Couple Sue Insurer Over Art Damage : Courts: Gary and Donna Freedman claim Encino firm sold them all-risk policy but refuses to pay $2.5-million earthquake claim.

A Santa Monica couple who thought they had insured their multimillion-dollar art collection have filed a lawsuit against an Encino insurance agency and a giant insurer for failing to pay a $2.5-million claim for earthquake damage.

Gary and Donna Freedman filed the suit in Los Angeles Superior Court last week alleging that American Business Insurance Brokers Los Angeles Inc. sold them an all-risk policy for their collection of paintings and ceramics through Fireman’s Fund Insurance Co., which has refused their claim.

At issue is whether the policy excluded earthquake damage.

Fireman’s Fund and American Business officials declined to comment on the lawsuit this week. Both companies are defendants in the suit, which alleges negligence, bad faith and breach of contract.

The Freedmans said they were surprised when Fireman’s Fund denied their claim to cover 15 pieces of their collection, including a $2.3-million Roy Lichtenstein oil painting titled “Expressionist Head.”

Gary Freedman, a Santa Monica attorney, said the five-by-six-foot painting suffered several scrapes and damage to its canvas when the wire it was hanging from on their living room wall broke during the Northridge earthquake.

Freedman said he was shocked when an insurance adjuster from Fireman’s Fund said he had no coverage.

“It’s impossible for me to express the feeling I had on that Saturday when they told me I had no coverage,” Freedman said. “It’s outrageous to me what they’ve done.”

According to the lawsuit, Freedman called his broker at American Business and was told that his policy did not exclude earthquake damage. The agency sent a letter to Fireman’s Fund stating as much.

Nevertheless, on March 1, Fireman’s Fund denied the claim, the lawsuit states. Freedman said he was told by the company that an amendment had been added to his policy excluding earthquake damage.

Freedman said American Business apparently discovered a copy of the amendment to the 1992 policy in their files when the dispute erupted. Freedman contended he had never been told it existed until after he filed his claim.

“We don’t have such an exclusion in our copy of the policy and even if we did, one was never issued with the 1994 policy,” said Bruce A. Friedman, an attorney representing the couple.

Friedman said the couple switched insurers in 1992 from Lloyd’s of London after an agent from American Business told them they could acquire a better policy through Fireman’s Fund.

The Freedmans describe the conduct by Fireman’s Fund in their lawsuit as despicable, malicious, fraudulent, oppressive and outrageous for failing to pay on their claim. They accuse American Business of negligence for selling them a policy that was substantially different then their previous policy with Lloyd’s of London, which covered quake damage.

The Freedmans are seeking $2.5 million plus an unspecified amount of punitive damages.

Gary Freedman said he and his wife purchased the Lichtenstein painting from a New York art dealer for $75,000 in 1980, when it first came out and they were starting their art collection.

Over the years the painting’s value grew, as have many pieces by Lichtenstein, whose works have been auctioned for as much as $6 million. Freedman said he has had the painting, which he describes as the centerpiece of his $3.2-million art collection, insured for the last 13 years.

This year, Freedman said his premiums through Fireman’s Fund for the collection were quoted at $6,400, but he said he is now shopping for a new insurer to avoid a repeat of the situation he and his wife find themselves in.

“You’re thinking, thank goodness I have insurance for my valuable possession,” Freedman said. “Then to be told that you don’t . . . it’s a big loss.”