Breach of Contract for Massive Failure of Warehouse Sprinkler System

Better Office Products v. Stanley Hardware (Van Nuys, CA)

Sometimes insulting opposing counsel isn’t a good idea.  In their first conversation, opposing counsel suggested Kevin “have this one reassigned to someone who knows what they are doing.”

Defendant was Plaintiff’s landlord for a large warehouse that was ground zero for the Northridge Earthquake.  The quake fractured the warehouse sprinkler system, but water damage was slight as the water main to the sprinkler system also broke.  The afternoon of the quake, Defendant’s maintenance worker turned off the water supply to the building at the water meter.  He did not realize that sprinkler systems are piped directly into the water main and do not go through the meter.  When the water service was restored, plaintiff’s stock of office products was water damaged, to the tune of a claimed $600,000.

During the deposition of Plaintiff’s owner, it because apparent that he had already been largely reimbursed by his own insurance carrier.  His testimony also suggested that he might have sold some of the “damaged” inventory creating a possible tax liability.  Kevin suggested during the deposition that the parties stipulate that the damages sought in this case are the same $465,000 of damage paid for by Plaintiff’s carrier.  After a private discussion, Plaintiff and his counsel agreed and Kevin typed it up and plaintiff signed it.

Several days before trial, Defendant advised Plaintiff’s insurer of this suit and the fact that the lease included a waiver of subrogation that made a potential subrogation action worthless.  Defendant offered the carrier $5000 for an assignment of its equitable interest of $465,000, which the carrier gladly accepted.  The already drawn check was exchanged for the assignment by messenger.  On the first day of trial, the purchase of all of Plaintiff’s remaining damages was announced to Plaintiff.  Under protest, trial went forward on Defendant’s cross-complaint for breach of lease for Plaintiff’s failure to insure Defendant for claims arising out of Plaintiff’s tenancy.  Experts disagreed on whether the insurance, had it been purchased, would have covered Plaintiff’s claims.  Defendant’s expert was the carrier’s lead counsel on Northridge Earthquake claims, and he indicated it was the policy of the carrier to defend such actions.  The court held that the insurance would, at least, have required a defense of Defendant in the main action.

Result:  Recovery on the cross-complaint of $100,000 in fees and costs, paid by Plaintiff.