The corporate entity Victaulic Co. has won a $55 million verdict in its lawsuit against American International Group Inc. (AIG) subsidiaries. It was proved that the Defendants improperly refused to provide coverage under its policies for the pipe-joining company Victaulic Co. in a number of product defect suits. The policyholder had sued for breach of contract and bad faith conduct on the part of the insurer. Victaulic’s coverage suit against the AIG insurers was heard before a California state jury. Ultimately, it was proved that the AIG units breached the insurance contracts in bad faith and with malicious intent.

The jury awarded Victaulic $9.3 million for the insurers’ breach of contract and $46 million in punitive damages. Witness testimony and obtained materials during potential discovery revealed that AIG had, at certain times, reached conclusions on coverage internally, only to turn around and tell Victaulic something totally different.

In one instance, an AIG claims handler found that a claim against Victaulic constituted a covered occurrence. But when AIG wrote to the company 15 days later, it indicated that the insurer didn’t have enough information to determine whether an occurrence had happened.

The verdict was the culmination of a long-running legal battle concerning general liability policies that the AIG units issued to Victaulic between 2001 and 2012. The parties disagreed about the coverage provided under the policies with respect to nine underlying product defect actions filed against Victaulic in California, Colorado, Oregon, Massachusetts, Washington and West Virginia. The insurers, The Insurance Co. of the State of Pennsylvania, National Union Fire Insurance Co. of Pittsburgh, Pa., and American Home Assurance Co. Inc., denied coverage of those claims.

AIG filed suit in Pennsylvania state court in 2012 seeking a declaration that it had no duty to defend or indemnify Victaulic. But that suit was dismissed, and Victaulic filed the instant suit in California. AIG brought a second Pennsylvania suit and an arbitration demand in New York, but later dropped both.

In January, Alameda County Superior Court Judge Frank Roesch, ruling on Victaulic’s motion for summary judgement, held that the AIG units had a duty to defend Victaulic in three of the underlying actions, agreeing with the pipe fittings manufacturer that the term “occurrence” as it appears in the policies includes faulty workmanship or defective products resulting in third-party property damage. The parties agreed to bifurcate the ensuing trial, with the first phase being held before Judge Roesch in a bench trial with the second phase being before a jury.

After the close of the bench trial, the judge issued an order finding that AIG owed Victaulic a duty to defend and indemnify in each of the nine underlying suits. In addition, Judge Roesch also held that the insurers had no right to reimbursement for the sums it paid to settle two of the matters, known as the MWRA and United Hospital actions.

Throughout the discovery process, during which AIG was sanctioned three times, the Plaintiff’s legal team identified discrepancies between positions expressed in internal AIG claim notes and claims adjusters’ emails and those AIG set forth in letters to Victaulic and in court filings. Earlier this year, following the recommendation of a special master, the judge ruled that AIG had no basis to withhold many of the documents it had claimed were privileged or irrelevant.

AIG’s final production of documents contained materials that helped to prove Victaulic’s allegations of bad faith and malicious claims handling. During the jury trial phase, Victaulic’s main focus was on AIG’s overall approach to claims handling through litigation and the concerted efforts of the AIG executives and claims handlers to renege on the insurer’s promise to protect Victaulic. It was proved that AIG took steps designed to make getting coverage difficult for Victaulic. Much of the evidence that was damaging to AIG came from its own employees and its own internal documents.

There were 15 witnesses and hundreds of exhibits that supported a cohesive story of the AIG claims handlers’ complete failure to act consistent with standards and customs. The story of a powerful bad faith claim was presented to the judge and to the jury. The punitive damages awarded certainly appear to have been justified. Joseph D. Jean, Colin Kemp and Jeffrey Kiburtz of Pillsbury Winthrop Shaw Pittman and Craig Diamond of Diamond Baker Mitchell represented Victaulic. They did a very good job for their client in this litigation.


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