HomeMy WebLinkAbout1986-03-18; City Council; 7657-3; Termination of liability insurance1o.Q.
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CIWOF CARLSBAD — AGENd(§BILL
AR* 7657-f 3
MTG3/18/86
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TITLE' TERMINATION OF '
LIABILITY INSURANCE
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RECOMMENDED ACTION:
Council adopt Resolution No.
liabilty insurance.
ITEM EXPLANATION
> approving the termination of excess
Current excess liability insurance in the amount of $900,000 coverage is
provided by Planet Insurance Company. This coverage is over a self-insured
retention of $100,000. The Planet policy was up for renewal on March 16, 1986.
As has been widely publicized, the insurance market for municipalities is now
virtually non-existent. The city broker, however, was able to obtain a renewal
quote from Planet, but with considerably restricted coverage and limits:
PROGRAM COMPARISON
Annual Premium
Limit
Self-Insured Retention
Policy Form
Current Program
$63,189
$900,000 per Occurrence
$100,000
Occurrence
Proposed Renewal
$140,750
$750,000 Aggregate
$250,000
Claims made
In addition to the many exclusions under the present form, we were advised that
the new policy will also exclude claims arising from sexual abuse and improper
street or road design.
Attached to this Agenda Bill is a report by the City's Risk Management
Consultant commenting on the renewal proposal. Staff concurs with his opinion
that alternative methods of funding the limited area of exposures covered by the
proposed renewal would be in the City's better interest. The City is actively
pursuing pooling with other cities through doint Powers Agreements for
liability insurance coverage. Also, all alternate funding methods for coverage
will be thoroughly explored by the City staff. Because of the City's increased
liability exposure and the need for a greater emphasis on loss prevention, the
City's Risk Management Program will be expanded. A separate Risk Management
Department with a full-time Risk Manager and clerical staff will be proposed in
the 1986-87 budget. Accordingly, the City's Risk Management Consultant and
City staff are not recommending purchasing the renewal policy for liability
insurance.
FISCAL IMPACT
The elimination of this coverage will result in a premium savings of $14-0,750.
This amount will remain in the Liability Self Insurance Fund. As of Oanuary
31, 1986, the uncommitted balance in the Liability Self Insurance Fund was
$695,492. When the 1986-87 budget is adopted, staff will recommend the -
transfer of 1985-86 surplus funds from the General Fund to the Liability Self
Insurance Fund: that will bring the uncommitted balance up to $1,000,000.
PAGE 2 OF AB #7657-#3
EXHIBITS
1. Resolution No.
2. Memorandum from Risk Management Consultant dated March 4, 1986.
3. List of Uninsured Cities - November 4, 1985
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9
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14
= 15.
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.-;• . •'. RESOLUTION NO. _844j ;. . .' ,
••'- , •';-•..'•' A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF CARLSBAD, CALIFORNIA, APPROVING THE .
: TERMINATION OF EXCESS LIABILITY INSURANCE .
WHEREAS, the City has established a self-insurance program for liability
insurance; and ' • - . . •
WHEREAS, .the City's Insurance Broker has received a quotation for excess ,
liability' insurance; and- •
WHEREAS, upon evaluation of the quotation received, the City now desires to
self-insure this exposure. , .
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad,
California, as follows: .
1. That the above recitations are true and correct.l • • • • •• - ' .- '
2. That the termination of excess liability insurance coverage is approved
and ratified.
PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council on the
^18th_ day of March •__, 1986, by the follow vote, to wit:
' 'AYES: Council Members Casler, Lewis, Kulchin, Chick and Pettine
'NOES: , None. ..'.'./'.
• ABSENT: None . .
MARY H. C/SLER, Mayor
ATTEST:
ALETHA L. RAUTENKRARZ,~City Clerk
(SEAL) •
March 5, 1986
TO: FRANK ALESHIRE, CITY MANAGER
FROM: Don Oack, Risk Management Consultant
EXCESS LIABILITY INSURANCE - MARCH 16, 1986 RENEWAL
I have reviewed the proposal submitted by Planet Insurance Company, through the
city broker, for renewal of excess liability insurance for the City effective
March 16, 1986. Despite the fact that this is the only quotation which has been
received, I can not recommend acceptance.
PROGRAM COMPARISON
Proposed Renewal Current Program
Annual Premium $14-0,750 $63,189
Limit $750,000 Aggregate $900,000 per
Occurrence
Self-Insured Retention $250,000 $100,000
Policy Form Claims made Occurrence
The City's current program contains many major coverage exclusions including
inverse condemnation, pollution and subsidence. No policy form has yet been
issued for the renewal, but we are advised that it will contain additional
exclusions for sexual abuse, street design and malpractice.
REASONS AGAINST ACCEPTANCE
'In recommending against the acceptance of this renewal, I have the following
factors in mind:
1. The highest estimate of costs placed on any claim filed against the City is
$75,000. The highest claim payment was $50,000, and this was on a street
design case for which coverage would be excluded under the renewal program.
The chances of any claim penetrating beyond the proposed $250,000 self-
insured retention is extremely remote.
2. The renewal is quoted with an aggregate limit. This means as each claim is
paid, the limit is used up as opposed to the former which made the full
limit available for each accident occurring during the policy period. The
$750,000 is a substantial sum, but not an amount that could not be raised
without seriously effecting City services.
3. The hew policy form is on a "claim made" basis as opposed to an occurrence
basis. This means with some possible exceptions, only claims made during
the policy year based on accidents occurring during the year would be
.covered. This means that the policy limit of $750,000 would only be
available for accidents over an approximate 9 month period.
4. Because of the time it takes to litigate major claim, in all probability no
payments would be required on a catastrophic loss until 5 to 7 years of the
date of accident. This gives the City time, to prepare for any major
settlement, and payments can be further extended through the current
practice of structured settlements, or through invoking the provisions of
the Government Code which permit extending payments over a ten year period.
I believe alternative methods of funding this exposure would be much more
attractive than paying $141,750 up front for protection which would be lost
regardless of claims experienced at the end of one year.
5. The exclusions under the proposed renewal seriously restrict protection in
those areas most likely to result in a catastrophic loss. Street design is
probably the major factor in opening the City to "deep pocket" exposures.
ARGUMENTS FOR ACCEPTANCE
The city broker points out that the placement of this first layer of liability
insurance makes it considerably easier, under normal market circumstances, to
obtain additional limits. Clearly it is the catastrophic exposure above
$1^000,000 that is of the greatest concern. This argument has little
application, however, in todays market, since no companies are offering
protection to public entities over the $1,000,000 level.
I might mention that International Insurance Company which provided $19,000,000
excess of $1,000,000 coverage for this City for the year ended January 1, 1986
has still failed to provide 60 days notice of cancellation of their coverage as
required under Section. 674 of the California Insurance Code. In my opinion,
therefore, that coverage is still available in the event of a catastrophic loss,
and they have been placed on notice of our position.
RECOMMENDATIONS
1. $125,000 was budgeted for the payment of liability insurance premiums for
this fiscal year. This amount should remain in the liability/self-insurance
fund, and as soon as possible, steps should be taken to appropriate
additional funds until the balance reaches a minimum of $1,000,000.
2. As more insurance programs come up for renewal, the majority of California
cities will soon be without liability insurance protection. As a result,
there is considerable activity directed toward devising alternative methods
of funding city liability exposures. These relate to simple poolings, with
other cities, pooling in conjunction with funding floated through bond
issues and programs individually tailored for larger cities. Carlsbad must
continue to actively explore these alternatives.
3. The City must continue to support efforts to obtain legislative relief.
4. Increased emphasis must be placed on the City's Risk Management Program. In
addition to a vigorous safety and loss prevention policy,, the City must
reassess City services and the use of City facilities in the light of
increased exposures, and also strictly monitor insurance requirements with
respect to permits and City contracts.
ADDENDUM
Since dictating this report, I have been advised by the city broker that Planet
Insurance may provide some concessions liberalizing their original quotation.
These relate to the aggregate limit provisions. Automobile insurance may be
provided on an occurrence basis and there may be a double aggregate for general
liability and errors and omissions claims. Although this would make the form
more attractive, I would still incline towards a self-funded program for the
limited area of exposures covered under the proposed renewal.
League of California Cities
'1400 K STREET • SACRAMENTO.CA95B14 '• (916)<U4-5790
Work logeinet Sacramento, CA..
November 4, 1985
UKINSURED CITIES
Uninsured. .(31)
CITY . ./•.-..- :
Alaraeda Ceff. December)
Angels Camp
Berkeley . • " •'"'•. '
' Bradbury •'.'-.•'-.••
coif ax ••;:•.- v:'-
• Covina ' , .
Culver City ' .' ... '
Cupertino
Greenfield . ..".' .
Hayvard • ' ., • .
, Lakeport . 'J"
l.nc AJtos Hills
Monterey' . ' •
Oakland ,•• -'. '
:0>:nard-' '
,. Pasadena ••.-.•;
'.Ferris ' • - . '
Plymouth. • • " -.
Point'-Arena".
Portola , . • .
• Ridgecrest /"'.•'
Sacra-iento (eff.'Nov. 20)
San Jose
Sand City ' .
• Santa Cruz . .' -. '
Santa Maria/.
. Santa Rosa ••' ' .
Seaside ' •
South "Lake. Tahoe"
T.eh'ana ' .. .
Torrance.7 . .
COUNTY WHERE LOCATED.
Alameda
Calaveras
Alameda • . ."
Los Angeles
.' - ' Placer
Los Angeles
Los Angeles
. :. • Santa Clara
.Monterey
Alameda
.- Lake
Santa Clara
Monterey
Alameda .- .
Ventura .
: Los Angeles
Riverside
Anador
Mendocino
. • Plumas
. Kern .
Sacramento•;
Santa Clara
- Monterey
Santa Cruz
Santa Barbara
Sonoma ' •' .
Monterey
El Dorado
Tehajna
Los Angeles
POPULATION
' 74,700
2,180
106,452
850
lyOOO
43,403
38,972.
38,082
4,710-
•98,683
- 3,910
. 7,700
' 29,107
•351'., 607-
121,066
126,600
'8;300 :
690
•':' 450
' . / -•1,965.
22,967'
... 303,37A'
683:,810
5.. 975
- 43,716
46,680
' 92,260
37,268
21,635
380
135,090
Uninsured,' Effective December 31;
Blue Lake .-. .; ; :
Weed •-•• •'.'•-
West -Hollywood . ••'
OTHERS '., '' '• -'
EL SEGUNDO
MO'UNTAIN' VIEW '
Humboldt
Siskiyou
Los Angeles
•1,240
2,910
22,871