Facts

The La Costa de Marbella Condominium Complex is located on La Costa Avenue in the City of Carlsbad. In March 2005, an earthen slope became saturated with water and failed, resulting in a landslide that damaged or destroyed a number of condominium units and common areas.

Allianz insured the City under two liability policies, each with a limit of $2 million. Allianz agreed in writing to defend the various lawsuits, but did not pay for defense costs until after the lawsuits had settled.

The City paid more than $2 million to resolve the consolidated lawsuits asserting claims against it for, inter-alia, property damage.

PLAINTIFFS' CONTENTIONS:
Plaintiffs contended that Allianz breached the insurance contract and engaged in insurance bad faith when it refused to comply with its written agreement to defend the action and when it wrongfully withdrew the defense and refused to participate in settlement negotiations.

Plaintiffs contended that Allianz was liable for more than $19 million in compensatory damages (including $11,235,000 that the City paid to settle the lawsuits, $500,000 in unpaid defense costs, more than $5,000,000 in Brandt attorneys fees and more than $2,400,000 in interest). Plaintiffs also claimed punitive damages.

DEFENDANTS' CONTENTIONS:
Allianz contended that there was no coverage because, among other things, property damage did not occur during the Allianz policy periods. In the alternative, Allianz contended that although it did not pay defense costs until after the bad faith lawsuit was filed, it was not liable for the entire $11.235 million settlement, plaintiffs' Brandt fees or punitive damages, and that its liability was limited to the limits available under its insurance policies. Allianz also denied that it acted unreasonably or in bad faith.

Result

Allianz paid $700,000 for the City's defense costs after the lawsuits against the City had settled. Allianz then reached a settlement with the City, in which it paid $4,000,000 in exchange for a release of all claims. The City resolved the underlying lawsuits for $11 million.

Other Information

FILING DATE: Aug. 2, 2007.