FYI:

Membership Growth & Impact Study

- Michael Hammond

Since its inception in December 1988, MVRMA has been organized as a regional insurance pool serving municipalities in southwest Ohio. Beginning with only six charter members, MVRMA has selectively expanded to its current roster of twenty cities.

MVRMA has made a concerted effort to maintain a highly homogenous risk profile while increasing its membership. A Membership Selection Policy was developed in order to maintain the best possible standards of risk management and risk pooling and to provide a fair and reasonable basis upon which to evaluate potential new members. True to its intent, this policy has provided a reasonable degree of protection against unexpected, unusual and unforeseen accidental losses for the benefit of all members.

Using this approach during the last 17 years has resulted in individual members that have:

MVRMA’s Membership and Marketing Committee has been charged with the overall responsibility of monitoring the membership selection process. The process generally begins with a survey completed by the membership to identify potential new members in the region. The Committee then reviews the results of the survey and makes specific recommendations to the Board. While some cities may be recommended for immediate inclusion on the approved list for marketing, others may be recommended for further investigation before any action can be taken.

This year, before making recommendations from the survey, the Membership and Marketing Committee felt it was important to follow through on a suggestion that was first discussed at the Strategic Planning Retreat in May. The Committee recommended and the Board authorized a request for proposals for a management review and impact study of potential membership growth. Four qualified consulting firms that specialize in governmental risk pooling submitted proposals. After an in depth evaluation and interview process, the Board of Trustees awarded the contract to Godbold, Malpere & Company of Roswell, Georgia. This firm has extensive experience in governmental risk pooling operations and has served as MVRMA's actuary since its inception.

The overriding goal of this study is to define MVRMA’s expectations for membership growth and to advise the Board of Trustees on the advantages and disadvantages of increased membership. A number of questions will be answered as part of this study. How much growth can be handled by the current staff? What is the financial impact of growth on the Association? What is the cost/benefit of growth in membership? Can MVRMA’s current operational structure and staff level provide necessary services to an additional region? What is the impact of membership growth on the services to our existing members? How would existing operational staff levels change to support additional growth and additional regions?

As part of this study, the consultant will benchmark MVRMA’s operational cost structure and staff levels to other similar pools and prepare financial pro-forma statements for different scenarios of membership growth. The final report will address the effect of membership growth on staff, operational costs and the resulting financial impact for current members. The report is also expected to include recommendations in those areas deemed necessary.

MVRMA's ultimate goal is to use the information provided by this study to continue a high quality program that is cost effective for our members. We are currently working with the consultants as they collect information to complete their analysis and provide us with important recommendations for our future. The final report is expected to be completed by mid-January 2006.

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Counselors' Comments

 - Surdyk, Dowd & Turner

The "New" 2744.02(B)(3) - Is "Obstruction" Equivalent to "Nuisance?"

On April 9, 2003, the revisions to Ohio Revised Code 2744.02(B)(3) became effective. Prior to April 9, 2003, the exception set forth in 2744.02(B)(3) provided that political subdivisions could be held liable for "injury, death, or loss to persons or property caused by their failure to keep public roads open, in repair and free from nuisance." The April 2003 revisions changed the language of the statute, replacing "free from nuisance" with "negligent failure to remove obstructions from public roads." Courts have not yet defined an "obstruction" under the revisions to R.C. 2744.02(B)(3). However, it is possible, given the rules of statutory interpretation and prior case law, to determine how the new statute may be interpreted.

Courts give words in a statute their plain and ordinary meaning unless legislative intent indicates a different meaning. The plain and ordinary meaning of obstruction, as found in the Merriam Webster Dictionary, is something that "blocks or closes up by an obstacle." Giving the word its plain and ordinary meaning, "obstruction" refers to those things which physically block a public road. Thus, the question becomes whether "obstruction," given its plain and ordinary meaning, is to be construed in the same manner as "nuisance" under prior case law.

Given the legislature's deliberate removal of the word nuisance, it could be reasonably argued that the legislature specifically changed R.C. 2744.02 to impose liability only for failure to keep the roads "in repair" or for failure to remove an obstruction therefrom. The legislature is not presumed to do a vain or useless thing, and when language is inserted or deleted in a statute, it is done so to accomplish some definite purpose. Had the legislature intended the analysis to remain the same, they could have easily kept the reference to a nuisance in the statute. However, the language was intentionally deleted and where the language of a statute is clear and unambiguous, it is the duty of the court to enforce the statute only as written, making neither additions to the statute nor subtractions therefrom.

The Ohio Supreme Court's previous treatment of similar language differences sheds some light on the matter. In Ditmyer v. Lucas Cty. Bd. of Commrs, a pre-Act case, the court interpreted R.C. 305.12, which imposed liability on counties for failure to keep roads "in proper repair." In Ditmyer, the court held that condition at issue, a protrusion of a snow bank onto the road, was not encompassed by the definition of the word "repair" and reasoned that the legislature's failure to use the phrase "free from nuisance" in the statute indicated that no liability adhered to matters unrelated to road repair. Using this same analysis, one would assume Ohio courts would find liability does not attach to any matter unrelated to road repair or obstructions in the public road. In fact, a recent common pleas court decision out of Logan County found that "nuisance" constitutes a "far more expansive statement than the current law." However, at least one appellate court decision, treats nuisance and obstruction equivalently although it is important to note, in that case, the parties agreed to treat the statute as if the language had not changed.

Prior case law interpreting the word obstruction has focused on whether the "offending structure directly jeopardizes the safety of ordinary traffic on the road." Using this definition, courts have found the following to constitute obstructions: an iron stake that was protruding from the ground; a cornfield within the right of way blocking visibility on the roadway; a malfunctioning traffic light; a pothole in the roadway; a rut in the shoulder; and a tree limb which fell on a vehicle, killing the driver. Although these cases provide some guidance, most Ohio appellate courts have not yet examined a case under the statutory revisions. Therefore, as more and more cases will be filed under the revised statute, we expect to see a significant increase in cases in which the definition and interpretation of "obstruction" are central issues.

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The Claims File

- Craig Blair

Since MVRMA handles the claims for its members, the staff is well versed in the concept of "governmental immunities" available under Ohio law. But, to our members, these immunities can be confusing. They were enacted to protect the tax dollars that support government entities (municipalities and schools are the best examples). The state recognizes that for certain services to be available to the public, some level of protection from liability is necessary.

Some immunities are easier to understand than others. For example, recreational immunity protects the entity from potential claims in its parks, if they are open and free to the public. The activities of police and fire departments in providing for the public’s safety are also provided immunity. When these departments are operating under lights and sirens, the public must yield to them. As long as the behavior of these employees is not considered willful or wanton, there are immunities to protect these departments if an accident occurs.

How immunities apply to other city services is not always as easily understood. When dealing with roadways or sewer and water lines, a municipality is held to a maintenance standard. Generally, there are immunity protections for claims against the city in these areas as long as the employees’ actions were not outside the scope of their duties and were not considered to be in bad faith, wanton or reckless. To protect the city's immunities, it is important to emphasize such things as the use of proper signage or the use of cones or warning signs, when engaged in maintenance work in these areas. As long as employees are doing their best to perform their duties in a safe manner, the city will have protection under the law for any unfortunate accidents.

When employees are involved in an accident or are called to repair a broken water line or clear a sewer line back up, they should concentrate on any immediate safety issues and then proceed with resolving the problem. We do not expect employees to determine how immunities apply to every possible liability situation and recommend they limit their comments to the public. Any questions involving negligence or liability should be referred to MVRMA.

To illustrate how these immunities mean real dollars to our members, let us first look at the typical auto accident where the city is at fault. In this situation, governmental immunity allows the city offsets of available coverage. The other party’s insurance would pay any property damages, and MVRMA would pay only the out-of-pocket expenses (i.e., deductible, car rental if not included in the other party’s coverage, etc.). The other party would not incur a surcharge (increase in his insurance rates) because the accident falls under the immunity section of the Ohio Revised Code. In these situations, the burden is passed on to the insurance companies that do business in the state of Ohio. During the last five years, MVRMA’s average payment for these claims was $676. The average for the insurance industry was around $2,400. Based on these numbers, if the offsets available under these immunities had been eliminated, our members would have paid an additional $67,000.

It is impossible to determine exactly how much MVRMA has saved from lawsuits because of governmental immunity, but we can get an idea of the scope of those savings by reviewing the percentage of suits dismissed. Since its inception, 65% of MVRMA’s lawsuits were dismissed. While a certain number were dismissed as being meritless, the vast majority were dismissed based on defenses available under the governmental immunities provided in the Ohio Revised Code.

MVRMA’s job is to take advantage of these immunities whenever possible. But, from time to time, a city has requested we pay a small claim rather than use the available offsets. If the amount of the claim falls within the city's deductible, the request is generally granted. However, if the loss exceeds the city's deductible, it becomes a loss shared by the entire pool. As such, MVRMA has a responsibility to take advantage of the available offsets.

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Loss Control Lowdown

-Starr Markworth

Below is an article submitted by Captain John Cresie, from the Indian Hill Rangers, which discusses a recent joint operation conducted by Indian Hill and Madeira to test their emergency response to a simulated disaster. We thank him for his contribution and encourage all MVRMA members to share their loss control programs through this newsletter.

On October 27, 2005, the cities of Indian Hill and Madeira tested their response to a simulated tornado touchdown in the area of Madeira Hills Drive. Using their Emergency Operation Plan, the cities conducted a joint functional exercise designed to test the readiness of their command and control capability as well as the skills of the first responding emergency personnel. The test included more than one hundred personnel and exercise facilitators from both jurisdictions as well as personnel from the State of Ohio Emergency Management Agency, Hamilton County Emergency Management Agency and Homeland Security.

This exercise was the latest stage of development and implementation of emergency operations planning that began in 2002 when both cities became proactive in pre-planning local responses to potential disasters. After initial development of their Emergency Operation Plan, both cities continued to be proactive with training their respective personnel and conducting joint table top disaster scenarios in 2003 and 2004. This joint exercise was a culmination of that training.

The federal government has mandated that all jurisdictions utilize an emergency response system that is aligned with the Federal National Incident Management System (NIMS) to be eligible to receive federal aid in the event of a disaster. Both Indian Hill and Madeira have recently passed resolutions to institutionalize NIMS into their local responses to comply to the federal mandates. In 2006, both cities will focus on ensuring local planning is aligned with federal requirements outlined by NIMS and will incorporate lessons learned in the joint functional exercise.

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Brokers Beat

In our last Risky Business article, we promised to highlight our Special Events Program in this edition. However, with the close of one of the most severe hurricane seasons in memory, we thought it might be timely to comment on the 2005 hurricane season, its impact on the property and liability insurance marketplace and the effects for MVRMA.

Hurricane Katrina made landfall in the Gulf Coast states of Mississippi and Louisiana on August 29 as a Category 4 storm after achieving Category 5 intensity in the Gulf of Mexico. Hurricane Rita made landfall near the border of Texas and Louisiana on September 23 as a Category 3 hurricane, and Hurricane Wilma struck Southern Florida on October 23. While all three storms were very serious, the major insurance impact of the 2005 hurricane season will be from Katrina.

Hurricane Katrina will have a different effect on the insurance marketplace than the four hurricanes in 2004. The individual losses resulting from last year's storms, and likely Hurricanes Rita and Wilma, were small enough to be retained by direct markets with little impact to reinsurers. The significant "vertical" losses in the insurance industry resulting from Katrina will cause pain to reinsurers. Many carriers have already paid premium for automatic reinstatement provisions built into their catastrophe reinsurance treaties to replace depleted capacity, and some of these markets have also purchased additional reinstatement coverage for significant additional premium. As of this writing, we are seeing initial signs of property insurance market hardening. January 1 reinsurance renewals will likely provide a clearer picture of the severity of this trend.

The insurance payouts from the 2005 hurricanes will be the second major insurance event of this decade, the first being World Trade Center events, and it is interesting to contrast the two. World Trade Center events and the 2005 hurricane losses seem to be similar in the amount of insured payouts, however, the World Trade Center losses followed an insurance soft market of almost 20 years in length and occurred at a time when industry surplus was approximately $300B. The 2005 hurricane losses fall toward the end of a hard market cycle of about three years in length with industry surplus of approximately $400B. Because of these differences, we anticipate the reaction of the insurance market will be less severe for the hurricane losses.

Because MVRMA purchases high limits insurance and reinsurance for its liability and property programs, the insurance marketplace effects of the 2005 hurricanes may impact MVRMA and its members to some degree. MVRMA’s liability placement will renew on January 1, and while it appears there will be a modest price increase, it will be influenced from other market factors and not the hurricane losses. However, there is some possibility the January 2007 liability renewal could be influenced by the hurricane losses.

The pricing for MVRMA’s property placement in July 2006 will be affected by the hurricane losses. As of this writing, we are estimating property rate increases for the July renewal to be in the range of 5% to 25%. However, because MVRMA self insures the first $200,000 of each property loss, the impact of these increases to the individual MVRMA member is greatly reduced.

MVRMA's reliance on large self-insured layers that are funded by its members tends to insulate those members from the pricing fluctuations that result from major insurance catastrophic events.

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