By Steve Neavling

DETROIT (Reuters) - Once teeming with 1.9 million people during its industrial peak in the 1950s, Detroit is now falling apart and attracting dozens of lawsuits that serve as a chronicle of urban decay: exposed manholes, malfunctioning traffic lights and broken sidewalks.

The breakdown in infrastructure is a major reason why the self-insured city is sued more than 700 times a year and has to pay out roughly $26 million to plaintiffs.

A significant portion of the legal tab - about $22 million a year - has resulted from settlements, budget records show. The settlements are negotiated by city lawyers, but ultimately must be approved by the city council.

Now Detroit's emergency manager, Kevyn Orr, an attorney appointed to turn around the city's troubled finances, is seeking to break the pattern.

The state appointed Orr to take over the city's finances to try to avoid Detroit running out of money and filing what would be the largest municipal bankruptcy in U.S. history.

To put an end to the relatively easy money for plaintiffs, Orr in late May rejected a handful of settlements that Detroit's city council had recently approved.

"Kevyn is worried about the frequency with which the city is settling frivolous cases," Orr's spokesman Bill Nowling told Reuters on Tuesday.

"He believes the legal division is not trying enough cases. There have been overgenerous settlements and lawsuits that should have been tried."

Several city council members declined comment or did not return phone calls, and Mayor Dave Bing could not be reached.

The city's law department has 20 attorneys assigned to lawsuits. Only a handful of high-profile or specialty cases are outsourced, city records show.

Most settlements over the past year were for $22,000 or less and involved minor injuries on public property, a review of the cases shows.

Some high-profile cases have been settled in short order. In December 2011, for example, former mayoral aide Rochelle Collins received a $200,000 settlement in a whistleblower case that legal experts criticized at the time.

The settlement came just six months after Collins filed suit and threatened to expose unethical behavior in the mayor's office. Three of the city's nine council members voted against the settlement, saying it was politically motivated.

Orr's intervention is aimed at reducing the number of settlements, particularly in cases deemed to be without merit.

"We're taking a serious look at the cases to determine whether settling is in the best interest of the city," Nowling said. "We're not going to tolerate frivolous cases."

(Reporting by Steve Neavling in Detroit; Editing by David Greising and Lisa Shumaker)