Insurer Hit by Punitive Damages : Jury Orders State Farm to Pay $25 Million to Victims of Landslide

Seven former Pacific Palisades residents whose homes were damaged or destroyed by a landslide nearly 10 years ago have won $25 million in punitive damages and $1.8 million in compensatory damages in a case brought against State Farm Insurance Co., it was disclosed Tuesday

“It the verdict holds up on appeal, it would be the largest punitive damages for insurance bad faith that I’m aware of,” said attorney Richard D. Norton, a specialist in landslide law who represented the plaintiffs in the case.

State Farm spokesman Jerry Parsons said in a telephone interview from company headquarters in Bloomington, Ill., “We think this a very appealable case,” but declined to specify whether an appeal will be filed. He also declined to discuss the case in detail.

Jurors in Santa Monica Superior Court reached a verdict Monday after hearing Norton accuse State Farm of “massive, outrageous fraud.”

‘Beat a Corporate Giant’

“It’s nice to feel that you have finally beat a corporate giant,” said Richard Clark, who along with his wife, Madeline, joined the suit after their home and a rental house were imperiled in 1980-81. “They (insurance companies) are almost an uncontrolled group. They have free rein.”

Clark, 58, a Malibu resident, predicted that it would be years before the expected appeals are wrapped up and the plaintiffs see any money to compensate their losses.

Kent Lane, 48, whose house was undermined in 1980, said that he feels vindicated but that the case has been “a long haul.” Now an Orange County resident, he said he has little hope of returning to Pacific Palisades to live because of the increase in home prices there.

“I’m disillusioned from the standpoint of how powerful, how big . . . how insurance companies like State Farm don’t look out for the welfare of their customers,” Lane said. “They’re really looking out for their own welfare.”

Alice Twitchell-Ward, who lost her home in 1980 when the city condemned it and gave her three days to move out, said she went into bankruptcy because she was forced to continue paying on her existing mortgage.

“I think it’s great,” she said of the jury’s verdict. “I just hope we get it. We’ve been through an awful lot . . . if State Farm does appeal, our lawyers said it will take one to three years. “I would just never buy another State Farm policy. I just could not trust them. We proved to the jury they were wrong. They breached their contract.”

Six Properties Involved

As outlined by Norton, the case involved six pieces of property on De Pauw Street in Potrero Canyon. When landslides caused by erosion and undercutting began undermining the property in 1978, the lawyer said the homeowners went to their State Farm agent.

The agent, a neighbor, told the homeowners that the “all-risk” homeowners policies they had did not insure them against an “act of God” including landslides, Norton said.

“What State Farm did was to issue all-risk form insurance policies, take premiums from homeowners, promise to pay for all risks of loss while it secretly intended not to pay policy benefits for all risks of loss as required by law,” Norton said.

Norton contended that State Farm knew that under a 1963 California Supreme Court decision the homeowners were covered if the cause of the landslide was negligence.

‘Negligently’ Designed

The lawyer said that official city records prove that the drainage system through Potrero Canyon was “negligently” designed and maintained by the city for years and that the runoff from construction in the area undermined the canyon sides.

“The city knew of the landslide danger in Potrero Canyon since 1933. . . . Despite repeated promises by city officials, the city did nothing to cure the danger,” Norton maintained.

And, according to Norton, the State Farm agent representing the homeowners on De Pauw Street testified during the trial that he had known that the city negligence was the cause of the landslides.

Agent Not Found at Fault

The agent was named in the suit but was not found at fault by the jury.

Norton concluded in a final statement that the insurance company “intentionally put itself outside or above the law.”

After State Farm rejected the homeowners original claims, Norton said, his clients filed suit and waited four additional years for the trial, which began May 8.