Not long ago, the city of San Diego lost one of the biggest lawsuits based on police misconduct of its history. A young man ran away from the scene of a fight, stopped when a police officer called and then was knocked to the ground. He fell into a coma. He claimed the police officer he encountered acted negligently and the case his lawyer built will cost the city $8 million.

When the judgment came out, City Attorney Mike Aguirre claimed that the city was not allowed to defend the case itself because its insurance company had the power to decide on which attorney should handle it. After all, the insurance company was on the line to pay much of any damages awarded.

The city, like most people and business, depends on insurance to protect it. The city knows that as big of an operation that it is, it’s going to do some things wrong. One of its officers might act outside of his or her parameters and do damage to someone. It may inadvertently cause a hillside to collapse. The city might inadvertently, but illegally, put someone out of business.

For this, the city gets insurance.

All of these are things that might happen. Just like someone might slip on a skateboard your kid leaves on the sidewalk. For these type of contingencies, we get insurance.

Who handles a lot of the city’s insurance? Why, one of the companies that handles it is a firm named AIG. You might have heard of it.

It was AIG that Aguirre claimed decided who would defend the case against the cop. It was AIG who would have been on the hook in part had the city lost its defense against, or settled, the multi-million dollar lawsuit brought by the businessman Roque de la Fuente.

And it is AIG that is now almost wholly owned by the federal government.

The city actually gets most of its insurance by pooling its need with other local municipalities. AIG is just one of the insurers that works with this pool known as the California State Association of Counties. And it is a subsidiary of AIG that handles this insurance.

But regardless, when I had a chance to talk with the city’s chief operating officer, Jay Goldstone, recently I wanted to ask him what all of this trouble on Wall Street meant for the city. David Washburn also did a round up of the concerns here.

I asked him first about AIG and the insurance situation. He said that AIG had sent around a flier assuring its customers, including the city, that everything was OK. You can see it here:

Of course, this is the same company that, until just recently, was running commercials like this one:

Goldstone said it didn’t appear as though there was much to worry about if AIG collapsed. And now that the full faith of the federal government is behind it, well, we can rest assured I suppose. The government always works well, right?

A very competent manager of a major operation in town once told me that he manages with an easy philosophy. He says he thinks of the 10 things that worry him most about his operation at all times and is constantly keeping tabs on the strategies he’s employed to deal with those big worries.

So I asked Goldstone, who is basically the city’s manager, if what was happening on Wall Street worried him. His whole raison d’etre at the city is to get the government a bunch of loans from Wall Street. That’s what he was brought in to do. Get us on track to be able to build what we want and when we want it.

He reluctantly admitted that he was a bit worried.

“We’re watching it. I could say we’re worried about it. I’m not worried in the sense it will keep us out of the bond market but we might borrow less or it will cost us more in debt service and thus we’ll have less money for other activities,” Goldstone said.

It looks as though Wall Street is changing by the hour these days. When the city finally approaches it around the New Year, it will be interesting to see what it finds.

Just not knowing is enough to worry anyone.


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