San Diego’s budget crisis reflects skyrocketing lawsuit payouts, liability insurance premiums

A less-publicized factor in San Diego’s financial troubles is a sharp increase during the last decade in payouts to settle lawsuits against the city and skyrocketing insurance premiums caused by those hefty payouts.

Payouts nearly doubled between fiscal years 2018 and 2026, rising from $24.8 million to $48.9 million. And the city’s annual insurance premiums have nearly quadrupled over that time, from $9.8 million to $35.4 million.

Premiums would have risen even higher if city officials hadn’t agreed to twice increase the city’s deductible, from $3 million to $5 million in 2022 and then up to $7.5 million last year.

Spending so much more on payouts and insurance takes away dollars that could be spent on other priorities, such as law enforcement, firefighting, libraries and parks.

City officials say a key part of the problem is San Diego’s crumbling infrastructure, most of which is past the end of its useful life because it was built in the 1960s and 1970s and expected to last about 50 years.

That has led to more payouts to people injured by broken sidewalks or uneven pavement, and more payouts to the owners of property damaged by overflows from decaying sewer pipes and flood control channels.

Officials also blame more aggressive attorneys securing larger settlements nationwide, contending that the city would benefit from legal reforms being pursued by the U.S. Chamber of Commerce.

Some City Council members say another factor is inadequate training of city police officers, which they blame for some recent large payouts in cases involving civil rights violations.

Whatever the cause, the sharp rise in costs for payouts and liability insurance is a notable factor in the $146 million deficit San Diego faced in its $2.2 billion budget this spring and the $250 million gap the city had to close the year before.

“One of the things we are noticing significantly is the increase in liability costs at just an exponential – and almost becoming untenable – rate,” Angela Colton, the city’s risk management director, told the council’s budget committee last week.

Colton stressed that payout and liability insurance costs are increasing at a much faster rate than inflation and the city’s primary revenue streams: property taxes, sales taxes and hotel taxes.

San Diego also finds itself more vulnerable than ever to large payouts because of the higher deductible that took effect this year and a decision to stop contributing to the city’s public liability reserve during the recent budget crisis.

As recently as 2021, the city only had to pay the first $3 million of any settlement or trial judgment it lost, with the insurance company paying the rest. Now the city and its taxpayers are on the hook for the first $7.5 million of any settlement or judgment.

Agreeing to the higher deductible lowered the city’s premium for the ongoing fiscal year by $3.6 million – $35.4 million instead of nearly $39 million.

The city has also stopped contributing to its public liability reserve, an emergency fund created to soften the blow if San Diego ends up being forced to make multiple large payouts during the same fiscal year.

The public liability reserve is now $30.7 million, $22.9 million less than the $53.6 million it should be based on the city’s reserve policies.

The city’s independent budget analyst says another risk factor is the city’s decision to delay assessing its crumbling infrastructure – city buildings haven’t been analyzed since 2016 – and to delay fixing it.

San Diego has a $7.8 billion infrastructure deficit over the next five years. The city has $12.82 billion in projected infrastructure needs through fiscal year 2031, but only about $5 billion to address them.

“Deferred maintenance of city infrastructure – storm drains, sidewalks, facilities, etc.– could jeopardize the city’s ability to monitor, analyze and report on risk exposure effectively, hindering informed decision-making and creating legal liability and risk,” the IBA said.

A factor in the rising payouts and premiums is the January 2024 floods that damaged many homes in the city’s southern neighborhoods.

It’s hard to know exactly how big of a factor that is, because city officials haven’t isolated those payouts and because much of the litigation from those floods is still in progress. But city payouts and premiums had already risen sharply before those floods.

Rainy years tend to sharply increase city payouts, Colton said. That could be bad news for the city next winter, when many meteorologists are predicting a super El Niño with unusually heavy rains.

While San Diego’s crumbling infrastructure seems to put the city in worse shape than other public agencies, Colton said a recent analysis doesn’t show that.

For payouts, lawsuits and legal claims, San Diego has ranked lower the last three fiscal years than the 29 other California public agencies – 13 counties and 16 large cities – that the city cooperates with in an insurance joint powers authority called PRISM.

Colton said San Diego’s membership in PRISM, which pools risk among municipal agencies and helps with the city’s defense in some cases, is a key way the city reduced its potential liability.

She said the city is also adding staff to resolve claims faster and less expensively, and working more closely with City Attorney Heather Ferbert to analyze how the city responds to certain claims to avoid making repeat mistakes.

The city also plans to begin using Klear.ai, an artificial intelligence tool designed for risk management that helps guess where and when incidents sparking claims and lawsuits will happen.

PRISM and the city are also supporting efforts to reform the legal system, possibly capping the size of lawsuit settlements.

Councilmembers Henry Foster and Sean Elo-Rivera, both members of the budget committee, said last week that they disagree with that strategy.

Foster said those kinds of legal reforms make it harder for victims to get justice, contending the city should instead look internally at what it’s doing wrong.

Elo-Rivera said the rise in settlements is primarily because juries are placing a higher value on the lives of victims, particularly Black people and other people of color.

Foster said there should be particular focus on the city’s Police Department, which has set records during the ongoing fiscal year with $43 million in payouts and $29 million more paid to victims by the city’s insurer.

Those totals are partly fueled by a $30 million payout last December to the family of Konoa Wilson, an unarmed 16-year-old killed by a San Diego police officer at Santa Fe Station downtown in January 2025.

Payouts involving the Police Department since fiscal 2017 have totaled $116 million, about one-third of the city’s total payouts over that time of about $350 million.

That ratio roughly matches the Police Department’s $725 million share of the city’s $2.2 billion budget – slightly less than one-third.

The primary reasons for police payouts have been civil rights violations, police shootings and crashes involving police vehicles. Trailing far behind those three are incidents involving police dogs and discrimination or harassment cases filed by department employees.

Foster said he sees a pattern in the department that puts residents at risk and makes taxpayers vulnerable to hefty payouts.

“I see continued misconduct – I don’t see the corrective efforts that are needed,” he said.

Capt. Mike Ramsay, who leads the department’s training division, said last week that the department has more than doubled training efforts in the last 12 months.

He said there has been increased focus on scenario-based instruction and enhancing de-escalation. Officers are getting lots of repetitions and can also use an online training portal, he said.

Foster and Elo-Rivera suggested that lawsuit payouts should be shown as part of each city department’s budget.

Since fiscal 2017, the Police Department leads with $116 million but is followed closely by Transportation and Stormwater at $106 million.

They are followed by Public Utilities at $44 million, Parks and Recreation at $31 million and Fire-Rescue at $10 million.

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