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City faces lawsuit over condos' defective pipes

Sewer problem allegedly not reported to insurance company in timely manner

The City of San Diego is being sued for millions over corroded sewage pipes that have allegedly leaked hydrogen sulfide gas into expensive condominiums downtown.

Last month, a New York state judge ruled that the city failed to submit three claims in a reasonable time frame to their insurer, Indian Harbor Insurance. The delay violated a clause in the policy, leaving the city to face a $29 million lawsuit filed by Grande North's HOA.

The first claim, according to a September 25 judgment in New York Superior Court, occurred at the Grande North condominium building located on Pacific Highway. The smell and potential hazard was covered by online news organization Voice of San Diego in September 2009.

Residents at the Grande North had complained about the foul odor coming from the pipes for years. In August 2009, they filed a claim with the city's Risk Management Department, alleging that "sewer gases containing hydrogen sulfide were migrating on an ongoing basis from the City’s sewer main along the Pacific Coast Highway into the Grande North HOA building systems, causing corrosion and other damage."

It took less than two weeks for the city to deny the claim on the grounds that residents waited more than six months from when the odor was first detected. The building's homeowners association fired back, alleging the city was allowing a "potentially deadly condition" to persist. They asked the city to repair the aging pipes immediately. Again the city said the claims were not submitted in time. The homeowners association then filed suit against the city for $29 million in damages.

The case worked its way through the court and, while it did, city staff never informed Indian Harbor Insurance of the claims or the litigation, despite clauses in the policy requiring city staff to do so in a "practicable" time frame.

In fact, it took 31 months for word to finally reach Indian Harbor Insurance. That was too late. In July, the insurance company denied coverage.

Grande North isn't the only downtown building with pipe problems to blame on the city.

In May 2011, residents at 235 Market Street filed a similar claim over a "corrosion problem" that was “directly attributed to sewer gasses containing hydrogen sulfide (among other things) which originate in the City sewer main.”

In July, the city's Risk Management Office denied the claim, again on the grounds that the residents sat on the issue for too long before reporting the problem.

Two months later, the homeowners association at 235 Market filed suit for a "breach of implied warranty; negligence; inverse condemnation; dangerous conditions; breach of fiduciary duty; breach of covenants, conditions and restrictions; and negligent misrepresentation."

Yet, despite having just discovered that Indian Harbor needed immediate notice, the city again waited to notify them of the complaint or the lawsuit. Notice wasn't given until the next year, in May 2012. And again, the insurance company denied the claim.

But, wait, there's another case: In March 2012, as the City Attorney's Office was defending the two other lawsuits and negotiating with the insurance company, another claim for corrosive pipes and seeping hydrogen sulfide gas was made to the Risk Management Department, this one at a building on 15th Street in East Village.

In an all-too-familiar summary: City denies claim. Residents file lawsuit. City waits two months to notify their insurance provider.

The city subsequently filed a lawsuit in New York Superior Court against Indian Harbor Insurance. That didn't work so well. This from the the summary judgement:

The City has offered two justifications for its delays; neither presents a triable issue of fact. First, the City argues that language in the policy requiring that claims be “made against the Insured during the policy period and reported to the Company during the policy period” renders all notice of claims given within the policy period timely, regardless of whether such notice was given as soon as practicable after the claim was reported. This argument ignores the fact that these two provisions create separate requirements with separate purposes. The purpose of requiring reporting within the policy period is to afford the insurance carrier “greater certainty in computing premiums, since it does not need to be concerned with the risk of claims filed long after the policy period has ended, and as a result the insured may benefit from lower premiums.”

There is no reason to excuse the City’s failure to comply with the timely notice requirement in this case. It is not reasonable for an insured to rely on an insurance carrier’s performance after sitting on a claim for weeks or months without reporting it, in the face of a clause calling for notice of claims as soon as practicable and decades of precedent interpreting such clauses strictly. Further, New York courts have repeatedly emphasized the importance of timely notice to an insurer to protect against fraud; allow the insurer an opportunity to investigate, control, and settle claims; and to estimate potential exposure and establish adequate reserves.

That leaves the city on the hook not only for the millions of dollars in claims stemming from corroding sewage pipes, but also for legal fees to go after their insurance company. It's not over yet — on October 28, the city council voted to appeal the judge's decision.

(corrected 11/12, 4:10 p.m.)

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The City of San Diego is being sued for millions over corroded sewage pipes that have allegedly leaked hydrogen sulfide gas into expensive condominiums downtown.

Last month, a New York state judge ruled that the city failed to submit three claims in a reasonable time frame to their insurer, Indian Harbor Insurance. The delay violated a clause in the policy, leaving the city to face a $29 million lawsuit filed by Grande North's HOA.

The first claim, according to a September 25 judgment in New York Superior Court, occurred at the Grande North condominium building located on Pacific Highway. The smell and potential hazard was covered by online news organization Voice of San Diego in September 2009.

Residents at the Grande North had complained about the foul odor coming from the pipes for years. In August 2009, they filed a claim with the city's Risk Management Department, alleging that "sewer gases containing hydrogen sulfide were migrating on an ongoing basis from the City’s sewer main along the Pacific Coast Highway into the Grande North HOA building systems, causing corrosion and other damage."

It took less than two weeks for the city to deny the claim on the grounds that residents waited more than six months from when the odor was first detected. The building's homeowners association fired back, alleging the city was allowing a "potentially deadly condition" to persist. They asked the city to repair the aging pipes immediately. Again the city said the claims were not submitted in time. The homeowners association then filed suit against the city for $29 million in damages.

The case worked its way through the court and, while it did, city staff never informed Indian Harbor Insurance of the claims or the litigation, despite clauses in the policy requiring city staff to do so in a "practicable" time frame.

In fact, it took 31 months for word to finally reach Indian Harbor Insurance. That was too late. In July, the insurance company denied coverage.

Grande North isn't the only downtown building with pipe problems to blame on the city.

In May 2011, residents at 235 Market Street filed a similar claim over a "corrosion problem" that was “directly attributed to sewer gasses containing hydrogen sulfide (among other things) which originate in the City sewer main.”

In July, the city's Risk Management Office denied the claim, again on the grounds that the residents sat on the issue for too long before reporting the problem.

Two months later, the homeowners association at 235 Market filed suit for a "breach of implied warranty; negligence; inverse condemnation; dangerous conditions; breach of fiduciary duty; breach of covenants, conditions and restrictions; and negligent misrepresentation."

Yet, despite having just discovered that Indian Harbor needed immediate notice, the city again waited to notify them of the complaint or the lawsuit. Notice wasn't given until the next year, in May 2012. And again, the insurance company denied the claim.

But, wait, there's another case: In March 2012, as the City Attorney's Office was defending the two other lawsuits and negotiating with the insurance company, another claim for corrosive pipes and seeping hydrogen sulfide gas was made to the Risk Management Department, this one at a building on 15th Street in East Village.

In an all-too-familiar summary: City denies claim. Residents file lawsuit. City waits two months to notify their insurance provider.

The city subsequently filed a lawsuit in New York Superior Court against Indian Harbor Insurance. That didn't work so well. This from the the summary judgement:

The City has offered two justifications for its delays; neither presents a triable issue of fact. First, the City argues that language in the policy requiring that claims be “made against the Insured during the policy period and reported to the Company during the policy period” renders all notice of claims given within the policy period timely, regardless of whether such notice was given as soon as practicable after the claim was reported. This argument ignores the fact that these two provisions create separate requirements with separate purposes. The purpose of requiring reporting within the policy period is to afford the insurance carrier “greater certainty in computing premiums, since it does not need to be concerned with the risk of claims filed long after the policy period has ended, and as a result the insured may benefit from lower premiums.”

There is no reason to excuse the City’s failure to comply with the timely notice requirement in this case. It is not reasonable for an insured to rely on an insurance carrier’s performance after sitting on a claim for weeks or months without reporting it, in the face of a clause calling for notice of claims as soon as practicable and decades of precedent interpreting such clauses strictly. Further, New York courts have repeatedly emphasized the importance of timely notice to an insurer to protect against fraud; allow the insurer an opportunity to investigate, control, and settle claims; and to estimate potential exposure and establish adequate reserves.

That leaves the city on the hook not only for the millions of dollars in claims stemming from corroding sewage pipes, but also for legal fees to go after their insurance company. It's not over yet — on October 28, the city council voted to appeal the judge's decision.

(corrected 11/12, 4:10 p.m.)

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Comments
11

Gotta love a city attorney who loses winnable cases, fails to protect the city, and spends all his time plotting to overthrow a duly elected Mayor, among other things.

Nov. 10, 2013

Jan Goldsmith was elected City Attorney in 2008. He's the fool responsible for the City failing to notify the insurance company on time. Goldsmith is a dim witted bungler who cost the City $30 million. If Goldsmith does not resign over this fiasco, then he should be recalled and replaced in a special election. Jan Goldsmith is an absolute disgrace to this City and he should go back to New York where he belongs!

Nov. 10, 2013

In a larger picture of city priorities, this case is just another example of how the infrastructure of the city has deteriorated, and how that deterioration negatively affects not only aesthetics for residents, but their health. Yeah, "infrastructure" isn't very sexy at all--is anything less sexy than sewers? But when sewers, water lines, street paving, sidewalks, parks and libraries are neglected, there is a "day of reckoning." And for this situation, the day has come and gone. That $30 million could have been used to repair some other spot with a critical need that just hasn't made it onto the list of projects scheduled for work. And when that one fails, what will be the cost? This is a snowballing situation, and it just keeps getting worse.

I don't know that Goldsmith is the real culprit here. This information could have been buried in some other department that was primarily interested in avoiding embarrassment. To insure that the department head was going to be able to retire without any controversy, the administrators just didn't tell ANYBODY, including the insurance company.

In a different culture, failings of this sort cause a fatal loss of face, and the guilty are known to slice into their vitals with daggers. But in the culture of SD city government, the perpetrators are allowed to retire with full, very fat pensions, and move to Arizona to live the good life.

Nov. 10, 2013

It's all about priorities. Once the new stadium is built, and the facilities for the 2024 Olympics are built (see the U-T today for a story on that continuing fantasy), then the city will worry about those pesky little infrastructure problems. If they can find the time.

Nov. 10, 2013

"This information could have been buried in some other department that was primarily interested in avoiding embarrassment." Or.. in the Mayor's Office back when Sanders was in charge (look at the dates, can't blame Filner for this mess). Even if it wasn't Sanders' office that created the lengthy delay in filing with the City's insurance company, the blame can be laid at his feet because of the huge disruption caused by his Business Process Re-engineering that moved staff from here to there so that no one knew any longer who was in charge of what or who to call.

Nov. 13, 2013

It's simply about communication and coordination. It's been sorely lacking in our city for years and it's no better today even with 50 million dollars spent on the City's "new" computer systems. Just think about all the times you seen money spent on new street overlays only to be torn up six months later by Water/Wastewater Dept to replace aging piping. As an "Enterprise" department Water/Wasterwater will merely pass the cost of their foul ups onto the ratepayers. When it's not your money waste ALWAYS happens.

Nov. 10, 2013

I worked in the basement of the County Administration building on Pacific Hwy in the late 90's. Periodically we would get a blast of sewage odor thru the open windows. We were finally able to determine the source as sewer gas being vented through charcoal filters in 55 gallon drums which had never been maintained. I always thought that this must leave a bad impression on any tourists in the area.

Nov. 10, 2013

It's also disturbing that Goldsmith denied a claim from the condo owners that, had Goldsmith acted competently and timely, apparently would have been paid by the insurance company and not the city. Someone should file a complaint against Goldsmith and his lieutenants with the California Bar Association. Goldsmith and his lieutenants should lose their law licenses over this. Aguirre never would have screwed up like this. Goldsmith is not on top of things. He's not doing his job.

Nov. 10, 2013

He was too busy trying to get Bob Filner out of office, to bother with doing the job that he was elected for.

Nov. 16, 2013

Aside from getting rid of incompetent City Attorney Goldsmith -- who prosecutes and fails to get a verdict against a garden-variety protesting sidewalk-chalker -- is it relevant to ask who is the developer/builder of these condos? Is this not also a reminder to value an active and vigilant homeowners' association?

Nov. 10, 2013

Filner's gone. Time to get over it and move on. There will be more partisan Kool-Aid to gulp soon, I'm sure.

Nov. 17, 2013

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