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How to Manage Unavoidable Risks
- Michael Hammond, Executive Director
The responsibilities of local government require the performance of
duties and delivery of services that expose municipalities and public
officials to numerous risks. In order to maintain a certain level of
services, while protecting the assets of the municipality, local government
must try to manage risks, even those that are unavoidable. So, how do
municipalities manage unavoidable risks?
The three basic strategies that can be pursued are (1) loss
prevention/control, (2) risk transfer and (3) risk retention.
In practice, a municipality will pursue a combination of the three
strategies depending on the financial benefits and costs of each approach.
Let's examine these strategies in greater detail.
Loss Prevention/Control
Loss prevention reduces the probability a loss will occur in the first
place, whereas control measures are designed to reduce the severity of
losses when they do occur. Training and workshops, addressing safety in the
workplace, and the inspections of public property are common loss-prevention
measures. For example, the city engineering department may periodically
inspect sidewalks to locate those that are damaged or deteriorating. By
making the necessary repairs, a trip and fall accident may be prevented.
Loss control or loss reduction measures such as fire extinguishers,
sprinklers, and smoke detectors can not prevent the outbreak of fire, but
they may minimize the damage.
Risk Transfer
Every municipality, no matter its size, must prepare itself for the
inevitable financial loss. Traditionally, this preparation has been in the
form of risk transfer through the purchase of insurance. Since the early
1980s, membership in an intergovernmental risk pool has become a
cost-effective choice for securing this insurance. A municipality also
transfers risk by requiring its business partners to assume the risks
related to a particular project or activity. For example, during a
construction project, a municipality may require the contractor and
subcontractors to assume the losses for any construction-related accident or
lawsuit.
Risk Retention
When a municipality retains risk, it assumes financial responsibility for
at least part of its losses. Self-insuring some of the risk generally means
spending less for insurance. Additionally, insurers consider municipalities
with self-insured retentions (SIR) to be "better risks," because they are
generally more concerned about providing a safe work environment. As a
result, municipalities with SIRs are more likely to benefit from reduced
premiums.
MVRMA has a long history of helping its members manage their unavoidable
risk. The Safety Performance Evaluation Checklist (SPEC) was developed as a
tool for member cities and MVRMA staff to determine what safety and loss
control areas need improvement. In addition, MVRMA sponsors numerous
training seminars of general interest each year. Professional management and
safety consultants, risk managers, attorneys and others knowledgeable in the
fields of risk management and loss control present these training
opportunities.
With the assistance of its broker, MVRMA transfers a portion of its risk
by purchasing insurance and entering into re-insurance agreements on behalf
of the association. These insurance products are carefully selected to meet
the needs of its members. MVRMA also encourages its members to transfer risk
to third parties who perform work or provide services for them. This
transfer of risk may include the employment of appropriate language in
leases, purchase and service agreements and contracts. Whenever possible,
contract conditions should specify the city, its employees, agents,
officials and, where applicable, volunteers as "additional insureds" on the
contractor's liability policy. Contract language should also specify the
municipality is "held harmless" from the negligence of the contractor and
any subcontractors. Sample language for these risk transfer techniques is
provided in the MVRMA Handbook.
Finally, MVRMA members establish a large self-insurance loss fund which
provides coverage between the members' deductible and the limits of any
insurance policies obtained by the Association. Once the member city
satisfies its $2,500 deductible, the next $247,500 of any property claim or
$497,500 of any liability claim is paid from the self-insurance loss fund
established for the year in which the claim occurred. These self-insured
retentions significantly reduce the cost of insurance for MVRMA members.
As you can see, membership in MVRMA provides invaluable assistance in
managing unavoidable risks though Loss Prevention/Control, Risk
Transfer and Risk Retention.
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- Dinsmore & Shohl
"Off-Duty" Police Officers and Workers' Compensation
Coverage
In most municipalities, police officers are permitted to "moonlight" in
various capacities. For example, officers are often hired by school systems
to supervise extracurricular events, by retail establishments to provide
security and quite often, they are retained to work "traffic" details by
employers who want to make it easier for their employees to get in and out
of facilities during peak hours. In those cases where the officers are paid
directly by the third party, the question often arises as to who bears the
workers' compensation responsibility in the event the officer is injured
while performing this "other" work. Unfortunately, the answer is not always
clear cut.
Ohio Courts have stated that when a police officer is "moonlighting" as a
security guard for a private company, regardless of who employs that
off-duty officer, the City's police department must provide workers'
compensation coverage if the officer is injured while acting "within the
scope of his police powers." See Cooper v. City of Dayton, 120 Ohio
App. 3d 34 (2nd Dist. 1997); Kunze v. City of Columbus Police Dept.,
74 Ohio App. 3d 742 (10th Dist. 1991).
In Cooper, a City of Dayton police officer was working as a
part-time security guard at a grocery store when he was injured while
apprehending a shoplifter. Although Cooper was out of uniform, acting on his
own time and paid through an independent contractor, because Cooper drew his
service revolver, identified himself as an officer, displayed his badge and
ordered the suspects to place their hands in the air, the Court concluded
that such activities "crossed the line" into "police activity," thereby
making the City liable for any injuries sustained incident to this arrest.
The Cooper Court concluded that any time a police officer, whether on
or off duty, encounters the presence of criminal activity, he/she maintains
a public duty and is thus acting within prescribed police powers. However,
In the course of its decision, the Court in Cooper implied it may
have found the grocery store or Cooper himself (as an independent
contractor) responsible for workers' compensation coverage had Cooper been
injured while stocking shelves or performing other work at the grocery store
unrelated to his work as a Dayton police officer.
Ohio Courts have not yet addressed the issue of whether "directing
traffic" is in and of itself a "police power." Of course, police officers
are authorized to arrest for traffic violations, and presumably, if an
injury were to occur during the issuance of a citation, the City would be
responsible for the workers' compensation coverage because the officer was
injured while performing "police activity." However, whether the authority
to merely direct and regulate traffic is a "police power" is less clear, and
therefore, if an injury occurs while an off-duty officer is simply directing
traffic, whose workers' compensation coverage would apply remains
unresolved.
In the Commonwealth of Kentucky, in City of Louisville v. Brown,
707 S.W. 2d 346 (Kentucky App. 1986), the Court examined two criteria to
determine whether an off-duty police officer injured while directing traffic
was an employee of the City or private entity for workers' compensation
purposes. Because the officer volunteered for the assignment, and because
the City did not receive a benefit from the off-duty employment of its
officer, the Kentucky Court determined that when injured, the officer was
not an employee of the City. The court then remanded the case to make the
determination whether the officer was an independent contractor or an
employee of the private entity. It should be noted, however, that in
Brown, the officer involved was "merely a traffic control officer," as
opposed to a police officer who is on duty 24 hours a day, carries a weapon
and has powers of arrest.
Also instructive in this analysis is an IRS administrative tax
withholding decision regarding the issue. See Rev Rul 74-165, CB 1974-1
p.297. Specifically, in holding that off-duty police officers who direct
traffic at a bank drive-in facility are nevertheless employees of the City
for purposes of determining liability for withholding taxes, the IRS ruled
that even though the officers were working for the bank, they were at the
same time still subject to all departmental rules of a police officer on
regular duty, and that they could be recalled by their superiors at any
time.
To avoid confusion and "surprise" in this area, municipalities are
encouraged to attempt to clarify the issue with their officers upfront when
approving requests for "moonlighting" assignments. Specifically, the City
should first make a determination as to whether it does or does not want the
officer to be covered under the City's workers' compensation risk number
while on any such assignments. In those situations where the City does not
want to be the covering entity, it should require the off-duty officers to
document they have workers' compensation coverage through either the private
entity, or that as an independent contractor, the officer has obtained his
own coverage through the State of Ohio. Absent such arrangements, it will be
left on a case by case basis to determine when the City may or may not be
held responsible for injuries sustained by police officers on "moonlighting"
assignments.
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-
Craig Blair
Reducing Employment Related Lawsuits
Currently, MVRMA has five open employment practice lawsuits, which is
about 20% of its total open litigation. In addition, MVRMA is on notice of
four employment related grievances, EEOC or Ohio Civil Rights Commission
complaints, which may become lawsuits. During the last two years, the
average cost for settling these claims has risen slightly to $36,500, while
the average cost for defense has declined $2,000 to $21,700. This figure is
still quite high, however, when compared to $8,100, the average cost for
defending all other lawsuits.
Unfortunately, the courts continue to take a lenient approach to the
plaintiffs in these cases. Historically, it has been difficult to get these
complaints dismissed. While the average dismissal rate for all other
lawsuits is 65%, only about 45% of employment related lawsuits are
dismissed.
When faced with a trial, MVRMA will always provide an aggressive defense.
But, to successfully defend these cases, we need written documentation
proving the city provided proper care, attention, training and discipline to
the plaintiff.
The preferred alternative would be to reduce the likelihood of a claim in
the first place. By reviewing the following points with all supervisors, we
may be able to reduce or at least mitigate employment related lawsuits in
the future:
1. Detailed Job Descriptions - An employee should know what is expected
when he accepts a position. If he lacks the skills needed to fulfill the
requirements of the job, he should be properly trained.
2. Performance Evaluations - Evaluations must be documented! If there is
a problem with the employee's performance, the city has to make an effort to
assist the employee with correcting the problem.
3. Distribution of Employment Related City Policies - All employees need
to know the correct procedure for reporting workplace problems.
4. Discipline or Termination - All supervisors must know and follow city
policies, union contracts and civil service procedure when disciplining or
terminating an employee.
5. Documentation - Documentation is the key to any defense. The city must
be able to provide written documentation that includes dates and witnesses
to all actions, corrective measures, warnings, discipline, etc.
6. Uninsured Damages - Some damages such as fines, punitive damage awards
and some pay or benefit claims are not insurable, and the city may be
responsible for these judgements.
MVRMA will be presenting several employment related seminars later this
summer. We encourage your support and attendance. For more information,
please contact Starr Markworth, MVRMA's Loss Control Manager.
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Starr Markworth
Want Training to Come to You?
MVRMA has amassed quite a collection of computer generated CD-ROM
training programs over the past few years. These programs include
comprehensive safety lessons that thoroughly cover OSHA requirements and
other safety factors in the work environment. In the past, these programs
were presented in cooperation with the Miami Valley Cable Council. This
year's cooperative training, however, is emphasizing a more "hands-on"
approach. Not wanting to discount the value of our CD-ROMs, we are taking
this training "on the road." I will travel to your site, set up the
equipment, administer testing and send certificates of completion to those
employees who attend. All you need to provide is a knowledgeable employee
who is willing to facilitate the discussion, as well as a site and at least
10 employees.
On March 7, the City of Vandalia was the first to take advantage of this
training opportunity by presenting "Confined Space Entry" to 20 employees
from their service, fire and water departments. Vandalia Fire Chief
John Sands noted on his seminar evaluation, "This CD-ROM seemed to have
excellent topics for all of our fire personnel for a refresher training and
initial exposure to the topics for some of the younger members." The
Vandalia Fire Department would now like to install the necessary software to
run other CD-ROM training programs available through MVRMA.
MVRMA's CD-ROM library includes the following three-hour safety training
programs: Personal Protective Equipment, Bloodborne Pathogens, Trenching &
Shoring, Accident Investigation (Public Works Supervisors), Confined Space
Entry, Personal Fall Protection, Electrical Safety, Forklift Certification
and Hazard Communication (OSHA's Right-to-Know Standard). Safety
Orientation, a four-hour program, and Fire Safety, a two-hour program, are
also available. Additionally, MVRMA offers CD-ROM training in several human
resources-related topics. Workplace Violence, Sexual Harassment, Diversity,
Teamwork and Supervisory Skills are 3-hour presentations.
To take advantage of this value-added service, simply contact me at
937-438-8878 or by email at smarkworth@mvrma.com.
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-Marsh USA, Inc.
Mold Exposures: What's the Big Deal?
What is mold? Molds are simple microscopic fungi that grow on the
surfaces and crevices of objects such as wood, carpeting and cellulose-based
objects including drown-down ceiling panels and drywall. More than 100,000
species of mold exist naturally in the environment, each at its own ambient
level, depending on locale.
The overwhelming majority of molds have little, if any, negative impact
on human health. While it may not be possible to identify specific
individuals who may be vulnerable to molds, health officials believe that
older people, small children, infants and those with compromised immune
systems are most susceptible to mold-related issues.
Approximately one hundred species of molds are suspected of having the
potential to negatively affect human health if touched, inhaled or ingested.
Mechanisms of Growth and Control
1. Temperature climate (typically above 70° F)
2. Existence of nutrient source (paper, wood, etc.)
3. Moisture is present (high humidity rather than pooled water)
When these criteria are present, mold growth can begin within 48 hours.
Mold Litigation
Clearly property owners, managers and tenants, lessors and lessees should
be concerned about this increasingly problematic exposure. Architects,
engineers, contractors and subcontractors have been sued and lost.
Historically, plaintiffs have brought suit based on theories such as, but
not limited to, negligence, strict liability, implied and expressed
contracts, constructive eviction, breach of contract and nuisance.
An Example
A Cincinnati, Ohio builder, who was profitably building over 1,500 homes
a year in the 1990s, filed bankruptcy claiming nearly $50 million in
liabilities related to mold-related claims as a result of faulty detailing
of brick veneer on exterior walls.
Available Coverage for Mold Claims
Commercial Property Policies
The insuring agreement in most commercial property insurance forms states
the carrier will pay for direct physical loss or damage to Covered Property
caused by or resulting from any Covered Cause of Loss. One threshold issue
is whether mold is simply a condition of the property or whether it
constitutes direct physical loss or damage, since mold can be found
everywhere.
Many property forms include exclusionary language that precludes coverage
for loss or damage caused by or resulting from rust, corrosion, fungus,
decay, deterioration, etc. that causes it to damage or destroy itself.
Commercial General Liability Policies
Most CGL policies will have some form of an "absolute" pollution
exclusion. As with the property coverage, the specific circumstances of the
loss and applicable court decisions will determine how coverage might apply.
Specialty Environmental Market
Given the nature of losses due to mold, most organizations will look to
specialty environmental insurers for coverage. Many pollution policies
contain language that appears to go directly to the crux issue, but as more
is learned about the developing issue, even pollution underwriters have
expressed concern and have started adding mold exclusions to their policies.
A pollution policy without a mold exclusion does not guarantee coverage for
losses due to mold. Insureds must obtain clear language to affirm coverage.
Currently, MVRMA's property policy is silent in regards to mold (not
excluded), but it is an evolving issue that carriers will be examining more
closely going forward.
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