Anaheim Collects $5 Million in Insurance Settlement : Litigation: The payment helps cover costs incurred defending itself against a lawsuit by the California Angels.

The city has received a $5-million legal settlement from its insurance companies, but the windfall will not substantially improve its shaky financial condition, officials said Tuesday.

The money will partially reimburse the city for the $6.8 million it spent to defend itself against a lawsuit filed by the California Angels baseball team over a proposed office complex to be built in Anaheim Stadium’s parking lot.

Assistant City Manager James Armstrong said the “one-time money” will be placed in the city’s employee benefits fund, which has been under-funded for several years. That fund pays for employees’ long-term disability benefits, vacations and sick leave.

Armstrong said the money cannot be used to offset the $2 million in program cuts the city made this year. For example, if the money were used to hire more police officers, the city would have to lay them off within a year or two when funds ran out, he said.

“This (windfall) is clearly terrific for the city, but it does not solve our financial problems,” Armstrong said.

City Atty. Jack L. White said the city sued its insurance companies in 1988, alleging that it should be reimbursed for the $6.8 million in legal expenses. That suit was to have gone to trial in 30 days, but the settlement was reached this week.

The Angels filed a lawsuit against the city in 1983 after the city and the Los Angeles Rams announced they would jointly build four office buildings on part of the stadium parking lot. The teams share the city-owned stadium.

The lost parking spaces would be moved to a multistory parking structure that would also be built.

The Angels claimed that the construction would cut into the easily accessible parking available to the team’s fans and hurt the team’s attendance.

In 1988, after a 135-day trial, Superior Court Judge Frank Domenichini ruled that the city must keep 12,422 ground-level parking spaces at the stadium for the Angels, but could build the office buildings and the parking structure on the remainder of the lot.

Neither party was satisfied with that decision. Each has appealed the ruling. The appeals are expected to be heard in the spring.