MTA Agrees to Pay $45 Million to Settle Suit Over Subway

The Metropolitan Transportation Authority agreed Wednesday to pay a Texas company $45 million to settle a lawsuit over insurance disputes that arose out of the Red Line subway’s construction problems, putting an end to a bitter nine-year legal battle.

The payout to Argonaut Insurance Co., the primary liability insurance provider to the MTA during the construction of the Metro Red Line, may be the biggest in the transit agency’s history, lawyers said.

The settlement mandates that the MTA must pay Argonaut the full amount by Sept. 14. It does not assign fault or blame.

The MTA first filed suit in 1996, seeking $100 million in damages and accusing Argonaut of fraud, bad faith and extortion for canceling its policy covering Red Line claims. Argonaut countersued, seeking reimbursement from the MTA for unpaid deductibles and other costs.

“Argonaut feels it’s a victory, and is vindicated completely,” said Vincent Davitt, a lawyer for the insurance company. “Argonaut is very happy with the settlement.”

MTA Director and Lancaster Mayor Frank Roberts, who was chairman of the agency’s board during settlement negotiations a few months ago, said he believed that the amount was fair.

“It would have cost taxpayers a lot more if we had continued litigation on it,” he said. “We had to do what we did. We could not have settled it for any less.”

Steve Carnevale, the MTA’s general counsel, said the cancellation of the insurance policy, “which we thought was a big deal, turned out to not be a big deal.”

He said the $45 million, which is half of what Argonaut had sought, would come out of the Red Line’s construction budget, which still has money in it.

From 1986 to 1996, Argonaut was the main insurance company for the MTA and Red Line contractors under an agreement to use a single insurer to defend against all liability claims, according to court documents. Under Argonaut’s policy -- essentially a self-insurance program for the MTA -- each claim had a $500,000 deductible and the company would pay up to $2.5 million per claim.

After subway tunneling caused portions of Hollywood Boulevard to subside and a house-size sinkhole appeared in another part of Hollywood, hundreds of homeowners and businesses sued the MTA. The agency, in turn, hired outside lawyers to defend itself, which Argonaut contended drove up litigation and claims costs, according to court documents. The insurer then terminated the MTA’s policy.

Over the last few years, Los Angeles County Superior Court Judge Charles McCoy Jr. has repeatedly ruled against the MTA, throwing out most of its claims against Argonaut. Last fall, McCoy ruled that Argonaut properly terminated its policy and that the MTA had a duty to reimburse the insurer for various expenses, leaving the agency little chance of winning at trial, scheduled for October.