The La Costa de Marbella Condominium Complex is located on La Costa Avenue in the City of Carlsbad, California. In or about March 2005, an earthen slope became saturated with water and failed, resulting in a landslide that damaged or destroyed a number of condominium units and common areas. The City was sued in four separate lawsuits, which alleged, in pertinent part, that unstable soils of which it had long been aware led to leaks in water pipes which, in turn, caused a landslide to occur.

Allianz agreed in writing to defend the various lawsuits, but subsequently failed to do so. As a result of Allianz’s misconduct, the City paid a substantial sum to resolve consolidated lawsuits asserting claims against it for, inter-alia, property damage

Allianz breached the insurance contract and engaged in insurance bad faith when it refused to comply with its written agreement to defend the action and when it wrongfully withdrew the defense and refused to participate in settlement negotiations.

After the City conducted depositions, Allianz agreed that it breached the obligation to provide a defense. However, it argued that it was not obligated to pay any portion of the amount paid to settle the underlying lawsuits. Alternatively, it argued that its liability was limited to a single policy period having a policy limit of $2 million.

Allianz paid $4.7 million to settle the lawsuit, which consisted of the payment of $700,000 in unpaid defense fees, and indemnification of $4 million under the two policies it issued to the City.