damages in racial discrimination lawsuit

Landlord Jack Combs was sued by a county fair-housingorganization for alleged racial discrimination. Combs tendered defense of thelawsuit to his landlord’s liability insurer, State Farm, which agreed to defendunder a reservation of rights.

The U.S. District Court entered a default judgment againstCombs for his failure to produce documents in a “willful and bad faithattempt to obfuscate the discovery process and mislead (the fair-housingorganization) and the court.”

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

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

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

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

The judge said no!

Although State Farm had an obligation under its apartmentowner’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 defendantJack Combs, he clarified.

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

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

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

Copyright 2007 Inman News

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