Representing American Samoa

Representing An Entire Country: American Samoa Government v. Affiliated FM Insurance

IN 1991 AMERICAN SAMOA, a United States territory, purchased from Affiliated FM Insurance a $45-million “all risk” insurance policy that specifically covered hurricanes. One month later, the tiny islands of American Samoa were decimated by Hurricane Val.

After being hammered for four days with 150-mph winds and 50-foot waves, the islands were left with broken water mains, no telephone or electrical service and nearly $50 million in damages, including destroyed schools, courthouses and government buildings.

Affiliated decided to pay only for $6.1 million of the damages, determining that this was the amount of damages caused by wind, with the rest caused by “wind-driven water.”

Upon further investigation, attorney William Shernoff and his team discovered that the insurance company indeed had modified American Samoa’s insurance policy to exclude damages caused by “wind-driven water” – even though the policy still covered hurricanes.

At trial, Shernoff showed that although Affiliated’s policy modification contained the phrase “understood and agreed,” American Samoa in fact had not agreed to it, as they were not even informed of the change in coverage until four days after Hurricane Val.

And Shernoff had little difficulty showing the jury the absurdity of Affiliated’s claim that hurricane Val was not a hurricane at all but rather “wind-driven water” and therefore not covered under the policy.

The case Shernoff brought was so strong that the jury awarded the American Samoa Government the balance (less the deductible) of their coverage, $28.9 million, and then doubled that amount to $57.8 million in punitive damages.

The $86.7 million judgment was the largest insurance bad faith verdict in the state of California in 1995. Following an additional appeal and settlements, American Samoa collected a total of $118 million.