A trial is underway in Nevada state court in a $5 million bad-faith class action that accuses an insurer of refusing to cover defense costs in a related lawsuit.
Opening statements began Tuesday. The trial currently is being webcast on the Courtroom View Network.
In 2008, plaintiff Elizabeth Reimers and others sued The Matthews Company, a home builder, after the left embankment of the Truckee Canal collapsed, allowing water to escape.
The earthen levee collapse caused flood damage to hundreds of homes in the city of Fernley.
Matthews had a $2 million commercial general liability policy from Everest Indemnity Insurance Co.
However, Everest refused to provide a defense for the company in the underlying class action. The insurer, pointing to the policy, claimed an “Earth Movement Exclusion” — basically, that since the canal was an earthen structure it was off the hook.
But the plaintiffs argue, on Matthews’ behalf, that Everest never determined if the exclusion actually applied.
“Everest Indemnity decided to ‘hook its wagon’ to the Earth Movement Exclusion to deny coverage,” Reimers and the other plaintiffs wrote in their first amended complaint, filed in Washoe County District Court in July.
They also contend that the exclusion only applies to naturally-occurring events. They argue that the collapse was the result of too much water being pumped in.
“The Fernley flood was caused by human error,” Robert Maddox of Reno law firm Maddox Segerblom & Canepa LLP told jurors during his opening statement on behalf of the plaintiffs, according to CVN’s webcast.
“This was a man-made event.”
But attorneys for Everest told jurors that Matthews had the option to purchase a policy with earth movement coverage. They noted that the levee has a history of failures.
Matthews settled the underlying class action in 2012 for $5 million. Under terms of the settlement agreement, the plaintiffs filed the current lawsuit against Everest in 2013.
The plaintiffs are asking that Everest be held responsible for the $5 million settlement with Matthews, plus potential punitive damages.
The trial is expected to last up to three weeks.
In addition to Maddox, the plaintiffs are represented by Reno firm Leverty & Associates Law Chtd.
Everest is represented by Brian S. Martin and Jamie R. Carsey of Dallas firm Thompson Coe Cousins & Irons LLP and by Jack G. Angaran of Reno firm Georgeson Angaran Chtd.