An insurance case. Simple on its face. Insureds were wealthy art collectors and dealers who bought three related paintings by the late German artist Martin Kippenberger at the high end London Gagosian Gallery in 2004 for about $290,000. The paintings, three of a series of 12 he called the Copa series, were oil on canvas, each about two feet by three feet, made distinctive by the artist’s affixing a strip of silk-screened and painted corrugated cardboard around the edge of the canvas, in lieu of a traditional frame.

The paintings were part of an extensive art collection insured by MacGregor|Madhok client XL Specialty Insurance Company under a Personal Articles Floater (“PAF”), which scheduled them at $399,000.

In January, 2006, while the paintings were being professionally installed in the insured’s home in West Los Angeles, the installer removed most of the cardboard framing, mistaking it for packing material. The PAF had a provision for partial loss that required damaged artwork to be restored to the extent possible, with loss in value, if any, to be agreed upon between the insured and the insurer, after restoration was completed. Restoration was performed by Kippenberger’s Estate, by the very same collaborating artist who had cut and installed the original frames, using the same stock of cardboard from which he had cut the originals. The Estate, and the Gagosian, agreed that there was no loss in value by reason of the replacement of the frames.

The policy provided that if the parties could not agree as to the loss in value, if any, the insured could sell the restored artwork at auction and recover from the insurer the difference, if any, between the scheduled value and the net auction proceeds. The insurer contended that this provision required both sides to negotiate “loss in value” in good faith and, consistent with custom and usage, necessitated that an expert appraise the artwork for loss in value. The Insurer’s expert appraiser determined that there was likely no loss in value, but conceded that there might theoretically be a loss of 2.5%. The Insureds disagreed, deciding not to retain an expert and declining the Insurer’s offer to pay for a second independent appraiser, claiming that merely their own opinion as to loss in value was required to create a disagreement and, thus, trigger the so-called Auction Option. They took the position that the loss in value was $269,500, declaring that there had thus been a “disagreement” and auctioned the restored art for $91,500 apiece. Of the total auction price of $274,500, they netted $217,150, after fees and premiums, which was $181,500 less than the full insured value of $399,000. When they demanded to be paid the amount of that shortfall, the Insurer offered $19,500, which represented double its expert appraiser’s opinion of loss in value.

The Insureds brought suit in 2007 for breach of contract and bad faith, seeking contract and tort damages, attorney’s fees and costs, as well as punitive damages. The Plaintiffs made a settlement demand of $19M at the first Scheduling Conference in 2007, with their demands ultimately reaching $95M in the months before the trial started.

Over the course of more than twelve years in litigation, the Plaintiffs joined as defendants twenty-three companies related to XL Specialty Insurance Company, none of whom had played any part in either writing the policy or adjusting the claim. By the time the trial began, all but seven of these joined defendants had successfully extricated themselves from the case and those seven only remained by virtue of a “pooling agreement” that Plaintiffs contended constituted a partnership agreement with XL Specialty. The case saw nine interlocutory appeals over the course of its life, all but one of them initiated by Plaintiffs.

After a trial of nearly six weeks, the case went to the jury under a General Verdict with Special Questions. By a vote of 11-1, the jury found that the Defendant had breached the contract and awarded general damages of $19,500, but rejected the claim for bad faith and the damages, attorney’s fees and punitive damages also sought by Plaintiffs. Because M|M had made a timely and effective offer to settle ten days before trial for $1M, and the Plaintiff had failed to recover more than that amount by the verdict, XL was deemed the prevailing party and was awarded its costs of suit. The final judgment awarded the Defendant $366,332 in costs incurred after the statutory settlement offer was made, and an additional $318,030 in pre-offer costs of suit, as the prevailing party, for a total award of $664,862 in costs.

Hollander | Los Angeles Superior Court

Success Type: Insurance Bad Faith

A traffic collision with a number of minor injuries to a group of related parties. Adjustment of the claim was slow and uncertain. The file was complicated with entries from adjusters that could be interpreted as having racial overtones. It was clear that the primary adjuster viewed the entire claim with skepticism. The claim was denied and suit was filed. An excellent plaintiffs’ attorney with a national reputation brought the case. The first trial went badly for the carrier, resulting in a plaintiff’s verdict on the insurance contract, as well as bad faith. Punitive damages of over $40 Million were awarded. An appeal by the Insurer succeeded only in obtaining a retrial of the amount of punitive damages. The Court of Appeal ruled that the retrial jury would be told that: breach of contract was established and not open for debate; bad faith was established and not open to debate; reprehensibility of the defendant’s conduct was established and not open to debate; punitive damages were to be awarded and only the amount of those damages was open for debate.

Attorney Gregg MacGregor was hired to pick up the pieces and handle the second trial. After an aggressive series of pre-trial motions and counter-motions, Mr. MacGregor persuaded the second trial judge that it would be unconstitutional for the second jury to be required to find bad faith, reprehensibility and entitlement to punitive damages without even hearing evidence of the defendant’s conduct. As a result, the second trial proceeded and, following Mr. MacGregor’s opening statement and cross-examination of the plaintiff’s first witness – the adjuster whose file entries had inflamed the first jury, now properly prepared and fully rehabilitated from the testimony he had given in the first trial – the plaintiff’s attorney told the carrier’s representative that MacGregor “had hit it out of the park” and that the case “was no longer fun.” The case settled for a tiny fraction of the original verdict.

Fellows | Los Angeles Superior Court

Success Type: Insurance Bad Faith

Plaintiff owned a residential structure in Fresno that was destroyed by fire. At the time, the property was insured under a Landlord Policy. Plaintiff filed a claim on the loss for $372,000, which exceeded the structural limits of the policy ($133,000).

The carrier retained coverage counsel to render a coverage opinion regarding the policy limit issue. While investigating the possibility of reforming the policy to make it adequate to compensate for the full amount of the loss, about nine months after the fire, coverage counsel determined that plaintiff had made material misrepresentations of fact regarding the size of the structure, and its configuration and use based on a “rental unit limit.” Specifically, plaintiff rented the property to at least six tenants, although the insurer’s underwriting guidelines restricted landlord policies to properties with fewer than six tenants. Plaintiff contended that the insuring agreement provided a limitation on the number of “dwellings” that could be insured. “Dwelling” was defined in the policy to mean “family building structures,” which plaintiff contended the carrier’s designated underwriter testified in deposition referred only to multi-plexes (duplex, triplex, fourplex), and not to rented bedrooms. Plaintiffs and defendants disagreed as to the terminology and definitions that should govern the coverage dispute.

The carrier rescinded the policy for misrepresentation and, except for $13,800 in lost rents, paid nothing on the claim. The insured brought suit, alleging breach of the insurance contract and bad faith. The matter ultimately proceeded to a jury trial.

Plaintiff’s bad faith experts testified that the carrier acted in bad faith by failing to conduct any meaningful investigation after initially concluding that the loss was covered, by failing to keep the insured informed and by misrepresenting the status of the claim over nine months, and by destroying, discarding or otherwise failing to document the claim file.

Plaintiff’s economic expert testified that the carrier’s failure to pay the claim resulted in him losing not only the subject property to foreclosure, but also three other properties that were supported by the rent from the destroyed structure.

MacGregor contended that plaintiff provided application information, and confirmed its accuracy on two subsequent occasions, that materially understated the square footage of the house and materially misrepresented its occupancy/use. He also claimed that plaintiff stated the property was 1,600 square feet, when in fact it was over 3,100 square feet.

MacGregor argued that plaintiff claimed the property consisted of a single-family unit with one family in occupancy when, in fact, it consisted of at least seven rental units that were all rented, and, further, that the carrier did not offer or write Landlords Policies for a structure with more than four rental units. Due to these alleged misrepresentations, the insurer declared the policy void from its inception and rescinded it.

MacGregor contended that the policy was void from inception and no benefits were due, as no recoverable damages were sustained. At trial, plaintiff claimed in excess of $1 million in property damage, consequential economic damages, and emotional distress.

Prior to trial, the insurer had made numerous offers to settle, including an offer of $500,000 during the final two weeks before trial. Plaintiff’s counsel responded by calling the offer an insult and warned Attorney MacGregor “never” to make such an insulting offer again. Nonetheless, at the final status conference, MacGregor appeared armed with an offer of $750,000, which was never conveyed because plaintiff’s counsel did not attend the conference.

Following a 13-day trial, the jury deliberated for less than half a day before rendering a verdict for the defense. Plaintiffs’ motion for a new trial was denied as without merit. A unanimous panel of the Court of Appeal affirmed the judgment and MacGregor’s client was awarded a substantial amount for court costs.

Lopez | Fresno County Superior Court

Success Type: Insurance Bad Faith

Plaintiff, a famously litigious attorney, sued her homeowners association for various causes of action and when the association countersued, she tendered her defense to her homeowners insurance carrier. The Carrier attempted to settle all of the potentially covered claims, but plaintiff refused to consent to the settlement, presumably because such a result would terminate her ability to have access to counsel provided by the carrier to pursue her affirmative claims against the homeowners association. Her claim in this case was that her carrier’s decision to settle the covered claims without her consent was bad faith and malicious conduct warranting $3 Million in punitive damages. At the conclusion of the evidence, Attorney MacGregor successfully moved for a directed verdict.

Seltzer | Marin County Superior Court

Success Type: Insurance Bad Faith

Plaintiffs’ rental house in Bell Canyon sustained an arson fire loss. The carrier paid the policy limit on the structure claim of $315,991. Plaintiffs demolished the house, demanding additional amounts on their structure claim, and added $245,000 to the contents inventory prepared by the adjuster claiming exotic artwork, statutes and hand-loomed Indian carpets for which the adjuster found no corresponding after-fire debris. Thereafter, plaintiffs refused to appear for their Examinations under Oath. The trial court granted partial nonsuit in favor of the carrier ruling that plaintiffs’ refusal to appear for their EUO was a failed condition precedent to their contents claim. The jury then found that plaintiffs made material misrepresentations of fact in connection with their contents claim by fabricating the existence of artwork, statuary and carpets, which precluded recovery on any portion of their claim. The turning point in the case was when Attorney MacGregor demonstrated that plaintiffs had recounted at least three inconsistent versions of what contents they had stored in their rental house at the time of the fire (recorded statements, pretrial depositions and trial testimony). MacGregor’s cross-examination of the plaintiff and his impersonation of the small-framed man carrying 6 feet tall statues up to the attic exactly where the fire occurred was worthy of being the final scene in a riveting courtroom drama. The trial lasted seven days, the jury deliberated for three hours and found 10-2 in favor of Allstate.

Reddy | Ventura County Superior Court

Success Type: Insurance Bad Faith

Plaintiff sued his homeowner’s insurance carrier for bad faith arising out of its handling of his claim for damage stemming from heavy rains, seeking more than a million dollars in additional policy benefits, as well as damages for bad faith, punitive damages and attorney’s fees. The case was appealing on its face – and plaintiff demanded $10 Million to settle it as the trial started – but, as the trial unfolded, Mr. MacGregor mounted a defense that cast it in an entirely different light: the plaintiff had already received nearly $2.5 million in four separate insurance claims against uphill neighbors, the City of Los Angeles and his own insurers for the very damage of which he was complaining in his bad faith suit. Even more significantly, it became clear that he had purchased a policy providing materially less coverage than he claimed in his suit. They argued that he had been sold an inferior policy as part of a far-reaching conspiracy to harm him. Complicating things further, the plaintiff was claiming that his home was damaged on more than one occasion, attempting to lump together damage allegedly occurring in successive years, so as to avoid the argument that he had been paid for the alleged storm damage. Thus, the issues for trial included an assessment of damage to the plaintiff’s home, a determination of which storm had caused which damage, if any, a determination of whether he had been sold the proper policy, and the effect of the substantial payments he had already received on his case. A complicated case that was challenging for the trial team and jurors both, became more so as the plaintiff tried to attack his settlement for alleged negligence by his agent in selling him the wrong policy. The seven-day trial in federal court featured fierce cross-examination of the plaintiff and his experts – cross that established, for one thing, that the repair cost sought by plaintiff would have exceeded the per-square-foot cost of building the Walt Disney Concert Hall – and testimony from defense experts that established a long history of neglect in failing to maintain the plaintiff’s house. In addition, the plaintiff was unable to distinguish between the flood damage that occurred in one year, for which he was more than fully compensated, and the new damage that allegedly occurred the next. He also acknowledged under cross-examination that as of 2002, he still had more than $800,000 of the settlement money he had received from his prior claims stowed away in various bank accounts. In fact, he admitted that he had spent little money on actual repairs, opting to invest instead in legal fees paid to lawyers who were seeking more money for him. Evidence about what he had done with the money he had already obtained, further supported the argument that the plaintiff was seeking a double or triple recovery for the same damage.

The jury reached a quick, unanimous verdict for the defense. The key question in the special verdict – did then plaintiff’s property sustain a covered loss during the policy period? – received a resounding “No” response from the jury, ending the matter there and then.

Lederman | United States District Court, Santa Ana

Success Type: Insurance Bad Faith

Plaintiffs sued for breach of contract and bad faith on a claim arising out a house fire at their 80 year old home in Porterville, California. Although they had been paid over $232,000 on all coverages (including $107,000, for damages to the structure itself), Plaintiffs sought additional damages on their structure claim as well as unspecified punitive damages. The carrier contended that it had paid all amounts due and, moreover, that Plaintiffs had made material misrepresentations of fact in connection with their claim for additional living expenses. At trial, Attorney MacGregor established that extensive remodeling was underway at Plaintiffs’ house in December 2006 when the fire started in the living room fireplace, that the plaintiffs had moved into their pool house prior to the fire and that they made material misrepresentations during the claim by advising the carrier they were living in the house in order to collect $24,000 in Additional Living Expenses. MacGregor’s cross-examination of the plaintiffs, during which he firmly established the various inconsistent positions they had taken in communications with his carrier and others, became legendary and created the kind of excitement the Tulare County Courthouse had never seen before. The trial lasted six days, the jury deliberated for 1.5 hours and their unanimous “Yes” response to Question 2 on the Verdict Form – whether Plaintiffs made material misrepresentations with respect to their claim – rendered moot both their breach of contract and bad faith causes of action. The Court of Appeals affirmed the trial court’s judgment.

Gibbs | Tulare County Superior Court

Success Type: Insurance Bad Faith

The plaintiff made two claims for damage to his home, purportedly suffered in a rainstorm almost a year earlier. The insurance carrier investigated the claims, paid one and denied the other. Thereafter, the adjuster sent periodic form letters to the insured, updating him concerning his former claim until a final letter was sent unequivocally closing the claim. Eventually, Plaintiff filed suit and Mr. MacGregor removed it to federal district court. Once there, they moved for summary judgment, relying on the one-year limitations period for challenging a coverage determination that it built into all California homeowners policies. Not only did the District Court rule that the action was time-barred by the one year provision in the policy, it also ruled that the carrier’s subsequent actions, after denial and payment of plaintiff’s claim, did not stop it from asserting the statute of limitations. With the Court’s publication of this opinion (594 F.Supp.2d 1131 (CD CA 2009), the case made significant case law in the field of insurance law, and has provided guidance to other insurance clients operating in California, as well as elsewhere.

Shugerman | United States District Court, Los Angeles

Success Type: Insurance Bad Faith

Titan Environmental, the environmental subsidiary of a major international defense and technology company, retained Mr. MacGregor to defend against a claim for unfair competition by a rival in the environmental remediation industry. The competitor sought to enjoin most of Titan’s operations, alleging that Titan had systematically targeted employees with special trade secret information and contacts with key customers in order to create its business from scratch.

Pre-trial discovery revealed that the employees in question had voluntarily sought out competitive employment with our client, and there was an ongoing pattern of business practices within the plaintiff company that was driving its employees to leave. Moreover, it was shown that the key customers involved had made voluntary decisions to move business from the competitor to Mr. MacGregor client, eliminating a critical element of the plaintiff’s claim.

The case settled for nuisance value, an amount dwarfed by the increased revenue realized by the client from the acquisition of the disaffected employees and customers.

Ironically, Titan subsequently retained Mr. MacGregor on an ongoing basis in connection with trade secret and employee piracy matters in which the client has been on either side of this highly complex issue.

Titan Environmental | Contra Costa County Superior Court

Success Type: Business Litigation | Case Type: Unfair Competition

Defense contractor Logicon was sued by a former employee who is both African-American and female, for race discrimination.

Careful investigation of the remaining employees in the unit and pre-trial discovery revealed that the company had a meticulous record of race-neutral hiring and job assignments. It had a well-documented history of extending to the plaintiff special opportunities such as providing car-pool privileges and a flex-time work schedule to accommodate her commute and child-care responsibilities.

Most significantly, Mr. MacGregor established that the decision complained of had been made by the client’s customer, thus relieving the firm’s client of direct responsibility. The law firm won on summary judgment for Logicon.

Logicon | Los Angeles County Superior Court

Success Type: Business Litigation | Case Type: Race Discrimination

Titan Corporation came to Mr. MacGregor as a plaintiff to retrieve trade secret software allegedly pirated by former employees, who had painstakingly developed it at great expense while employed at Titan. The programs were worth millions, as they were capable of performing extremely complex three-dimensional calculations ranging from such things as the impact of the Shoemaker-Levy comets on Jupiter to the cascade effect of a nuclear or subnuclear explosion on matter in the path of the event.

Discovery revealed that the programs were accessible to the members of the development team and had been removed from the Titan premises without permission. Moreover, the MacGregor team discovered that arrangements had been made by the defendants to enter into contracts with third parties for the use of the software before they gave notice of their departure from Titan. Mr. MacGregor won a total victory by way of summary judgment. The court ordered the defendants to return the software, and they were absolutely prohibited from engaging in any competitive activities. Rather than appeal, the defendants capitulated to the injunction and paid the settlement demand.

Titan Corporation

Success Type: Business Litigation | Case Type: Employee Piracy