FYI: MVRMA Takes Steps to Control Insurance Costs

-Mike Hammond 

It should come as no surprise insurance premiums are continuing to increase. Costs are substantially higher for lines such as commercial property and umbrella liability. Increases in deductibles and reductions in limits are the norm in the current insurance market.

Since MVRMA will be greatly impacted by increasing insurance costs, the obvious questions that now arise are, "How long will the hard insurance market last?" and "What can MVRMA do to control its insurance costs?"

In response to the first question, previous hard markets have tended to last about 36 months. According to some insurance experts, the market began to firm around the second quarter of 2000, which would put us more than halfway into the cycle. Therefore, if history repeats itself, the current hard market will end during the second quarter of 2003. But, many experts believe this prediction is far too optimistic because of the dynamics now in play.

Medium term economic forecasts do not appear to be bullish. Consequently, the investment result, on which the insurance industry has depended to offset underwriting losses, appears gloomy. Market risk tolerance has diminished in proportion to losses sustained.

At the present time, competition is having little effect on the marketplace or on pricing. Furthermore, compared to the last hard market cycle, there are fewer insurance providers. Many experts do not foresee an end to the hard market anytime soon and predict rates will continue to rise for the next few years.

So, that brings us to the second question, "What can MVRMA do to control its insurance costs?" MVRMA is one of the charter members of an insurance purchasing group, the National Public Entity Excess Program (NPX*) that was formed in 1997. Responding to the need of keeping insurance costs under control, the NPX* Board of Directors recently initiated the formation of a captive (Government Entities Mutual, inc. (GEM)) to meet the long-term risk financing needs of intergovernmental pools.

A captive is an insurance company that is owned by its insureds. Public entities have used this risk financing technique quite successfully in the past. The National League of Cities (NLC) Mutual is one example of such a captive. It was started by six state municipal league pools in 1986. At the end of 2001, NLC Mutual had $32 million in equity capital, $150 million in total assets and had returned more than $20 million to its members. A captive has the same advantages for its insureds that an intergovernmental self-insured pool has for its members. Likewise, they both require a long-term commitment from their insureds/members.

The NPX* Board of Directors is very committed to having GEM operational on January 1, 2003. It has approved $100,000 in start-up costs and has retained the services of individuals trained in each of the disciplines required to make the captive functional. GEM will be domiciled in Washington, D.C. Articles of incorporation, bylaws, a membership agreement and a capital contribution and withdrawal policy have all been developed and approved. Indications from pools submitting their loss experience and exposure data reveal the required $5 million in capital contributions has been achieved, and that figure may double before the January 1, 2003 start-up.

The MVRMA Board of Trustees understands the importance of exploring their options in anticipation of rising insurance costs. They approved Associate Membership in GEM at the September 16, 2002 Board Meeting. As municipalities are struggling with declining revenues and increased citizen expectations, MVRMA members recognize the significance of maintaining some control over insurance costs in an effort to keep budgets on track.

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Counselors' Comments

 - Jenks, Surdyk, Oxley, Turner & Dowd

Ohio Supreme Court Abolishes Public-Duty Doctrine as Bar to State's Liability in Court of Claims

In a recent 4-3 decision by the Ohio Supreme Court, Wallace V. Ohio Department of Commerce, Division of State Fire Marshal, 96 Ohio St. 3d 266 (2002), the Court held that the public-duty rule does not apply as a bar to the state's liability for negligence in suits brought against the state in the Court of Claims. The opinion arose from a lawsuit against the State Fire Marshal, filed in the Court of Claims, by persons and their representatives injured or killed in a fire that occurred in a fireworks store. The plaintiffs' claims asserted the Fire Marshal's office was negligent in postponing an earlier scheduled inspection and in failing to perform an adequate fire safety inspection when investigators visited the store five days before the fire. Plaintiffs claimed an inspection would have exposed the sprinkler system was inoperable.

The Court of Claims ruled against the plaintiffs, in part because it noted the public-duty rule precluded liability against the Fire Marshal. The decision was affirmed by the 10th District Court of Appeals. However, the Supreme Court's opinion, reversing the lower courts, relied primarily on the language of the Court of Claims Act, set forth in R.C. Chapter 2743, which states "the state hereby waives its immunity from liability and consents to be sued, and have its liability determined, in the court...in accordance with the same rules of law applicable to suits between private parties..."

The Court distinguished its analysis in this case with that of a previous holding, which adopted the public-duty rule-Sawicki v. Ottawa Hills (1988), 37 Ohio St. 3d 222. In contrast to Sawicki, the Court held that Wallace must be analyzed by examining R.C. 2743.02. The Court determined that the viability of the public-duty rule in actions against the state depended on whether the court could fairly characterize the public-duty rule as a rule of law "applicable to suits between private parties." The Supreme Court found that it could not.

The "public-duty rule" in question in Wallace provides that "a public entity owes a duty to the general public when performing its functions and is therefore not liable for [injuries] committed against an individual absent a special duty owed the injured person." The Court concluded that it was "spurious logic to conclude that a doctrine that is, by definition, available only to public defendants can be consistent with a statute mandating that suits be determined in accordance with rules of law applicable to private parties."

The Court did recognize that there are public policies cited in previous holdings to justify the application of the public-duty rule. However, the Court pointed out that despite judicial application of the public-duty rule, the state legislature has set forth the public policy of the state by enacting R.C. 2743. The Court discussed safeguards already in place confirming the state's potential liability under R.C. 2743 is not limitless. Finally, the Supreme Court stated that the rejection of the public-duty rule's application to suits in the Court of Claims does not automatically open the "floodgates to excessive governmental liability." The Court cited to previous decisions finding that R.C. 2743 does not create any new duties or causes of action, but rather places the state on the same playing field as private parties. If there is no private right of action between private parties then there can likewise be no state liability.

Although the Court's holding rested upon the public-duty rule's applicability in relation to the Court of Claims Act, which waives immunity only as to the state and its agencies and not other political subdivisions, it is likely that following this ruling, future challenges will be made to the applicability of the public-duty rule to actions against other political subdivisions.

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The Claims File

- Craig Blair

Each year, prior to completion of the preliminary budget, I conduct a claim audit with every MVRMA member. The purpose of the audit is to review claim files, to discuss questions regarding current claims, reserves or past settlements and to provide insight on how those claims (losses) affect a member's pool contribution factor (PCF) for the upcoming year. Although there are six other factors, the member's average annual adjusted losses has the greatest impact on the PCF because it is weighted three times.

Claims and lawsuits vary from year to year according to the size of the member and what services are offered. Luck also plays a part in avoiding the "big" loss. But, members who avoid adverse loss histories on a regular basis are generally the ones that place a high priority on safety and loss related activities.

Over the years, this newsletter has emphasized the importance of written policies, safety committees and training. It is MVRMA's expectation that all members initiate effective safety and loss control measures. Rewarding safe work practices through the Awards Program and instituting fair and consistent discipline for infractions conveys the importance management places on a safe work environment. Having written policies and procedures in place provides guidelines for both employees and supervisors to follow.

The common "fender bender" or "unavoidable accident" may occur from time to time in most cities. But, avoiding the "big" loss cannot be left to chance. Following prescribed safety practices will generally result in fewer claims and hopefully more palatable losses when the time comes to calculate the city's pool contribution figure.

If you need assistance in establishing a more effective safety program for your city, please contact Starr Markworth, MVRMA's Loss Control Manager.

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Loss Control Lowdown

-Starr Markworth

On August 8th, the City of Madeira hosted a Trenching and Excavation seminar for public service employees. MVRMA, working in cooperation with Miami Valley Cable Council, has presented several similar hands-on training seminars in 2002 in an effort to peak interest in safety training.

The Trenching and Excavation seminar was one of the most compelling sessions I have ever attended. Mike Hayslip, an attorney and professional engineer with over 15 years of hands-on safety experience, conducted the session. He used many props to illustrate the importance of soil composition when digging a trench and followed up with an on site demonstration of proper shoring.

In addition to Mr. Hayslip's excellent presentation, the group was addressed by employees from the City of

Madeira. They recounted a trenching accident that claimed the life of a fellow Madeira employee in 1992. Although ten years had passed, this accident was still fresh in the minds of these employees as they shared their story. It had a profound effect on everyone in attendance as their eyes were opened to the seriousness of safe excavation practices. Although sometimes painful to remember, everyone benefits from sharing real life lessons in the workplace.

Due to the overwhelming response to Mr. Hayslip’s training seminars, he will be making several return visits in 2003. Please mark your calendars for the following sessions:

OSHA Overview – February 19

Chain Saw Safety – April 16

Confined Spaces – June 25

Hazard Communication – August 20

Electrical Safety & Lock Out /Tag

Out – October 22.

Please call me with any training suggestions or topics you would like presented in 2003.

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Brokers Beat

By virtue of the title, risk management includes the practice of management and should therefore incorporate the four primary functions of a manager. Those functions are planning, organizing, leading and controlling. One of the biggest challenges for the public risk manager is getting the attention and clout to really make a difference in his or her organization. That clout or lack of clout is usually established through a leadership style.

Let's examine risk management from the view of the Blake and Mouton "Management Grid." That grid includes five management models that include The Authoritarian, The Team, The Country Club, The Impoverished and The Middle of the Road management models.

The Authoritarian Model. This model strives for high productivity with a low regard for people. It employs techniques that say, "get the job done" regardless of the feelings of the employees. As it relates to risk management, this technique is most effective in the paramilitary organization. It also works in an organization where the top administrator employs these techniques and has provided the risk manager with the referent power to carryout this style due to position within the organization. In most cases, the job of the risk manager should be to influence the behavior of others and to affect change through voluntary compliance and integration of risk management techniques throughout the organization.

The Team Model. This model strives for high productivity with great regard for people. It employs techniques that say, "get the job done", but "be aware of the needs of the people." In risk management, this model is highly effective and can have the longest lasting effect on an organization due to its highly participatory nature. Employing this technique will establish trust and build long lasting relationships. The downside of this technique is the energy and time it takes to establish. However, once team techniques are mastered, the key players feel included and have a strong sense of accomplishment from the personal involvement and collaborative efforts.

The Country Club Model. This model strives for high concern for people with little regard for productivity. While a high regard for people is admirable, our respective employers hire each of us to "get the job done." Unfortunately, while it does have some positive effect, just taking care of the people does not go far enough to successfully manage risks.

The Impoverished Model. Unfortunately, this model appears to strive for an atmosphere that doesn’t much care for productivity or for people. It is marked by indecision and little tact or understanding. This style is definitely not the one to be employed in an effective and successful risk management program.

The Middle of the Road. This model employs techniques from all four quadrants of leadership. When slanted toward the Team and Authoritarian Models, it is the one generally employed by the most effective risk managers. It blends a mix of the authoritarian that emphasizes the need to get things done while having a high regard for the thoughts and ideas of the people involved in the process.

Because effective risk management is very people intensive, it is only through the synergism of many that the most will get done. Let’s go out and prove the theory that "none of us is as smart as all of us." Get your people involved and shift your programs into high gear.

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Coming Events

EPA Training for Contact Hours

Presented by Sylcom

MVCC

7:30 AM - 3:00 PM

Snow and Ice Control

Details TBA

AGRIP Conference

Oklahoma City, OK

Cincinnati Convention Center

Dayton Convention Center

Toledo, SeaGate Convention Centre

Cleveland Convention Center

Workers' Compensation University

Annual Legal Update

MVRMA Training Center

1:30 - 3:30 PM

Election Day

MVRMA Quarterly Board Meeting

9:00 AM

MVRMA Training Center

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SPEC Awards

In 2001, for the first time, three communities achieved 100% compliance for their SPEC evaluations. Those three cities, Miamisburg, Montgomery and Troy, were exempt from the 2002 audit.

For the most part, the 2002 scores showed steady improvement, and the winning cities were recognized at the September Board Meeting. The City of Kettering was presented the "Pinnacle Award" for the best overall percentage of compliance with 98.67%. The "Ascension Award," for the most improved compliance, was presented to the City of Wyoming whose score increased by 10.38%. Congratulations to both cities for a job well done!

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Election Day   

Mario Cuomo, the former governor of New York, tells the story of the pollster who asked a voter, "Do you believe this country is being hurt by ignorance and apathy?' To which the voter responded, "I don't know and I don't care."

Election Day is Tuesday, November 5. If you're not registered to vote, you have until October 7. Don't be apathetic. Exercise your right as an American, and get out and vote!

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