Insurers refuse to pay city of Modesto

2007 sex bias settlement isn't covered, firms say

By Leslie Albrecht
lalbrecht@modbee.com

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A gender discrimination lawsuit the city settled more than two years ago is still giving Modesto legal troubles — and costing taxpayers money.

The city is suing its insurance carriers because they've refused to cover the cost of a $3.25 million settlement the city paid in 2007.

The settlement went to three city employees who sued the city in 2005. They claimed they were denied promotions and punished for raising concerns about their pay and work environments.

The city paid the settlement in 2007, and expected insurance carriers to cover part of the costs. The city was responsible for the first $1 million; insurance was supposed to pay for the rest.

But insurers ISCOP — a subsidiary of AIG — and ACCEL have refused to reimburse the city.

The city sued the insurers in San Francisco Superior Court in August 2008. City Attorney Susana Alcala Wood said she couldn't comment on the dispute. "We're working hard to try to recover the taxpayers' money," Alcala Wood said.

ACCEL is the risk management group the city belongs to along with 11 other municipalities. AIG insures the city for claims that exceed what ACCEL covers.

Modesto hired outside lawyers to handle the dispute. The city has spent about $140,000 since April 2007 on legal fees, according to Alcala Wood.

According to court documents, the two companies disagree on which is responsible for covering the city's costs.

The insurers also list several reasons why they say they don't owe the city money, including:

• The city settled the case without consulting the insurers first.

• The events that triggered the employees' 2005 lawsuit happened in 1999, before ACCEL's policies covered the city.

• The insurers don't cover the city if the city committed a "wrongful act" such as sexual harassment or unlawful discrimination.

Councilwoman Janice Keating disagrees with the suggestion that the city's insurance doesn't cover "wrongful acts." The City Council approved the city's settlement agreement in March 2007 with the understanding that insurers would foot the bill.

"I don't know a whole lot of lawsuits that result from anything else (other than wrongdoing), so then what exactly is our coverage for?" Keating said. "AIG is a very large corporation that took a huge taxpayer bailout of our — yours and mine — taxpayer money, that is jerking the city of Modesto around by not paying."

Solid Waste Manager Jocelyn Reed, waste specialist Karin Rodriguez and former budget officer Debra Eggerman filed the lawsuit in 2005. Reed claimed she was twice passed over for promotion and that a former public works director monitored her movements in and out of City Hall.

Rodriguez claimed she was subjected to a hostile work environment in which a city contractor made derogatory comments about women. Eggerman claimed she was passed over for promotions twice and that a former finance director manipulated her performance reviews.

The case was settled 12 days before a jury trial was scheduled to start. Reed and Rodriguez still work for the city; Eggerman does not.

Attorney Susan Kirkgaard, who represents Reed and Rodriguez, called the ongoing dispute about the settlement a "huge waste of time and money" and said that the city seems to bear the blame.

Kirkgaard said her clients are happy to cooperate with both sides. But she fears the city is forcing Reed and Rodriguez to be questioned again in lengthy depositions.

"I hope it's not an instance of retaliation against my clients," Kirkgaard said. "I hope the city isn't that petty. I can't think of any other reasons for wasting taxpayer dollars to deposition my clients."

Bee staff writer Leslie Albrecht can be reached at lalbrecht@modbee.com or 578-2378. Follow her at Twitter.com/BeeReporter.