FYI:

Michael Hammond, Executive Director

Insurance Renewals for 2005

According to insurance analysts, we are in a "transitioning" market which is softening for most property/casualty coverage. Renewals in many lines are being priced with only small percentage increases or level with expiring rates. In some cases, prices are dropping. A number of factors, including the industry sector and individual loss experience, still play a large part in the renewal rate determination.

Overall, this "transitioning" market means good news for MVRMA members. MVRMA experienced more interest from insurance carriers in writing our coverage lines, adding an element of competition back into the marketplace. It appears this "transitioning" market has also freed up some capacity. Insurers are once again seeking added market share.

MVRMA made two significant changes to its insurance program as a result of this "transitioning" market. Those changes are discussed below.

Property and Boiler & Machinery Coverage

After placing the property program for a number of years with Federal Insurance Company (Chubb Group), MVRMA selected PEPIP USA as the property insurer for 2005. PEPIP USA is the proprietary public entity property insurance program of Driver Alliant Insurance Services (DAIS). MVRMA has a long standing relationship with DAIS through the liability insurance programs of both NPX and GEM.

PEPIP USA is a unique kind of property program that is designed to protect pools and public entities. It has been the leading program for DAIS for the last 15 years. In the last ten years, it has grown from 65 members in California to having 4,458 members in 28 states. With $130 billion in total insurable property value, it is considered the largest public entity property insurance program in the world. The premiums paid to PEPIP USA now amount to $75 million annually.

The PEPIP program involves no risk sharing among its members. It is an all risk property program with a very comprehensive form. Multiple property insurance companies participate in the program, however, Lexington Insurance Company (AIG) insures the primary layer for the first $10 million. The other insurance companies participate on a quota share basis in the remaining layers up to the policy limits. DAIS monitors the ratings and financial strength of these companies and has the responsibility for adding or deleting insurance companies when necessary. There is currently a waiting list of insurance companies desiring to participate in the program.

PEPIP USA offered MVRMA very competitive rates and expanded coverage over our expiring program. The premium rate of $.038 per $100 property value represented a 33% reduction in the expiring rate of $.057. Based upon total insurable values of $750 million, this resulted in a savings of $142,500. Since the PEPIP USA program has a common renewal date of July 1 for all members, MVRMA's initial coverage is for the period 12/31/04-7/1/05. For the 12 month period 7/1/05-7/1/06, PEPIP quoted a renewal rate no greater than $.035 per $100 property value. Some of the significant coverage enhancements under this program include:

-Liability limit per occurrence increased from $100 million to $250 million.

-Flood liability limit for Zone B increased from $1 million to $25 million.

-Flood liability limit for Zone A, which was previously excluded, now has a $5 million limit of coverage.

-Business income interruption, which was previously an additional pass through charge, is now automatically included for each member up to $500,000 per occurrence.

-Extra expense liability was increased from $5 million to $25 million per occurrence.

-Newly acquired locations and buildings are automatically covered up to $25 million for the policy period at no additional charge. Previously, members were billed a pro-rata premium charge for newly acquired buildings.

-Auto physical damage coverage (on and off premises) is now covered for vehicle stated values (original purchase price), where this coverage was previously self insured by MVRMA at actual cash value.

-The self insured retention (SIR) per occurrence, funded by MVRMA, has been reduced from $250,000 to $200,000 with other SIRs for flood and earthquake similarly reduced.

-Builders Risk Coverage is now automatically included up to $25,000,000 as opposed to previously being billed as an additional charge

MVRMA began its third year of reinsuring its liability coverage document with Government Entities Mutual, Inc. (GEM). GEM is a mutual insurance company licensed under the captive insurance statutes of Washington, DC to write reinsurance. It is capitalized by the surplus contributions of its members. GEM reinsures the MVRMA coverage document for $1 million excess the $1 million SIR.

The 2005 reinsurance renewal premium to GEM was based on an increase of 13.42% in payroll exposures and an increase of 11.38% in vehicle exposures. These increases were attributed in large part to the three new MVRMA members added in 2004. The GEM premium reflected a 5.36% increase in the liability rate and a 1% reduction in the automobile liability rate.

Driver Alliant Insurance Services (DAIS), the broker for GEM, was able to secure four competitive insurance proposals for the liability coverage layer above GEM. The most competitive of those proposals was from the Illinois Union Insurance Co. (ACE). ACE proposed an excess liability insurance program with more favorable terms, conditions and pricing than our expiring program with AIG. MVRMA was able to place $5 million in coverage, excess the underlying $2 million, for an annual premium of $235,000 which was 25% less than last year. Given the favorable pricing, MVRMA is currently seeking to increase its liability limits by an additional $3 million. This would bring the total liability limit per occurrence to $10 million.

The "transitioning" insurance marketplace has had a positive effect on MVRMA's 2005 insurance placement. MVRMA was able to provide its members enhanced coverages at reduced costs.

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Counselors' Comments

 - Surdyk, Dowd & Turner

Governor Signs Lawsuit Reform Bills

On January 6, 2005, Governor Bob Taft signed into law a comprehensive lawsuit reform bill and a workers’ compensation intentional tort bill.  These bills go into effect 90 days after they are signed by the Governor and filed with the Secretary of State.

Senate Bill 80 sets forth a comprehensive tort reform package, and addresses issues ranging from damage awards to immunity for obesity lawsuits. In particular, this bill places the following limits on non-economic and punitive damages:

Punitive Damages Provisions

1) For large employers - damages are limited to two times the amount of compensatory damages;

2) For small employers and individuals - damages are limited to the lesser of two times the compensatory damages, 10% of the employer’s/individual’s net worth, or $350,000.00;

3) A "small employer" is an employer who employs not more than 100 employees on a full-time permanent basis in the non-manufacturing sector, or not more than 500 employees on a full-time permanent basis in the manufacturing sector;

4) Prejudgment interest on punitive damages is expressly prohibited; and

5) A defendant is entitled to a bifurcated trial upon request in order to ensure that a jury’s punitive damage award is not improperly influenced.

Noneconomic Damages Provisions

1) Non-catastrophic injuries are limited to the greater of $250,000.00 or three times the amount of economic damages, up to $350,000 per plaintiff and $500,000 per occurrence; and

2) Answers to interrogatories specifying how much of an award was for economic loss versus noneconomic loss must accompany general verdicts.

Although noneconomic and punitive damage awards can still be significant, these limitations add a sense of security for Ohio employers.

In addition, Senate Bill 80 also modifies Ohio’s collateral source rule. Ohio defendants were previously prohibited from introducing evidence that the plaintiff received any benefits from sources outside of the dispute, i.e. benefits from collateral sources such as insurance companies. However under the new law, a defendant in a tort action may introduce evidence of any amount payable as a benefit to the plaintiff as a result of damages that result from an injury, death or loss to person or property. The bill carves out certain exceptions to this rule for collateral sources that have a mandatory self-effectuating federal right of subrogation, contractual right of subrogation or statutory right of subrogation. Additionally, if the defendant opts to introduce evidence of "collateral sources," the plaintiff may then introduce evidence of the amount paid by him to secure those benefits. In making these revisions to the collateral source rule, the Legislature recognized that the rule allowed the plaintiff to "double-dip" by recovering the full amount of damages twice. The current changes to this doctrine come in light of the fact that twenty-two other states have modified or abolished the collateral source rule.

House Bill 498 creates a new statutory cause of action for employment intentional torts, replacing a statute previously found to be unconstitutional by the Ohio Supreme Court. The bill was enacted to limit the parameters, and reduce the volume, of intentional tort cases brought as a result of an injury on the job. Under this bill, an employer is not liable unless the plaintiff proves that the employer acted with an "intent to injure" or in "belief that the injury was substantially certain to occur." "Substantially certain" means that an employer acts with "deliberate intent" to cause the employee to suffer an injury, a disease, a condition or death.

Id. The bill creates a rebuttable presumption that the employer acted with deliberate intent to injure based on either the deliberate removal of an equipment safety guard or deliberate misrepresentation of a toxic or hazardous substance. Finally, the bill limits intentional tort claims against employers by specifically excluding the following claims arising during the course of employment:

1) Claims involving discrimination, civil rights, retaliation and harassment in violation of Ohio’s civil rights law (R.C. Chapter 4121);

2) Claims for intentional infliction of emotional distress not compensable under Ohio’s workers’ compensation (R.C. Chapter 4121 and 4123); and

3) Claims for contract, promissory estoppel and defamation.

Whether or not this latest statute will withstand judicial review remains to be seen. On three previous occasions the Legislature enacted legislation deemed to limit the parameters of an intentional tort. On each occasion, the statute was struck down by the Ohio Supreme Court.

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The Claims File

- Craig Blair

Although MVRMA had more members than ever before, the total number of claims reported for 2004 as of December 31 (322) was down significantly from the previous year (405) and was also less than the previous five year average (361). The average value for these claims ($1,062) was also significantly less than the previous five year average ($1,480). There have been only three lawsuits filed against 2004 so far, but that figure may increase since the statute of limitations in the State of Ohio is two years. At this point in time, LY 16 (2004) appears to be a good year.

In 2004, $350,000 was transferred from the Shock Loss Fund to LY 13 (2001) to cover unfunded reserves. All other open loss years appear adequately funded at this time.

A total of 18 lawsuits were filed against various loss years in 2004. While this figure is up significantly from 2003, it is about what we would expect. Severity rather than frequency is the only factor to consider when analyzing litigation, and staff has no real concerns about Loss Years 14-16.

Subrogation, filing for reimbursement against third parties that damage city property, is one of the value added services provided by MVRMA.  For Loss Years 1996-2003, there was an average 58 claims per year with an average collected of $3,831.  For Loss Year 2004, there were 51 claims with an average collected of $2,090.

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Loss Control Lowdown

-Starr Markworth

It's the Year for a Safety Program

It’s the start of a new year and what better time to start a safety program at your city or enhance your current safety program.

Starting a safety program may at first seem to be an almost overwhelming task. However, there are resources available at MVRMA that can help you develop and organize your program in such a way as to enhance its chances of success.

Your city, being a member of a public entity risk pool provides some benefits. Just recently, the newsletter published by the Public Entity Risk Institute (PERI) came across my desk with an article that sparked my interest. An online workplace safety resource geared toward public sector organizations was launched by the Nonprofit Risk Management Center. "Workplace Safety Is No Accident: An Employer’s Online Toolkit to Protect Employees and Volunteers" contains a wealth of information, guidance, checklists, links, fact sheets and online resources to help any organization build a safer workplace. This online resource is available to public entities at no charge and can be accessed through the Nonprofit Risk Management Center Website at www.nonprofitrisk.org. The toolkit contains, among other resources: fact sheets on nearly 90 workplace safety topics, checklists on 60 areas of workplace safety, more than a dozen sample forms, sample policies, sample manual language and tip sheets. Please take a look at this resource, and take advantage of the information available to you at no charge. Make sure you access the public entity section located at the very top of the toolkit homepage because there’s a nonprofit section as well.

MVRMA is always available to assist in the creation or review of programs and policies relating to safety and risk management. Additionally, we have sample safety manuals from other entities that you may borrow.

The video and cd-rom multimedia library is a cost-effective way to enhance in-house safety training and is available at no cost. The video catalog is available at www.mvrma.com under Training and Loss Control.

Please contact me at 937/438-8878 or smarkworth @mvrma.com to discuss how MVRMA can assist you in developing or revamping your safety program. I would be happy to schedule a time to attend your city's safety committee meeting or staff meeting.

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Brokers' Beat

Marsh USA Inc.

A Risk Management Perspective of Ohio Workers' Compensation

-Matt Blair, AVP, Marsh Risk Consulting

While the Ohio Bureau of Workers’ Compensation (OBWC) has recently announced another one-time 20 percent dividend on employers' upcoming bills, workers’ compensation costs in the state of Ohio continue to rise. To offset rising workers’ compensation costs, employers need to take a proactive approach to managing and mitigating these costs through both Bureau sponsored programs and employer directed initiatives.

The OBWC sponsors several programs and rating options directed at helping employers achieve safer work environments and discounts on their premiums. Such programs offered by the OBWC include: Premium Discount Program, Drug Free Workplace Program and Group Rating.

Premium Discount Program (PDP) is specifically designed for penalty-rated employers as an incentive to establish good safety practices by requiring them to complete OBWC’s 10-Step Business Plan and allow OBWC to review safety program progress. The PDP is a four-year program with available discounts of 10% for the first two years and 5% for the remaining two years.

Drug Free Workplace Program is an incentive program to assist employers in the development of a drug free work environment. The program is five years and provides discounts up to 20% for the highest level.

Group Rating plans allow similar businesses and organizations to group together in order to potentially achieve lower premium rates than they could individually. Potential premium savings could be as much as 95%.

Even if they are participating in Bureau sponsored programs, employers must still emphasize control of their own policies and procedures and focus on those items which they can directly influence. Major areas in which employers can affect control can be summarized by the following: accident prevention, hiring and training practices, post-injury analysis and investigation, disability management, return to work and wage continuation.

Accident Prevention is key because the best injury is the one that never happens, it’s also the cheapest.

Hiring and Training Practices from pre-employment screening to follow up training assist in lowering costs.

Post-Injury Analysis and Investigation includes timely and accurate accident reporting, post accident drug screening, frequent communication to monitor the injured employee and make sure he/she understands the process and investigation.

Disability Management are activities that mitigate a claim once an employee is injured. The medical provider plays a large role in an injured worker’s disability. A provider who understands your company’s philosophy relative to return to work and understands the type of work being completed, will be able to return employees with restriction into some productive work until they are capable of fully returning.

Return to Work (RTW) through transitional or modified duty may be the single most important intervention into reducing claim cost. An effective RTW program provides alternatives to lost time, that portion of the claim cost that will most greatly affect reserves.

Wage Continuation, much like return to work, can greatly control WC costs and resulting premiums paid to the OBWC. By paying wages, in lieu of OBWC's paying temporary total, the employer is preventing an indemnity reserve from being established (an increased reserve results in an increased premium for the employer).

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From the Board Room...

At the December 20, 2004 Quarterly Board Meeting, the following actions were taken:

- Approved the 2005 Liability Program as follows:$1M x $1M with GEM for $266,235; $8M x $2M for a maximum premium of $305,000

- Approved property coverage with PEPIP for the period 12/31/04-7/1/06

- Approved the 2005 crime coverage and bond placement through Marsh

- Approved the 2005 Final Budget and Objectives/Work Plan

- Accepted the 2005 Claim Audit

- Approved the settlement in Porter vs. Wilmington

- Elected the following slate of officers for 2005: President: Tom Judy, Sidney; Vice Pres.: Sue Knight, Troy; Secretary: Julie Trick, Vandalia; Treasurer: Tom Reilly, W. Carrollton

- Approved the following Board Meeting dates in 2005: March 21, June 20, September 19 and December 19

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