Loading...
HomeMy WebLinkAboutAgenda Report - March 5, 1986 (88)CITY COUNCIL Ma-7TRIG - - "MARCH 5; 1986 SU'PPORRP OF FAIR RESPONSIBILITY ACT OF 1986 Council adopted Resolution No. 86-36 cxL re ssi, g suj jx2rt for the Fair RespUnsi.bility Act of 1986. I2ES.86-36 CC -28 r� 'r UNCIL C01TAIUNICATIO- TO: THE CITY COUNCIL FROM: THE CITY MANAGER'S OFFICE SUBJECT: SUPPORT OF FAIR RESPONSIBILITY ACT OF 1986 RECOMMENDED ACTION: That the City Council adopt Resolution No. expressing support for the Fair Responsibility-octA f 1986. BACKGROUND INFORMATION: This resolution urges support of that ballot measure in the June 3 election that addresses the "deep pocket" doctrine. It will appear as Proposition 51. The City Council has expressed its support of such action in the past. The City Council has been asked by a citizens' group backing the initiative, Taxpayers for Fair Responsibility, to adopt the attached resolution (Exhibit A). Respectfully sukmitted, Thcmas A. Peterson City Manager TAP/1h DATE NO. February 27, 1986 Exitibl.'i A RESOLUTION WHEREAS, the state of California faces a crisis inflicting financial havoc on our state and local governments, public schools, private business and non-profit organizations; and WHEREAS, this crisis is the unaffordability and unavailability of liability insurance; and WHEREAS, the crisis.,is largely the result of the unfair "deep pocket" doctrine under which defendants can be held responsible for 1008 of damages in multiple -party personal injury actions even if the defendant is found to be as little as one percent at fault; and WHEREAS, this doctrine unfairly costs California cities and counties, public entities, businesses and professionals hundreds of millions of dollars in court judgments and settlements, legal expenses, and increased insurance costs; and WHEREAS, California taxpayers and consumers ultimately bear these costs in their taxes and through increased prices for goods, services and insurance; and WHEREAS, these costs have resulted in the reduction of vital government services to the people of California, including the grounding of police, fire and emergency vehicles, park and library closings, limitation of activities in public schools, and disruptions of public transportation, which imperils the safety, health and welfare of our citizens; and WHEREAS, at least 43 California cities are now uninsured and hundreds will be by July.of this year; and WHEREAS, the Fair Responsibility Act of 1986 is an initiative measure that will give California voters an opportunity to reform the inequities of the "deep pocket" doctrine by holding liability lawsuit defendants financially liable in closer proportion to their actual degree of fault; and ---more-- WHEREAS, the County Supervisors Association of California, League of California Cities, California School Boards Association, California Chamber of Commerce, California Taxpayers Association, California State Parent- Teacher Association, California Manufacturers Association, National Federation of Independent Business, California District Attorneys Association, Association for California Tort Reform, California Police Chiefs Association, California Farm Bureau Federation, Consumer Alert, California State Sheriffs= Association, California Dental Association, California Peace Officers Association, California Restaurant Association, California'Medical Association, Association of California Water Agencies, Agricultural Council of California, California Hospital Association, California Association of Resource Conservation Districts, California Trucking Association, California Defense Council, California Association of Publicly -Owned Transit Systems, California Association of 4WD Clubs, numerous engineer and insurance associations, several non-profit and social organizations that are having difficulty finding insurance, and other groups Lave endorsed the Fair Responsibility Act of 1986= now, therefore be it RESOLVED that the endorses the Fair Responsibility Act initiative and urges its support and passage to relieve the financial strain the "deep pocket" law imposes on public entities, the private sector, and taxpayers and consumers. READ AND ADOPTED at , California, on this day of , 1986, by Signed: CITY COUNCIL_�_. DAVID M. HINCHMAN, Mayor CITY [ ^ e �-{ T ®DI FRED M.REID v 1 1/ Mayor Pro Tempore CITY HALL, 221 WEST PINE STREET EVELYN M. OLSON CALL BOX 3006 JAMES W. PINKERION, Jr. LODI, CALIFORNIA 95241-1910 JOHN R. (Randy) SNIDER (209) 334-5634 March 6, 1986 THOMAS A. PETERSON C oty Manager ALICE M. REINiCHE City Clerk RONALD M STEIN City Attorney Tom Conn Taxpayers for Fair Responsibility 111 Anza Boulevard, Suite 406 Burlingame, CA 94010 Dear Mr. Conn: Enclosed please find Resolution No. 86-36 - "Resolution of the Lodi City Council Expressing Support for the Fair Responsibility Act of 1986", which was adopted by the Lodi City Council at its regular meeting of March 5, 1986. Should you have any questions, please do not hesitate to call this office. Very truly y",urs, &�& )� &xe& Alice M. Reimche City Clerk AMR: jj TAXPAYERS for _ FAIR RESPONSIBILITY C 'xinty $uporvtsors Association of Calitcrnt,, Leayuc, of CaLfomlt .- f Cartier California Chamtx•: J of Commerce California Taxpay<ss Association California Manufacturer, Assf V ✓t O' U Association for Calorua Tort Rstorrn C California Medical Association , ld ! V � C (xj t� , S 6 e) f9 n LIS CaGfcrnia Hospdai �• J/J ! � 1. Association Association of California r (jou /1 y I� Council Q U n �,' / Mee e Insurance Companies 1 /4I t/. , Alliance of American Insurers �% �• � ! h e ^ 6 t ! y, ^ �/U f (Partial Listing) �'t / iT'V /. I (� e John H. Hodgson Il, Treasurer ! j1 Soon J.D. #e5oa27 enc lase c-1 arc 6,0C/0, Se�— C'� e Could P6sS floc '4Sv vI �r'v J fl`� £ cduncl'I a,R c.Jc //. A 4n k I ov w► co A � I JAS! 17 X86 lu TA n r" Pi S if or _. FAIR RESPONSIBILITY .....^r.a x•�:e•..... _ .,.. .... amu-.. -re. �,ai: o....a wa.�J • :.-ii.., _ 4U ., �� CCUnty 5uce:^::scrs Asscc:auon ci California League of California C:t!.es HELP SEW U M "DEEP POCKETS" Cudorma Chdrnber of Commerce Caiifor.-ua Taxpayers Association We are facing a crisis in California; a crisis that California Manufac-urers is inflicting financial havoc on our state and local Association governments, public school systems and private Association for California Tort Reform businesses -- and costing taxpayers and consumers Caiiforrud Medical untold millions of dollars. Association California Hospital The crisis: the unaffordability and unavailability Association Association of California of liability insurance. Insurance Comtxnies Alliance of A major contributing source: "deep pocket" lawsuits. American Insurers Present law allows a plaintiff to recover 100% of a (Partial Listing) damage award from a co-defendant who is only 1% at fault in personal injury suits if other co - John H.HodgsonH. defendants .-re unable to pay. Treaswer I.D. #850827 This is unfair to cities, to counties, to school boards, to businesses and professionals. It is unfair to the taxpayer and consumer. Why is this law in existence? Prior to 1975, a plaintiff found even partially at fault for his own injuries could not collect for any damages. A court ruling later determined that in personal injury cases involving more than one defendant, each defendant was responsible for economic damages (medical costs, lost earnings, etc.) and non- economic damages (mental suffering,etc.) in direct proportion to their respective degrees of fault. In 1978, the California Supreme Court ruled that defendants with substantial assets or insurance (that is, wi•-h "deep pockets") could be forced to pay 100% of all damages, even if they were found only 11 at fault in instances where other defendants lacked funds. This is known as the doctrine of joint and several liability and it remains in effect. The law tempts the plaintiff (or his attorney) to go where the money is, not just where the fault lies. Not surprisingly, the practical application of this doctrine has increasingly been to name governmental entities and businesses as co-defendants in cases where they are only peripherally involved but might be found slightly at fault. Without the lure of their "deep pockets," they would not have becone defendants.. Some examples: In So. California, - r ler pulled onto what he thought was the shoulder of the Vey _ira Freeway and raised the hood of his car. Hoi:ever, there was no shoulder there; he had stopped in the right-hand lane of traffic. A drunk driver traveling about 60 mph crasaad into his car, leaving him permanently disabled. The victim sued the drunk driver, the restau.:ant in which she had been drinking and the State of California. His claim against the State: there should have been it sign warning drivers there was no shoulder at that point. He collected $8.2 million. In Irvine, a blind college student with a guide dog crossed the street cn a green light. A car jumped the light, injured the student and killed the dog. The victim sued both the driver and the city. Claim against the city: the intersection should have had "walk" lights. (The dog, however, was trained to go on green.) The driver paid $100,000. The city entered a structured settlement for $1.7 million. It is obviously not difficult to prove that a "deep pocket" is at least 1% a4 fault. A League of California Cities survey showed that 163 cities paid out more than $20 million in "deep pocket" judgments in 1983-84 -- up from $5 million in 1981-82. City officials estimaL, they face a combined potential e:tposure of more than $210 million in the next two years. Since it has become common practice to include the State Department of Transportation in nearly all litigation involving accidents on state highways, the number of personal injury cases filed against Caltrans jumped from 27 in 1973 to 512*1ast year. That is a 440% increase in financial claims -- from $230 million to more than one billion. Who bears the cost of these settlements and judgments? Make no mistake -- the "deep pocket" is 4= pocket. Taxpayers pay in the'form of high taxes and drastically reduced governmental services. "Deep pocket" settlements and the increased risk assigned to governmental entities as a result of the 1973 ruling have helped send liability insurance premiums higher and higher. Cities and counties are finding commercial liability insurance either unaffordable or unavailable. Nore than 30 cities have no liability insurance whatever and more than a dozen others are inadequately insured. The list is expected to grow as policies come up for renewal. As a result, services have been affected dramatically. Some police and fire vehicles have been grounded; public schools have been forced to curtail activities; garbage collections have been stalled; public buses hava been halted. Even a -2- municipal government or school 3istr ct yuc,_ elou-a �o ab;?_ty iiISU a:, e _.... t -1 r,?r 'O1._ ^miner SerV1Ce� to pay for the huge preMLu :s. Cons:mers pay it the fort of high orices fog ..cells an .t ser and higher premiums for our own insurance. ' ivat,:� --usiil?_SSc� and the professionals ;,ho serve us must pass ^.eir increased insurance costs on to the consumers. Clearly, the problem can only get worse. The solution? Reform the "deep pocket" law. Efforts to achieve this have been fruitless in the Legislature over a period of years. Four tines a reform bill was approved by tae Senate only to ale in the Assembly Judiciary Committee uncier t::e extre.me lobbying pressures of the California Trial La-ryers .'association. (The California Trial Lawyers Association, incidentally, gave more money, by far, to legislators' caMpaign funds in 1985 than anv other organization in California.) Frustrated by the stacked deck in the Assembly and smarting from the increasing number of "deep pocket" lawsuits, with the resulting increased cost and reduced availability of liability insurance, local government, business and professional organizations joined forces to take their case for fairness directly to the people of California. They formed a coalition to put the Fair $espon•aibility gg_t 4f 123A on the ballot -- an initiative virtually identical to 5375 by Senator John F. Foran -- the ill-fated legislative reform bill. Included among the supporters: the County Supervisors Association of California, League of California Cities, California Chamber of Commerce, California Taxpayers Association, California 'Medical Association, California Aanufacturers Association, California School Boards Association, Association for California Tort Reform, California Police Chiefs Association, California Peace Officers Association, California Farm Bureau, and numerous insurance industry groups. T►:e initiative mould not alter present law as it applies to economic damages. With regard to the huge non -economic awards (for such things as emotional distress and the like), the initiative would restore the notion of -payment in direct proportion to one's degree of responsibility. If a co- defendant is found 10% at fault for an accident, that party would pay 10% -- no more and no less -- of the total non- economic award. This is a measure that is based on common sense and down-to- earth fairness. There is no superfund in the sky from which multi-million dollar awards are paid. The money comes from our pockets. The time to act is now. Help us sew up the deep pockets. _J_ RESOLUTION WHEREAS, the present joint and several liability law, also known as the "Deep Pocket Doctrine", has unfairly cost the cities of California millions of.dollars in court judgments, settlements, legal costs, skyrock- eting insurance premiums and difficulty in obtaining adequate liability insurance coverage; and WHEREAS, this same doctrine has also cost other governmental bodies, business firms and professionals many millions of dollars; and WHEREAS, ultimately this cost is unfairly borne by the taxpayers and consumers of California; and - . WHEREAS, many cities, other governmental bodies, business firms and professionals are selected as defendants in lawsuits merely because of their perceived assets or -insurance and often are found only fractionally at fault but must pay most or all of the judgment because the defendants most at fault cannot pay; and WHEREAS, the cost of this is unfairly borne by the taxpayers and consumers of California; and WHEREAS, the "Fair Responsibility Act of 1986" is an initiative measure that would give the voters of California an opportunity to reform the inequities and injustices of the "Deep Pocket Doctrine" by holding liability lawsuit defendants financially lidbie in closer proportion to their degree of fault; now, therefore be it RESOLVED that the City Council of the City of endorse the "Fa`:r Responsibility Act of 1986" and urge its support and passage to relieve the financial strain imposed on local government and its taxpayers. READ AND ADOPTED at California, on this day of , 198 _, by a majority vote of the duly elected nembers of said City Council. Signed: __ (Print or type name) (Office or Title) Pnone: t ) Whv Cities Can't Get Liability Insurance by D. Michael Enfield B y now. virtually everyone is aware of the desperate condition of California's cities and counties in the area of insurance protection. As of July of this year. a great many of the cities and counties in the state have been uninsured beyond a small primary limit of liability. Of those that are "bare.- the lucky ones are those which have elected not to pay the exorbitant premiums nec- essary to purchase excess coverage lay- ers. The unfortunate municipalities simply have been unable to find excess coverage at any price. And. many more California cities and counties will find themselves uninsurable by 1987. The in- evitable question therefore must be asked: Why? What happened? Although magicians are not supposed to divulge the secrets of their craft, l will admit it is a fairly easy thing, to predict the recurring collapses of the public en- tity liability insurance market, even be- yond the ability to predict the inevitable cycles of the overall insurance market. The insurance industry is dramati- cally susceptible to the laws of supply This is conventional wisdom and it is impairment liability insurance, as well and demand. When the supply of capital wideh understood. Less obvious, espc- as identifiable buying groups. such as in the industry is high, as it has been for cially to those not actively involved in pharmaceutical companies or public en many years up until now, there i• vir- the insurance industry, is the impact of titles. When significant amounts of new• tually nothing — such as the cost of raw these shifts in supply and demand upon capital enter the insurance market, typ- materials in the manufacturing industry certain classes of risk. By classes of risk ically through the less regulated reinsur. a — to resist the inexorable movement to- I mean both tq•pes of coverage, such as ance sector, this new capital must find ward broad coverages and low prices. earthquake insurance or environmental some way of attracting a share of the Whcn the supply of capital is limited rel- market away from the established alive to the demand, as it is today. there !D. Michael Egficld i% Afwtayttiv Dt- sources of insurance, which busers al- is nothing k► impede the cro%ion of cov- rector 4Mar.%h and Ah-Clenrian in San ways find n►ore secure, and therefore crages and the explosion of premium Franc more attracti%c. costs. Icontinuett on page it tiewernOt"Mn e- tbe►l9RS t Why Cities Can't Get insurance (cu►rri►rued from page 31 It is no secret that the only ways to quickly attract such a market share arc I,% offering types of coverage riot gen- crafty available from the established insurance markets. or by offering customary insurance coverages to buy- ing groups not particularly welt served by the conventional marketplace. Con- vcrsely. when the supply of capita( in the marketplace suddenly and dramatically contracts. as it has over the past year. the remaining sources of insurance covc•agc need not offer anything but the most prosaic forms of coverage to the least hazardous risk groups to meet their underwriting budgets. Accordingly. in times of an excess suppiv of capital. insurance companies are dt iven by the search for market share even at the risk they might also he driven out of business. Not to seek that market -hare by offering favorable terms cer- tainly would drive these companies out of business for lack of am customers at all. The airline industry- tends to exhibit some of the same curious behavior pat- terns in search of market .hare. For ex- ample, although it may crust SM) to fly someone from Coast tU coast. Once a new player enters the picture in the Glrm of a new airline ora new route. that new player may immediately offer to flu •omrone coast tocco%t forSIM). thereby losing 52tM1 per passenger. simph to oh - fair a market sbarc. Then, the other air - lit! s immediately will tact over one another in an eftbrt to match these ab- surd fares. Thts supgest% a cynical par- allel between the airline ani mwrance industries: it %ou think there i% such a thing a. a tealh rtNKt airline. you simph haven't tlown otten enough. and It %ou think there Is ar in%utanee company that Is indepenJent tit the supply anti demand you smiph ha%rn't been hu%tne insurariee hint( ant/ugh he&%aslationofthe property and t t.uatt% Insurance nl,irketplare h.•g.ln in the spring• of 14N.I. as rn.tior insurame.ompantes he_an io ne- cohate the renc%%al o) their remsur me tae -lues e%ptrtne on July I ut 111.11 %ear Such treaties ate the method h% %%ht%h iiislitanee eompallie...Ia% tilt"- a nh reinsurance undcmtiter,. %ucahle p„r- iwn% of the rtsk they hays assumed h% pno%idni_ Lire Itntit% of h,thilil% under a strn_le ptthr% The mcr%%helmim• the pmt\ of sut:h rein,uranee tre.nic• c%pirc annually on %itho the Iirsl of July of the first of January. And so. on July 1, 1984, the industry witnessed the first significant tightening of reinsurance treaties in h:,tf a dozen years. Since then, on January I and July I of this year, virtually every ►einsurance treaty in existence has been sc%erely re- stricted. and many have simply ceased to exist. Accordingly. insurance com- panics which had previously provided five and ten million dollars of coverage. or more. for a single insured are now able to provide limits of only 5500,000 or S1.000.000. Thus, to obtain S10 million coverage in 1985. as many as six or seven insut- This logically absurd doctrine amounts to nothing less than a social redistribution of wealth, and the nation's insurance underwriters no longer are prepared to support such madness. ante companies must be organized to in- sure the risk which might have been pro%ided by a single insurance_ company in 1994. Unfortunately. those risk classes or buying groups which have neer been able to attract the rank and file of the insuring companies in the country to the negotiating table. simply .kind up he Ing inadeyuate1% insured or perhaps not in- %ured at all. In Calitarnia. the class of risk always tJc%aslatrJ b% such a market turn I4 carthyuakc insurance. anJ the hu%ing group frequently abandoned by the insuring communes. ►s the public sector There are a number of reasons mita insurance comp-Inio. w ill not oiler terms for public igenete• unless they ha%e It%. that I. unless the nerd her market share drt%e• thein to oltet terns, to buyers they otherwise would not %%i%h its h%'-1•.,,'1- mcd %%ith 1-irst. the buying h,ihits of 1%uhhe Jectl ccs seem art.inc and %„un- icrprodutlt%c to mo.l untletUrlle1% In addition. when ncgultatin,• %kith the tisk mana_er% tot these public minis%. the under%kritcrs know they ,ire not dealut_ %k iih the ufuniate Jc own makers The ele.tcd _o%crnin_ t -.,d% 01 each public t•nnty maintains that po%tet. and the hi hh. ihar_iJ polill-1 atnit,sphcre in which insurance contracts are aw3rded to competing brokers and agents is well known to underwriters. And. there is the matter of the hide:; -.g process it.elf, a system which is reviled by almost every insurance underwriter in the country. Beyond all of this, there is the highly negative risk profile of Cal- ifornia cities and countries. Because of the road maintenance rc.pon.ihitiues of these turisdiction.. underw titer% behc%e there Is a vast uncontrolled - - and un. controllable.— public exposure. By far the most insidious factor. how- ever. is the "joint and several liability" or "deep packet" phenomenon to Cali- fornia. This i. the law by which a city or county can be assessed 1(10 percent of the liability for damage or injury. ever though their actual shay: of the negli- gence may have been a ft tetion of a per- cent. in any situation inhere the plaintiff in a legal action is unable to recover awarded damages from the primas tort- feasor. Under this "joint and several" doctrine. a city or county may be asked to stand a 53.000.000 judgment against an uninsured drunk driver simply be. cause of a minor. but definable. imper. fection in the roadbed. Thi% logically absurd doctrine amounts to nothing less than a -4wial re- distribution of wealth. and the nation's insurance underwriters no longer are prepared to support such madness. Thus. as more and more cities and counties are forced its self -insure vast amounts of public liability, thee -"joint and several it- abiiity" doctrine becomes nothing les% then a gun trained at the heads of the state's taypayers. As long as the etlst of this misguided doctrine is horn by the %lockholJers of the casualty insurance companies in the United State..-tyritticint public support hor letaslattw reform is unlikely. But as uninsured mum:ipaliuc• begin at turn to the electorate. through increased tares. It+ pa% for the massi%c uninsured judo n nt% returned i-a-ainst thein in these "point and k %oral hahtlity •' lay%suits. the . public %sill begin its Jenland legiaju%e' TO t�rrm ut %that ahout the tnsur.tnre mar- ltetpta%c n•ell' \.hen %%ill sIL nili..int announts of .apital tcttitn t,, the, mi,titan.e nlarkel' Thoc .Int' Ili, tle.lT iII the first hilt it this deCadc the supply to reinsuran:c Capital. J%.l tunown of the risk demand. %%.ts intlateJ far he%ond am le%cl pre%i- ou.h known to this ct•ntury- There were a nunlht•r of reason% tar this. The alter- tt n►t7: Rtrt 4>•r4t fh/fit' �►11 Why Cities Can't Get Insurance In the late 70's, the prime rate began surance gone, but the dechniny, tronrnueed frame ruse 31 an inexorable and not partrcularlt .k>w and policy -holders %urplus „t th; rise to 21 percent. At that rate of return. American property and natise form, of investment with which a casualty insurance compan, could %ir. ince companies in 14N-4 ha, t,, the insurance industry had to compete in tuaIN double it%onemat mvesln,.nt welt duced by almost SS billion J•.:;_: order to attract investment capital were before it would c,6er he required to ac- primarily as a result of ad.rrsc %ery unattracii.e when the "soft" insur- tuslly make loss pa%ments in most sig- penence. And since the A jtchJ,, ,,,t th, ance market be an in the late scvci:nes nitic•ant case,. So the rush was on. and insurance industry ctfectt.rl. PtL.%,,,t The Dow, Jones Average, for example. by the early 80's there was an unprece- any insurance company from ah,orhin_ stood at a levet some 600 points lower dented glut of insurance capital in the premium, in any given calendar •rat..,i than it is today- market This resulted in an abundant a rate of more than ahout tw„ an.l But the most significant attraction of supply of inexpensive earthquake insur- half times the combined asset. ,,n.r the insurance market as a suitable place ance in California, as well as in an plus of the compar», that S5 hi:' for investment was its unique ability to unprecedented number of insurance duction in surplus effectr.el% r,, quickly raise large multiples of invested companies prepared to offer liability to the amount of premium that could sums for purposes of reinvestment to vat- California public entities. sorbed by all companies in I yr; h% pct ious money markets. But now, not only is the abundant rein- haps as much as St_'.S billion dollars At the same time, gt,en the tact that price increases have most recemh begun Case History- to border on the astronomical, far less risk can be insured.for each premium dollar. As a consequence, a treat deal of insured property and casuals. risk i• al it 1984 necessarily must lir uninsured in i 1985, In some cases, this is a,hieved bN simply providing dramatically lower s ;.M o13 limits of liability to major buyers of Tranisprtatmolm insurance. t - Fot instance. it has not been unusual 't �: + .: to find 5100 million dollar programs re - 1 , newing for limits of as little as SIO mil lion. in addition. certain types , insurance have been mosing towar,t complete extinction. Among the cover- s!_gages which are now scarce, if available at all, are environmental impairment h- _ ability insurance, directors and officers liability insurance, public officials lia- bility insurance. and an% kind of proles r sional errors and omissta s n. insurance .._ T Beyond all of this, there is - profile 'of California cities ,and counties. Because of �,�the road maintenance FF, responsibilities of these . Jurisdictions, underwriters rEfficient Traffic Signal believe, there is a vast California• • Management• uncontrolled — and in travel time arinuaily uncontrollable —public ��-,> aboutFor further information . -capabilities.exposure. contact'the Manager of any of .. • Services staff it (714) 774 i -lav' o� G i�••' Awa go Rev gc's 1 O • on-site service representatives -Toll-free service ones •Ouartedy participant reports and quarterly newsletters • Personalized retirement planning • Widest range of payment options • No early withdrawal or rollover penalties to contact the Service Representative nearest you call. ICMA RETIREMENT CORPORATION California 800.772-4075 Other Western States SM -227-0938 Some insurance companies began to ra- providing liability insurance in the pub - lion their remaining premium absorption - fic sector. Virtually ail of the other com- capacities as early as February, in antic- panics have disappeared, with the ipation of being unable to provide re- exception of the Planet Insurance Com- newal terms to tong -time clients. Some pany, a relative newcomer to the public insurance companies have ceased writ- entity liability arena during the period of ing xny additional business at all for the the soft market. rest of 1985. There are growing fears But, neither of these companies can that very little insurance will be available provide the large limits of liability de - in the last quarter of this. year, forcing sired by the public agencies in Califor- many otherwise insurable risks to go un- nia. Beyond a SI million primary layer. protected until January 1. 1986. when essentially no market for liability cov- all of the property and casualty incur- erage remains for cities and counties to ance companies will have new premium California at present. budgets available. It is almost impossible to suggest w hat will happen next. Obviously. January 1. u 1986, will bring a new premium budget. and possibly some temporary increase in Fu; • hermore, unless there capacity for public entities. It is doubtful '-} is legislature reform of the there will be much increased capacity for cities and counties. however. because of `Joint and several liability' their miserable risk profile. And what- - prublem, it is quite possible ever capacity there is may be quickly eroded in 1986. just as it has been in conditions never will 1985. Given the current interest rates 1 improve for California prevailing in the United States it seems unlikely that vast amounts of additionsl cities and counties. capital are going to be attracted to the insurance marketplace. In older for there to be a significant increase in the Nath American property and casualty insurance market capacity-., Given all of this. the simple reality is it would seem that surplus must be in- - ' that, as of July 1, most insurance com- creased in the only other way possible. panics became convinced they easily 'through favorable underwriting results. -- could exhaust their retraining premium Unfortunately, even if the 1985 premi- budgets: even if they only offered incur• ums result in an underwriting profit, the x ance to shoe stores. As a consequence. results of that favorable lossratio will not any risk greater than that of a shoe store significantly impact the nationwide `} is,comparatively less likely to find in- underwriting capacity until 1987. surance available for the balance of this ' Therefore, it seems unlikely there will year. And'at the top of the list of rela- be any significant improvement in the'. tively"unattractive risks are the cities and desperate condition of the public risk counties of California, sector for at least 18 months. Further- Thesituation has become a desperate more, unless mere is legislative reform tine indeed. In 1993 there were as many of the "joint and several-liahility' Prob- as :O insurance companies which. indi- . lem, it is quite possible condition% never idualh; might have been able to offer will improve far Cali1'utnia cities and lwbilit% insurance to a city or county in , counties. C.rlifurnra in amounts of S5.00t).OIKi. Finally, it should be noted that in dif- Stq;t1t10.O(Kl or more. As of July t. - ficuh times such a these. the Iru%tra- _" lylti,"t u hrndful of companies will lions in the public sector inevitably give, ;-provide any oo►sct.+geai all. and clone if . rise to demands lir a legislative olution them can e(fectiveh provide more then in clic firmuI guvctnmental in%ohement Is I .000JR10 in limits for any angle in the insurance business. This, of put/lic entity. - tiuld mply hr an attetrpl tti course. wA In order to guarantee a source of in- deal with the ymptont, set the disease Durance lir their renewing customer%. rather than the disease tt%ell By Ittoking leg• the l ading liability insurer kr public lir way% to pass the burden of our agencies in Califivnia. the Transconti- Wative indulgence onto the hacks of Cal- nentaol -Insurance Company. decided ifurnia% taxpayers, rather than seeking `,shortly after the fir%tof chi% year to pro- genuine relirm of the disgraceful -deep vide insurance only for their renewing pocket" phenomenon in this state; we Atte, ser o sunlit.. But at least Transcon- are leaving a %oiled diaper on the baby t►n.ntal has remained to the business of and simply changing the safety pin ■ -lav' o� G i�••' Awa go Rev gc's 1 O • on-site service representatives -Toll-free service ones •Ouartedy participant reports and quarterly newsletters • Personalized retirement planning • Widest range of payment options • No early withdrawal or rollover penalties to contact the Service Representative nearest you call. ICMA RETIREMENT CORPORATION California 800.772-4075 Other Western States SM -227-0938 IF f- � For your infor ra League of California Cines !. 1400 K STREET • SACRAMENTO. CA 95814 • (916) 444-5790 Ttga Inc. Sacramento, CA October 21, 1985 MEMORANDUM TO MAYORS, CITY lMAt1AGERS AND CITY CZ.E RKS IN NON -MANAGER CITIES (PLEASE PASS ALONG TO COUNCIL MEMBERS AND DEPARTMENT HEADS) Dear City Official: The crisis in liability insurance coverage is reaching dramatic proportions. Many of you have been along for :he long hard fight to gain reforms through the Legislative process* which to date has been unsuccessful. Negotiations are continuing on SB 75 (Foran) and AB 1332 (W. Brown) to reach a compromise with the California Trial Lawyers Association, the chief opponents of any change in the Deep Pocket Doctrine. Officials need to continue to ex- ert pressure on their Legislative representatives to enact satisfactory legislation. On another front, a tort reform initiative has recently been subnitted to the State Attorney General and has been titled the "Fair Responsibility Act of 1986". Movement is now under way to collect the necessary signatures to qualify this initiative for the June 1986 ballot. The League hoard of Direc- tors has voted to support this measure and the voting membership added their support in the form of an Annual Conference resolution passed earlier this month. With this in mind, we are providing the attached information for your use in speaking to your Legislators, the public, and the press in the very vital at- tempts to inform the voting public so as to rectify the inequities cities face under the current deep pocket doctrine. The League will continue to keep you updated on the progress on each of these fronts. If you have need for further information or details, contact Conni barker in the Sacramento office. Sincerel y, P,It Russell Council President, City of Los Angeles and PrCoident, Leag:ie of California Cities /1164 - ' • 91�t� 'ion isenni ng Noven, executive Director MOSING THE DEEP POCKMS - Tort Reform -- The Fair Responsibility Act of 1986 Liability Insurance Crisis As city officials are all too aware, we are facing a crisis in the area of liability insurance. Our cities are experiencing rate increases of 100-500- 1000 percent. Many cities can no longer afford to carry insurance. Or, even worse, can find no insurance carrier to cover municipal liability. Deep pocket judgments, simply stated, mean that when more than one defendant is involved and any of the defendants is unable to pay, the remaining defen- dants must pay 100 percent of the cost. In practice, that means cities, counties and other entities with substantial pocketbooks are increasingly being named in lawsuits where they have little or no responsibility, merely to provide a "deep pocket" capable of paying the judgment. Some examples: A young man dives into an ocean sand bar off a city beach, suffering in- juries which leave him a quadriplegic. He sues, claiming the city should have posted signs warning him it was dangerous to do so. The jury awards him $6 million. A motorist with a blood alcohol level of 0.32 percent — three times the maximum allowable legal level -- is injured when his car, traveling 60 mph in a 30 mph zone, hits water on the pavement and crashes. He sues the city for $2 million. A driver with a blood alcohol level of 0.17 is killed when his car runs off the end of a dead end street and over a railroad embankment 100 feet from the road. His survivors sue the city, claiming "dead end" signs were improperly placed. These cases have become an increasing drain on the taxpayer. In a survey com- pleted early this year, the League found 163 cities -- slightly more than one- third of the cities in the state -- reported paying out $20.1 million in "deep pocket" judgments in 1983-84. (This figure does not include the $6 million judgment in the diving case mentioned above which was decided after FY 1984.1 The 163 cities paid $5.1 million in such claims in 1981-82 and $18.2 million in 19b2-93. They estimate they face a canbineo potential exposure amounting to more than S210.7 million for cases that will Come to trial in the next few years. Some cities, such as Laguna :3eacn and Dixon, face potential Judgments which could exceed their total annual budgets. Althou,jh most cities cover part of each Judgment or settlement by. insurance, 9 major Porti -on mist be oorne in the city's deductible (usually $100,000 to $500,000), and the insurance premiums of the cities have skyrocketed. Since a city, in most cases, is unable to increase taxes in a sufficient amount to cover the losses, it inust cut other parts of its Mudyet. I TAXPAYERS for FAIR. RESPONSIL TY TG- YESi I support Taxpayers tur Fair Responsibility. I'll join the batN7 to change the unfair "deep pockets" law by: 0 Using my name publicly O Distributing literature ❑ Contributing $ ❑ Contacting friends and neighbors El Writing letters to editors D Being a speaker Name (P-1 o, tym) Signature Address City Zip County Home Phone( ) office Phone(_ _) a k Occupation Employer Business Address Paid for by Taxpayers for Fair Responsibility, John H. Hodgson ll, Treasurer s`