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Proven Results · Insurance Bad Faith · Confidential pre-trial settlement
Case Result: Insurance Bad Faith, Delayed Payments and ALE Cutoff After a Catastrophic Roof-Failure Water Loss
Summary: We represented a senior California homeowner whose house suffered catastrophic water damage from a defective roof, and whose homeowners insurer allegedly delayed paying for the rebuild and then cut off her Additional Living Expense (ALE) benefits while repairs were still underway. The case settled confidentially before trial, with no verdict.
The central allegation was that the insurer ended living-expense coverage by claiming it lacked information about construction progress, even though the insurer’s own retained construction consultant had inspected the home, reported in writing that the rebuild was on schedule, and projected a completion date well beyond the coverage cutoff.
The case also turned on a second issue that matters to many insureds: how to divide a third-party recovery between an insurer and an insured who has not been fully compensated, under California’s “made whole” doctrine.
Results notice. Prior results do not guarantee, warrant, or predict the outcome of any future case. Each result depends on its own facts and the law that applies. This page does not state dollar amounts or settlement terms. Adam P. Zaffos of Fernald & Zaffos served as lead counsel in this matter.
Case at a glance
Case type
First-party property insurance bad faith (homeowners policy)
Practice areas
Insurance bad faith, property damage claims, elder financial abuse, construction defect coordination
Jurisdiction
California
Our client
A senior homeowner (age 65+) with a documented medical condition
Defendants
A large national homeowners insurer and its claims-management personnel
Underlying loss
Catastrophic interior water damage caused by a defectively installed roof during a major home remodel
Core dispute
Delayed payment of structural benefits, a rebuild-cost shortfall, and a cutoff of Additional Living Expense (ALE) benefits while the home was still being rebuilt
Claims asserted
Breach of contract; breach of the implied covenant of good faith and fair dealing; Business & Professions Code section 17200; declaratory relief; Penal Code section 496; punitive damages
Related matters
A parallel construction-defect action and the insurer’s subrogation claim against the responsible contractor and roofer
Result
Resolved by confidential settlement before trial and before any verdict; terms are confidential
Our role
Plaintiff’s counsel for the homeowner. Adam P. Zaffos of Fernald & Zaffos served as lead counsel.
Background: a roof failure and a total loss of use of the home
Our client was a longtime California homeowner in her late sixties when the loss occurred. During a major remodel of her home, a newly installed standing-seam metal roof failed in a rainstorm. Water entered throughout the house, and the damage was severe enough that nearly every wall, ceiling and finish had to be opened, remediated and rebuilt.
Two features of the claim made it unusually difficult:
- The roof itself was not covered. The policy did not pay to replace the defective roof, so the homeowner had to fund that work out of pocket before interior rebuilding could responsibly begin.
- A known medical condition shaped the rebuild. The homeowner has a documented medical condition that required specialized, health-compliant materials. Her home had originally been built with protective features, and the insurer’s claim file reflected awareness of her medical needs from early in the claim. A health-compliant rebuild required specialized materials, which took longer to source and cost more.
The homeowner was insured under a standard California homeowners policy with dwelling, personal property and loss-of-use (ALE) coverages. Because the insurer paid slowly, she retained a licensed public adjuster to advocate for her.
What the insurer allegedly did: a chain of delay that ended in a benefits cutoff
Our client alleged that the insurer’s handling of the claim was a single continuous course of conduct rather than a series of unrelated missteps. The sequence, in order:
- Slow first payment. The insurer made no substantive payment toward the structure until many months after the claim was reported. The first check was small, and after the insurer deducted a housing advance, the amount actually available for repairs was a tiny fraction of the loss.
- Adjuster turnover. The file passed through numerous adjusters, which our client contended repeatedly restarted the adjustment process and lost institutional knowledge.
- A long wait for the balance. The remaining structural payment did not issue until well over a year after the claim was reported, and then had to pass through the homeowner’s mortgage lender before funds reached the job site.
- A regional wildfire disruption. Soon after full-scale rebuilding finally started, major wildfires hit the region. Demand for contractors, skilled trades and materials spiked, and costs and timelines moved sharply against our client.
- A rebuild-cost gap. The insurer’s own estimate for the rebuild came in far below what the work actually cost, in part because of the delay-driven market premium, in part because the estimate did not fund the specialized, health-compliant materials the homeowner needed, and in part because the roof was never covered.
- The ALE cutoff. The insurer ended ALE on a date that fell months before the project’s projected completion, stating that it had not received documentation showing reasonable progress.
Legal issues and theories
The case combined contract claims, California insurance bad faith law, and statutory theories. These are the issues that drove it.
Breach of contract
Failure to timely pay covered benefits, and refusal to pay ALE, storage and utilities owed under the policy.
Breach of the implied covenant of good faith and fair dealing
California requires an insurer to give at least as much consideration to its insured’s interests as to its own. Our client pointed to Insurance Code section 790.03 and the Fair Claims Settlement Practices Regulations (Cal. Code Regs., tit. 10, section 2695), which address prompt investigation, prompt payment and accurate communications.
Genuine dispute doctrine
An insurer that reasonably relies on available facts can defend a coverage position as a genuine dispute. Our client argued the doctrine does not protect a denial that contradicts facts the insurer’s own investigation had already established.
Punitive damages (Civil Code section 3294)
Based on allegations of malice and oppression: conscious disregard of the insured’s rights through delay followed by a benefits cutoff.
Unfair competition (Bus. & Prof. Code section 17200)
Restitution and injunctive relief for an alleged pattern of unlawful business practices.
Declaratory relief
A declaration of the insured’s right to further ALE, storage and utilities.
Penal Code section 496
Treble damages and attorney’s fees for allegedly knowing withholding of policy benefits.
Elder financial abuse (Welf. & Inst. Code section 15610.30)
Considered as an additional theory because the insured was over 65 and the insurer knew of her age and medical vulnerability.
The made whole doctrine
The underlying roof failure also produced a construction-defect case against the contractor and roofer, plus the insurer’s own subrogation claim against the same parties. That raised a recurring question in property insurance: when an insured’s losses exceed what she has recovered, who gets paid first from a third-party recovery?
Under California’s made whole doctrine, an insurer may not enforce subrogation rights until the insured has been fully compensated for her loss. Our client’s position was that her uncompensated losses, including out-of-pocket rebuild costs, self-funded housing, remediation, public adjuster fees and attorney’s fees, exceeded the available recovery, so the insurer’s claim to that fund was at most a modest residual.
Our approach: a documents-first case
We approached the case as a documents-first dispute built on the claim record.
- Rely on the claim record. The insurer’s own file and the information it received during the claim were central to the bad faith analysis.
- Tie the delay to the damages. We connected the timing of payments to increased rebuild costs and to the added costs that grow with project duration.
- Quantify the shortfall. We compared the insurer’s estimate against actual rebuild costs and tracked unreimbursed living expenses separately.
Outcome: confidential settlement before trial
The case resolved by confidential settlement, before trial and before any verdict. The settlement resolved the homeowner’s claims against the insurer arising from the loss.
The terms are confidential, and the settlement is not an admission of liability by the insurer. Because there was no trial, no court or jury made findings on the allegations described on this page.
Takeaways for homeowners facing a large insurance claim
- Keep a running record. Send invoices, schedules, photographs and status updates in writing, and keep proof they were received. Insurers sometimes later say information was never provided.
- Ask for ALE extensions early and in writing. Tie the request to a documented construction schedule, and ask the insurer to confirm or deny in writing.
- Know what the policy does not cover. Defective workmanship, including the failed component itself, is often excluded, so budget for it separately.
- Tell the insurer about medical needs. If a health condition affects materials, scope or timing, document it early so it cannot be treated as an afterthought.
- Watch payment timing, not only payment amount. In a rising construction market, delay itself can add substantial cost.
- Consider a licensed public adjuster and an attorney. Both can matter when payments stall or benefits are cut off.
- Be careful with third-party recoveries. If your insurer is also pursuing the party that caused the loss, get legal advice before agreeing to how any recovery is divided.
Frequently asked questions
Can an insurer cut off Additional Living Expense benefits while my home is still being repaired?
It can end ALE when the policy’s time or limit conditions are met, but California law requires it to act reasonably and in good faith. In this case, we alleged the insurer ended ALE while its own consultant was confirming that repairs were progressing and would take longer.
What is Additional Living Expense (ALE) coverage?
ALE, also called Coverage C or loss of use, pays the reasonable increase in living costs, such as temporary housing, when a covered loss makes your home uninhabitable. Many policies limit ALE by dollar amount, by time, or both, and the shortest applicable limit usually controls.
Can slow insurance payments count as bad faith in California?
Potentially. Insurance Code section 790.03 and the Fair Claims Settlement Practices Regulations prohibit unreasonable delay in investigating and paying claims. Whether delay amounts to bad faith depends on the facts, including what the insurer knew and when.
What is the made whole doctrine?
It is a California rule that an insurer generally cannot recover from a third party through subrogation until the insured has been fully compensated for her loss. Whether it applies depends on the policy, the facts and the type of recovery.
Does bad faith liability extend to individual adjusters or managers?
In some circumstances, yes. California courts have allowed claims against individual claims personnel in certain situations, such as alleged misrepresentations made during the adjustment of a loss. These claims are fact-specific.
What is the genuine dispute doctrine?
It is a defense that protects an insurer that reasonably relies on available facts to dispute a claim. It is weaker where the insurer’s position conflicts with information already in its own claim file.
Did this case go to trial?
No. It settled confidentially before trial, so no judge or jury decided the allegations.
Does a result like this guarantee the same outcome in my case?
No. Prior results do not guarantee, warrant, or predict the outcome of any future case. Every claim turns on its own facts, policy language and evidence.
About this case study
Fernald & Zaffos represents California homeowners and businesses in insurance bad faith and property claim disputes. This case study describes a resolved matter in general terms. Identifying details have been removed, the settlement terms are confidential, and the allegations described are those of our client; the insurer denied liability and no court made findings.
Attorney advertising. Prior results do not guarantee, warrant, or predict the outcome of any future case. Each result depends on its own facts and the law that applies. Nothing on this page is legal advice. If your insurer has delayed or cut off benefits on a significant property claim, you can contact us to discuss your situation. Contacting the firm does not create an attorney-client relationship, and please do not send confidential details until we confirm there is no conflict.
This advertisement is the responsibility of Adam P. Zaffos, Fernald & Zaffos, 15910 Ventura Blvd., Suite 1702, Encino, California 91436.
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The information on this page is general and is not legal advice. Contacting the firm does not create an attorney-client relationship. Prior results do not guarantee a similar outcome.
This advertisement is the responsibility of Adam P. Zaffos, Fernald & Zaffos, 15910 Ventura Blvd, Suite 1702, Encino, CA 91436.