JURY AWARDS $86.7 MILLION TO AMERICAN SAMOA GOVERNMENT FOR BREACH OF HURRICANE INSURANCE POLICY
The lawsuit charged the insurance company with breach of an insurance policy and bad faith.
"This decision is especially significant in the wake of the hurricanes, earthquakes and floods which have devastated our country and this hemisphere over the past few years," said Norman J. Barry Jr., a partner in the Chicago office of Baker & McKenzie, who, along with co- counsel William Shernoff of Shernoff, Bidart & Darras of Claremont, Calif., represented the American Samoa government in the case.
Located in the South Pacific, 3,000 miles southwest of Hawaii, American Samoa, a U.S. territory since 1900, had been battered by hurricanes in 1987 and 1990 before it bought the insurance policy at issue in this case.
In October 1991, the American Samoa government accepted Affiliated FM's offer to insure all government property for all risks, including hurricanes. Over a four-day period commencing Dec. 6, 1991, Hurricane Val struck American Samoa, causing an estimated $60 million in damage to schools, hospitals, highways and utilities.
Only after the hurricane did the insurance company inform the government that its hurricane policy did not cover damage caused by "wind-driven water" and that the policy covered only some government properties.
It was later uncovered that the insurance company, without the American Samoa government's knowledge, had switched a key form in the policy to delete coverage of damage from "wind-driven water." Describing the switch as "surreptitious," the court ruled that the insurance company's attempt to cover waveless hurricanes hitting American Samoa was ineffective and unenforceable.
The insurance company paid the American Samoa government only $6.1 million of $35 million policy, and the government brought suit against the insurance company for the balance.
After more than seven weeks of deliberation, the jury found the defendants guilty of breach of the insurance policy and bad faith and awarded $28.9 million, the unpaid balance of the insurance policy. The jury also found the insurance company guilty of malice, oppression and fraud, and awarded the American Samoa government $57.8 million in punitive damages.
As one of the government's witnesses testified about the insurance company's response to the disaster, "They (the insurance company) acted like we started the hurricane."
Barry observed, "While most insurance companies respond in good faith to natural disasters, this case will set an example for those that do not."
/CONTACT: Erika Benke or Aleen Bayard of Margie Korshak, Inc., 312-751-5526 or -5518, for Baker & McKenzie/
CO: Affiliated FM Insurance Company ST: California IN: INS SU:
DC -- NY066 -- 2757 09/26/95 14:46 EDT
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|Date:||Sep 26, 1995|
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