The lawsuit for "insurance bad faith" arose out of ISOP’s failure to promptly and completely pay attorneys’ fees and costs incurred by the City in connection with its defense of three underlying actions filed by entities controlled by Roque De La Fuente II (De La Fuente Actions).

The De La Fuente actions arose out of a 1986 Development Agreement between the City and De La Fuente, which he claimed the City breached. De La Fuente alleged, among other things, that the City allowed nonconforming, annoying and incompatible uses of several parcels of land and permitted heavy truck travel to travel through his property. De La Fuente further alleged that, as a result of the City’s alleged misconduct, he suffered property damage and personal injury, including millions of dollars in lost property value and bankruptcy.

During the trial of the first underlying action, De La Fuente introduced evidence that, beginning in mid-1994, the City caused congestion, noise, dust, trespasses to the property and property damage by rerouting truck traffic bound for the Otay Mesa border crossing to the roads bordering his property. De La Fuente further introduced evidence that the trucks jumped curbs, hit signs, and created dirt roads through the park in efforts to escape the congestion. These facts gave rise to a potential for coverage under two ISOP policies (which included coverage for "property damage" and "personal injury" resulting from the "invasion of the right of private occupancy"), and a concomitant obligation on behalf of ISOP to promptly pay the City’s defense costs.

The City contended that ISOP disregarded the advice of its own counsel to promptly pay defense costs, refused to pay defense costs (including appellate fees) for well over one year, wrongfully refused to count well over $400,000 against the City's self-insured retention, failed to investigate facts supporting coverage, failed to document its claims handling activities in the claim file and maintained a secret file which it initially failed to disclose or produce, failed to use a claims manual in violation of California law and repeatedly ignored the City's communications.

ISOP denied each of the City's contentions and asserted that it overpaid the City its defense costs.

Besides agreeing to pay the City $5.5 million in damages, ISOP is obligated to fund 80% of the City's ongoing defense fees and 100% of the costs in the three underlying actions which are now on appeal.