San Diego is poised to pay $10 million to a La Jolla homeowners association and one condominium owner to settle a lawsuit over a sinkhole that tore open the ground outside their building and left residents scrambling to leave. The sinkhole formed in March 2023 outside the La Jolla Terrace Condominiums at 8803 Gilman Drive, after a stormwater drainpipe failed during a series of storms. It eventually measured more than 80 by 40 feet, and the ground movement it triggered caused entire condominiums to shift and cracked large sections of the foundation.
The San Diego City Council is expected to give final approval to the payout on Tuesday, August 25, according to Times of San Diego. The sinkhole forced residents to leave the eight-unit complex, and city engineers ultimately red-tagged the building on October 3, 2023, declaring it unsafe for occupancy roughly six months after the pipe first gave way, according to CBS 8. That station's reporting indicates heavy machinery vibrations from repair work, combined with Tropical Storm Hilary, worsened the ground movement in the months before the red tag went up.
A Slow-Motion Collapse Beneath Gilman Drive
The city had responded to the initial failure by issuing a sole-source emergency contract worth up to $5.5 million to Orion Construction Corporation in May 2023, tasking the firm with replacing 70 linear feet of the collapsed 132-inch corrugated metal storm drain pipe buried 45 feet beneath the property, according to the City of San Diego. But the repair effort itself became part of the problem: another drainpipe failure caused the ground to sink further, and the same CBS 8 report on the lawsuit details allegations that heavy excavation machinery operated within feet of residents' balconies and caused building foundations to shift by up to seven inches.
Once displaced, 12 families across the complex were placed in city-funded hotel rooms while engineers conducted ground stabilization work and structural assessments that stretched past March 2025, per the same CBS 8 account. The homeowners association and seven condominium owners filed legal claims against the city and the construction company in 2024, alleging negligence tied to both the original pipe failure and the subsequent repair work.
What the Settlement Covers, and What It Doesn't
The $10 million deal headed to the council resolves the claims of the homeowners association and one condominium owner, but it does not close the book on the case. A separate lawsuit filed by the other condominium owners and some renters remains ongoing and is not part of this settlement, leaving open the question of how much more the city may ultimately pay out over the same sinkhole.
Legal exposure of this kind is difficult for California cities to avoid. Under inverse condemnation law derived from Article I, Section 19 of the California Constitution, local governments can be held strictly liable when public stormwater infrastructure fails and damages private property, regardless of whether negligence is ever proven, according to the Peterson Law Group. Property owners seeking to sue the city must first file a formal administrative claim with San Diego's Risk Management Department within six months of an incident, per the City of San Diego's Government Claims Act procedures.
Part of a Wider Pipe Network in Trouble
The Gilman Drive collapse was not an isolated failure. In February 2024, a separate emergency sinkhole opened along the same 132-inch storm drain trunk line at 8900 Villa La Jolla Drive, prompting the San Diego City Council to approve another emergency design-build contract with Orion Construction that eventually grew to more than $13 million, according to city council records.
The pattern points to a much larger financial hole. San Diego faced an estimated $1.6 billion budget deficit dedicated specifically to stormwater infrastructure as of January 2025, with an average annual funding shortfall of $274 million, according to San Diego Coastkeeper. A separate report from the city's Independent Budget Analyst projected the overall five-year infrastructure funding gap would exceed $6.5 billion in 2026, driven largely by aging post-World War II drainage and utility systems, as reported by FOX 5 San Diego.
This is not the first time such failures have hit the city's checkbook this year. In February, the San Diego City Council approved a $6.3 million settlement from its Public Liability Fund to reimburse 17 insurance companies for property claims tied to storm drain failures during January 2024 storms, as Hoodline previously reported. Taken together, the payouts suggest San Diego's deferred maintenance on aging pipes is increasingly being paid for not through routine capital budgets, but through settlements and liability reserves.
