Capitola locked in legal fight with insurance firm for 2011 flood damage [Santa Cruz Sentinel, Calif.]

Dec. 22--CAPITOLA -- After seven months of litigation, there's no sign of a settlement in a lawsuit the city of Capitola filed against its insurance company to recoup more than $2 million in damages incurred after unprecedented flooding in 2011.

Capitola contends a corrugated metal pipe broke away from a concrete culvert, allowing water from a 90-minute rainfall to rise up and inundate the Pacific Cove Mobile Home Park owned by the city, the police station and the rest of Capitola Village.

Lexington Insurance of Boston rejected the city's claims, citing the flood exclusion in the policy and a $500,000 deductible for culverts, noting the city's cost to replace the damaged pipe was $484.319.

"They parsed the engineers' report," said Councilman Michael Termini, who served as mayor for most of 2012. "We were trying to negotiate with them and get a settlement. They chose to hire a New York law firm. Now it's become a full-fledged suit."

The policy is held by the Monterey Bay Area Self-Insurance Authority, an entity comprising seven small cities including Capitola.

"We're not getting pushback from others in the group," Termini said. "What Lexington is doing to us could easily happen to them."

The lawsuit, filed May 21, appeared on the City Council agenda Dec. 13. Previously, the agenda referred to a claim against Lexington as "anticipated litigation."

Termini agreed the claim should have been listed as a lawsuit.

"Pretty

lackadaisical on our part," he said. "We just didn't pay attention."

The city is involved in nine lawsuits connected with the flooding as Capitola Village property owners seek compensation for their losses.

City Attorney John Barisone handles legal matters for Capitola but for this case, the city hired attorney Joel Gumbiner of Gumbiner & Eskridge of Walnut Creek.

"Since we are using outside counsel for this suit, the filing was probably not brought to the clerk's attention when she was preparing the agenda," Barisone said.

"They retained me to chase down the money," said Gumbiner, who has specialized in insurance matters for 30 years. "Most cases get settled, the vast majority paid by insurance companies."

The lawsuit details correspondence between Lexington representatives and Capitola's insurance broker.

Lexington pointed to a city press release that referred to flooding, but Gumbiner said it's important to look at the cause of the flooding, in this case, a pipe break.

Gumbiner expects the case to come to trial next year.

Lexington is represented by Mound Cotton Wollan & Greengrass, a law firm based in New York with four satellite offices. A representative in the San Francisco office, asked about the case, declined to comment.

The federal court has jurisdiction because Lexington is not based in California, Barisone said.

The city closed the mobile home park and reached settlements with most of the residents to relocate.

Ann Schroedel, who is suing the city, and Larry and Amber Machado have yet to move their possessions from the property.

Capitola posted a legal notice Thursday, announcing plans to auction the two mobile homes and the goods inside at 9 a.m.Jan. 7.

"Maybe they thought if they would move their stuff, it would weaken their case," Termini said. "We don't want anybody's possessions, trust me."

Follow Sentinel reporter Jondi Gumz on Twitter at Twitter.com/jondigumz

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