Jessica M. Karmasek Feb. 18, 2015, 9:00am



RENO, Nev. (Legal Newsline) - The second phase of a trial to consider punitive damages against an insurer that a Nevada state court jury last week found acted in bad faith by refusing to cover defense costs in a related lawsuit no longer will take place.




 




On Thursday, the jury determined Everest Indemnity Insurance Co. must pay out $4.5 million for refusing to cover the costs.




 




A second, punitive phase of the trial was scheduled to begin Tuesday.




 




However, according to Courtroom View Network, which carried a webcast of the trial, Everest and the plaintiff class reached a settlement over the weekend.




The details of the settlement were not immediately available.




 




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.




 




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 argued, 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 argued that the exclusion only applies to naturally-occurring events. They argued 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 of the trial.




 




“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.




 




From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.


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