HomeMy WebLinkAboutItem #31 - Discussion ItemtRO W:
•
•
tit,* bft iitA ilk., ' tttit5A
1NtEfiM tt M MAtTRAMtUM
The Honorable ale fibers
the 'City 'Cbtmissiott
-bhn 8 Lloyd
•
tone 26, 197_5
tubsEtt: ttlf-If'isurat'Ttte Ofdina de
rtEEERE'ChtE3:
tfVclbsUREs:
This is a memorandum of explanation concerning the
proposed "self. -insurance" ordinance, It conitazins a capsule
explanation of the ordinance, and analysis of certain of the
costs which Will be involved in the implementation of the
ordinance, and the plans for the implementation.
LEGIStATI t BACXGROUN
A charter amendment approved by The City of Miami
electorate in November, 1972, gave The City of Miami the power
to establish a self-insurace and insurance trust fund.
Inasmuch as this is an amendment to the Charter by
the addition of a new subsection (mm) to Section 3 of the City
Charter entitled "Powers", the subsection provides authority
for such a fund but is not a mandate to establish one.
If the City Commission desires to establish such a
fund and create a special self-insurance program, an implementation
ordinance must be passed. The ordinance presented to the Mayor
and the Commissioners shortly before the last meeting is such
and ordinance.
The ordinance which.; you have already received will be
on the agenda for consideration at the meeting scheduled for July
17, 1975. Because of reasons which will shortly be explained more
fully, the ordinance will be presented as an emergency ordinance.
The City Clerk has been instructed to place an advertisement in
the newspaper which calls attention to the fact that the ordinance
will be considered during the Commission meeting of July 17th_
CAPSULE EXPLANATION Or' PROPOSED ORDINANCE:
For quick reference, a copy of the title of the
proposed ordinance is attached. If detailed knowledge regarding
1M ttrldbPtitt •%tMO AN'1
The :icticfabY1 e Me+ bel s t f
the City CoMitittion
ttE0tF!EytE5:
page
tfitt.OSUF!E'S:
•
the specific provisions in the body of the Ord nanCe is t etiret,
reference can be made to the copy of the -entire ordinance you
have already received.
Careful study of both the ordinance, this tnett o, and arty
other informational memo received is strenous y suggested because
of the very important step that is being contemplated.
As the following capsule explanation of the ordinance
will reveal, passage of the ordinance will in actuality put
The City of Miami in the insurance business.
The ordinance does the following:
1. Creates a self-insurance and insurance trust fund.
It designates the source from which the fund will derive its moneys
and states the purposes for which the moneys in the fund may be
applied.
2. Provides for a Board of Trustees and for the
composition thereof. The trustees have the power to make.•
purchases, sales, exchanges, investments and reinvestments
on behalf of the fund.
3. Provides for the manner in which the trustees
shall disperse the fund.
4. Provides for a Self -Insurance and Insurance Committee_
This Committee shall administer the fund, maintain appropriate
records and recommend to the City Commission the amount of reserves
to be accumulated and maintained and the amount to be appropriated
annually to finance the Self -Insurance and Insurance Program.
5. Provides that the Insurance Program shall operate
in a ;:canner similar to that of a commercial insurance company.
'PM*
• • tits 1.0.14MT, ftbltiti4.
• it4ttfit4iP':1dtt. MttAtti4A:4bi191
The tibnbtable MeMbers bt
the city co:tthisgibil
Page 3
bAtdune 26, 1575 0
t:
t4EFERENCES:
tikItt-OtURkS:
6. Provides that the insurance tommittee shall As
expeditiously as pbs4ible establish means by which the City
shall becolte self -insured in primary coverage while maintaining
an umbrella coverage to insure against catastrophic losses.
7. Provides for the manner of funding the administrative
expenses incurred in administering the program. This includes both
"in-house' expenses and expenses which may be incurred by the use
of personal services which cannot be readily provided by "in-house"
personnel,
8. Provides that the City Attorney shall perform or
supervise the performance of all legal services necessary to
accomplish the purposes of the self-insurance program. Claims
for property damage and personal injury which are not in excess
of $1,000.00 for each individual claim may be settled without
reference to the City commission. Proposed settlements in
excess of $1,000.00 must be submitted to the City Commission
for approval.
The City Attorney shall render such reports for the
settlement of claims to the insurance committee and the City
Commission as they require.
This concludes the capsule explanation of the ordinance.
It is to be noted, however, that the ordinance gives sufficient
latitude to the insurance committee to retain the present schedule
of both primary coverage insurance and umbrella coverage, or add
to it, or to delete portions of the coverage in favor of self-
insurance. The Committee may make such determination from time
to time based on their decision of the most economical method
of proceeding in the best interest of the city.
'MEDIATE PLANS:
It is understood that immediate plans call for a
tf y
x
tit/ o.P. ftofiibA
It ttt-' "PP't N1EM AN M
'The iofiofzb...##tat.e Mei i'�.,ers of
thy t,�
e ity 3_Lissibtl
Page _4
bA tt:
J i'n M. 19/5
RtfrERENbtS:
tNGLOSUpcS:
ttL :
discontinuance of the primary coverage of city vehicles which is
currently 'being provided by The Hartford t suranoe CrOUp. It is
anticipated that this coverage will cease as of midnight July
29th, 1975. All rather pre'sertt coverage Will remain for the presents
Remaining are a primary coverage policy covering torts by police
officers, and some primary coverage 0 , & 'f policies covering
parks, p1a_tgrounds and other City facilities. A continuance
of the u;nb ella coverage policy which provides coverage from
fifty thousand up to five million dollars is also planned.
In addition_, some type of insurance coverage is also planned
for cumulative claims when they reach an amount in excess of two
hundred thousand or three hurl red thousand in any given period,
such as s year.
Basic principle of the umbrella coverage and the cumulative
coverage is to insure against a large catastrophic loss at any
one time or an accumulation of a number of heavy losses in any
given period.
The anticipated target date of July 29th, 1975 for the
cessation of the vehicular coverage is the reason for the -
presentation of the ordinance as an emergency on July 17th, 1975_
COSTS INVOLVED;
In an enumeration of the costs involved in a self.
insurance program, the following factors should be considered:
(1) Administrative costs.
(2) Losses from claims and judgments paid by the City
from the fund_
(3) Cost of insurance (such as umbrella coverage
policies, etc.)
rOttt ty#7 •MtAfJfl t1tV• .
11`4tbkit. MtlAtittAiNtit"
the Honorable Meftibett tf
the City ConIti8sion
Page 5
bAtE:
tUdiEtt:
kEFtRENCES:
tisICLOSUR:
•
2Si• IV1S
AdministtatiVP_C-Pst4.
Presently planned by the law departtent to handle
the claims and litigation,resulting from the Operation of city
vehicles is the addition df a lawyer to handle the case load'Of
litigation and an experienced claims adjuster to superVise the
handling of claims, plus two secretaries.
The present volume of claims resulting from city
vehicle accidents (approximately 150 per year) could be handled
by the claims adjuster with no assistance if they were evenly
spaced. It is reasonably anticipated, however, that there will
be times when a number of claims will arise all at once.. In such
an instance, the claims adjuster, if necessary, will make use of
the services of a private adjusting firm so that the claims can
be expeditiously handled.
Thus, the administrative costs appear to be projected
as follows:
1- Assistant City Attorney
1- Claims supervisor --
1- Secretary for attorney 9,000.00
1- Secretary for Claims Adjuster 8,000.00
Total Salaries $ 51,800.00
fringe benefits 25% 12,950.00
TOTAL $ 64,750.00
Operation cost of two
vehicles (estimated) 3,000.00
Telephones (estimated) 300.00
Cost of private adjusting
firm (estimated)
Cost of 4 desks and 2 typewriters
(one time cost)
$ 17,800.00
17,000.00
1,200.00
2,500.00
titt 6f-- fAiAlAii til5PittiA
iNtEA-b#Pidt VittAtiffA4O`LI4
td tiorydrable Members ot bob June 26, 1g7S
the City Cottittioft
page 6
bUtiittt:
REPEFIENCES:
te4CLagURS:
*COSto payment of claims and judgments
Litigatiod costs (estimated)
Cost of umbrella and cumulative
coverage (unabletO estimate) -
soncts, or $ELr,tINSURANCS.REVniUtt
At the inception of the program, the self-insurance and
insurance fund which can be used will generally consist of the -
following:
$277,776.00
3,500.00
Vehicle Insurance Premium (1 $500,000.00
hurricane disaster fund 500,000.00
Reimbursement, damage to City Vehicle315,000.00
TOTAL $1,015,000.00
METHOD OF HANDLING CLAIMS:
Please note that the ordinance provides that the law
department is to be responsible for handling the claims. '• There.
are several reasons for this as follows:
1. The Charter of The City of Miami provides that the.
investigation of claims is the duty of the city attorney.
2. The city attorney has been and is currently handling
the claims against the city.
* Uote: This cost is based upon statistics for the past
two years as furnished by our present carrier_ This cost is expected
to increase because of the following factors: (1) increasing size
of judgments; (2). More judgments in favor of plaintiffs because
the defense of contributory negligence is no longer available. The
rule of comparative negligence now applies.
eery ,oP 'fntAgh, t•LtiAibA
t ;=o tAtMORANIO
The 10 orable Mefbet§
the -''? ty CO:rtittibri
Pa e 7
liars.
€E'ERENcts:
•
thtcLO5U9e5:
June
e
3. All claims involve a legal determination of
re po sibility. The most expeditious Method of handling claims.
.determining responsibility, evaluating claims, and defending the
city .hen necessary against claims is to have all the facets
involved coordinated under the control of the law department.
Indeed, under any system of claim handling, the claim
must eventually be referred to the law department.
In the handling of claims, however, the law department
will maintain only the records which are directly connected with
the investigation, adjusting, settling, and defending of the
claims. " Other necessary records will be maintained by the self-
insurance committee.
Basically, the law department files will include investi-
gation files and litigation files. When a claim is not settled
before litigation and litigation is commenced, the investigation
file becomes a part of the litigation file. From the beginning
the claims adjuster will work directly with the attorney who will
handle the litigation and who will give legal assistance to the
claims adjuster, as well as handling the litigation. Teamwork
between the attorney and the claims adjuster at all stages is
an essential part of successful claim handling.
In actuality, the present claims procedure of the law
department is to be expanded and modified to meet the new challenge
presented by the self-insurance program
It is planned that the former chief claims adjuster for.
State Farm Insurance Company will join the law department on a
contract basis on Monday, June 30, 1975, to work with the law
department, the police department and the insurance division of
the finance department to establish procedures for the effective
.handling of claims. If the self --insurance ordinance is passed
by the City Commission on July 17, 1975, he will continue as
w
bi '1 b ' In I A91 I ftOgIti,t
1 t 14-b Fit t 1 t946t4At4tbt
The Honorable ''het bets 'bt
the City 'Co.";nitsibr`1
Page ;s
Chief Claitts Adjuster
In his preliminary analysis Of claim procedures* the
Chief Claims Adjuster will,review the police department accidett•
reporting system, the present claims procedures of the law'
department, and will prepare necessary plats for claim procedure.
He will attempt to streamline the accident review and reporting
procedures now being used
bare
SUBJECT:
•3une 2 . 1915
REV EREINICE3:
ENCLOSUR §:
i.t
OTHER PLANS TO PROMOTE SIICOESSFUL
OPERATION 0=' VEtiICt3LAR SELF-INSURANCE PROM *
Accomplishment of the following three objectives is
vital if there is to be any saving as a result of a venture by the
city into a self-insurance program:
1. Reduce the number of vehicular accidents and
minimize the serious accidents.
reduce
•
2. Expedite the handling of claims to minimize payments_
3. Aggressively and efficiently conduct litigation
the amounts of judgments aginst the city_
Objectives numbered two and three have already been
discussed.
The self-insurance program, however, will be nothing more than
a costly exercise in futility unless a successful campaign is
waged by every department in the city to reduce the number of
accidents. Drivers of city vehicles who have several accidents
for which they were at fault must no longer be permitted to drive
city vehicles_ The City has a safety director whose recommendations
must be given serious consideration and implemented There must
be some type of a safety program initiated.
posn titht 45E :IMANiitRtt
1NtE#44tIP.4ttM.MbANtiUM
The Monotale MeMberg bE
the City CoMtitsiOn
Page
bAtt:
U.JECT:
June 2t, i97 .ftLt
s
ftEPERSSICat:
tNcLostiOrES:
To this end,* the following has been sUggestedt
When a safety recommendatiOn is Made to a departmental
director by the safety dir'ector, the departmental director must
implement the recommendation within 30 days or present his reasons
in writing to the City Manager why he did not implement the
recommendation. If the manager is not satisfied with the reasons
given for the failure to implement the safety directive, he shall
order the department director to implement it.
The present accident review board should be abolished.
The essence of- the above suggestions are further set
forth and amplified in a document prepared after numerous meetings
of an Accident Review Task Force committee appointed by the city
manager. The document is entitled "Vehicular Loss control Program"
and is presently in the hands of the city. manager.
The importance of a safety program is illustrated by the
fact that there have been several serious accidentsknown to the
law department that have been caused by repeaters. Investigation
will undoubtedly reveal others.
CONCLUSION
A program of self-insurance is not a panacea for the
high insurance premium ills of the city.
Unless the entire program is efficiently administered
with the claims and litigation being efficiently handled, and unless
the vehicular accident rate is reduced, the program will end up
costing more than the program of insurance it is ultimately
designed to replace.
JSL/mc
ORDINANCE &`o,
A_i •OP,DINANCE CREATt TG THE CITY- OF MIAMI SELF-
=SUR NcE AND INsURA1 E TRUST ?tfl PROVIDING
FOR THE APPROPRIATION AND ACCUMt3'LAATIoN OF FUNDS
APPROPRIATING SUCH PUNDS POR THE PURPOSES DESIG-
NATED: PROVIDING FOR Tag APE?OINTMENT OF A DOA
O ` TRUSTEES,' SPECIPYING THE•DUTIES, POWERS AN
AtvI IORI Tom` OPT TRUSTEES: STATING 'THE INTENTION
N
POR THE SELP-IiNSURANtE AND INSURANCE PROGRAM
TO OPERATE AND PUtCTION INA MANNER SIMILAR TO A
COMMERCIAL INSURANCE COMPANY: PROVIDING FOR !L XB'
APPOZN 'MEAT OF' Tii`E CITY OF MIAMI SEW -INSURANCE
AND NSURE E COMMITTEE TO ADMINISTER THE PRO-
GRAM: PROVIDING POR THE DUTIES, AUTtt0RITY AND
REspONSItILITY OF THE COMMITTEE: PROVIDING ?OR
TH E CITY ATTORNEY TO PROVIDE ALL LEGAL SVICES
REQuiRED TO ACCOMPLISH THE PURPOSES OF Tag
PROGRAM PROVSDIN'G AUTHORITY FOR THE SETTLEMENT
OF CLAIMS NOT EXCEEDING OWE THOUSAND DOLLARS BY
THE CITY ATTORNEY OR HIS DESIGNEE AND FOR THE
SETTLEMENT OF CLAIMS IN EXCESS OF ONE THOUSAND
DOLLARS UPON THE APPROVAL OF THE CITY COMMISSION
REPEALING ALL ORDINANCES OR PARTS OF ORDINANCES
IN CONFLICT EEREaITH; PROVIDING SEVER.ABILITY;
AID PROVIDING AN EFFECTIVE DATE_
to: 1-lonoral le Members of
The City Cttnitnissi ti
Wi .At drews
City Vlatls.ger
JUN 1 I: 197$
SUsiECt. 8elf.1
htrERENCES:
l fi1CLOSURES:
tt re.nee
gram
On October 3, 1972, the electorate of the City of Miami approved a
Charter Arnendrnent to create a Self&Insurance and Insurance Trust
runcd. The proposed ordinance is to implement the Charter Amend-
ment and establish administrative methods and procedures;
At the present time, premiums paid to buy insurance for liability,
property and special types of coverages are approxitnatelyr $997, 210
annually. As the City is faced with the ever upward spiraling of in-
surance costs under our present system of buying insurance, alternative
methods must be sought to combat this problem. The Self -Insurance
Program is one such alternative.
Under the new proposal, a Self -Insurance Trust Fund will be established
and will be funded as follows:
1. Hurricane Disaster Fund
2. Judgment Loss Liability Fund
. Budgeted Insurance Premiums
• Income from sale of insurance
5. Income from investments
6. Recovery of physical damage claims against others
7. Fines and assessments levied against employees
The initial step of the program is for the City to self -insure its vehicles,
including road operated trucks and automobiles. The money set up
in the Trust Fund will be used to satisfy claims after it has been deter-
rrned the City is the party at fault. To this end, an attorney and a
•
a
Honorable Members of
The 'City Cotntriissibti
claims supervisor will be hired and salaries paid from the kund, to
administer the claims aspects Outside appraisal and adjusting 'service
would be engaged to implement t this program In order to protect the
City against catastrophic losses, insurance will be purchased in the
following manner
rot any one loss that exceeds $50, 000, insurance will be
purchased above that amount. in any 1 z-month period,
if total losses exceed $200, 000, insurance will be pur-
chased above that amount.
The catastrophic insurance would be paid from the fund but the cost to
the City will be less than present, as the City is self insuring for the
first layer of risk.
The remaining property liability and other special types of insurance
would remain as they are, paid from the fund, until the individual
policies expire. At that time, a decision would be made to renew that
particular policy or assume the risk under the City's Self -Insurance
Program.
The estimated expenditures for the first full year of operation are as
follows:
Insurance Premiums
Paid Claims
Claims Service & Asministration Costs
Salaries and Expenses
$500, 000
200, 000
50, 000
50, 000
$800, 000
Based on the data furnished, there should be a savings for the City at the
end of the first year of operation which, ultimately, should reduce operat-
ing costs for the next fiscal year.
Past experience shows that this premium cost would continue to increase
if the City retained its present policy of purchasing insurance.
cc: Honorable Members of
The City Commission