SR-101-003-02 (3)
RM:TP:rc Santa Monica,
City Council Meeting - January 27, 1987
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TO: Mayor and City Council
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FEB 2 4 1987
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FROM:
City Staff
SUBJECT: Recommendation to Implement a City Self-Administered
Liability Claims Program
INTRODUCTION
This report requests that the City Council authorize the City
Manager
to
proceed
with
implementation
of
a
City
self-administered liability claims program.
This action will
enable the City to enhance the efficiency and effectiveness of
liability claims administration, ensure the continued development
of needed Risk Management programs, and directly involve the Risk
Management Division in the resolution of liability issues facing
the City.
BACKGROUND
Since the 1950's, when the City established self-insurance funds
for auto, comprehensive and municipal bus line liability lOSS~S' ~jt>
there has been a need to contract with an outside clalmsFEB 2 4 1
administrator (previously provided by an insurance carrier) to
investigate, evaluate and negotiate claims which were filed
against this entity.
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JA'N 2~
From 1950 to 1977, these services were provided by Donald Barrett
of Bay Cities Adjusting Company. From 1977 to January, 1981,
Brown Brothers provided the City with claims administration
services. Leonard J. Russo Insurance Services has administered
the claims since January, 1981.
Since the beginning of 1986, a number of service-related problems
have occurred with Russo. In general these problems relate to
the timeliness, accuracy and quality of both the investigation of
claims and loss/financial information. Several meetings have
been held with the firm concerning these issues, but the problems
for the most part
invariably effect the
are continuing.
Problems of
this type
abili ty of the City to defend
claims or
compromise claims where warranted.
An appropriate solution is called for which will serve the long
term interests of the City and provide the needed claims
management support services to the City Attorney's office.
For a number of years the City Attorney's office has been
providing in-house litigation management services ln defending
the City against various lawsuits. This program has proven
successful in reducing potential outside defense costs as well as
the ultimate payments necessary to dispose of these lawsuits. By
implementing an in-house claims management program as well, staff
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believes the City will enhance the efficiency and effectiveness
of liability claims administration.
This report recommends that the City implement a parallel program
and initiate the in-house handling and adjustment of claims by
City staff.
PROPOSAL
There are
several municipalities
throughout
the
State of
California which currently administer their own liability claims
and have successfully done so for a number of years. In
preparing this analysis, staff visited two cities, Anaheim and
Pasadena, which are operating effective in-house claims programs.
In addition, Santa Monica I s current Risk Manager was directly
responsible for developing such a claims program for the Orange
County Transit District six years ago. That program continues to
operate successfully to this day. The Risk Manager also spent a
number of years working for an insurance company in a number of
claims positions and is well versed in what is required to
operate a professional claims management program.
On an annual basis approximately 585 claims are filed against the
City, based on a five year average. Currently there are 625 open
claims pending some sort of disposition. Staff required to
handle this workload volume would be as follows:
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(1) Liability Claims Supervisor
(1) Liability Claims Adjuster
(1) Staff Assistant III
The Supervisor would have overall responsibility for the
day-to-day claims operation, supervise his or her support staff,
develop appropriate administrative procedures and guidelines,
maintain a case load of active claims, and ensure the overall
quality and effectiveness of the claims program.
An adjuster is required
investigations (i.e.,
statements, claimant
and adjust claims).
to provide clerical
in order to conduct the necessary field
accident scene investigation, witness
contact, prepare reports of investigation,
A Staff Assistant III is required in order
support to the claims staff (i.e., file
set-up, prepare correspondence, E.D.P. input, phone calls, logs,
forms etc.).
The above support would enable the City to immediately take over
both the handling of new claims and the existing pending claims
currently managed by Russo. It would no longer be necessary for
the City to use the position of Claims Supervisor in the City
Attorney's office as a liaison with an outside administrator. In
review with members of the City Attorney's staff, approximately
75% of the Supervisor's position has been dedicated to this
function.
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The claims management procedures to be established between the
Risk Management Division and the City Attorney's Office would be
similiar to those currently observed by Russo and the City. In
general, the procedures would operate as follows:
1) All accident reports would be sent by departments to the
Risk Management Division.
2) The City Clerk would forward a copy of all claims to the
Risk Management Division and the City Attorney's Office.
3) Upon receipt of a claim for damage or an accident report,
the Risk Management Division will investigate the loss
and establish reserves as necessary.
4) The Risk Management Division would reject all claims in
accordance with government code requirements.
5) The Risk Management Division will have $2,500 settlement
authori ty per claim on non-litigated claims. Authori ty
in excess of that amount will be requested from the City
Attorney as appropriate. The Finance Department would
issue checks on all approved settlements.
6) All subrogation efforts will be the responsibility of
the Risk Management Division. Should a formal legal
proceeding be required, the claim will be forwarded to
the City Attorney's Office for further handling.
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7) The City Attorney I s Office will forward a copy of a
Summons and Complaint to the Risk Management Division.
At the point the Risk Management Division receives a
Summons and Complaint, a report of investigation and case
analysis will be prepared and forwarded along with all
file material to the City Attorney for further handling.
8) The Risk Management Division will provide investigation
support services on all litigated files at the request of
the City Attorney's Office.
9) All recorded statements will be transcribed as required.
10)
The Risk Management Division will
claims bi-annually to ensure
appropriateness of reserves.
review all litigated
the accuracy and
11)
The field adjuster
individual can be
to major accidents
damage.
will be provided a pager so the
immediately contacted and respond
invol ving bodily injury or property
12) The Risk Management Division would assist the City
Attorney's staff
evaluations.
as
requested
on
litigated
claim
Data processing needs concerning claims, financial and loss
analysis data would be provided by an outside service bureau.
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Russo presently uses Corporate Systems for this service and staff
has investigated contracting directly with this firm. This would
allow the City to maintain its present data reports as the data
is already stored by this firm and their system is both flexible
and easy to use. Risk Management would input the data through
HP150 terminals hooked up by a modem using existing telephone
lines.
Below is an outline of the present administrative costs the City
incurs with Russo, and the proposed costs under a program of
self-administration.
Present Administrative Costs
No. of Claims 586(Annually)
x $197.00(per claim-Russo charge
No. of Incidents 133(Annually)
x $17.00(Russo charge
=$115,442
Average Subrogation Fee(20% of Recovery)
Supervisor of Claims%-75% of Salary/Fringe Benefits
=$ 2,261
$117,703
$ 3,384
$ 34,912
$155,999
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Proposed Costs For In-House Self-Administration
SALARY/FRINGES
Liability Claims Supervisor
Liability Claims Adjuster
Staff Assistant III
Fringe Benefits Factor(30%)
SUPPLIES/EXPENSE/CAPITAL
Ongoing (ANNUAL)
Office Supplies/Expo $500
Util./Telephone $1,500
Mileage $2,500
Furn./Furnishings $500
Books & Pamphlets $250
Printed Forms $500
$5,750
(E-Step)
$ 40,000 (Salary)
$ 34,000 ( II II )
$ 25,644 ( II II )
$ 99,644
x 1.30
$129,537
Start Up Costs(ONE TIME ONLY)
Recorders, Camera, Beeper $1,700
(2)CRT'S-HPDesk & HPWord $5,900
Modem, Desk & File
Cabinets.
$7,600
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ELECTRONIC DATA PROCESSING COSTS
Ongoing{annual)
Start Up Costs{one time only)
Dial up-Asynchronous
Phone Line $2,400
New Claims Files
Software Lise. Fee $7,500
Personnel Training $2,550
Storage Fee
Historical Claim
Data Base Storage $975
$5,500
Main Frame Report
Generator
Report Printing
$3,070
$500
$12,445
$10,050
COMBINED COSTS
Salary/Fringe Benefits
Supplies/Expense-Ongoing
II II Start Up
E.D.P.-Ongoing
II II Start Up
$129,537
$ 5,750
$ 7,600
$ 12,445
$ 10,050
$165,382
Because of non-reccurring expenses, second year savings of 7% or
approximately $17,600 will result.
If, in the third year, the
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E.D.P. function is brought in-house, savings of 18% or $30,000
will result.
The City Attorney's Office will, however, retain a position to
coordinate its work with Risk Management and to handle small
claims litigation, collection matters and to provide appropriate
investigation and other assistance to the City Attorney's Office.
The person performing these tasks wi thin the City Attorney 's
Office will be classified as a Legal Secretary rather than
Supervisor of Claims.
ANALYSIS
As an alternative to the operation of an in-house claims
management system, the estimated costs of changing to a new
outside administrator were also evaluated. Presently, the fee
structure with Russo is on a flat fee-per-claim basis. Most
other claims administrators will not consider a flat fee
approach; rather they would enter into a contract on a time and
expense basis. Hourly fees average about $32.00 per hour plus
expenses (i.e.-telephone, mileage, photographs, photocopy,
stenographic). Costs for data processing and start-up costs
would be added to the flat hourly fee. At a minimum, the City
could anticipate a fifty percent annual increase in costs over
the current fees paid Russo. This would result in approximately
$60,000 in additional administration fees per year.
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However, the benefits of administering a claims program in-house
should not be evaluated solely on the basis of potential
administrative cost savings; such an operation offers numerous
other benefits.
1) An improved level of claims service from both a qualitative
and quantitative standpoint will be provided. Providing the
City Attorney's Office with timely, comprehensive and reliable
information would greatly enhance the City's ability to defend
and dispose of claims on a compromised basis.
2) By allowing the Risk Management Division to be responsible for
claims administration, the City Attorney's Office will be more
fully able to dedicate their resources to the management and
defense of litigated claims.
3) Some of the benefits experienced by other agencies which have
implemented an in-house claims program include: a reduction in
pending claims; earlier disposition of claims where warranted;
and lowering of suits filed against those Agencies.
4) An
in-house program will
increase
the
Risk Management
Division's involvement in
determining
the
results
resolution of liability issues, in
of accident investigations and
accident causes, and will serve to better coordinate and
manage risk identification, analysis and control.
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5) Internal claims staff will develop a greatly increased
knowledge of City policies, activities and operations which
will provide more comprehensive insight in the investigation
of accidents and the communication of potential safety hazards
to appropriate City Staff.
6) By contracting directly for E. D. P. services, the City will
have more complete control over the utilization of loss data
for accident/loss analysis, financial and budget planning, and
for evaluation of the claims function.
7) As the City has become much more self-reliant through
self-insurance and pooling in recent months, the need for
quality claims management has become much more critical.
It is anticipated that approximately fifteen checks per month
would be issued by the Finance Department for the payment of
claims. At the same time, the City would be eliminating the
account reconciliation function as well as the need for a
separate checking account.
It is estimated that six to eight months would be required to
implement the proposed in-house function.
It is recommended that the Liability Claims Supervisor be hired
approximately three months prior to the program start date. This
would allow that individual the necessary time to order equipment
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and supplies, develop internal and external claims administration
procedures, familiarize him/herself with City operations and
procedures, hire the necessary support staff, contract with
Corporate Systems and arrange for the communications hook-up and
staff training, and develop and print required forms to be
utilized. The remaining support staff should be hired and start
work approximately two weeks prior to the City initiating its own
claims handling.
FINANCIAL ANALYSIS
Sufficient funding is available in the FY86-87 budget allocation
for the Risk Management Division to cover any administrative
costs incurred this fiscal year by the in-house liability claims
program. Funding levels for FY87-88 will be proposed as a part
of the annual budget submittal and allocated among various funds
as is currently the practice.
RECOMMENDATION
It is recommended that the City Council:
1) Authorize the City Manager to proceed with implementation
of a City self-administered liability claims program.
2) Authorize the required staff positions as outlined in
this report. These include the addition of a Liability
Claims Supervisor: a Liabli ty Claims Adjuster: a Staff
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ASsistant III; and reclassification of the Claims
Supervisor in the City Attorney's Office to Legal
Secretary.
3 ) Authorize the City Manager to negotiate and execute an
agreement with Russo concerning the orderly transition of
responsibilities from Russo to the City.
PREPARED BY: John Jalili, City Manager
Tom Phillips, Risk Manager
Robert Myers, City Attorney
Sandra Faithful, Chief Deputy civil Litigation
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