UPLAND, Calif., April 18, 2014 /PRNewswire/ -- The City of Upland reached a $4.75 million settlement with The Insurance Company of the State of Pennsylvania, one of the defendants in a lawsuit alleging insurance bad faith and breach of contract over the insurance company's failure to defend the City in the Colonies litigation.

In the lawsuit, City of Upland v. Independent Cities Risk Management Authority, et al., Upland alleged that the insurers unreasonably failed and refused to defend the city in the Colonies litigation despite Upland's demand to do so and despite the fact that such defense was a benefit to be provided under their insurance policies.

The City of Upland was covered by a memorandum of coverage issued by Independent Cities Risk Management Authority ("ICRMA") and an excess liability insurance policy issued by Insurance Company of the State of Pennsylvania ("ISOP"). Upland was sued by the San Bernardino County Flood Control District and the County of San Bernardino in connection with property damage allegedly caused by Upland when flooding occurred as a result of the extension of the 210 freeway.

The Colonies litigation began in 2002 when the County of San Bernardino denied requests to pay for flood-control improvements on a private development near the 210 freeway extension project. The County filed suit against Upland and two transportation agencies seeking reimbursement for a portion of a $102 million settlement the County reached with The Colonies Partners LP in the Colonies litigation. After years of hard fought litigation, Upland successfully prevailed on all counts; however, Upland spent over $6 million in attorney fees and costs defending itself in the litigation.

ISOP, the excess insurance company responsible for the payment of attorneys fees in excess of $1.5 million, agreed to settle its portion of the claim. "We are pleased that ISOP recognized its failure to defend the City and agreed to resolve the claim without further, unnecessary litigation," said Shernoff Bidart Echeverria Bentley partner Gregory L. Bentley. "The settlement will provide some much-needed financial relief to the City as we continue to pursue damages from ICRMA."

"Having to pay the attorneys fees to defend the Colonies litigation caused the City serious financial problems," said Upland Mayor Ray Musser. "We are pleased to finally get back some of the money we never should have paid."

ICRMA  has declined to pay under its agreement with the City, and this portion of the lawsuit will go to arbitration. "The settlement with ISOP is the first step. We will now proceed with the case against ICRMA, which we believe owes another $2 million," said Shernoff Bidart Echeverria Bentley partner Michael J. Bidart. The ICRMA matter is on schedule to proceed to arbitration within 90 days, Bidart said.

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SOURCE Shernoff Bidart Echeverria Bentley LLP