RENO, Nev. (Legal Newsline) - Not even two weeks after the trial began, a Nevada state court jury has determined an insurer must pay out at least $4.5 million in a bad faith class action that accuses the company of refusing to cover defense costs in a related lawsuit.

On Thursday, the jury said Everest Indemnity Insurance Co. acted in bad faith by refusing to cover the costs. Punitive damages have not been determined.

According to Courtroom View Network, which carried a webcast of the trial, jurors deliberated for just a few hours before coming to their decision. The trial was expected to last up to three weeks.


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 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 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.


According to CVN, a second phase of the trial is scheduled to begin Tuesday. It will focus on the punitive damages.


The punitive phase will be available to watch on CVN.


From Legal Newsline: Reach Jessica Karmasek by email at

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