Facts

There was a landslide at La Costa de Marbella in Carlsbad, CA. Eight homes were completely destroyed and 50 other homes sustained market value loss as a result of common area damage. The La Costa de Marbella Homeowners Association (HOA) and the owners of units affected by the landslide brought an action against the city of Carlsbad (City) and the Carlsbad Municipal Water District (CMWD) for inverse condemnation and other torts.

The basis for the lawsuit was that a leaking City and CMWD-owned water main triggered the landslide. The City and CMWD denied that their leak caused the landslide and argued that bad soil, heavy rains, and a leaking HOA storm drain triggered the landslide. Some homeowners filed a complaint against the HOA for declaratory relief regarding the standing of the homeowners to recover inverse condemnation damages. The HOA sued its insurance carrier for bad faith in connection with its failure to cover the landslide damages.

PLAINTIFFS' CONTENTIONS:
The plaintiffs contended their homes were destroyed as a result of defendants' negligent installation and maintenance of a water main. Plaintiffs believe the water main discharged as much as 900,000 gallons of water per day for nearly two weeks before being repaired by the City. The HOA also sued State Farm for bad faith, which is still pending.

DEFENDANTS' CONTENTIONS:
The defendants contended the leak from the storm drain owned by the homeowners' association weakened the slope and caused the damage. Defendants could not be held liable for the record rainfall and plaintiff's drain. Most of plaintiffs' tort claims were barred by the statute of limitations.

Settlement Discussions

The city quickly built a $2 million retaining wall to stabilize the slope and reopen both lanes of the main road. There were numerous sessions of mediation that followed.

Damages

Plaintiffs alleged damages in excess of $20 million. The units were worth $480,000 each, the cost of repair was believed to exceed $6 million, and there was significant personal property loss, credit score damage to the owners of destroyed units, and emotional distress.

Result

$12.5 million settlement by the city of Carlsbad/Carlsbad Municipal Water District whereby the eight homeowners loans were paid off, equity was reimbursed, credit score damage and personal property damages was reimbursed, and their attorney fees and costs were paid. The HOA became owners of the airspace above the destroyed condominiums, which was worth $2 million. The other 53 homeowners received a loss in value payment. The HOA received enough money to make repairs to the common area. Settlement proceeds were also distributed among homeowners not joined in the litigation to compensate them for their loss in value.