If you compare how Liberty Mutual sells homeowners insurance in California to the way the way the company sells insurance in Nevada, you'll see Nevada got Dr. Jekyll, while we in California got Mr. Hyde.
Under California law, an insurance company must disclose the policy limits on the declarations page. The California Supreme Court said so in Haynes v. Farmers Insurance Exchange, 32 Cal. 4th 1198, 1206, 13 Cal. Rptr. 3rd 68, 74 (2004). As the court pointed out, the policy declarations page is where consumers look to see if they have enough insurance to replace their home if it's destroyed -- typically hundreds of thousands of dollars.
In California, Liberty Mutual, through its subsidiary, Safeco, sends out declarations pages indicating customers' homes are covered for hundreds of thousands of dollars, plus up to two years' worth of substitute housing. But if a customer's home is destroyed by a covered fungus loss -- surprise! -- the customer is told the total policy limit is just $10,000, a number omitted from his declarations page. Good luck rebuilding your house for $10,000.
In Nevada, however, Liberty Mutual does disclose the $10,000 figure on customers' declaration pages. Indeed, the policy its sells in Nevada specifically tells customers to look at the declarations page to see the limit:
Insurance companies that are honest and "upfront" with their customers disclose their policy limits in clear, plain and conspicuous language. Indeed, they even give customers the option to obtain a higher policy limit for covered fungus claims by paying a higher premium. For example, Citizens Property Insurance, a non-profit company in Florida, sells a policy that has a $10,000 limit for fungus claims, but customers can increase that limit to $25,000 or $50,000, by paying an extra $45 or $72 per year, respectively.
Those figures, in turn, enable one to calculate roughly how much money Liberty Mutual and Safeco are obtaining from California consumers each year under false pretenses. Let's do the math together:
If it costs approximately $72 per year to provide a $50,000 policy limit for covered fungus loss, it seems reasonable to estimate it would cost ten times as much to provide ten times the limit, i.e., $720 per year for a $500,000 limit.
Therefore, every time Liberty Mutual and Safeco sell a policy in California under false pretenses, they are unjustly enriched by roughly $720, representing the difference in value between the policy limit set forth on the declarations page versus the policy limit they actually intend to apply.
Safeco sells something on the order of 300,000 homeowners policies per year in California, so that adds up to unjust enrichment on the order of $216 million per year (= $720 per policy x 300,000 policies per year). Liberty Mutual presumably sells a like number of policies under its own name or the name of its other subsidiaries, but let's just stick with Safeco.
California's unfair competition laws have a four-year statute of limitations, so a class action on behalf of Safeco's customers should provide a recovery to the class of roughly $864 million (= $216 million per year x 4 years). The statute of limitations for fraud is shorter, but provides for punitive damages -- which could easily put the figure over $1 billion total. And that's just for California's consumers.
What does it all mean? It means stayed tuned to see if the Ninth Circuit agrees with us that Safeco's failure to disclose the purported $10,000 policy limit constitutes unfair competition as a matter of law. That ruling would require Liberty Mutual and Safeco to make the same disclosures in California that they already make in Nevada.
The ruling would also trigger a race to the courthouse by class action consumer lawyers. You see, liability would already be established. Safeco therefore could not re-litigate the issue of whether its conduct was improper. Rather, the only issue would be how many hundreds of millions it owes to the consumers it has cheated, and how many hundreds of millions more it should pay in punitive damages.
Come to think of it, why wait for the ruling to institute a class action? There's no time like . . . the near future.