Provo City filed a lawsuit against the Twin City Fire Insurance Co. Wednesday in 4th District Court asking for $1 million in punitive damages and attorney's fees, expenses and court costs incurred from the Excelsior Hotel settlement.

City Attorney Gary Gregerson said the Twin City company - a subsidiary of the Hartford Insurance Co. - insured the city at the time revenue bonds were issued to finance the Excelsior Hotel and parking garage. Those bonds went into default when the hotel developer failed to repay them in 1985.A number of bondholders sued Provo after the bonds defaulted, saying the city had liability in the financial collapse of the hotel because Provo owns land under the hotel and the parking garage.

In the lawsuit filed this week, Provo is asking the court to declare that thecity was insured under the policy and that the insurance company is obligated to pay Provo all sums that it paid or forfeited in settling the litigation.

Victor Borcherds, an Alpine businessman, purchased the Excelsior in November for $5.5 million after a federal district judge approved the sale and cleared litigation.

Jim Jardine, a Salt Lake attorney hired by the city for his expertise in securities fraud, worked with Gregerson to settle the lawsuits filed by bondholders against the city. The city is hoping to recover funds from the suit to pay for those costs.

The Twin City Fire Insurance Co. has refused to reimburse the city for its hotel settlement fees because the bond default occurred after coverage was terminated with the company.

Penco - the city's present insurance company - has refused to cover the costs because the bonds were issued while Twin City insured Provo.

The city was insured by Twin City from January 1983 to July 1984 and switched to Penco in July 1984 because of a lower premium.

"Both have eliminated coverage," Gregerson said. "We've done some research and feel we have a good shot at recovering $250,000 to $275,000 in attorney's fees. We feel we will have a favorable settlement. This is a loose end we need to tie up to recover out-of-pocket money used in litigation."

In the lawsuit, Provo says it is entitled to reimbursement for all costs, attorney's fees and expenses incurred in defending the litigation, plus interest.

The refusal of Twin City "to settle or provide Provo with funds and authority to settle the litigation upon a reseasonable basis constitutes a breach of the contract or insurance" and "is a breach of (Twin City's) implied duty to deal fairly and in good faith under the insurance contract," the suit says.

The suit says Provo has been forced to sue to compel the company to pay the amounts covered under the insurance contract. It says the city has incurred costs and expenses that it would not have had to incur if the company had complied with its duties.

"The refusal of (Twin City) to pay to Provo any amount under the policy was intentional, malicious and made with reckless indifference to the rights of its insured and was made without justification, entitling Provo to recover punitive damages of $1 million."

Provo's suit against the insurance company comes on the heels of lawsuits filed in nine states over liability insurance issues. Lawsuits were filed by the attorneys general of Alabama, Arizona, California, Massachusetts, Minnesota, New York, Texas, West Virginia and Wisconsin.

All but Texas joined to file federal court charges against Allstate, Hartford (an insurer involved in Provo's suit), Aetna and CIGNA, saying they conspired to reduce coverage provided under standard commercial general liability policies.

The combined suit claims that the insurers significantly limited policies available to governments. Provo City is affected by an insurance policy change that eliminated nearly all "occurrence" coverage, which binds an insurer to pay liability claims filed after a policy expires if the events occurred while the policy was in force.

Insurance companies throughout the country changed to a "claims made" policy that only pays for claims made during coverage. Gregerson said the change happened overnight and instantly created problems for public agencies.