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Court certifies class action against Hartford over fire loss payment

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A federal court has certified a class action against a Hartford Financial Services Group Inc. unit over its method of calculating payment for a fire loss.

G. Grant Johnson had charged in his lawsuit that Hartford, Connecticut-based Hartford Casualty Insurance Co. had unlawfully underpaid him for his loss in calculating depreciation, in violation the California Insurance Code, according to Monday’s ruling by the U.S. District Court in San Francisco in G. Grant Johnson v. Hartford Casualty Co., which also denied Hartford’s motion for summary judgment dismissing the case.

Mr. Johnson owns a commercial building at 321-329 Divisadero St. in San Francisco that suffered damage from a fire causing partial loss of the 100-year-old structure in December 2013, according to the ruling.

Hartford paid Mr. Johnson $731,000 under the “actual cost value” option in his business owners policy, which involves estimating the cost of repair, and providing the insured with payment in that amount after deducting a “fair and reasonable amount” for physical depreciation.

Mr. Johnson spent $644,000 of that on repairs but has not yet repaired or reconstructed the property’s third story, according to the ruling.

Mr. Johnson charged in his lawsuit that Harford underpaid him by purposefully miscalculating the actual cost value “depreciating all components of plaintiff’s structural loss without regard to whether the components were normally subject to repair and replacement during the useful life of that structure,” in violation of California Insurance Code Section 2051, said the ruling. 

The insurance code prohibits depreciation of components that are not normally subject to repair and replacement, according to the ruling. Mr. Johnson also contended Harford underpaid him in connection with the actual cost value’s sales tax component.

“The crux of Harford’s arguments” is that “Johnson cannot show that he has been injured” because it paid him more than he spent to repair his building, said the ruling.

However, “Hartford’s contention that Johnson cannot establish an ‘injury in fact’ because it has paid him more than it owed him under the policy assumes its own conclusion,” said the ruling. “The question of how much Hartford owed Johnson is why this suit has been brought.”

The policy language “supports Johnson’s positon that the total amount recoverable under the policy is not limited to the amount actually spent on repairs, the ruling said.

“I find that Johnson has shown that he has suffered an injury in fact sufficient to establish standing and that his Section 2051 claims — the depreciation of components and the depreciation of the sales tax — survive summary judgment,” said Judge William H. Orrick, who also refused to dismiss Mr. Johnson’s breach of contract and bad faith claims.

“Material facts are in dispute over Hartford’s liability to Johnson, if any, and the record does not establish as a matter of law that Hartford’s interpretation of its policy is correct,” said the ruling.

In agreeing to certify the case as a class action, Judge Orrick said,  “Common questions predominate.”

The judge set June 20 for a case management conference in the case.