Loading...
03-30-78SpMtg 329 MARCH 30, 1978 A Special Meeting of the City Council of the City of Delray Beach, Florida, was held in the Council Chambers at 4:08 P.M., Thursday, March 30, 1978, with Mayor James H. Scheifley presiding, City Manager J. Eldon Mariott, Assistant City Attorney Clifford Shandy, and Council members Robert D. Chapin, Aaron I. Sanson, IV, and Leon M. Weekes, present. Councilman David E. Randolph was absent. Mayor Scheifley called the meeting to order and announced that same had been called for the purpose of consideration of Managed Retention Insurance Program. Ted Siver, of E.W. Siver & Associates, Inc., presented Council a 5-page booklet containing specifications and solicit proposals for a managed retention program for the City and explained each item outlined in the booklet. He stated that before Council considers the proposals, he wants to be sure they understand what a Managed Retention Program is; that is, that the City will assume its own losses up to a level and when that level should be exceeded at any claim or aggregate of claims, as it were, then the insurance company, the stop loss company, would take over - then it is the City's obli- gation to hire the proper services, meaning loss adjustment, loss control and safety, etc. He stated emphasis was on managed retention and specifications called for managed retention, which is their model program; however, they will accept any kind of 'proposal people want to make. Mayor Scheifley questioned that when you talk about a deductible of $100,000 or $50,000, what determines it - the original claim or the final claim? It was answered that the deductible is based on the final claim. Mr. Siver stated that the City pays the first $50,000 no matter what happens, or the first $100,000, or whatever the contractual terms are. Mr. Siver noted there are three plans under Worker's Compen- sation - Retro-Annualized 3 Year Plan, Guaranteed Cost, and Managed Retention Program. He proceeded to explain each plan and noted that under the Managed Retention Program for Compensation, there is an aggregate stop loss - that is when the losses got to $230,000, that aggregate feature would take over. Under the liability program, there is no aggregate feature; therefore, the City could have a series of $100,000 losses, or whatever, and they would all be on them. Mr. Sanson stated that, if he understands correctly, the City would be, basically, responsible for the administrative part of this. Mr. Siver confirmed this and stated that the legal defense is included in this as part of the loss. Mr. Chapin asked Mr.~ Siver what would he recommend. Mr. Siver stated that he thinks it depends on the Council's frame of mind about the sovereign immunity statute; if Council wants absolute security with a top on everything, then he would suggest the Retro- spective Rating Proposal submitted by Mr. Galloway through the Atlantic Agency. On the other hand, if you're following the lead philosophy that everybody seemed to be interested in in January, then the Managed Retention Program is the way to go. The distinction between these two programs is that (1) under Worker's Compensation under the Managed Retention Program, you have $1 million excess of your self-insured retention as opposed to, under the insured program, whatever is paid out; (2) you have no aggregate under general liability and the impor- tance of that and the decision of that has to do with Council's feelings about the sovereign statute because therein lies the limita- tions; the protections that would tend to make all that practical. Mr. Sanson asked Mr. Siver, at this point, what does he feel are the current statewide interpretations of the sovereign immunity statute. Mr. Siver stated he was feeling very good about it until last week; they had an Attorney General's opinion and then they had a Second District Court of Appeal render a very obfuscated decision having to do with subparagraph 9, dealing with the immunity of the individual, and whether, in fact (this does not apply to municipalities), the action was only against the County, or School Board, or part of the State and whether the indemnity agreement included in statute for the individuals was, in fact, legal. There are three decisions - two say it is and one says it isn't. Mr. Siver stated that his feelings, and he is not a lawyer~ is that the statute is there, it is written now rather clearly and he thinks that until it is repealed or until Resolution 93 and the Constitution Revision Committee be- comes fact where .they waive all immunities, which is now a possibi- lity, there is no reason not to accept 768.28 for what it says. Mr. Weekes stated he would like to go back to Compensation to look at the alternatives; assuming that the City would reasonably expect $50,000 in losses and, if they take the retro plan, their ~ expense would be $20,291, as opposed to under the Managed Retention Program, $96,117, the City has saved $24,000 plus the earnings, which is fairly small. Mr. Siver noted that you have a five year pay-out on compensation losses for a single year; therefore, you have money compounding all the time. He stated he would say $50,000 might be a little more liberal than they should use. Mr. Weekes stated that his point is that, if they really get a bad one, then look at where the City stands - you have an absolute max cost of $230,000 under the Retro Plan, $298,000 under the Managed Retention Plan; the fear he has with the exposure they have with the police officers, fire fighters, the City could, at any time, pick up a really bad compen- sation case. He stated that they have been very fortunate, but the history of this City is that you don't stay that fortunate forever. He stated he has to weigh whether $25,000, $30,000 or $35,000 poten- tial saving is worth the potential loss in dollars to the City which, in this case, a maximum would be $68,000. Mr. Weber, the City's Finance Director, noted that within the last 15 to 17 years, the City has had about three or four serious losses. Mr. Weekes asked Mr. Weber if he feels, as Finance Director, that the City should go with the Managed Retention Program on Work- man's Compensation. Mr. Weber stated this would be his recommendation. Mayor Scheifley asked which of these is the most conservative, if the City should have a real bad year and a couple of bad cases, which would be the best to have as far as coverage? Mr. Siver stated that if you're talking about the one that is absolutely the most rock bound conservative, it would have to be the Guaranteed Cost, but you don't have any chance if you have to go back to your savings. Mr. Weekes stated he would rule out the Guaranteed Cost because the City has a good chance of beating the average and on either one of the other two plans, you have a chance to save some money, so the question is which way to go and how much money you have an option of ~saving. He stated the only thing that really concerns him is the jumbo loss on compensation rather than public liability. Mr. Siver noted that the jumbo loss for the City would be -~ $150,000 plus the cost and there is the $1 million excess of $150,000 over the compensation; another point to be considered is that the decision should be made to the extent that they are able not to con- fine it to a single 12 month period. Mr. Siver stated he thinks they are talking about a whole change of philosophy as to how you're going to use insurance and how the City is going to shift risk from now on. Possibly, they need to do some companion programs or possibly some funded reserving in addition to what they are talking about here so they can become less and less dependant on the insurance industry; so that they can accept higher and higher self-insured retentions because, in fact, they have actual funds put aside for it. Just to say "gosh, we shouldn't take any risk for just $25,000", is part of the picture but not the total picture. What they have been looking at is a very steep ascension of cost for which there didn't seem to be any great justification from one town to another; so they were - 2 - 3/30/78 331 trying to determine alternatives and there are only two ways to do that (1) is the way by Retrospective Rating Program where everything is within the basic embrace of an insurance company and you have adjustment based on losses subject to maximum (2) the other side is where you don't use the insurance company and you buy the so-called stop loss, do your own services and get your own earnings. Mr. Chapin asked that under the Managed Retention Program, it is some time before you could do the insurance defense work, but the first $50,000, does the City provide its own or does the Hewitt Agency provide investigative, legal defense? Mr. Siver stated that when the complaint is presented or when the loss occurs, then the investigation, the claim handling, etc., are part of Hewitt's responsibility and the cost is already there. They would set the reserve and counsel with the lawyers, if it were a very serious case, etc. Mr. Chapin questioned whether the lawyers would be of Hewitt's choosing; Mr. Siver said no, the lawyers would be of the City's choosing. Mr. Weekes stated that there is an assumption on the analysis of losses of 64% WC, 18% GL and 18% Auto. Just for the sake of conversation, if the percentage was reversed, where you would have 18% WC and 64% in the other two categories and you have $200,000 in losses, how would that affect the relationship between the retro and managed retention? Mr. Siver answered that it would improve the relationship, if the figures were reversed, because you only have a $50,000 self-insured retention for liability and you have $150,000 for compensation. Upon question by Mr. Sanson, Mr. Siver stated that the loss level assumption is based on the last five-year period for both compensation and liability. Upon question by Mayor Scheifley, the City Manager stated he would go with the Managed Retention Plan. He stated, with the Managed Retention Plan, he doesn't see that the City could get hurt that much and, he thinks, there is a good chance they could save the City $25,000 to $50,000. The City Manager asked Mr. Siver if he foresees the City incurring very much additional personnel expense in-house, as a result of going to the Managed Retention Plan, if Council decides to do that? Mr. Siver answered that Hewitt is going to do the compen- sation and Gallagher is going to do the liability; there will definitely be a greater input, a greater direct relationship because, as the liability claim develops, there should be consultation between Gallager (as an example) and the City Attorney and perhaps the City Manager whether to engage outside counsel; however, he can't see the need for use of very much City personnel time by doing this. Mr. Sanson asked how do they get into the administrative end of it. Mr. Siver stated that Hewitt and Gallagher do it. Part of the specifications require that they do all the processing, they do all of the filing for the necessary self-insurers, they produce all of the loss experience, they set the reserves; all of this is done through their computers. Mayor Scheifley stated that since Mr. Weber and the City Manager make the same recommendation and they are the closest to it, he would go along with their recommendation. Mr. Chapin stated that his feelings are that until and at such time, that it is found to be unconstitutional, the presumption'is that it is constitutional, and has been upheld in other jurisdictions outside of Florida, starting with that premise and the realization that they are going to have to concur with private counsel outside the districts of the City Attorney's staff, which is all part of the - 3 - 3/30/78 expense in the overhead, he leans favorably toward the.Managed Retention Program. Mr. Weekes moved that the City accept the proposal made by R. P. Hewitt Agency for the Worker's Compensation and the Gallagher Agency for Public Liability for a Managed Retention Program for the City of Delray Beach, seconded by Mr. Chapin. Said motion passed unanimously. Before roll call Mr. Sanson stated that he thinks the sovereign immunity law is there and is going to be upheld and has merit and sub- stance to it; he does not see any problem with it. He stated he has tried to keep up with the Managed Retention Program through the articles that have come out about it with other cities that have looked at it and experiencing it, and he has not heard any derrogatory problems with it. With Mr. Weber's and the City Manager's concurrence he would go along with it. Mr. Weber commented that even though the initial cost will not be much to begin with, when it comes budget time, he certainly hopes that Council will remember that they want to set money aside for future losses, or even to cover current losses that may not have been paid yet, and not do a lot of cost cutting out of this part of the budget. Mr. Sanson asked Mr. Weber if he knows what they are going to recommend on this. Mr. Siver stated they don't know but, as an example, ultra-Conservatives might recommend the premiums that would have otherwise been charged by the current plan; they would start the first year with this and then decide. At this point the roll was called. Mr. Sanson mOved, at 5:10 P.M., for the adjournment of the meeting, seconded by Mr. Chapin. Said motion passed unanimously. -City Clerk MAYOR ~/ The undersigned is the City Clerk of the City of Delray Beach and that the information provided herein is the minutes of the meeting of said City Council of March 30, 1978 which minutes were formally approved and adopted by the City Council on ~~ ./~,~, /~?f . City Clerk NOTE TO READER: If the minutes that you have received are not completed as indicated above, then this means that these are not the official minutes of City Council. They will become the official minutes only after they have been reviewed and approved which may involve some amendments, additions or deletions to the minutes as set forth above. - 4 - 3/30/78