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Legal Arbitration Helps Struggling City

Monday, October, 1, 2012

Half Moon Bay is a small coastal city in California which has been having severe budget problems ever since just before the recession. But new legal arbitration between the city and its insurance company has just changed all that. What happened?

Why Did Half Moon Bay Need Government Arbitration?

Several years back, a Half Moon Bay’s city project unexpectedly created new wetlands. Unfortunately for all involved, those new wetlands included 24 acres of a developer's commercial property.

In 2007, a federal judge ruled against the city, which then agreed to purchase the land from the developers at a price tag of $18 million. This was the beginning of the city's financial woes.

This was an even bigger blow to the city than you might think. Just consider that its current yearly budget is just over $11 million, and you will have some idea of how devastating this judgment was looming.

In order to pay the debt, the city issued bonds to sell. It was unable to sell them all, and used $5 million from its Association of Bay Area Governments insurance plan in order to pay for them.

Since that time, the city has drastically cut its budget, laid off workers, and outsourced vital services (such as its police force) in order to deal with the ruling.

But there was another insurance policy held by the company that did not pay up. And so the city opted for a session of binding arbitration to decide the matter.

Contract Arbitration Saves the Day

The session was run by judge Edward Panelli (retired) who decided that the ordeal with the land developer was in fact covered by the city's other insurer—Insurance Company of the West.

The insurance company had previously claimed that debacle between the city and the developer was not covered by the city's policy.

There is a second round of legal arbitration coming up, but the city should still be getting its money.