A homeowners association brought a lawsuit against three real estate developers for defects and damages in the construction of a condominium. The developers had their insurer, United Pacific Insurance Company, defend the lawsuit. The insurer withdrew its defense after discovering damages were not covered under the policy. A default judgment was entered against the developers for $339,000, which forced the developers to file for bankruptcy.
The homeowners association and the developers brought suit against the insurer for breach of contract and bad faith. The court found that the insurer acted in bad faith as a matter of law and the insurer breached the covenant of good faith and fair dealing, according to the jury.
The developers were awarded $5 million for emotional anguish damages and damages for lost investment opportunities; $339,000 of the proceeds were to be paid to the homeowners association.