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package which was subsequently withdrawn).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)