Transit Firms Join Scramble for Insurance

The recent failure of Transit Casualty, one of the nation’s largest insurers of public transportation, has sent hundreds of cab and limousine drivers and municipal transit operators across the country scrambling to find liability insurance.

About 108 transit operations in California have lost or soon will lose their coverage from the company, which in the last two weeks has been declared insolvent by insurance regulators in California and Missouri. Officials from both states are involved--and fighting over control of the company’s assets--because Transit Casualty is incorporated in Missouri and headquartered in Los Angeles.

Among the transit agencies affected are Omnitransit, which operates 80 buses in San Bernardino, and Riverside Transit Agency, which runs 46 buses in west Riverside County. Both have found replacement insurance, which the law requires that they have, but only after an extensive search and by paying significantly higher rates that they say eventually could raise bus fares. But other operators, such as Roberts Holiday Line, a private charter bus line in Santa Ana with 100 vehicles, have not been so lucky.

“We haven’t found anything reasonable,” said Greg Erbe, operations manager for Roberts, adding that estimated premiums are about 300% higher than under the old coverage. “And these are just quotes--hearsay really. We’ve been able to get nothing in writing. Who knows if we can really get it at all?”

Steven Bledsoe, chief lawyer of the Missouri division of insurance, said that Transit Casualty’s bookkeeping is “a mess,” with large chunks of potential insurance exposure improperly recorded. Investigators say it will take several months before they can determine whether the problems are the result of sloppiness or fraud.

Either way, Transit Casualty’s failure is another blow to financially beleaguered public transportation officials, who have watched the availability of liability insurance shrink even as premiums skyrocketed. Its failure is the most recent sign of a broader liability insurance crisis that is afflicting lawyers, doctors, day-care centers, high-tech and low-tech industries alike.

Serve Only a Handful

In Transit Casualty’s case, regulators say that some replacement coverage has come from Insurance Co. of Maryland, a surviving subsidiary of Transit Casualty that is incorporated in Maryland but also based in Los Angeles. But one regulator, who spoke about the case on condition that he not be identified, warned that the subsidiary can serve only a handful of those needing new coverage.

Transit Casualty, which itself is the only remaining asset of its liquidated former holding company, Los Angeles-based Beneficial Standard, has been fighting financial problems for more than a year.

Last April, Missouri regulators forced it to stop writing new policies. Then on Nov. 26, they took control of it when they discovered that it had only $35 million from which to pay $85 million in such financial obligations as approved claims, bank debt and payroll.

Missouri regulators said they had hoped at that time to reorganize or sell the company. But, within a week of seizing control, they declared Transit Casualty insolvent because they found that it had been losing money at rate of $2.2 million a week, Bledsoe said.

California officials joined the liquidation proceedings Dec. 4, when the Los Angeles County Superior Court allowed them to seize control of Transit Casualty and oversee its liquidation. The ruling pits California and Missouri officials against one another in a fight to oversee how the company’s assets are divided. Last Thursday, California officials announced that they recognize that the company is insolvent and plan to make that finding official at a formal hearing Jan. 8.

Missouri officials have canceled all policies effective Friday. The order is good only outside California, however, because officials here mailed letters last week advising customers to obtain other insurance as soon as possible but postponing cancellation of existing California policies to Feb. 7.

Special Funds Exist

All states, including California, have organized special funds, with money from insurance companies, to pay claims of failed carriers, but such financial cushions usually cannot cover full claims. In California, for example, claims of up to $500,000, minus a $100 deductible, will be paid by the California Insurance Guarantee Assn.

Whether the state’s fund will recover some of those payments with assets from Transit Casualty depends on the outcome of the tug-of-war between Missouri and California for first claim on the assets. But officials also warn there may not be much left to fight over. “It could be 25 cents on the dollar, it could be 50 cents, it could be 70 cents. That remains unknown, and it could take years to figure out,” Bledsoe said.

Meanwhile, although some transportation agencies have replaced their coverage, they have paid a high price to do so. Omnitransit’s new rates, for example, are 132% higher than last year and Riverside’s are 300%.

Even those not directly affected could feel a financial pinch from the company’s failure. “We don’t have a policy with Transit Casualty, so there’s no direct impact on us,” said Jack Gabig, director of planning and marketing for Long Beach Transit, a bus fleet of 180. “But, with another major liability carrier pulling out of the market, that decreases the supply of insurance and is likely to push up the price of premiums.”

The Southern California Rapid Transit District, which operates 2,000 buses in Los Angeles and is the third-largest public transit agency in the country, also felt no immediate impact from Transit Casualty’s insolvency. But its officials are well aware of the long-term consequences of such financial troubles on the insurance industry: Last year RTD saw its liability rates soar to $3.2 million, a 4,676% jump from the previous year.