Los Angeles School District Sues Insurer Over Waste Terms

Source: http://enr.construction.com, April 17, 2006
By: Tony Illia

The Los Angeles Unified School District is locked in a high-stakes legal battle with its insurer, American International Group, over a $100-million policy it bought to cover rising cleanup costs at school construction sites found to be contaminated with toxic substances. The lawsuit, filed in L.A. County Superior Court on Feb. 28, accuses AIG, New York City, of reneging on a 1999 pact to cover for 20 years much of its environmental cleanup cost—an expense district officials admit could reach policy limits.

District officials bought the $7.5-million policy in the wake of problems surrounding Belmont Learning Complex, an $87-million high school to be built on a site later found to contain methane and chemicals. The incomplete structure was abandoned in January 2000. State lawmakers then adopted a law to require review of new potential properties by the state Dept. of Toxic Substances. The Belmont fiasco led to a host of lawsuits and investigations that will ultimately cost the district millions of dollars to remedy.

AIG agreed to cover unanticipated cleanup costs at any of the district’s roughly 900 properties at the time, as well as 100 new sites, says the district’s lawsuit. But the policy permitted AIG to exclude contaminants already detected on district-owned sites. Los Angeles Unified, the nation’s second-largest school system, has a $19-billion construction and repair program under way to build 150 new schools and renovate hundreds more by 2012. Many of its campuses are on “brownfield” sites within the city.

AIG reimbursed the school district for slightly more than $8 million under the policy, district officials say. But in 2004, it stopped making payments, says Michael J. Strumwasser, attorney with Strumwasser & Woocher LLP, Santa Monica, Calif., who is handling the district’s case. Over the next year, the lawsuit and district officials allege, AIG repeatedly rejected what district officials considered legitimate claims and tried to change the terms of the agreement in the face of mounting cleanup costs.

AIG officials dispute the district’s allegations. District officials failed to fully disclose what they knew about polluted sites before buying the policy and were submitting claims not covered by it, says Joseph Norton, an AIG spokesman.

The district had submitted over $15 million in total claims to AIG, many stemming from one elementary school site with arsenic found in soil in 2000. Los Angeles spent more than $11 million to remediate the site, the lawsuit says, but AIG has refused to cover about $5 million of the costs. AIG says that remediation steps the district took violated terms of the policy. L.A. Unified and AIG recently agreed to seek a settlement before proceeding with the lawsuit.

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