A Fashion District business is suing the California FAIR Plan Assn., alleging the insurer only agreed to pay for loss of business income and for cleaning the company’s inventory after a 2023 fire even though all the items were a total loss from smoke and soot damage.
New Fabric Inc.’s Los Angeles Superior Court lawsuit alleges breach of the contractual duty to pay a covered claim, breach of the duty of good faith and fair dealing and a violation of the state Business and Professions Code. The company seeks unspecified compensatory and punitive damages and an injunction to stop the CFP from practicing its alleged “wrongful, profit-driven claims practices” against other clients.
“As a result of CFP’s incomplete, unreasonable and malicious handling of the claim, plaintiff has been and continues to be damaged,” the suit states.
A representative for the CFP did not immediately reply to a request for comment. The CFP is a private group and describes itself as an insurer of last resort providing a temporary safety net to support clients until coverage offered by a traditional carrier becomes available.
According to the suit, on June 15, 2023, a fire in a building neighboring New Fabric’s Crocker Street structure caused major smoke and soot damage to the plaintiff’s business and to other surrounding structures.
“Plaintiff’s business suffered the worst indirect damage because it was located behind the emission point, and smoke and soot poured into the building through a large grated vent like flowing water,” according to the suit, which further states that New Fabric’s entire inventory of fabrics was irreversibly damaged.
New Fabric sells its products to clothing manufacturers who will not purchase tainted fabrics or even those discounted and disclosed as refurbished, so the only value of the fabrics after the loss was as salvage, the complaint states.
New Fabric’s policy promised coverage that included up to $1.2 million for loss of business personal property, the suit states. But after the claim was filed, the CFP representative “set out to underpay the claim by maintaining that plaintiff’s fabrics were not ruined, but rather could be cleaned and resold,” the suit states.
“It was a dishonest opinion shared by CFP itself, which was in the habit of mischaracterizing its insureds’ losses to save the association money on claim payouts,” the suit states.
The CFP and its representative were “fixated on forcing plaintiff to clean the fabrics even though they had been told repeatedly by CFP’s own vendors and by plaintiff that the fabrics could not be resold other than as salvage even after cleaning,” the suit states.
The CFP representative authorized payment of the claim for smoke odor elimination for $57,860 and for cleaning in the amount of $161,345, the suit states.
“Not one piece of fabric or textile from plaintiff’s inventory was deemed by CFP a total loss despite the loss being, in fact, total,” the suit alleges.
The CFP additionally paid New Fabric $114,700 for loss of business income from June through August, which also fell short of the business’ actual loss, the suit states.
Although 11 businesses were damaged in the fire, only New Fabric and one other company were not fully paid for loss of their property and both were insured by the CFP and their complaints handled by the same representative, the suit states.