La Canada Without Liability Insurance

In La Canada Flintridge, ‘tis the season to be careful.

Officials there are counting on an accident-free holiday season because the city is without liability insurance and expects to remain that way until the middle of January.

The city’s policy with Chicago Insurance Co. expired Dec. 8. There was no chance to renew the policy because that company has stopped offering liability insurance to municipalities. Even though the city shopped around for three months before the policy expired, officials could not find another company willing to sell the city liability coverage.

“There were no quotations at any price,” City Manager Don Otterman said.

The city, however, is awaiting word on its application to the Joint Powers Insurance Authority, 43 cities that have pooled their resources to buy insurance from a private firm.

$43,000 for Coverage

Otterman said La Canada Flintridge has been recommended by a subcommittee of city managers from member cities and expects to win approval from the authority’s executive committee, which will vote on Dec. 30. After that, he said, it will take about two weeks before the city has liability coverage.

If accepted, La Canada Flintridge would put about $43,000 into the joint powers fund, a figure based on the city’s last premium, Otterman said. The insurance company would handle any claim for more than $300,000 and a reserve group fund would take care of any claim for lesser amounts, he said.

At the end of the year, cities with poor liability records may be penalized and cities with good records may get refunds from the pool, Otterman said.

Under the Chicago Insurance policy, the city paid a premium of $20,271 for $300,000 worth of insurance, with a $5,000 deductible. It also had two umbrella policies of $10 million each, at a cost of $12,500 and $6,863.

Southland cities belonging to the joint powers group include Temple City, Rosemead and South Pasadena. Most members are contract cities, like La Canada Flintridge, which pays Los Angeles County for police and fire protection and other public services. Being a contract city takes some of the pressure off La Canada Flintridge because the sheriff’s and fire departments carry their own insurance, Otterman said.

General Fund as Backing

Although La Canada Flintridge remains uninsured, it will have to count on the $10 million in its general fund to back any valid claim against the city, Otterman said. The city has hired an insurance adjuster to process any claim made while it is uninsured and will continue to turn over to the city attorney any claim it feels is unwarranted, he said.

“We’re not going to just open our checkbook up and start writing,” Otterman said. “It’s not going to be just a simple thing to file a claim against the city and have us pay.”

La Canada Flintridge’s insurance woes stem from a legal doctrine known as joint-and-several liability that has made it difficult for many cities and counties across the country to get liability insurance.

‘Deep Pockets’ Rule

Under the doctrine, in a lawsuit with two or more defendants, the one with the best ability to pay--or the “deep pockets”--can end up footing the bulk of a settlement, regardless of the degree of blame.

That rule has made insurance companies increasingly reluctant to take a risk on such easy targets as municipalities. In recent years, many insurance companies have stopped offering liability coverage to cities and counties or have raised premiums so high they are no longer affordable.

Uninsured Cities

In California, at least 31 cities have been forced to go “bare,” that is, be self-insured. Besides La Canada Flintridge, such cities as Torrance, Culver City and Covina are on the League of California Cities’ list of uninsured municipalities. The city and county of Los Angeles both rely on a combination of outside coverage and self-insurance.

In its search for insurance, La Canada Flintridge “tried every company there is” with no luck, said John L. Clarke, who acts as insurance broker for La Canada Flintridge and who heads his own Los Angeles-based brokerage firm. “It’s unbelievable; they’re just not interested,” Clarke said.

Clarke said his firm is negotiating with one other insurance company, which he did not name. That company, however, likes to insure big cities that can pay high deductibles, he said.

Looking for Exception

“I’m trying to convince them that we’re such a good city they should make an exception,” Clarke said, referring to La Canada Flintridge’s record of having paid only $67,000 on two major claims in the nine years it has been a city. “We might come up with something.”

However, Clarke said the city probably will never find the kind of comprehensive coverage it had under its policy with Chicago Insurance.