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SR-01-10-1978-6B� Y i Santa Monica, California December a, 1977 TO: Mayor and City Council JAN 1 0 1978 FROM: City, Staff SUBJECT: Adjusting and Investigating Services for Civil Liability Claims Introduction This staff report constitutes the basis for staff's recommendation that the contract with Brown Brothers Adjusters for adjusting and investigating services for civil liability claims be renewed for the calendar year 1978 at a contract; price of $43,500 per year. The staff report discusses the basis upon which Brown Brothers was initially chosen, their current performance, and the reason for the increase in cost. Background At the December 14, 1976 City Council meeting, the City was authorized to enter into a contract with Brown Brothers Adjusters for the calendar year 1977 at a total contract price of $34,500. The staff report submitted at that time is attached hereto for the City Council's information. There were three proposals submitted at that meeting: Brown Brothers' proposal for $34,500 (complete bid); the proposal 6 9 AN 1 0 1978 CA RLK:s 12 -8 -77 of Frasco Corporation at $35,710 (incomplete bid package); General Adjustment Bureau at $42,393 (incomplete bid package); and Bay Cities Adjustment Company at $45,000 (incomplete bid package which was subsequently withdrawn). The only bidder submitting a total service bid last- year was Brown Brothers Adjusters, and their price was substan- tially lower than that of any -of the other adjusting firms involved. Brown Brothers' Performance: This company has performed their adjusting and investigative services in a'. highly competent manner. A detailed summary of their service is set forth below: 1. Claim Control. Brown Brothers has undertaken a highly assertive role in resolving claims and potential claims -. The comparison from January lst.to June 30th for the years 1975 and 1977 is as follows: Year No. of Claims No. of Claims Settled 1975 -106 15 19716 152 19 1977 167 36 This represents a 43.4% increase in the number of claims from 1975 to 1976 with a corresponding 26.66% increase in the number of claims settled. But for 1977, with a 9.86% increase in the number of claims received,-there was a 89.4% increase in the number of claims settled before a lawsuit was involved. See Table 1 next page. - -2- TABLE 1 1976 Adjusting /Investigative Services Cost Bay Cities Adjusting Company $22,800.00 Police Investigator 33,736.00 TOTAL $56,536.00 -- 1976 Total Monies Paid Out - Claims and Suits Municipal Bus Lines $109,213.28 Comprehensive (General Liability) 40,487.73 Automotive Fleet 66,926.64 TOTAL $216,627.65 Number of claims for calendar 1976 315 Average paid per claim $655.96 1977 Adjusting /Investigative Services Cost Brown Brothers Adjusters - $34,500.00 TOTAL $34,500.00 1977 Monies Paid Out - Claims and Suits for First Nine Months Municipal Bus Lines $50,398.06 Comprehensive (General Liability) 43,889.75 Automotive Fleet 51,619.65 TOTAL (first nine months) $145,907.46 - Number of claims for first nine months 1977 - 278 Average paid per claim $524.84 CA RLK:s 12 -8 -77 The statistical picture does not tell the whole story, of course, nor is there a long enough period of use to indicate what the ultimate result will be- A reasonable hypothesis -. based upon the sampling would indicate, however, that it:is probable that the number of claims will eventually decrease, that the number of claims settled will increase,and that there will be a _lower cost ultimately both with regard to litigation and with regard to settlement. 2. Immediate Investigation. From our experience we have found that a fully developed factual investigation of an incident provides the best weapon with which to obtain advantageous settlements and to prepare effective trial strategy. Robert Whipple, Claims Litigation Manager for Transit Casualty Company, the excess carrier for the Municipal -- Bus Lines, undertook their annual audit of investigative files at Brown Brothers' offices this mid - November. Mr. Whipple was very satisfied with Brown Brothers' performance in all areas, -- particularly in their investigation of claims. 3. Setting reserves. Brown Brothers has applied the full expertise of a professional adjusting staff in setting realistic reserves on claims. Follow -up review based on newly- developed facts is also a regular part of Brown Brothers' procedure. Their analysis has resulted in an increase in reserves, but it is the belief of staff that the' reserves are more realistic thereby establishing a more competently evaluated fiscal'position' for the City. Santa Monica, California, November 9, 1976 TO: Mayor and City Council FROM: City Staff SUBJECT: Adjusting and Investigating Services for Civil Liability Claims Introduction This report analyzes the current and projected needs for adjusting and investi- gating services necessary for the defense of civil liability claims filed against the City. Further, this report discusses, proposals received by the City staff for the performance of adjusting and investigating services. Background Adjusting and investigating services are essential components of the City's claims control efforts; the objective of which is to limit the City's liability -- generated by accident claims. Claims control involves prompt investigation of accidents whether or not they have resulted in a claim,- the determination of liability through a fact finding process, the settlement of claims received, and the correlation of those settlements to problem areas of liability for departmental correction. Current Adjusting and Investigative Services Since 1952, the City has contracted for adjusting and investigation of claims with Bay Cities Adjustment Company, an independent firm consisting of one adjuster, at a present cost of $22, 800 per year. The services currently provided to the City include preparing claim files, mailing reo_uests for 0 - Mayor and City Cour1 � November 9, 1976 statements from identified witnesses, requesting medical reports, reviewing bills for medical services and property damage, furnishing a monthly statistical report to the City, furnishing advice to the City with regard to claims filed, and implementing settlements concerning such claims. The major portion of the investigatory services for the City is currently provided by a detective from the Police Department who has been assigned full -time to the City Attorney's office. As a result of the continued increase in claims filed against the City that require adjustment and their recent loss of support staff, Bay Cities has requested an increase in their pr -esent contract fee to $36, 680 per year. This request, coupled with recent developments in the municipal liability market, more stringent adjusting requirements imposed by the City's excess liability carriers, and recommendations from Mund, McLaurin Insurance Analysts to expand the City's adjusting services, has prompted the staff to conduct a comprehensive review of the cost/ effectiveness of alternative adjusting and investigative services available to the City. The Necessity for Expanded Adjusting and Investigative Services Public entity protections against liability have been: substantially narrowed by judicial decisions which continue to increase and broaden the exceptions to these immunities. In particular, in May 1975, the California Supreme Court discarded the rule whereby the contributory negligence of a plaintiff barred his recovery for damages,- and replaced this system with the "compara- tive negligence' doctrine. This allows a contributorily negligent plaintiff to Mayor and City CouiC - 3 - ( vember 9, 1976 collect damages minus the percentage of his fault. While the full impact -of comparative negligence has not yet been realized, claim authorities believe it will significantly increase the claim work load in the liability field. The increased public awareness of these legal rights and the subsequent multi- plication of claims and lawsuits filed against public agencies (i. e. 219 claims filed against the City of Santa Monica during the first 9 months of 1975 as compared to 134 claims filed during the equivalent period in 1974), make it imperative that our current adjusting services be expanded to meet the present claim load while maintaining a quality claims control program. The Economic Impact of Ez- panded Liability Exposure on the City's Self - Insured Retention Program Prior to December 1975, the City's comprehensive self- insurance retention was maintained at the $10, 000 level. This minimized the - City's liability exposure and encouraged the insurance carrier to play a role in the adjustment and investigation of claims having the potential of exceeding the City's retention level. As a result of increased public liability exposure and in attempts to procure a liability policy at a reasonable cost, the City, in January 1976, increased its retention level to $100, 000 (it should be noted that in today's insurance market, a $10, 000 retention is unavailable to the City). While the premium savings have been substantial ($37, 500 for the 1975 -76 fiscal year), at the current $100, 000 self- insured retention level the burden of adjusting and investigating accidents, for the purpose of settlement savings, is placed fully on the City. In addition, with the rapid withdrawal of companies willing to cover municipalities, the City's present insurance carriers have Mayor and City Coin - 4 - ( ivember 9, 1976 imposed policy conditions to the effect that "a qualified claims adjusting firm (subject to the approval of the insurance company) must be retained by the City to handle all self- insured claims with monthly or quarterly reports of paid and pending amounts submitted for review ". In this regard, Transit Casualty Company, the City's excess liability carrier for the Bus Company, has twice audited this year's claims for the purpose of examining our adjusting and investigating practices prior to submitting a renewal bid on its present policy which expires in December. In light of the potential financial impact of expanded public liability exposure and increased retention levels, and subsequent to Mund, IvlcLaurin's recommendation to obtain back up assistance to our current adjusting efforts, the staff reconsidered Bay Cities' request for an increase in its contract rate at the existing level of service, and instead requested a proposal for increased adjusting services from Bay Cities and the three other adjusting companies; General Adjusting Bureau, Frasco Corporation, and Brown Brothers Adjusters. Specifications for Adjusting Proposals After determining the minimum information necessary to evaluate possible claims and to protect the City in the case of a lawsuit, the City staff requested that the various companies submit bid proposals that would cover the services ,Mayor and City C until delineated in the following categories: November 9, 1976 Stage l„ — 1. Evaluation of furnished incident reports regarding possible claims. 2. Telephone contact (taped) with a possible claimant. 3. Telephone contact (taped) with the City employee or a City Department Head involved regarding expanded version of the incident, other possible witnesses. 4. Telephone or written contact with known witnesses, development of alternative addresses and evaluation for possible follow up. 5. Reports from other agencies or entities, i. e. , Fire Department report, Ambulance Call report, Towing Service report, Police Department (including pictures taken), Index Bureau, DMV report. 6. Contact with claimant or claimant's attorney regarding claimants witnesses, medical reports, medical billing, property damage, exact location of incident, nature of City involvement. 7. Verification of above - delineated information by mail or telephone. 8. Evaluation of medical reports for possible follow up. 9. Location of vehicle(s) involved for possible follow up. 10. Reserves set on reports received with update as new information develops. 11. Monthly written statistical review of all current incident reports, open claims and suits, indicating status and reserve set. 12. Settlement of potential or actual claims (authority to $2, 500). 13. Check list of necessary additional investigation, if not settled. Stage 1 represents a substantial increase over the level of services presently being provided as indicated on page one of this report. Mayor and City Cour - 6 1 -- - ( vember 9, 1976 14. Immediate notification to City Attorney_where hospitalization - of potential claimant involved, where potentially serious injury indicated, where a wide variance between City version and other witnesses version of incident, of when new information obtained which changes an initially set reserve. Stage 2 This stage involves physical on scene and subsequent investigation services including pictures of vehicles and /or other property damaged in an accident, personal contact with claimants and known witnesses for their statements and evaluation of their potential as witnesses at trial, development of witnesses not initially known, evaluation of initial medical reports, and any other necessary investigation prior to the filing of a lawsuit. Stage 3 Stage 3 involves more complicated investigation up to the time of trial which would be in addition to that accomplished during Stage 2, and would include location of and interviews with all witnesses including those not available locally, location or preparation of maps or charts, evaluation of subsequent medical reports and technical documents, location of expert witnesses and any other information deemed necessary by the City Attorney. All Stage 3 investigation is expected to be conducted pursuant to written instructions of the City. Review of Proposals Following staff's review of proposals received which included extensive research of references supplied and interviews of firms involved, all c Mayor and City Coui _ - 7 - ( wember 9, 1976 proposals were given to Mund, McLaurin for review and submission to Columbia Casualty Insurance Company, the City's excess -liability carrier for approval. Columbia Casualty approved both Brown Brothers Adjusting and Bay Cities Adjustment Company as the only acceptable firms for employment by the City. The following is a summary of the proposals received from Bay Cities Adjustment Company and Brown Brothers Adjusters: Costs 1. Brown Brothers proposes the lowest price for a complete package of services - $34, 500 for all adjusting and investigation services through the time of trial (Stage 1, -_2, and 3) - see consultant spread sheet attached 2. Bay Cities Adjustment Company proposes the highest bid for two types of services - $45, 000 for adjusting and initial investigation until a lawsuit is filed. (Stages 1 and 2 only). Bay Cities submitted no bid on subsequent investigation through the time of trial. Investigative Services 1. Brown Brothers is the only firm of the four solicited that offers a contract price for investigation through the time of trial. This option would mean that the Police Officer currently assigned full - time to the City Attorney's office for civil investigation would no longer be needed and thus could be returned to the Police Department for police service. The present cost of the Police investigator to the City is $33-1736 (salary plus benefit costs). The only investigative services not available under the Brown Brothers proposal would be subrosa and background investigations. It should be noted, however, that the City presently contracts outside on those limited occasions when such services are needed. 2. Bay Cities Adjustment Company proposes to conduct an initial investigation of claims, providing service until a lawsuit is filed (Stage 2). Any subsequent investigation would be performed by a Police Officer assigned to civil litigation or by an outside contractor on an hourly basis. Staff anticipates that this subsequent investigation would require 1/2 police officer at a cost of $16, 868 per year (salary plus benefits). ___ Mayor and City Coui - 8 - ( -ember 9, 1976 Expert Assistance 1. Brown Brothers has on -staff experts available to analyze and evaluate accident reports, claim files, and related documents, such as medical reports, in order to assist the City Attorney -_ in preparing for litigation and to establish more accurate reserves. The latter area is critical, as a clause in the City's excess insurance policy now requires an annual audit of reserving practices. 2. Bay Cities Adjustment Company offers the services of a man who - has had in -depth experience in analyzing and evaluating claims for the City of Santa Monica.. Medical records and other specialized documents are currently reviewed and analyzed by outside experts retained on an hourly basis. Personnel 1. Brown Brothers will assign two people to the adjusting team respon- sible for supervising the services to the City. The chief adjuster /in- vestigator will be a man with 20 years experience in the field, including experience in the public entity area; the second man has three years intensive experience locally. Furthermore, Brown Brothers has ten additional adjuster /investigators in their Los Angeles office who would be available for overflow work, and another ten adjuster /investigators in nearby offices who could be available at a day's notice. 2. Bay Cities Adjustment Company offers a man with more than 36 years experience in the field - -24 years of which have been with the City of Santa Monica. In addition, Bay Cities proposes to hire a junior adjuster who will have a minimum of one year's experience to serve as back -up support. It should be noted that Mund, McLaurin has expressed doubt that a junior adjuster that would be satisfactory to handle the City's exposures, could be obtained for $10,000 as specified in Bay Cities proposal. Reports to the City 1. Brown Brothers would provide a monthly statistical computer report which would be tailored to the risk management needs of the City, identifying areas for improvement in terms of operational standards and safety procedures. As a computerized document, this monthly report could be utilized to provide statistical data for other City purposes - -(i. e, measuring cost control, adjusting effectiveness or efficiency of litigation defense). Brown Brothers presently provides a similar computerized report on the City's Worker Compensation Claims. $• Mayor and City Coui - -9 - wember 9, 1976 1. 2. Bay Cities Adjustment Company presently provides a monthly statistical report of claims and lawsuits which identifies the claimant, City employee involved, the most recent action taken, reserves set, and settlement payments made. Scope of Operations 1. Brown Brothers has offices throughout the western United States and lines to other adjusting services nation -wide, a feature which would be most valuable in locating. distant witnesses or former employees and in contacting claimants and their physicians outside the local area. Z. Bay Cities Adjustment Company is a local firm maintaining local offices but with limited personnel for any investigation which would require travel. The City currently_ contracts with another firm for investigation outside the Los Angeles area at a cost of $16. 50 per hour. Other Considerations 1. Brown Brothers was awarded the contract for administering the City's self- insured workers compensation program. If the company were awarded the contract for adjusting and investigating services for civil litigation claims, - it would not only insure that the City would be treated as a prime client, but would render a full system of coordinated efforts in adjusting and investigating those incidents involving potential civil liability as well as workers compensation liability (i. e. , accidents involving employees as well as the general public). In addition, Brown Brothers would handle all collections for damage to City property (3rd party Bubrogation billing) charging the City on a time and material basis only. Alternatives 1. Initiate Self- Administration of Adjusting and Investigation Services The cost of developing an in -house Adjusting Department with the City outweighs the procedural advantages of self- administration. The total cost of self- administration is projected at approximately $74, 789 per year (see cost analysis sheet attached). These costs include an office of 400 square feet to accommodate three additions to the City staff consisting of a senior adjuster, an investigator and a stenographer, with their attendant salaries and benefits costs, as well as additional office equipment and supplies expenditures. It should be noted that this arrangement would provide service limited to the adjusting and initial investigation of claims only (Stages 1 and 2). Mayor and City C ,il - -10 - - Vovember 9, 1976 The City would still have to retain the Police Officer assigned or contract outside (on an hourly basis) for any additional investigation and assistance up to the time of trial. 2, Retain Bay Cities Adjustment Company on contract, but with increased personnel consisting of one Junior Adjuster, and one Stenographer. The proposal submitted by Bay Cities Adjustment Company offers adjusting and initial investigation of claims at a cost of $45, 000, This alternative offers an advantage in that it retains a continuity of our present adjusting services and capitalizes on Mr. Barrett's experience with the operations of the City. On the other hand, the cost of this proposal is substantially higher than Brown Brothers Adjusters since only Stages 1 and 2 (adjusting and initial investigation) are represented in the contract price and the City would have to retain the Police Officer assigned to civil litigation to perform investigation through the time of trial. Thus, the full price of this alternative would be $61, 868 ($45, 000 Bay Citi -ps contract price plus $16, 868 for 1/2 Police Officer). It should be noted that Mr. Barrett has recommended that the contract be awarded to a lower bidder than Bay Cities Adjusting (see letter attached), 3. Retain Brown Brothers for Adjusting and Investigative Services. This proposal as discussed within this report provides all adjusting and investigating services through the completion of trial (Stages 1, 2, and 3) at a total cost of $34, 500. Recommendation Staff recommends (Alternative #3) and requests that the City Council authorize the City Manager to retain Brown Brothers Adjusters for the period of one year, at a cost of $34, 500; to provide the City of Santa Monica the adjusting and investigative services necessary to maintain an effective claims control program. Funding for this fiscal year would be provided from the existing Adjusting Service Account plus $7, 750 from unappropriated reserves. Prepared by: Larry J. Kosmont Administrative Assistant LJK:dvl Attachment 10A Mrs. Swirl-{ moved to accept for file the Planning Commission memorandum, dated December 6, outlining anticipated procedures re- lating to the consideration of plans for the development of the McDonnell- Douglas and City- oTrxed Airport properties. The mo=io^ was seconded by Reverend Judson and carried unanimously. 11A Mrs. Reed moved to retain Brown Brothers Adjusters to provide adjusting and investigative services at a cost of $34,500 W ith funding for this fiscal year to be paid out of the existing adjusting service account plus transferring $7,750 from Unappro- priated Surplus Account, as recommended by the staff. The _etion was seconded by Mrs. Swink and carried by the following vote: AYES: Councilmembers: Judson, Reed, Swink, van den Steenhoven, Trives NOES: Councilmembers: McCloskey ABSTAIN: Councilmembers: Cohen ABSENT: Councilmembers: None Contract No. 2289 (CCS) Mr. Cohen moved to retain Mund, McLaurin for one year at a cost not to exceed $7,000 to implement changes. in.the City's Risk Management program, The motion was seconded by Reverend Judson and carried by the following vote: AYES: Councilmembers: Cohen, Judson, McCloskey, Reed, Swink, van den Steenhoven, Trives NOES: Councilmembers: None ABSENT: Councilmembers: None Contract No. 2190 (CGS) EXTRA 1 Mrs. Reed moved that a resolution be prepared commending Don Barrett_ dba Bay Cities Adjustment Company, for the outstanding service­ he has rendered in representing the city in claims filed agai-:at it. The motion was seconded by Mrs. Swink and carried unanimously, 11B Mrs. Reed moved t_ approve the staff recommendation, dated December 7, and amend the mulnicipal code secticns ,ertai^ing to fines for dogs cited for running at large, provide additional help and equipment for the Humane Division and in addition direct the admin- istration to work with the school officials to minimize problems concerning dogs on school property. The motion was seconded by Mrs. Swink and carried with Councilmembers Cohen, Reed, Swink and Trives voting "AYE ". 11C The staff report, dated December 6, regarding vehicle parking for handicapped persons was reviewed. Mrs. Reed moved to approve recommendations I and 2 therein and, in addition, instruct the staff to contact businesses in areas where blue curbing (space set aside for handicapped parking) could be installed, to request them to provide space for handicapped parking and in the event the businesses would not or could not install the spaces, then consider the blue curbing. The motion was seconded by Mr, van den Steenhoven and carried by the following vote: AYES: Councilmembers: Cohen, Judson, McCloskey, Peed, Swink, van den Steenhoven, Trives NOES: Councilmembers: None ABSENT: Councilmembers: None 11D The staff report, dated December 7, recommending changes in parking procedures, etc. on the beach parking lots was reviewed. Mrs. Reed moved that public hearings be held to discuss alternate recommendation No. 5. The motion was seconded by Reverend Judson and carried unanimously. -3- 12/14/76 4J Agenda Item 6 -B: Presented at this time was a recommendation to aUtho -_ riz'e the City.Manager to retain the firm of Brown Brothers - Adjusters for the 1978 calendar year at a contract price of $43,500 to provide claims 'adjusting and investigative services. Discussion took place regarding the increase in cost over the previous year during which Councilmember Scott requested figures for incurred and paid losses and reserve amounts for 1975 through 1977, after which Councilmember Reed.moved to authorize the City Manager to award Contract No. S to retain t e firm of Brown Brothers Adjusters for the 1978 calendar year at a price of $43,500 to provide adjusting and investigative services necessary to maintain an effective claims control program for the City of Santa Monica, Second by Councilmember van den Steenhoven. Council Vote: Affirmative: Councilmembers Cohen, Reed, Trives, van den Steenhoven and Mayor Swink Negative: Councilmember Scott Absent: Councilmember Bambrick s - CITY COUNCIL MINUTES - JANUARY 10, 1978 COSTS ANALYSIS OF IN -HOUSE ADJUSTING - AND INVESTIGATION SERVICES _. Annual Rent (.70 per sq. ft.) $ -3,360 Senior Adjuster Salary $ 25,000 _ Fringe benefits - 8,107 Automobile ($140 per month) 1,680 $34,787 Junior Adjuster Salary 14,000 Fringe benefits 4,713 Automobile ($100 per month) 1,200 - $19,913 Secretary Salary 9,096 Fringe benefits 2,633 - $11,729 Supplies and Expenses $ 5,000 TOTAL: $74,789 Reference: Contract No. 2440 (CCS)