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HomeMy WebLinkAbout38-City Administrator CITY OF SAN BERORDINO - REQUEST::)R COUNCIL ACTION From: Fred Wilson, Assistant City' Administrator Subject: General Liability Claims Administration Audit Dept: Date: Administration September 1, 1992 Synopsis of Previous Council action: 7/20/92 8/17/92 Item continued to 8/17/92. Item continued to 9/8/92. Recommended motion: That the recommendations contained in the General Liability Claims Administration Audit prepared by Heyenrath & Associates be approved for implementation and that the comments contained in the City Attorney's memorandum dated August 20, 1992 be incorporated as an addendum to the report. ~t {~~~ Signature Contact person: Vic Lorch Phone: 5308 Supporting data attached: Ward: FUNDING REQUIREMENTS: Amount: Source: (Acct. No.! (Acct. DescriDtion! Finance: Council Notes: 75-0262 Agenda Item No 3?l CITY OF SAN BERWRDINO ~ REQUEST ~R COUNCIL ACTION STAFF REPORT On August 3, 1992, the Mayor and Common Council agreed to defer filing of the Liability Risk Management Audit pending clarification of comments and recommendations by the auditor, Risk Management and city Attorney's Office. We've attached copies of Risk Management's letter to Leo Heyenrath of Heyenrath and Associates, his response to our letter and comments from the City Attorney's Office concerning implementation of the recommendations. Subject to Mayor and Council's approval, we'll begin implementation of Heyenrath's recommendations with clarification from the city Attorney's Office. 75-0264 c- .-.. ~^.,J C I T Y 0 F SAN B ERN A R DIN 0 INTEROFFICE MEMORANDUM RE: Fred Wilson Assistant City Administrator Ri~d_J. Morillo sr.~stant City Attorney August 20, 1992 Risk Management Audit TO: FROM: DATE: Victor Lorch has provided me with copies of his letter of August 6th to Leo Heyenrath and Mr. Heyenrath's response of AUgust 7th. Copies of both are attached. When Dennis Barlow and I met with you and Mr. Lorch on AU~ 3rd, we identified the problems we had with Mr. Heyenrath's report. Among them are the inaccurate information concerning staffing levels in our office and the superficial analysis of the reporting relationship that exists between our office and Risk Manag...nt. We suggested that Mr. Heyenrath correct these errors by doing further investigation and preparing a supplement to his report. While we interpret Mr. Lorch's letter as a sincere att.-pt to express our concerns to Mr. Heyenrath, Mr. Heyenrath's response is obviously unsatisfactory. Based on his response, we see no value in asking anything further of him. You indicated at our meeting that your objective is simply to implement the recommendations of the report. Because the recommendations are based on inaccurate assumption8, and in at least one instance would add a significant burden on our office without any benefit to the city, we are unable to concur. OUr specific comment on each recommendation is as follows: . J COMMENTS ON RECOMMENDATIONS The report contains nine recommendations (found on page two). I do not have a comment on each one, but I list them all for reference: 1. Provide Tom Cain with a dedicated, part-t~ clerk. Comment: No comment. , ("'- ~ ,- ........) TO: FROM: SUBJECT: DATE: Fred Wilson, Assistant City Administrator Richard J. Morillo, Sr. Assistant City Attorney Risk Mana9emen~ Audi~ August 20, 1992 Page 2 2. Require the Risk Manager ~o solici ~ reinsurance reimburs.emen~s for insured claims paid by ~he City prior ~o 07/01/77 and claims paid in excess of ~he aggregate stop 10.. applicable during ~he following policy periods: 07/01/79 - 06/30/80 04/01/82 - 03/31/83 04/01/83 - 03/31/84 Comment: This is fine, except Risk Management should not be negotiating settlements on its own. A compromise of any claim should be approved by the Mayor and Council, unless settlement authority is properly delegated. 3. Forward all excess policies ~o Mike Kadda~z, Principal ARMTECH for review and evaluation. Comment: According to Mr. Lorch, ARMTECH is a consulting firm that specializes in insurance coverages. They will have copies of some relevant policies that the City is missing. We have no experience with this firm, but obviously this is something that should be done. 4. Allow Tom Cain ~o continue ~o nego~ia~e ca.e di.po.i~ion. on certain li~iga~ed case.. Comment: In response to our objection, Risk Management has proposed that Mr. Cain be allowed to negotiate settlements on cases selected and approved by the City Attorney's office, with input from Risk Management. We agree with this proposal. 5. Require ~he Ci~y A~~orney's Office ~o forward all per~inen~ repor~s from ou~side law firms ~o ~he Risk Manag...nt Departmen~ for a review and evalua~ion. Comment: See number six, below. 6. Require ~he Ci ty A~~orney'. Office ~o provide Risk Managem.n~ Depar'tlllen~ wi'th de~ailed quar~.rly r.por~. on li~ig.~ed files handled in-hou.e. Comment: Reporting for the mere sake of reporting is not in anyone's best interest. Mr. Lorch and I have discussed this issue and I have told him that this office will do whatever is necessary to enable Risk Management to keep its reserve c- .~ '.....'~ TO: fROM: SUBJECT: DATE: Fred W;lson, Assistant City Administrator Richard .1. Morillo, Sr. Assistant City Attorney Risk Hanagemen~ Audi~ August 20, 1992 Page 3 requirements current, but that I do not want to write reports simply for the sake of writing reports. We do not have time to do that, and Risk Management does not have the time or expertise to review them. Mr. Lorch and I have talked about a simplified process that would take care of Risk Management's needs while eliminating a needless flow of paper from our office to theirs. We have discussed a simple form listing all cases and current reserves that we would review on a quarterly basis for Risk Management. This seems like a worthwhile alternative we are be willing to try on an experimental basis. I have also pointed out to Mr. Lorch that much of the raw data he needs to keep his loss runs current is regularly entered on the City's main frame computer. This data is done through the Finance Department whenever we submit requests for payment out of the "litigation" or "litigation outside counsel" accounts. All the City needs to come up with is a way to access that information by case name so that the amount expended on each case will show on the loss run report. Vie is exploring this possibility with MIS. If this is possible, it would eliminate the need for this office to provide copies of all payment requests to Risk Management, which in turn would have to enter the requests by individual case on its loss run program. 7. Require Risk Managemen~ Departmen~ ~o evalua~e all open claims for reserve adequacy and ~o adhere ~o the minimum indus~ry standard reserving prac~ices....... Comment: No Comment. 8. Require Da~a Processing Departmen~ ~o provide .ccur.~e mon~hly claims manage_nt repor~s, se~~ing forth all open c1aiaa by date of lossjnd fiscal year. Comment: Privately, Mr. Heyenrath told me that the format of the current loss runs is much more useless and outdated than stated in the report. 9. Conduc~ claims manag_nt audit by 07/01/93 to ensue [sic] that the recoaaaendations have been ilDplemen~ed and ~o further assis~ ~he Ci~y wi~h ~his program. Comment: No comment. o 1""''''''." , - TO: FROM: SUBJECT: DATE: Fred Wilson, Assistant City Administrator Richard J.. Morillo, Sr. Assistant City Attorney Risk Management Audit August 20, 1992 Page 4 We are prepared to abide by the recommendations subject to the foregoing qualifications. cc: Victor Lorch RJM:ms[rskaudit.mem] c' ....... J -~:-.~.'~ '.~'';':",,""J.-_~ # ":~-.j1"'n\ .", '0':" #~I'~-# _-._~". I. k"'-'" .-.;7""='\'" .... - .., _.~-i..\ .: -'-~ -,..;..:....&.l.i-.. . c- ........ . _,-:.,Ct :)O~.....~""~:,>: =:1 =-....... __........:1.r./~! i:,." -. ''=~~~. \:/;.!i) ~....(~;.: ~'Y <. '')~~'. . - crTv OF San .Bernardino o F 'F ICE 0 F THE C I T Y AD.. I N 1ST R . T 0 A RISK MANACEMENT DIVISION VICTO~ DIRECTOR = - J R C H ARM RISK '.4,t,NAGEMENT' August 6, 1992 Mr. Leo Heyenrath HEYENRATH AND ASSOCIATES West 1616 Oean Avenue Spokane, Washington 99201-1825 Oear Mr. Heyenrath, I've been asked for you to clarify some of the comments made in your report to the City of San Bernardino. Under page 3, sec~ion 1 - SUDervisorlStaffina, you stated it was your opinion staffing levels within the City Attorney's Office are more than adequate as relates to open litigated claim files. It is my understanding your comments "relate" o~ly to claims liability files in litiga~ion and you do understand City Attorney staff have other duties not related to liability claims which you cannot comment on as to work loads. On page 2, Recommendation #4 - allow Tom Cain to continue to negotiate case disposition on certain litigated files. We feel should be done on an individual case basis with determination made by the City Attorney's Office and input from Risk Management. Recommendation #5, forwarding of all pertinent reports from outside law firms to Risk Management for review and evaluation. This recommendation pertains to proper case reserving. It is important to the financial position of the City that cases be adequately reserved. As I conveyed to you earlier, the communication process on reserving has begun during the last few months, at the monthly meetings between Richard Morillo of the City Attorney staff, and myself as Director of Risk management. All litigated cases in- house are discussed between Bob Simmons, Deputy City Attorney and Tom cain, Liability Claims Specialist. This was discussed under recommendation #6. Since the first time you visited the City of San Bernardino for a BICEP liability audit and now, there has been an increased open relationship between the City Attorney's staff and Risk Management which had not existed in prior years. This team approach ~eJ b~n,e~i~:a:. ~o t:e ~1t.y; _' S. N B I . N . . 0 I NO' _~PRO~ESS o C''"'' ,-) You recommended we solicit reinsurance reimbursement on years which we may have exceeded our aqqreqate. Due to time periods involved, we may not be able to collect the total $1,367,624, however, we should pursue. At the time you did not have copies of all our insurance policies. We agreed to have Mike Kaddatz of ARM Tech review since his firm has vast experience in this area. We have put CNA Insurance on notice for policy years 1982 through 1986, and they will be aUditing all paid loses and indemnity payments during their policy periOds. Please advise if you agree with my comments. , / , / .. / / / " "'// /. '--"'-, (I : . I f, ""- . I . , / Sincerely, ;{ ',r:~~_ I ' L /, , v- . \ ~ictor F. Lorch, ARM Director of Risk Management VL/ld ~IEYENRAT:rQ ASSOCIATES :) CLAIMS MANAGEMENT CONSULTANTS - AUDITORS o 1102_TTANAVE.,SUITE2<<l MANHATTAN BEACH. CAl.IFOANIA .. 113II 1213) "'"11I August 7. 1992 o WEST 1818 DEAN AVENUE SPO....NE. WASHINGTON _-1m' TEL 1501) 325-t728. FAX (501) 3&2CI1 F ";~~O\VflFW U' AUG; 0 1992 Mr. Victor Lorch Director of Risk Management City of San Bernardino Risk Management Division 300 North D Street, Room 427 San Bernardino. CA 92418 ~ MANAGEMENT RE: GENERAL LIABILITY CLAIMS ADMINISTRATION AUDIT - FOLLOW-UP Dear Mr. Lorch: I have reviewed your comments relating to certain areas of the General Liability claims administration audit. In general. I agree with the conceptual aspects of your comments and believe that we discussed these during the audit and subsequent to the issuance of the audit report. Should the City Counsel and/or the City Attorney's office have any specific questions I will be more than happy to address those in person. Sincerely. HEYENRATH &. ASSOCIATES ,-- , Senior Partner LH: cc: File C....V..OF SAN BERCARDINO ,,,"' "" - REQUEST~.-'OR COUNCIL ACTION Fr' -, Fred Wilson, Assistant City Administrator Su~~: General Liability Claims Administration Audit Oil.... Administration August 12, 1992 Date: Synopsis of Previous Council action: 7/20/92 -- Mayor and Common Council continued item to 8/17/92. Recommended motion: That the General Liability Administration Audit be continued to September 8, 1992 in order to allow the auditor to reconcile differences contained in the report, ;; ~ /// i /; ~i)) 'I ~l. IS/r---' , Signature Contact person: Vic Lorch Phone: 5103 Supporting data attached: Yes Ward: FUNDING REOUIREMENTS: Amount: Source: (Acct. No.1 (Acct. DescriPtion) Finance: :il Notes: 75.0262 3d' Agenda Item NO~ CIT'; OF SAN BER~ARDINO - .~--. REQUEST"'FOR COUNCIL ACTION STAFF REPORT At the Council Meeting of July 20, 1992, the General Liability claims Administration Audit was referred to the City Administrator's Office to coordinate a meeting with the city Attorney's Office and Risk Manager to work out the differences that exist in the report and report back to the council on Auqust 17, 1992. On Auqust 3 and Auqust 11, 1992, meetings were held and the City Attorney's concerns were discussed. These issues were referred to the auditor for reconciliation. Due to the auditor's vacation schedule, these issues have not been fully resolved. It is therefore recommended that this matter be continued to September 8, 1992. 75_0264 ClfVOF SAN BER~ARDINO - ........... REQUEST-t=OR COUNCIL ACTION F- Vi ctor F. Lorch Director of Risk Management Dept: Risk Management Date: July 15. 1992 Subject: City of San Bernardi no General Liability Claims Administration Audit Synopsis of Previous Council action: " None Recommended motion: That the attached report entitled "City of San Bernardino - General Liability Claims Administration Audit" be received and filed. Signature Contact person: Vi c tor F. L orc h Phone: x5308 Supporting deta Ittlched: Ward: FUNDING REQUIREMENTS: Amount: N I A Source: (ACCT. NO.) (ACCT, DESCRIPTION) Finance: ... ,ocll Note.: .aP'''' U /UJ.ll ,,~ . I 7---~-9z ~9'~ 5~ ~ Agenda Item NO.--' CITY OF SAN BERQARDINO - .- REQUESTFOR COUNCIL ACTION STAFF REPORT Puroose - The General Liability Claims Administration Audit of Risk Management was done at my r~quest for the following reasons: * Identify uncollected sources of revenue from prior years * Evaluate liability reserves in conjunction with the actuarial study of the City's self insurance program for compliance with GASB 10 , tentatively scheduled for implementation June 15, 1993 * Analysis of Risk management Liability operation after two years Backaround - When I was hired as Director of Risk Management two years ago the department had no means of tracking reserves, claim payments and expenses on litigated files, other than what was passed on to Tom Cain from City Attorney staff. Risk Management did not have a complete loss history of all the City'S liability since self insuring in the late 1970's, Last year, with the aid of the City Attorney's Office, we completed an inventory of all claims and updated our records. After reviewing the City'S loss history and retrieving liability policies from storage, we sent a letter to our prior insurance broker, Robert Driver, indicating payment was made of $139,000 of a claim occurring in 1982, the City's SIR at the time was $100,000. After months of 'follow up, Mead Insurance Company responded. They offered to pay $25,000 of the $39,000 paid by the City over and above their SIR. Their offer was received in May 1992. At that time, I suggested a complete Risk Management liability claims audit to aid in the identification of other uncollected claims reimbursements. Heyenrath and Associates was suggested, since they audit for BICEP, our liability pool, 75-0264 . o ,- --..>11'. City of San Bernardino - General Liability Claims Administration Audit Recommendations Recommendation C-l Provide Tom Cain with dedicated part-time clerk, ResDonse - Risk Management presently has a SBETA part-time hire. We have applied for SBETA part-time help in the Fall, in addition to the Cal State Intern Program if available. This should free up the unit's Clerk Typist II to do some of Tom's clerical work. C-2 Recommendation Require reinsurance reimbursements City. Risk Management to solicit for insured claims paid by the ResDonse - We are currently reviewing all liability insurance policies available to us in the office as we are missing some years and applicable forms; we will ask for copies when putting carriers on notice of pending claims either exceeding the SIR or the aggregate. Last week we met with Bob Burns, CNA representative, to discuss the aggregate for the years 1983-1984, Bob is handling claims for that year. For policy year, 1985-1986, we'll be contacting CNA in Chicago, Illinois. CNA will review claims paid against our aggregate and reimburse the City per policy conditions. Those claims involving prior carriers are being reviewed and Risk Management is placing them on notice. At the present time, there is no need to engage legal counsel. If legal counsel is necessary, we'd recommend to the City Attorney and City Administrator that the services of a law firm specializing in insurance contracts be retained. This is a highly specialized field and litigation costs can be contained due to attorney knowledge of the field of insurance. C-3 Recommendation - Forward excess policies to ARMTech for evaluation. ResDonse - We have contacted ARMTech and will meet with them within the next week. C-4 Recommendation - Allow Tom Cain to continue to negotiate case dispositions on certain litigated cases. ResDonse - Recently, Tom has received a case back from city Attorney's Office to settle. Case concluded for $3,000. C-5 Recommendation - Require the City Attorney's Office to forward all pertinent reports from outside law firms to the Risk c -, ,,""",,", Management Department for review and evaluation. ReSDonse The ultimate responsibility for the General Liability Management programs rests with Risk Management for proper reserving, while the City Attorney's office is responsible for litigation. We are working on details to solve this problem with the city Attorney's Office for reserving practices, C-6 Recommendation - Require the city Attorney's Office to provide Risk Management Department with detailed quarterly reports on litigated files handled in-house. ResDonse - At present time, files handled in=house are discussed with Tom Cain on an individual case basis. We need to expand in this area and are currently working on a means to streamline reserve reporting with the City Attorney's Office and MIS. C-7 Recommendation - Require the Risk Management Department to evaluate all claims for reserve adequacy. ResDonse - Director of Risk Management and Liability Claims Specialist to review open files on a monthly basis. C-B Recommendation - Require the Data Processing Department to provide monthly claims management reports. ResDonse - Risk Management and MIS to meet within 30 days to work out details. C-9 Recommendations - Conduct claims audit by 7/1/93 to ensure that the recommendations have been implemented. ResDonse - We anticipate a follow-up audit in July 1993. Item to be budgeted FY 93/94. General Comments - Heyenrath's report (ref. pp 1-5 of report) indicates a lack of reporting on file status. This area needs clarification. During the last two years, communication between the City Attorney's office and Risk Management has improved. Tom Cain meets with City Attorney staff to discuss cases, and during the last six months I have met monthly with Rick Morillo to discuss areas of mutual concern in our offices. Risk Management is responsible under the City Administrator for maintaining up to date reserve and expense figures for liability claims. The City Attorney's Office is responsible for the litigation of all claims. Both departments work together on cost containment and exchanging financial information on liability claims impacting the City budget for reporting to the Mayor and COllllllon Council. . c ~ ---' Staffina - Comments were made as to the number of litigated liability claims handled by the City Attorney staff and work load of Tom Cain. Page 7 of the Heyenrath report shows 935 open claims. Approximately 560 are related to the 1989 pipeline explosion and train wreck. these are being handled by Southern Pacific and Cal- Nev directly. This leaves a balance of 375 pending claims. As part of the claims management process, analysis of work loads is essential to monitor dollars paid out by the City. As pendings increase claim dollars also increase. Mr. Heyenrath' s comments on work loads are related ~ to liability claims. Neither Mr, Heyenrath or Risk Management can comment on the other duties of the City Attorney's staff. Our concerns are limited to liability claims exposure only.