One of the underlying narratives of this year’s Los Angeles wildfires is that just before the flames broke out, the city had cut fire department funding during a budget crunch. What drove that fiscal emergency? Hundreds of millions in unexpected legal payouts. This year alone, lawsuit liabilities will cost the city more than the wildfires themselves.
But Los Angeles isn’t alone. A wave of litigation—unleashed by bad legislation, unfavorable court rulings, and officials’ eagerness to settle—is driving liability costs sky-high in cities across the country. New York City paid out nearly $2 billion in claims last fiscal year, a one-year jump of almost $500 million. Chicago’s payouts are nearly double what the city budgeted for settlements and judgments. Because most cities are self-insured, it’s taxpayers who ultimately foot the bill.
Los Angeles illustrates how a mix of factors, including a state law that makes it easier to sue, has driven payouts to new heights. In 2018, California passed legislation allowing workers to file claims for harassment or a hostile work environment based on a single incident. Backed by a powerful group of plaintiffs’ attorneys, the law has triggered a surge of lawsuits against municipalities. Over the past five years, the LAPD alone has had to pay $68.5 million in settlements to its own employees. The city’s police chief has accused officers of turning the disciplinary system into a litigation lottery, where even a single reprimand can lead to a harassment claim and a payout.
The city has compounded its legal trouble by neglecting basic infrastructure, creating unsafe conditions that have led to costly judgments for injuries on public property. Critics point to a “staggering backlog” of unrepaired streets and sidewalks—due largely to the absence of a comprehensive plan for funding and executing repairs. Nearly half of city streets need repaving, and it can take up to six months to replace a single streetlight bulb. Streetlights are typically inspected only once every ten years. These lapses have led to major payouts, including $21 million to a man struck by a piece of metal that fell from a streetlamp, causing brain trauma that now requires 24-hour care. “L.A. cannot keep budgeting this way,” the Los Angeles Times recently editorialized. “The city is long overdue for a comprehensive plan that outlines infrastructure needs and costs, including for regular maintenance and improvements to public works.”
In Chicago, officials estimate the city will pay around $160 million in judgments this fiscal year, nearly double the $82 million it has budgeted. Some critics say the administration is its own worst enemy, frequently settling lawsuits on generous terms rather than choosing to litigate. In one case, the city paid $5 million to a woman who developed frostbite after being locked out of her apartment, even though police said she had refused their help. “We have to learn that some situations, while tragic, are not our fault,” said Alderman Raymond Lopez. “They are not the responsibility of taxpayers.”
Chicago’s police department is also facing a series of judgments tied to wrongful convictions involving a disgraced ex-detective who may have framed up to 40 innocent people. Those cases alone have already cost about $39 million in judgments and settlements, with more pending. “I want all the [aldermen] and the general public to get ready, because we’re going to have more settlements,” the city’s corporation counsel said recently.
New York City has long struggled to control its liability costs. From the early 1990s to 2013, payouts rose at an average annual rate of nearly 6 percent, climbing from $231 million in fiscal 1993 to about $700 million in 2013. Since then, costs have more than doubled in less than a decade. Court cases have helped drive the surge, including a 2021 settlement under Mayor Bill de Blasio in a decades-old class action suit brought by Hispanic and black teachers, who charged that a teacher-certification test was discriminatory because white teachers passed it at higher rates, though the plaintiffs struggled to provide any evidence beyond the disparate outcomes. The city has set aside some $1.8 billion to compensate potentially thousands of claimants who failed the test as far back as 1994.
New York City is also now on the hook for nearly $1 billion in annual special-education claims, based on a 1993 Supreme Court ruling that allows parents of special-needs children to seek private school tuition at taxpayers’ expense if they believe local public schools fail to provide adequate instruction. Over the past decade, lawsuits under this ruling have exploded. According to the city’s Independent Budget Office, judgments have jumped fivefold from $200 million in 2014. This rise has continued despite the city’s significant investments in expanding special education—efforts that, so far, have failed to stop the tide of parents opting out of the public system.
Several factors have set off the explosion in liability costs, but bad policy is a major culprit. State laws shaped by powerful interest groups, like trial lawyers, and court settlements based on shaky claims—such as test-score disparities—have opened the door to costly litigation. City officials have made things worse by neglecting basic infrastructure. The results: ideal conditions for lawsuits and rising costs for taxpayers.
Photo: AVNphotolab / iStock / Getty Images Plus
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