Half Moon Bay officials believe they could recoup as much as $5 million lost from the Beachwood settlement through an insurance policy that expired 20 years ago.

At a meeting May 1, City Attorney Tony Condotti announced Half Moon Bay would argue in legal arbitration that its old liability coverage should pay back a portion of the costs resulting from the Beachwood lawsuits that brought the city to the brink of financial ruin. He said he had petitioned in December for the city to have an arbitration hearing with its old liability insurance provider, Insurance Company of the West.

The Beachwood lawsuit was an escalating series of court battles that ultimately resulted in a $42 million judgment against Half Moon Bay. In that 2007 decision, a federal judge ruled the city was responsible for rendering a swath of residential land unbuildable. The city later settled the judgment for $18 million and issued bonds to cover the expense.

Initially, the city’s insurers said their liability policies specifically excluded coverage for cases like Beachwood that involve “inverse condemnation,” situations in which a government agency seizes private property without properly paying for it, and that was the heart of the Beachwood suit.

Soon afterward, the city hired the Walnut Creek law firm Gibbons & Conley to investigate whether it could make a legal case to compel an insurer to cover some of the loss.

Now, more than four years later, those attorneys reportedly believe the ICW policy is the best and only remaining opportunity for the city to recoup some of its losses. All the other insurance providers are now either out of business or in a state of receivership, Condotti explained.

“The city has been advised there’s sufficient legal basis given the amount the city lost from the litigation,” Condotti said. “As with any litigation, any particular outcome can’t be guaranteed.”

The city’s ICW policy was active from 1990 to 1992, a period when the city had used a sewer moratorium to prevent homes from being built at the Beachwood property. The policy reportedly covers up to $5 million in damages.

Half Moon Bay has already successfully regained some of its Beachwood costs from its insurers. In 2008, the Association of Bay Area Governments paid $5 million to cover the city’s litany of lawyer fees from the years of court battles.

The city’s plan under ABAG also excluded cases of inverse condemnation, but the city successfully forced it to pay up by arguing the Beachwood costs should be covered under other types of liability criteria.

Condotti said the city would argue its case before an arbitration judge sometime later this year.

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