HomeMy WebLinkAbout11-Risk Management
CITY OF SAN BERN~RDINO - REQUEST F,~R COUNCIL ACTI~,N
From: John C. Kirwan
Subject: Disposition of Cases Filed
Against the City
Dept:
Risk Management
Date:
June 16, 1985
Synopsis of Previous Council action:
At the meeting of the Mayor and Common Council held June 6, 19S8, the
disposition of cases filed against the City in the last five years
was continued to Monday, June 20, 1988 at 10:30 a.m.
Recommended motion:
MOTION NO.1
That a Claims Committee be established comprised of the City Administrator,
City Attorney and the Director of Risk Management.
MOTION NO. 2
That the City Attorney be instructed to prepare the appropriate amendment
to Chapter 3 of the Municipal Code Section 3.16.050 to raise the claim
settlement authority for the City Administrator to $10,000 and that upon
a unanimous vote of the Claims Committee, an amount not to exceed $20,000
be granted to the City Administrator as additional claims settlement
authority.
joLe. ~
Contact person:
John C. Kirwan
Phone:
5308
Supporting data attached:
Yes
Ward:
FUNDING REQUIREMENTS:
Amount:
Source: (Acct. No.)
(Acct. DescriDtion)
Finance:
Council Notes:
75-0262
Agenda Item No
II
o
CITY OF SAN BERNARDINO -
o
REQUEST FOR COUNCIL ACTION
STAFF REPORT
REVIEW OF CITY'S LIABILITY CLAIMS
OBJECTIVE:
To review the City's liability claims record
for frequency and severity.
To review reserve adequacy.
To review claims handling procedures.
To review settlement authority levels.
FINDINGS:
City governments, like most public entities and large
private employers, are frequent target defendants
when the active tort feasor 1S uninsured, under
insured, or just unlikely to respond to a judgment.
We are also a target
ployers, we are more
publicity.
when, like large private em-
in the public's mind because of
These kinds of claims are often frivolous and, when
the true facts are known, are shown to be without
merit or to be fraudulent. The U.S. Chamber of
Commerce says that 10% of all claims are fraudulent.
And 15 to 25% of all costs go to fraudulent claims.
Unfortunately, the cost of investigation and defense
of nonmeritorious claims is high. It is a false
economy to settle the otherwise defensible claim or
to meet an outrageous demand, since the gratuitous
payments merely encourage the public and plaintiff's
bar to file future claims against the entity
recognized as unwilling or unlikely to offer a
vigorous defense.
Conversely, it is not cost-effective to spend invest-
igation or legal resources on claims where liability
is clear or on claims which will most probably result
in an adverse judgment. Once liability is esta-
blished, the claim should be quickly evaluated and a
fair and reasonable settlement negotiated.
The function of claims administration is to rapidly
determine the scope of activities needed for defense
or the effort to be directed towards settlement. In
addition to controlling claim costs through aggres-
sive investigation and negotiations, the claims
1
7"i.O::tli.4
o
o
adjuster should also be responsible for controlling
claims adjustment expenses.
We are operating in the throws of a "lawsuit crisis"
in California at this time. Consider this, the cases
filed in state courts, where more than 98% of all
civil suits are heard, has grown at least four times
as fast as the increase in population. In 1961 only
270 civil rights suits were filed against
municipalities while in 1981 the number rose to
13,534.
Million dollar verdicts have commonly been used as an
index to measure the excesses of the legal system.
Today this level of verdict is being awarded with a
very high rate of frequency. For example, in 1980
there were 134 verdicts of $1 million or more. In
1985 there were 488 verdicts in lawsuits awarding $l
million or more to the plaintiff. That is a 264%
increase in the number of million dollar verdicts in
only 5 years. San Bernardino County ranks 13th on
the state's litigation rate index for counties.
The number of liability claims filed against the city
for the last 3 months is:
March
April
May
Total
29
32
17
78
During the same time period, we closed 60 cases
totaling $47,050.95 in costs.
We currently have 340 open claims with $4,565,962.98
showing in reserves. with assistance of the City
Attorney's Office, we have begun reviewing all cases
and have currently identified some 45 cases where
additional reserves seem reasonable. These are being
input to the computer now; and initial estimates are
that when the review is completed, we will have
reserves totaling around $5.5 million.
In '1977 liability claims records were computerized
with our workers' compensation claims administrator
, Fleming and Associates. All existing claims plus
open claims back to 1972 were entered; since that
time to the present, all liability claims and costs
have been entered on the system with varying degrees
of accuracy as personnel have come and gone. Based
on what is there, exhibit packets, A, Band C were
prepared. Manually sorted information off current
2
o 0
loss runs was input into a Lotus 1,2,3, program to
produce some comparisons.
(Please note: The Lotus 1,2,3 graphics program
automatically selects the vertical axis value for
each graph: therefore, it varies on each graph.)
CONCLUSIONS/RECOMMENDATIONS: Professional staffing seems
adequate with one experienced adjuster. Clerical
support requires one full time person at this time.
This would track with the way workers' compensation
is structured as well.
Claims handling procedures would be greatly enhanced
with two significant changes.
First, the implementation of a claims committee
the City Administrator, the City Attorney and
Director of Risk Management as its members.
function of the Committee would be:
with
the
The
1) To review all serious claims.
2) To approve all settlements above SlO,OOO.OO and
up to S20,000.00.
3) To discuss perceived procedures and trends with
department heads.
4) To serve as a communications forum for Risk
Management, City Attorney, Administration and
all Department Heads.
Second, to increase the settlement authority as
follows:
SlO,OOO authority to the Risk Manager.
SlO,OOO additional authority to the Claims
Committee.
S All claims settlements over S20,000 approved
by Council.
The Government Codes allow the elected governing body
to delegate authority to settle claims up to S20,000.
The City currently has delegated a settlement
authority of S2,000 under ordinance 3.16.050.
A survey of 15 cities and 2 counties shows only 1
public entity with an authority less than ours. All
the rest have more. The average is S20,000.
Complete computerization is a must pursuant to
participation in a pooling arrangement like BICEP,
for reducing claims costs and expenses and to address
reserve adequacy. Exhibit Packet "0" details what
the Governmental Accounting Standards Board will be
requiring public agencies to do and is reasonably
3
o
o
self explanatory. However, our current reserves do
not take into account any IBNR (incurred but nor
reported) losses. GSAB also does not address the
issues of reserve discounting or funding. We as a
public entity will probably be held accountable for
the same standards FASB implements for private insur-
ance carriers.
with the continued support from all departments,
which to date has been excellent, Risk Management
should be able, with the implementation of the sug-
gested changes, to reduce the frequency and severity
of claims and successfully conserve the assets of the
City.
Respectfully submitted,
.~ .
ohn C. Kirwan
Director of Risk Management
JK/sf
4
o
o
EXHIBIT PACKET "A"
This exhibit shows the total number of claims filed against the
City - those closed to date and - those open to date, by fiscal
year. As the graph indicates, 1986 was a bad year for frequency
of claims in total.
EXHIBIT PACKET "B"
This exhibit shows the total number of liability claims filed
against the City for the last lO years, broken down by general
and automobile claims. The second graph shows the dollar costs
allocated to such claims for the same period.
Note that the frequency trends do not always track the severity
trends, in that 1978 - 1982 shows a steady growth in frequency,
while costs were up slightly in 79 and big in 82. Also keep in
mind, that as we move forward in time, costs become more of a
guess than a fact in that we move from fixed known costs of
closed cases to reserved open ones.
EXHIBIT PACKET "C"
This exhibit shows the frequency of liability claims by auto and
general for some of the departments for the last 5 years.
This packet is presented on Iv for example, to illustrate what can
be accomplished with full computerizaton of the liability claims
function. This was a very difficult manual task. Our managers
and supervisors need management tools that reveal trends and
highlight problem areas necessitating attention. Again, note
that the computer selects the vertical axis value, so that it
varies by department.
Also note, the City Council graph represents the claims that are
not directly attributable to a specific department, but rather
those that are encompassing as a city. In 1986 this type of
claim represented 12% of the total number of claims filed.
Engineering and Parks, Recreation and Community Services show
excellent downward trends. Police claims represent about 20% of
the total number of claims each year. Refuse shows a good
decline in frequency as well.
The City has almost 600 motorized vehicles. The following is an
approximation of the breakdown by the 6 largest departments:
5
o
Public Services
Police Department
Parks, Recreation
& Community Services
Fire Department
Engineering
Public Buildings
175
105
50
40
25
25
Total
420
When you compare the number of vehicles and
hours of exposure to the total number of
frequency measure) the results are pretty much
6
o
corresponding
accidents (a
as expected.
man-
true
o
,
o
-EXHIBIT "A"
o
o
\
CLAIMS ABAINST CITY DURIN8 FIVE YEAR PERIOD
...............................................................
YEAR 83 .. as 86 87 TOTAL
...............................................................
CLOSED 247 228 190 168 49 879
OPEN 32 lS 39 122 103 311
---------------------------------------------------------------
TOTAL
279
243
229
287
1152
1190
~
o NOS. or CLAIMS 0
o I a I Iii i i i i 5 i i i I
I
0
.
.
i f
r 0
~
-
IE:
lei)
+ !~ .
II
. f~
-z
I~
00
-
<> -i
-<
j .
IS
t
o
o
EXHIBIT "B"
.
,
o
o
CLAIMS ABAINST CITY DURINe TEN YEAR PERIOD
...........................................................**......
YEAR
CLAIM TYPE 78 79 80 81 82 83 84 as 86 87 TOTAL
............................**.............................**.**...
BENERAL 144 160 169 23S 224 220 208 187 211 llS 1873
AUTO 58 65 83 60 7S 59 3S 42 76 37 S90
-------------------------------------------------------------------
TOTAL
202 22S 2152 29S 299 279 243 229 287 1S2 2463
o NOS. or CLAIMS 0
- .. .. .. .. N i i N I I
I . I I 8 I a I I 8 I
it ~.
,
.
0 ~ ,
I I
.
0
~
. -
- !~
lei)
+e .. ;;I~
sC)
I~
I-
I~
I .
0
-
r -i
<> -<
-i I
~
.
!S
....
0 DOL.&.A. 0
1 (MIllon.)
0 P 0 0 0 0 0 0 0 - - - - - - -
. . . . . . . . . N . . . . .
. - N III . .. . ~ . Ie - - III . .. . ~
it
D ~
III
I I 0
r-
~
-
. I~
-
+f = I~
I- 1-1
10
IS
0:::0
0
r -
<> -t
~
i I
~
.
t:
~
.
o
-
-
o
EXHIBIT "C"
-
1._
..
lle. ~
at
c
Ii)
...
Z
1"'1
lD
~ r
)>
c
~
-
Z
+~ -
(/)
-t
.lD lJ :::0
a )>
-t
-
0
z
<>
-t ..
0
~ at
,..
o
o
NOS. or CLAIMS
o
N
'"
ell
~
-
I:
..
~
, .
o NOS. or CLAIMS 0
o
N
'"
~
ell
at
0
Ii)
1"'1
Z
1"'1
~ r
)>
z
-
~
)>
+~ r-
()
.- lJ 0
a z
-t
AJ
0
r-
<>
a I
~
-
I:
..
~
.
o NOS. 0,. CLAIMS 0
o
N
III
..
at
....
0
~
~
. r m
c
-
r-
0
-
Z
+~ C)
~
.- lJ
a
(/)
)>
."
r1
-I
<> ~
... I
~
~
~
-
I
~
~
.."
.
o
Ii)
...
z
...
. r
+e
.- I
a
<>
a I
~
~
o
o
NOS. or CLAIMS
o
..
..
o
..
ell
I
III
o
fit
at
fJ
~
III
ell
()
-
-t
~
()
o
c
z
o
-
r-
b~"--
.
-
_ L.
. - N III ~ .. . .... . ,
r:
,"
.>
D \
.
'" :
. ,
. ~
r
o NOS. or CLAIMS 0
P1
r-
P1
+e 0
-t
.- . ::a
-
a 0
)> i
r-
<>
i I
~
!!S
o
.
.
. r
-
.1
- - - --
-
I
...,
z
C)
- ~
+e z
...,
.- P1 .
I ,
a :::0.
-
Z ~
C)
:
<>
, I
o NOS. or CLAIMS 0
o
-
o
I
"
a
a
!S
"
.
o
III
"
.
+e
.- I
~
<>
j I
1
iIlIII JIIJ
~
o
o
NOS. or CLAIMS
~ .. .. .. ...
. - N III . .. . .... . Ie 0 - N III .
.
.
I
I
~
-
.
I
. \
r
.
!
."
-
:::0
,.,
'I
IS
....,..
-
-
~
f
0
I I
:
. r "'U
)>
:::0
"
V>>
SIP .
+e ':;0
.- P1 J
I .
~ 0
:::0
f"1
~
-t r
-
0
<> Z
j I
- -
o
o
NOS. or CLAIMS
............--.........N
-NIlI..........O-NIlI.........O-
r:
t:
I
,
t
D
III
.
. r
+e
.- II
I
<>
J I
.L.
LL
o
NOS. or CLAIMS 0
.
-
o
N
o
=
.
a
I
I
t:
~
"
~.
,
.
.
:
"
o
,..
-
o
P1
l
.
,
...
-
o HOS, or CLMIS 0
.. ... .. .. .. .. .. ..
o - N III . .. . .... . . 0 -N III . .. . ~
rs
D
" t
iii (
.
r
"'0 a
C
to .
r- .
-
0 I
+e to
.- . C
-
I r-
0
-
Z
C)
eI)
<>
, .
!S
..
o NOS. or CLAIMS 0
::a
+e 1"1 I
....
.- C I
~ I eI)
IT1 .
,
j
.
<>
~ .
!S
..,.
D
I
~ r
+e
I- I
<>
i
~
41 - - ~
4. JI:1..
.
o NOS. OfT CLAIMS 0
o
..
o
J
-=
I
~
a
I
I
.
!S
I .
f
.
eI)
-t
~
,..
,..
-t
(/)
.
.
.
o
o
EXHIBIT "D"
- -
J
,
o
o
RESERVES AND SASB
THE BDVERl\IIlENTAL ACCOUNTINS STANDARDS BOARD WAS CREATED
IN 19M TO ESTABLISH FINANCIAL ACCOUNTINS AND REPORTING
STANDARDS FOR STATE AND LOCAL 8OVERNENTS. IT IS UNDER THE
SAME PARENT ORaANlZATION AS THE FINANCIAL ACCOUNTING
STANDARDS BOARD(FASB) AND TIE PRONOUNCEMENTS THAT ARE IBSUED
BY TIE BOARD ARE BENERALL Y ACCEPTED BY THE ACCOUNTING
PROFESSION UNDER THE RULES OF CONDUCT ISSUED BY THE AICPA.
THE RISK MANAGEMENT AND INSURANCE ISSUES PROJECT WAS ADDED TO
THE BOARD'S AJENDA IN OCTOBER OF 1986, IN RESPONSE TO TIE
INSURANCE CRISIS THAT SO MANY PUBLIC ENTITIES WERE FACING AT
THAT TIME.
A DISCUSSION MEMORANDUM WAS ISSUED BY SASB LATE IN 1987,
WITH RESPONSES DlE BY THE END OF DECEMBER OF 1987. THE
ISSUES WERE BROKEN INTO TWO CATEGORIES. THE FIRST WAS THOSE
ISSUES RELATED SPECIFICALLY TO PUBLIC ENTITY RISK POOLS AND
THE SECOND WAS ISSUES RELATED TO ENTITIES OTHER THAN POOLS.
THE FIRST ISSUE FOR POOLS HAD TO DO WITH THE APPLICA-
BILITY OF FASB STATEMENT 60 TO PUBLIC ENTITY RISK POOLS.
FASB STATEMENT 60 ESTABLISHES GENERALLY ACCEPTED ACCOUNTING
AND REPORTING PRINCIPALS FOR COMMERCIAL INSURANCE ENTERPRISES
AND THE QUESTION IS WHETHER OR NOT THOSE PRINCIPALS SHOULD BE
EXTENDED TO THE PUBLIC SECTOR. THE BOARD'S CONCLUSION WAS
THAT IF THERE IS ANY TRANSFER OF RISK TO THE POOL OR ANY RISK
-- ..
.
o
o
,
SHARING, THEN FASB STATEMENT 60 SHOULD APPLY. ESSENTIALLY
THESE POOLS ARE PERFORMING MANY OF THE SAME FUNCTIONS THAT
ARE PERFORMED BY COMMERCIAL INSURERS, AND THEREFORE IT MAKES
THE MOST SENSE TO HAVE THESE TRANSACTIONS AND THEIR
ACTIVITIES ACCOUNTED FOR AND REPORTED IN A MANNER THAT IS
COMPARABLE TO THE WAY COMMERCIAL INSURERS REPORT. THE BOARD
LOOKED AT A NUMBER OF POTENTIAL DEPARTURES FROM FASB STATE-
MENT 60 MAINLY IN THE AREAS OF INVESTMENT VALUATION, THE
REPORTING OF UNREALIZED INVESTMENT GAINS AND LOSSES, THE
ACCOUNTING FOR ASSETS ACCUMULATED IN ANTICIPATION OF FUTURE
CATASTROPHE LOSSES, AND THE DISCOUNTING OF CLAIM LIABILITIES.
ESSENTIALLY THE BOARD DECIDED THAT DEPARTURES IN THESE AREAS
WERE NOT APPROPRIATE, AND THAT THE ACCOUNTING PRESCRIBED BY
FASB STATEMENT 60 SHOULD APPLY.
THE ISSUES FOR INDIVIDUAL ENTITIES OTHER THAN POOLS ARE
NUMEROUS. ONE OF THE BASIC QUESTIONS EXAMINED BY THE BOARD
WAS THE APPROPRIATE METHOD FOR REC08NIZING CLAIM LIABILITIES
AND THE RELATED EXPENDITURES IN GOVERNMENTAL FUNDS. THE
CONCLUSION OF THE BOARD WAS THAT FASB STATEMENT S SHOULD
APPLY. FASB STATEMENT 5 SAYS THAT IF IT IS PROBABLE THAT A
LIABILITY HAS BEEN INCURRED OR AN ASSET HAS BEEN IMPAIRED,
THEN THE AMOUNT OF THE LOSS SHOULD BE RECORDED IN THE
FINANCIAL STATEMENT AT THE TIME THAT THE LOSS OCCURS AND THE
AMOUNT OF THE LOSS CAN BE REASONABLY ESTIMATED. WHAT THIS
CONCLUSION IS SAYING IS THAT WE CAN NO LONGER CARRY ONLY THE
EXPECTED PAYOUTS FOR NEXT YEARS LOSSES ON OUR GENERAL FUND
,
o
o
"
_a.
STATEMENTS, BUT RATHER THE ENTIRE ESTIMATED AMOUNT OF LOSS
WHEN THE LOSS OCCURS. THIS PUTS A REAL EMPHASIS ON RESERVE
___f,
ESTIMATES. A PROBLEM FOR MANY PUBLIC ENTITIES IS THAT THERE
IS THIS HUGE LIABILITY THAT HAS BEEN SITTING IN LIMBO AND IT
MUST NOW APPEAR ON THEIR STATEMENT WHICH WILL SURELY CREATE A
. GENERAL FUND DEFICIT. A LONG TERM LIABILITY IS BEING BROUGHT
INTO FUNDS THAT HAVE PREVIOUSLY ONLY DEALT WITH CURRENT
ASSETS AND CURRENT LIABILITIES.
_.. ~.
" -~~.
~,