HomeMy WebLinkAboutItem 8.4 Liability Insurance Program -7(3
CITY
CITY OF DUBLIN
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: February 25 , 1985
SUBJECT 1985-86 City Liability Insurance Program
- --EXHIBITS ATTACHED Letter from Michael McAuliffe dated January 10, 1985
Tables Outlining Cost Options for Insurance Program;
Newspaper Article from Tri-Valley Herald "Insurance
Payments Drain City Coffers" ;
RECOMMENDATION Approve Approve Option A - A fully insured program with no
�..dd deductible ; 2 ) Authorize appropriate budget adjustment
of $27 , 800 ; 3 ) Authorize City Manager to bind police
professional liability insurance if available .
FINANCIAL STATEMENT: Net cost to City of a one-year policy with limits
similar to existing coverage - $88,695 . Total
estimated 1984-85 expenses for insurance coverage -
$40 , 276 . '
DESCRIPTION As the City Council has been advised , at their regular
meeting on January 28 , 1985 , the insurance market for public entities has
hardened and it has been difficult to obtain proposals . At the regular
meeting on January 28 , 1985 , the City Council authorized a one-month
extension of the City ' s current insurance to allow the broker to obtain
proposals . The net cost of the one-month extension was $2 ,625 . The current
carrier has indicated that they will not provide insurance beyond March 1 ,
1985 (see letter from Michael McAuliffe ) .
Background
Mr. Fernandez , the City ' s Insurance Broker , has noted several reasons for
the abrupt change in the insurance market . First , it appears that insuring
a small city is more difficult than a medium size city due to the fact that
the premium cannot be developed to pay for losses which are becoming
apparent . In addition, as noted by several publications in recent weeks ,
public entities are being forced to pay a disproportionate share of legal
awards . Given the increase in the risks to be assumed by the insurer,
several companies have stopped providing insurance to public entities .
Therefore , with fewer providers , the cost of insurance premiums has
escalated significantly . It is also important to note that the premium paid
by the City of Dublin in 1983 and 1984 was extremely low, given the amount
of risk that was involved . The newspaper article attached indicates the
fact that increased premiums are being experienced by all public agencies
seeking proposals .
Type of Insurance Provided
l
Table 1 indicates a breakdown for the various levels of insurance included
in the City ' s insurance program. The property package corresponds to the
areas of coverage which are noted below, along with the coverage limits :
A - Business Personal Property - $130 , 000
B - Electronic Data Processing Equipment - $47 ,000
C - Valuable Papers - $25 , 000
D - Faithful Performance Blanket Bond - $200,000
E - Money and Securities - Inside & Outside - $2 ,000
Mr . Fernandez has reviewed the City ' s current inventory and Staff believes
that the limits are appropriate . Any change in the deductible will not
impact this area of the insurance program.
The comprehensive liability portion of the insurance program provides
coverage up to $500 , 000. This includes general liability , automobile
liability , and municipal errors and omissions coverage . The automobile
liability portion does not include a deductible under an,;/of the scenarios
presented .
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Q COPIES TO : Ben Fernandez
ITEM NO . �
AGENDA STATEMENT: 1985-86 City Liability Insurance Program
Page 2
The commercial umbrella liability section is excess insurance providing
liability coverage above the limits of the comprehensive liability insurance
discussed above . This provides a combined level of protection up to
$10 , 500 ,000 .
Discussion of Options
Mr. Fernandez has investigated methods by which the City ' s cost of insurance
could be reduced through imposing a deductible on the coverage provided .
Option A defines costs under a no deductible scenario , while Option B and
Option C illustrate costs associated with a $5 ,000 deductible and a $10,000
deductible , respectively . The City ' s insurance broker has noted that a
deductible would be preferable to a Self-Insured Retention , as a means of
reducing premium costs . The deductible results in the insurance company
providing claims counseling and defense of any claims submitted . In a
Self-Insured Retention Program, the public agency would incur all claims
expense for amounts under the Self-Insured Retention. Due to the size of
the City of Dublin, it would not be cost effective to obtain a self-insured
retention. Staff concurs with Mr. Fernandez ' observations on this matter.
The deductible applies to each loss and the number and size of claims
actually paid would impact the actual annual costs . As noted in Table 1 , if
the City assumed a $10 , 000 deductible as outlined in Option C , the cost of
insurance would be approximately 17 . 5% less than Option A, which represents
no deductible . The City ' s current policy operates without a deductible .
The difference between Option A and Option C is approximately $13 , 200.
Therefore , any cost savings would only be recognized provided that any
claims submitted did not result in the City paying a settlement under the
deductible . The cost savings from a $5 ,000 deductible versus no deductible
is substantially less than that outlined in Option C : The difference
between Options A and B amount to approximately 3 .9%. Again, any cost
savings realized at the end of the policy year would be dependent upon
payments made under the deductible requirement .
Police Professional Liability
The City ' s insurance broker has indicated that the cost presented under the
comprehensive liability portion of the policy do not include police
professional liability insurance . This coverage relates to claims of false
arrest , etc . Mr. Fernandez is attempting to secure this insurance under a
separate policy. His initial estimate is between $5 ,000 and $10 , 000;
however, the precise costs cannot be determined until a formal proposal is
received from the insurer. The entire cost of this insurance would be paid
by the County as it relates to services provided by the Alameda County
Sheriff ' s Department . Pursuant to the City ' s insurance agreement with
Alameda County , the adequacy of any insurance provided is to be determined
by the County Risk Manager, or other County Official . The agreement states
that if the insurance is inadequate or not provided, the County may
immediately procure such insurance coverage . The cost of that insurance
will be deemed an overhead expense and the City will be required to
reimburse the County for the full cost of the premiums , overhead items and
related expenses . If the City is unable to secure this coverage , Staff will
be required to advise Alameda County of their need to acquire the
appropriate insurance .
Cost of Proposal
Table 1 displays a cost breakdown of three options discussed above . Table 2
identifies the net cost to the City . The City of Dublin has an agreement
with Alameda County to name the County as an additional insured on the
City' s insurance policy for services provided by the County . The additional
cost of having the County on the City ' s insurance policy is paid for by the
County .
The 1984-85 budget included $12 , 500 for insurance premiums . The City ' s net
cost for the prior fiscal year was $8 ,106 . Beginning July 1 , 1984 , the City
assumed the responsibility for the rental of Shannon Community Center.
Tenants using the facility are required to show proof of insurance or /
AGENDA STATEMENT: 1985-$6 City Liability Insurance Program
Page 3
purchase suitable insurance . As a service , the City processes the purchase
of insurance and the cost is paid by the tenant . It is anticipated that the
City will pay $2 , 500 for tenant insurance in 19$4-$5 • The entire cost of
the premium is recovered from the tenant .
The 19$4-55 expenditures for insurance are projected to be $40, 276. This
estimate assumes that Option A is selected which does not require a
deductible . The breakdown is as follows :
Pro-rated share of 1984-85 Program ( 7 mos ) 5 ,0$6
February One Month Extension 2 ,625
Shannon Tenant Coverage 2 ,500
City Treasurer ' s Bond 500
Pro-rated share 1985-$6Program ( 4 mos ) 29, 565
40, 276
Therefore , a budget transfer of approximately $27 , $00 will be required .
Staff Recommendation
Based on the materials presented , it is apparent that insurance costs
throughout California have escalated at a rapid pace during the past year .
Staff is continuing to monitor options for participation in joint powers
authorities , which pool resources to obtain a favorable premium expense .
The Alameda County City Managers have appointed a subcommittee to
investigate possible options in this area. Staff will continue to review
options which provide a cost effective manner of providing insurance .
Consideration must also be given to the amount of risk assumed by the City
in the form of deductibles or self-insured retention, when determining the
potential cost of an insurance program. In addition, Mr. Fernandez is
continuing to analyze opportunities in the existing market .
Staff recommends that the City Council proceed with Option A, providing for
a no deductible insurance program. This presents the least risk to the City
and will allow for budgeting of the maximum costs which will be incurred .
i
KAINL & MCAULII=1-11
SINCE 1047
INSURANCE BROKERS
GO I NIONTGONIFI1Y STRlila",StJITE I 1 C)O
SAN FRANCISCO.CALIFORNIA 94 1 1 1
(41 3)42 1-2366
January 10, 1985
Mr. Ben Fernandez
COOPER & McKENZIE MURPHY
P.O. Box 1030
Pleasanton, CA 94566
RE: City of Dublin
Dear Ben:
This will confirm that our underwriters have decided not to quote the
City of Dublin at this time.
Among reasons for declining is the small size of the City and the
probable inability to accept the very large deductible which is required
in this current marketplace.
They also note that the City has to hold harmless its independent
contractors that provide services such as police and fire as well as
street and road.
Thank you.
Sincerely yours,
KAINE & McAULIFFE INSURANCE BROKERS
Lam. LET
Michael F. McAuliffe
MFM:gn
26 1 SOU 11 STitl'.I:T.SUITI 100,LOS ANGI:LFS.CA.9001 2 • 1:!1:1)624•_):263
TABLE 1
COST BREAKDOWN OF 1985/86 INSURANCE OPTIONS
$5 , 000 $10 , 000
No Deductible Deductible
Deductible County ( Per Loss ) County ( Per Loss ) County
Option A Share Option B Share Option C Share
Property Package 2 , 133 0 2 , 133 0 2 , 133 0
Comprehensive Liability
Coverage up to $500 , 000 66 , 540 11 , 478 62 , 860 11 , 110 51 , 860 10 , 010
Commercial Umbrella Liability
- Excess Insurance $500 , 000 - $5 million 25 , 000 2 , 500 25 , 000 2 , 500 25 , 000 2 , 500
- Excess Insurance - $5 . 5_- $10 million 10 , 000 1 , 000 10 , 000 1 , 000 10 , 000 1 , 000
Total 103 ,673 14, 978 99 ,993 14, 610 88 , 993 13 , 510
TABLE 2
CITY NET COST AFTER ADJUSTEMENT FOR COUNTY SHARE OF INSURANCE EXPENSES
Option A: $88 ,695
Option B : 85 , 383
Option C : 75 , 483
Alameda County pays the entire costs associated with automobile liability insurance plus 10/
of .the costs of other forms of liability insurance . Automobile liability included under comprehensive
liability accounts for $5 , 360 in each option listed in Table 1 .
' r
nsurance
p�tyments
•' drain city*
A`5 A 111
• •: ® 'fir er"� continued from papa 1 costs„•°_
JL whrn thry are found onl I .
ly at fault.Often,the cities Panic � �•,}�1
onl of court to avoid the Possibility • � 15'A d Lt
By Lori Eiekmann - ar a more curtly jury verdict. I ����� city 3i����lll9L9L9L
• Staff writer i -
The result: sk)•rocketin "III..Y .
-r •surauce prenrimns,a dramatic drop .
Fremont•officials -.in Nov- ”' "1e """'I11r ar insurance corn-
•1• '• t's willing to Carr � � �. -�
ember' agreed to pay up to. I Irnlniege,ill" and iner�. Y
Drain ou city funds that"su s111g 'Bruno said It's dt(licult to point to
' -$750,000 to a young man ran- servivi-s to laxo�ycrs pply I specific places where city services•
dared a quadriplegic when he have 5 Ile it as a reswu a1 tit
^IYh)•should an injured person o0, ayoil
lost control of his car on a city ue„ahxed because one ar three ae- 1'he League of California Cities, P"When people come to you and a law requiring people l0 carry
street —'even though he had fendanis can't pay?”he said.'"rhe which bn several years "nsuc• say we need three more police o[- proper insurance.
g doctrine of'uiot-and-several works crssfully supported legislation to lie rs You say w0 just don't have. "The insurance limits are sheens- ;
been drinking. It could be the ) abolish deep-pocket awards, last he said. cionably low;'she said."Thal is a
-for the Innocent(victim)." the money:' reform that is tremendously impor-
city's highest out-of-court set- I Frayne said cities'liability would, mouth mailed questionnaires-tdeivi- ine jut Besides Fremml and then E-rd,
he reduced tf legislation was passed state's 430 cilits lu datermiae just Union City as the mdy other I•:ast lint. Then there would be fewer
t1CmCnt. Y situations where cities would have
to require citizens to carry adequate• how i survey barb I affected
own y paid Itay city to responds,nl'City like
Hayward is battling. a $2.5 insurance,a plan city officials also his. Barker said 11 like to pick up lhecosllpecausesom0onc
I in settlements,judgments and legal of the survey else can't pay.
said would help case the problem. 1 costs for uinl•anJ-several liability I about 15 pc1'cent And as cif officials blame the
million lawsuit by a 71-year i BaLlor niw,as people increasing• f Y respondents-n ha0 ioau al lho tiabill trial lawyers with blocking passage
old man who lost his le when cases,in which several tripes are saidZenda S Y
Iy Iw n to cities as deep pockets,the p' l a outs since 1981. I , of their bills,the lri:11 lawyers sa
g held al fault.In such cases,cities, Y V'Y
cities must choose between paying. •We have been lucky; the insurance industry strongly lob-
..a teen-age driver hit him last. huge premium increases or beconr; James,city linauce director. bies against their plan.
ear.The injured man says the in•self-Insured,cif officials said. ' In Newark,City Clerk At HUM Leg islation introduced so far this
Y 6 ), y Y pay ff you re self- Said Ile expects a "sizeable in-I year includes SB 75 b
_ If you're sclf•insurcJ, you a f�,-, Y y stale Sen.
city neglected to maintain pro- Ole entire loss(in cases lust);'Said insured,you pay the " crease"In the cdys$SOO,000policy John Foran, D-Daly City, which
per street signs, but a JoOTunJa, riskmanagcrforFre•: entlrel05S(IncaSes which cost thecilySGG,000. would limit joint liability judgments
I monk. "If you have insurance,the' , solne cities,counties and'school to out-of-pocket damages such as
Hayward-official said the city i i1L<urmrc carrier is going to raise lost). districts have formed use cities medical bills and lost w•ages.but not
.
is being targeted only because II1e V''e'r11unis to cover their ex. lions called joint p mental anguish.
posure. Frayne said such a ruling would
ronnHrs,schopol dislrlrls and largo. l0 help combat the rising insurance
the teen-ager Was u n- "The end result Is the public on- corparalluns have become "dee costs.Jell 1'eltegrew,fornper{'rest• deprive victims of their full re-
derinsured. lilies am I social program for the i pockets," because the can be or. dent 01 the 3•ycar•o1J California' Laver
victims," Tonda said. "Thu lax• drrrd lu poy the enli�c juJ anus,, Association of Joint Powers Another bill, AB •230 by As• 1
It is such cases,city officials I'9ers are picking up(II L lab)." even If IlIvy nru only I prrc ml at Aulhurillcs, said the Grouping at' s0mnl man Alislcr McAlister, U-
' say, that will cause Fremont's Fremont is self-insured for up t°I L•ndl,if the other parties are unable lows for a discOunled insurance
Fremont,would make a city liable.
' $250,000 and has outside coverage; . to pay.Results of the survey shot. rate. only for its percentage
-• insurance premium t0 um i for higher amounts. The cif has •The 137 cities responding paid Pellegrew is now risk manager Y V driver of tame
p jump paid $318,445 In sellleuunts orb - $4.7G million in selticnn•nls uty'�juJg- for the Contra Costa County when a drunken,driver is injured
from $2$,000 t0 $44,000 this since 1981. melds it multi- ul liabilil Lases hluulci pal Risk M:upagcuunl In' partly due to his Intoxication.So i[
judgments p: ,y y I the cif is found 10 percent 13
year and Hayward s to quadru- ll5yttard'last its•liability In• during fiscal 1981-U2. That figure ;surancc Aulhurll5 (aisle,In 1970 I another defenJanl50 ercenllI ante
pie, from $55,000 t0'a'Whop- surancc with Integrity st its Insurance n. rase to$13.54 million the following ;by the county's 15 1 Co cord the" 'and the intoxicated driver 40 per. I
to $225,000. Funds for city August,the 29th month of a three• year and t°$22.1 million ask year. authority,nuC a said, COODU,c0ur cent negligent,the oily would pay
--
ping y year contract,even though city risk' •I'endin claims could cost the Walnut Creek have$ifi 'out 10 percent.
services from police to parks manager Harr) Bruno said there cities an estimated$193 million. tibles and the other cities'carry a Under deep-pocket practices,
were no clainis against the tic •Iletween 20 and 25 insurance• $5,000 deductible- Without the cities now could pay the full GO
. ultimately Will he raided t0 � IauycaclnlegrilyJl'oppc,allo fits. rampaulesvariivdcities.1 yearago, uulllorily,he estimated the 00,00• percent if the second defendant is
pay the-difference. 'naa't''pal liabilities it, California,: but that figure has dropped lu row tibles would be closer to$lU0,000 ninsured or underinsured..
said Ran Tarr, the broker for V' five. apiece. ' his. DeCoff maintained that
And i L,`i s: h a p p e n i n g Hayward. Markel conditions account for. I l pcttegrew said
the only other !changing the laws to make cities
some-of the loss In Insurance car !sulutiun is Iegtslalioa that would ' 1 less liable would.result in cities
Statewide. Insnrd Iiabllilies usually cover, riers fur cities,but not all. 1 make
cities pay only a percentage bein less responsible in keeping
The problem, the officials wrongful death and other possible' "(The survey)confirmed what we I of bloc judgmenlcyuallllobby has I roads and other public properly
_ runipimnis in lawsuits,as Well as thought.that it's just getting worse I The strong trial lawyers'
say, is that cities have become injuries. all the lime,"said Connie Barker,i blocked passage Of such bills in the taxpayers should bear the burden of
' „
legislative representative fur the Assembly each year. compensating accident victims
"deep ockets,. paying the en- Only lour companies bid to insure; g V y
p f� y g league. "People le realize that the viiiki,IA'Goff• an Oakland al= raO11•than have the injured people
,. Ilayw•ard. Tito city chose First'' Dan collect from someone else"—' •lorney and member of the trial o uncompensated.
J V
Lire amount 'a w a r d c d in Slake, nut al a fourfold pren,um lawyers'association board o[gav' :'I g Whclhcr the law will be changed
lawsuits a ainst them .even•
increase.In addition,the city's de• namely,cities. Y said she would prefer t°see {, g
g ductible went from $100,000 to i Not everyone secs air deep•, ernors, - I l0 case cities' liability or require
Continued back of socUon;COI. 3250,000. p°rkcl practice as un unfair burden I in,ividuals to carry proper in-
-_- _ ._. on cities and taxpayers.Jim Frayne; - I surancc remains to be seen.In the
.'If the California Trial Lawyers As I !'(The survey) , nlcanlinle, his. Marker of ti,e
1., sociation, which has successfuily confirmed. .its. League of cities said municipalities
IubnicJ against legislation to worse all ';shouldprolcclthemselves bytaking
�.•-•` - weaken the deep-pocket practice, JtJSt getting j cases to court.
said doing so would unfairly keep ,the time,'- I "Cities a re tp•yi ng not to just seine
injut-M people (rain being fully 1 out of court,"its.Barker said."We
wasllto show we'r'e of just car
1 compea+aled. n i r
large s