When the Los Angeles Unified School District hired American International Group —the insurance giant, AIG—in 1999, LAUSD had just got burned for millions on construction of the ill-fated, environmentally challenged Belmont Learning Complex.

The district decided to play it safe and took out a 20-year, $100 million insurance policy to cover future problems incurred while cleaning up potentially toxic school construction sites. Six years ago, while trying to collect on that policy, LAUSD became locked in a high-stakes battle that, according to a report in the Los Angeles Times, it has won.

Both sides had agreed not to reveal a settlement was reached, but its terms are now known. AIG will pay the district $78.8 million on top of other payouts already approved, bringing the settlement close to the amount of the policy.

LAUSD originally paid $7.5 million upfront to buy the coverage and had a deductible of $100,000. That proved to be a good deal when the district embarked upon a $20 billion construction effort that ran into costly problems along the way. AIG shelled out $8 million for various claims but stopped paying in 2004.

By 2006, LAUSD said AIG had refused to cover about $5 million in claims. Both sides knew that claims for potentially the most expensive site—40 contaminated acres that could cost $75 million to clean up—had yet to be filed. The site was described by the state Department of Toxic Substances Control as a stew of harmful metals, pesticides and other chemicals.

The district filed suit in Los Angeles County Superior Court.

AIG representatives argued at the time that the district had taken out a policy on property it knew was contaminated, was not consulting with them before beginning cleanup projects and was submitting claims not covered by the policy.

AIG has admitted no wrongdoing as part of the settlement and a spokesman called it an “amicable resolution.”

Former school board member David Tokofsky called it “a gold medal, not a bronze, in terms of success, a lot of money.”

–Ken Broder  

To Learn More:

AIG to Pay L.A. Unified Nearly $79 Million in Claims Settlement (by Howard Blume, Los Angeles Times)

L.A. Schools in a Legal Mess with Insurer (by Joel Rubin, Los Angeles Times)