Insurers Settle Claim With Builder : * Litigation: Thompson Development gets $1.6 million from companies that refused to defend it against misreprentation claims by home buyers.
The Kathryn G. Thompson Development Co., which once billed its Aliso Viejo residential tract as being in Laguna Beach, picked up $1.6 million in a settlement this week with its insurers over their refusal to defend it against buyers’ claims of misrepresentation.
The settlement, reached Wednesday in Orange County Superior Court in Westminster, will partly offset Thompson Development’s agreement a year ago to pay early homeowners in its Laguna Audubon development $1.5 million in cash and up to $2.5 million over four years if it can’t get Laguna Beach to annex the neighborhood.
Under Wednesday’s agreement, Thompson Development will receive $1 million from Highlands Insurance Co. in Houston and $600,000 from Bankers Standard Insurance Co. in Philadelphia. Bankers Standard covered a general commercial insurance policy while Highlands had a special advertising injury liability policy in force.
“We’re very happy with the settlement,” said Kenneth G. Hausman, a lawyer for the Aliso Viejo-based development company. Kathryn Thompson, the company’s chief executive, could not be reached Thursday for comment.
Defense attorneys also said they were pleased with the settlement.
The money just about covers Thompson Development’s legal expenses and court costs in defending itself against about 170 angry homeowners who first bought houses in Laguna Audubon in the late 1980s.
At that time, the buyers thought they were moving into tony Laguna Beach. A billboard, sales brochures, signs and even sales documents identified the 362-acre planned community off El Toro Road as being in Laguna Beach. Homeowners were given the telephone numbers of Laguna Beach police and fire departments when they moved in.
But the development was actually across the street from the city boundary, and city agencies didn’t cover it. Though it was in the Laguna Beach ZIP code district for a short time, Laguna Audubon was situated in the unincorporated county area of Aliso Viejo.
The residents sued the company in 1989 seeking $5 million in damages. The company’s insurance carriers, contending that the misrepresentations were intentional, refused to defend the development firm. Thompson Development hired the huge San Francisco-based Morrison & Foerster law firm to defend it.
In December, 1990, the homeowners settled for cash and promises worth $4 million, according to a source familiar with the agreement. The year-old settlement with homeowners is confidential, but The Times has learned some of its details in the last two days.
Under that settlement, Thompson Development paid homeowners $1.5 million in cash and promised to use its best efforts to get Laguna Beach to annex them.
If the development isn’t annexed within two years, Thompson must pay the homeowners $500,000 more. If no annexation occurs within three years, it must pay an additional $500,000. And if the development isn’t annexed within four years, the company makes a final payment of $1.5 million.
To ensure payment in case no annexation occurs, Thompson Development has purchased a bond at a cost of $37,500 a year.
So far, the company has not asked the city formally to annex Laguna Audubon.
“I’ve had inquiries by a consultant who represents annexation interests,” said Kenneth C. Frank, Laguna Beach’s city manager. “But there’s no plan, nothing formal, nothing even preliminary.”
Frank said the consultant asked about cityhood early last year and again last month but never presented any ideas.
“I don’t know where he’s talking about--I don’t know if he’s talking about all of Laguna Audubon or that part that’s in the Laguna Beach School District,” Frank said. “I told him we needed more specifics. We need a request of some sort--even an informal one.”
Thompson Development, which stopped advertising its property as being in Laguna Beach, eventually built and sold all 289 houses in the first phase of Laguna Audubon. In Phase 2, it has built or is planning to build 1,249 single-family houses, duplexes and condominiums in seven neighborhoods.
The private company doesn’t release earnings, but last year it closed escrow on 357 homes, compared to 428 closings in 1990, according to G.R. Bandy, the company’s vice president for sales and marketing.
Professional Builder Magazine named the company the fastest-growing home builder for 1988 as its sales soared 393% to $96.3 million that year from $19.5 million in 1987. The company sold 506 condominiums and houses in 1988 in Pomona and Aliso Viejo.
Thompson herself is one of the few women in the nation to head a major building firm. The company is known as a builder of quality, affordable housing for first- and second-time buyers.
The soft-spoken former real estate broker has been honored locally and nationally for her business acumen and community involvement. A veteran of more than 25 years in the industry, Thompson was the first woman inducted into the California Building Industry Hall of Fame.
