Cities’ Liability Insurance Rates Soar Up to 730%

San Gabriel Valley cities are struggling to cope with liability insurance rate increases of up to 730% being levied by insurance companies trying to recoup losses from mounting claims.

The cities are shopping around among a dwindling number of carriers for basic liability policies, paying more money for less coverage and, in some cases, doing without.

In Glendora, premiums zoomed from $40,000 to $332,000, more than a sevenfold increase in one year, and Finance Director Samuel Shwetz said the city was lucky to find coverage at any price. “We couldn’t get coverage,” Shwetz said. “We were actually uninsured for four days.”

El Monte spent months shopping around for coverage and wound up paying 555% more for a policy that provides substantially less protection. Rates jumped from $37,000 for fiscal 1984-85 to $242,591 for 1985-86.

Pasadena, whose policy has been canceled effective Oct. 15, is contemplating going to a self-insured program. “We’re seriously considering going bare,” claims coordinator Bob Hays said. “We’re big enough that we can afford some losses.”

Dilemma for Small Cities

Larger cities such as Pasadena can afford to be self-insured, and most other cities will be able to absorb the higher premiums. The insurance crisis, however, poses a serious dilemma for some cities.

Tiny Bradbury’s insurance woes could threaten its financial stability, City Manager Dolly Vollaire said. Bradbury, which has only 873 residents, paid $2,000 for its policy last year. This year, it has been quoted rates as high as $100,000, nearly half the city’s budget, forcing Bradbury to go without insurance until it can find affordable coverage. “We’re in limbo,” Vollaire said.

Bradbury, which contracts with the county for high-risk services such as police and fire protection and has not paid a claim since incorporating 25 years ago, is considering the idea of creating its own self-insurance fund with money it had allocated for premiums. But Vollaire acknowledged that a small self-insured city could face bankruptcy in the event of a major lawsuit. “We couldn’t survive,” she said.

City and insurance industry officials attribute the rate hikes primarily to the increasing number and size of lawsuits being filed against cities. As a result, all but a handful of companies have stopped writing liability policies for cities and other government agencies. General liability policies cover claims for damages from accidents and other mishaps involving city employees or property.

John McCann, regional vice president of the New York-based Insurance Information Institute, said another reason for the suddenness of the increase was a price war from 1979 through 1984, when rates were kept artificially low as insurers competed for premium revenue that could be invested at a hefty profit. But declining interest rates and rising claims changed all that. Consequently, 17 companies went out of business last year, the most since 1974, McCann said.

‘We Took a Bloodbath’

“The prices were understated 300% to 700%,” said McCann, whose organization represents 320 insurance companies nationwide. “They should have increased as long as a year ago. The industry has had to turn around and once again start charting price relative to the loss picture. An insurance company can only insure so much. You’re going to do business where you have less risk and municipal liability is really close to the top. We took a bloodbath in municipal liability.”

For the 13 cities in the San Gabriel Valley holding private insurance coverage, total premiums increased 228%, from $679,532 in fiscal 1984-85 to $2,229,296 this fiscal year. In this group are Alhambra, Arcadia, Azusa, Baldwin Park, El Monte, Glendora, Industry, Monrovia, Monterey Park, Pomona, San Gabriel, Walnut and West Covina.

Ten other cities belong to the Southern California Joint Powers Insurance Authority, a group of 45 cities that have pooled their resources to operate a self-insurance program. The cities are Claremont, Duarte, La Puente, La Verne, Rosemead, San Marino, San Dimas, South El Monte, South Pasadena and Temple City. Their premiums increased a relatively modest 47.6%, from $605,003 in fiscal 1984-85 to $893,507 this fiscal year. However, coverage was reduced to $10 million per accident from $35 million.

Covina and Sierra Madre have not had to seek insurance yet because their policies have not expired.

Big Hikes ‘Not Justified’

George Anast, manager of the Southern California Joint Powers Insurance Authority, acknowledged that insurance companies had suffered some losses, but insisted that the sizes of the rate increases “were not justified by any stretch of the imagination.”

Anast and others agreed, however, that cities have become a favorite target of lawsuits because they have “deep pockets.” Under the “joint and several liability” legal guidelines followed in California, a defendant who is only 1% liable but has substantial assets can be forced to pay 100% of the damages.

“It’s the typical problem of a litigious society where everyone wants to sue everyone for anything and everything,” said David Bentz, director of management services for Monterey Park.

Most cities in the San Gabriel Valley have had good records over the years, with few if any claims above their deductible, officials said. But rather than face the prospect of substantial legal fees in defending against a suit and the possibility that they might be found marginally liable and be forced to pay the entire claim, cities often settle rather than let a case go to court.

“It takes so much money to defend these things, you end up settling to get it off the books,” Duarte City Manager Ken Caresio said.

El Monte Case Settled

El Monte recently settled a 1981 claim involving a motorist who drove through a stop sign and plowed into a trash bin on city property next to the street. An injured passenger sued the driver, the tavern where they had been drinking, the dumpster owner, the dumpster manufacturers and the city. The driver had no assets and no insurance, City Atty. Sidney Maleck said, but the plaintiff settled with the other parties for more than $1.5 million.

The plaintiff also pressed a damage claim against the city, contending that it was negligent in allowing the dumpster on public property, Maleck said. Facing the prospect of paying up to $3 million if El Monte were found even 1% liable, the city and its insurance carrier settled out of court for $195,000, Maleck said.

In La Verne a few years ago, an elementary-school student left a sidewalk and ran between two parked cars onto a street where she was struck by a car and seriously injured, Assistant City Manager Marty Lomeli said. The girl’s parents sued the motorist, along with the school district, the county Flood Control District, which designed the street, and the city. La Verne recently agreed to pay the girl $40,000 annually until she reaches age 21.

City officials said they hope that Senate Bill 75, which would limit damage claims anyone would have to pay to the percentage of their liability, will provide some relief. The measure, authored by Sen. John F. Foran (D-San Francisco), was passed by the Senate on May 16 and now is in the Assembly Judiciary Committee.

THE HIGH COST OF CITY INSURANCE Multimillion-dollar jury awards and a dwindling number of insurers have increased the cost of basic liability policies for San Gabriel Valley cities by as much as 730%. The spiraling cost of municipal insurance premiums has cities scrambling for new ways to protect themselves.

City Insurance Premium Coverage/Deductible 1984-85 1985-86 1984-85 1985-86 Alhambra $55,000 $167,00 $10 mil./$50,000 $10 mil./$100,000 Arcadia $25,000 $125,000 $10 mil./$300,000 $10 mil./$300,000 Azusa $70,000 $90,000 $10 mil./$50,000 $10 mil./$500,000 Baldwin Park $37,253 $175,711 $10 mil./$250,000 $5 mil./$250,000 Bradbury $2,000 NA $1 mil./$250 NA Claremont $120,119 $170,673 $35 mil./$10,000 $10 mil./$10,000 Covina $71,110 NA $10 mil./$100,000 NA Duarte $32,000 $78,000 $35 mil./$10,000 $10 mil./$10,000 El Monte $37,000 $262,591 $10 mil./$100,000 $10 mil./$500,000 Glendora $40,000 $332,000 $10 mil./$100,000 $10 mil./$100,000 Industry $133,000 $262,000 $100 mi./$100,000 $10 mil./$100,000 La Puente $26,320 $35,414 $35 mil./$10,000 $10 mil./$10,000 La Verne $70,000 $121,948 $35 mil./$10,000 $10 mil./$10,000 Monrovia $35,565 $55,960 $10 mil./$50,000 $10 mil./$100,000 Monterey Park $97,650 $87,000 $20 mil./$50,000 $1 mil./$50,000 Pasadena $123,275 NA 50 mil./$250,000 NA Pomona $74,725 $343,000 $10 mil./$100,000 $20 mil./$100,000 Rosemead $63,384 $77,746 $35 mil./$10,000 $10 mil./$10,000 San Gabriel $28,187 $119,886 $11 mil./$15,000 $6 mil./$50,000 San Dimas $60,000 $88,000 $35 mil./$10,000 $10 mil./$10,000 San Marino $61,350 $95,175 $35 mil./$10,000 $10 mil./$10,000 Sierra Madre $135,000 NA $5,148,000/$1,500 NA South El Monte $22,454 $42,271 $35 mil./$10,000 $10 mil./$10,000 South Pasadena $105,175 $129,230 $35 mil./$10,000 $10 mil./$10,000 Temple City $44,201 $55,050 $35 mil./$10,000 $10 mil./$10,000 Walnut $34,680 $49,148 $5 mil./$1,000 $5 mil./$25,000 West Covina $45,000 $180,000 $10 mil./$150,000 $10 mil./$150,000

Claremont, Duarte, La Puente, La Verne, Rosemead, San Marino, San Dimas, South El Monte, South Pasadena and Temple City are among the 45 members of the Southern California Joint Powers Insurance Authority. Each member city pays a $10,000 deductible for each claim. The members share in the loss if the amount is between $10,000 and $500,000. Losses over $500,000 are covered by insurance. * NA means Not Available.