Settlement Amount:
$6,900,000 settlement payout

Case Name:
Mark West v. Prudential Property and Casualty Insurance Company

Case Number:
Los Angeles County Superior Court Case No. BC195922

Plaintiff:
California Class Action

Defendants:
Prudential Property and Casualty Insurance Company

Facts and Background:
Prudential issues homeowners insurance policies in California
that protect homeowners against losses due to certain covered
perils (e.g., fire), subject to the terms and conditions of the
policy. The base amount of insurance on the policyholder’s home
is stated on the "declarations page" of the insurance policy as
the "Coverage A Dwelling limit." Dwellings and certain other
structures (collectively, the policyholder’s "home") are insured
at a dollar figure representing estimated "replacement cost."

Since the beginning of 1995, Prudential in many instances has
utilized a third-party computer program known as System 81 to
estimate the replacement cost of policyholders’ homes in
California. System 81 estimates the replacement cost on the basis
of a selected number of the physical characteristics of the home,
including, among others, the style of the home, the type of
construction of exterior and interior walls, the number and size
of stories, floor area, bathrooms, type of flooring, type of roof
covering, porches and garages.

In connection with the determination of estimated replacement
costs, System 81 generates two print-outs; (1) A print-out
identifying and briefly describing the characteristics which were
used to estimate the replacement cost; and (2) A print-out
specifying a dollar value for each of the home’s characteristics
that make up the "Total Replacement Cost," and a separate dollar
value for the "100% Insurable Replacement Cost," which is arrived
at by deducting certain "exclusions" from the "Total Replacement
Cost" dollar amount. These "excluded" items are referred to as
"Soft Costs."

Prudential also offers policyholders the opportunity to purchase
an additional 25% of coverage beyond the face amount of the
policy. The endorsement, referred to as the Enhanced Dwelling
Limits endorsement ("EDL"), requires that a policyholder carry a
certain amount of insurance on their home as determined by
Prudential in order to qualify. In determining the amount of
insurance necessary, the endorsement specifically provided that
certain costs, referred to as "Soft Costs," need not be included
in the replacement cost calculation.

Plaintiffs’ Contentions Regarding Liability:
Plaintiff alleged that defendant systematically inflated
homeowners’ replacement cost calculations for homes located in
California by, inter alia, attributing characteristics to homes
which did not exist. These additional characteristics increased
the replacement cost for the home, and thus increased the amount
of premium paid by the homeowner. In addition, plaintiff alleged
that Prudential concealed the System 81 printout from
policyholders, denying them the opportunity to verify the
accuracy of the information. Finally, plaintiff contended that
Prudential routinely included "Soft Costs" in the determination
of the required coverage limits for those class members who
purchased the EDL during a certain period of time, contrary to
the specific terms of the endorsement. The addition of the "Soft
Costs" also increased the amount of insurance carried by the
homeowner, and thus their premium.

Defendants’ Contentions Regarding Liability:
Defendant denied there were any characteristic errors on
policyholders’ System 81 printouts, and that if any errors were
present, they did not necessarily increase the replacement cost
calculation. Defendant also denied that it concealed any
documentation from policyholders but rather left it to the
Prudential insurance agents’ discretion whether or not to provide
a copy of the System 81 print-out to policyholders. Prudential
further contended that agents should not be affirmatively
required to furnish the System 81 print-outs to policyholders
because, among other things, (a) the System 81 figures were
routinely reviewed by Prudential’s underwriting department using,
among other information, two Polaroid pictures of the home and
reports from the agent in the field; and (b) the System 81
print-outs embodied conventions and "short-hand" descriptions
that in many instances would not be meaningful to persons who did
not have background or experience in the insurance or
construction industries.

Defendant also contended that, although "Soft Costs" are taken
into account when determining whether policyholders have met the
EDL Endorsement’s requirements, subject to coverage limits,
Prudential indemnifies the full cost of replacing the home,
including costs attributable to these "Soft Costs" in the event
of loss. Prudential further contended that "Soft Costs" were
included in estimating the replacement costs for policyholders
beginning in December 1994 based on their alleged substantial
loss experiences and changes in applicable law in California
regarding, among other things, "concurrent" causation and the
property-owner’s duty regarding subsidence and other similar land
issues. Prudential contended that in 1994, competing insurance
companies generally refused to issue any new homeowners policies
in California, whether or not "Soft Costs" were included among
the costs used to estimate the "replacement cost" of homes in
California.

Finally, Prudential alleged that the California Department of
Insurance had primary jurisdiction of the dispute. The matter was
referred to the DOI by the Los Angeles County Superior Court.

Damages:
Over-insurance of approximately 100,000 policyholders’ dwelling
coverage limits, resulting in excessive premiums wrongfully
obtained by Prudential.