The Nevada Supreme Court has remanded an insurance-claim case involving an extruder-printer-converter back to the Clark County District Court for a new trial.
When Coast Converters Inc. moved from Los Angeles to North Las Vegas, Nev., in early 2003, the company took out protection with the Indiana-domiciled Federal Insurance Co. subsidiary of Warren, N.J.-based Chubb Corp.
The initial property damage coverage of $2 million was to be increased in steps to $5 million by May as machinery was installed. The business-interruption and extra-expenses coverage was $1.75 million.
Faulty electrical upgrades in the refurbishing of the Coast plant caused voltage fluctuations damaging some Coast machinery, resulting in production of defective bags during October 2003, according to court records.
Coast filed a claim seeking reimbursement from Federal. The insurer opted to pay for some of the damaged bags with the extra-expenses coverage, exhausting that protection, and withheld payment for the damaged machinery under the property damage portion of the policy until 2011.
Coast believed the property-damage coverage should have covered the increased losses from the bags.
Ultimately, the larger volume of scrap bags led to Coast ceasing operations in 2007 and suing Federal Insurance in the District Court in Las Vegas.
In March 2011, a jury found Federal liable for $4,005,866 for breach of contract and $5,048,717 for violation of the Nevada Unfair Claims Practices Act.
“The jury determined that they did not do what they were supposed to do,” former Coast owner Mitchell Greif said in a telephone interview.
Federal Insurance appealed the jury decision in November 2011, and the Supreme Court in Carson City addressed some of appeal issues in a unanimous Dec. 24 opinion saying in part that the district court erred in submitting the policy-definition question to the jury.
A new jury in the district court will need to determine when Coast knew about the defective bags.
Pinning down that time factor will lead to the critical policy-definition determination of whether the defective bags were property damage or extra expense, said Las Vegas lawyer David S. Lee representing Coast and Greif.
“The idea of trying the case again is always a risk, but we have a determination in our favor,” Lee said.
Greif commented: “The Supreme Court ruled in our favor that it was property damage. A new district trial is needed to determine the exact dates and amounts and whether Chubb violated the unfair claims practices act and committed bad faith by not paying out the property damage before they forced us to close our doors” in 2007.
U.S. Bancorp., a subsidiary of U.S. Bank National Association, foreclosed on the business.
Members of the Silverman, Abeson and Schor families founded Coast Converters in March 1964. Greif joined Coast in 1986 as national sales manager and bought controlling interest in 1994.
In 2000, he began thinking about moving the business, and his team found what was perceived as a workable option in North Las Vegas.
At the time of the move, California companies were facing steep increases for their state workers' employment insurance coverage in comparison to what Nevada businesses paid.
Among Nevada's other advantages, the state did not tax corporate or personal income and had power rates significantly lower than those at municipality- or investor-owned utilities in California.