Thousand Oaks Stashes $1.5 Million for Lawsuits : Stung by Premium, City Puts Trust in Self
Faced with soaring premiums for the second straight year, Thousand Oaks has decided to insure itself against liability claims.
City Council members Tuesday unanimously approved making Thousand Oaks fully self-insured for general liability and vehicular accident claims and increased the city’s insurance reserve fund by $400,000, to $1.5 million.
That reserve is now the city’s only financial protection against lawsuits that can arise from a vast range of accidents.
The council also directed its staff to study the formation of a mutual insurance association that would enable Thousand Oaks to mix its reserve funds with those of other cities, thereby spreading out the risk of damage awards.
Insurance Costs Soar
Thousand Oaks’ policy expired March 31 and its insurer, Planet Insurance Co. of Madison, Wis., informed city officials that premiums would rise and coverage would drop for the coming year.
In April, 1984, the city paid Planet a premium of $80,000 for $10 million in per-claim protection from liability and auto-related cases. The deductible, the amount below which the city must pay itself on claims, was set at $25,000.
The following year, the city’s premium for purchasing $10 million in per-claim coverage jumped to $240,000. The deductible rose to $100,000.
This year, Planet, which city officials said was the only company still offering general liability coverage for California municipalities, told Thousand Oaks officials that premiums would climb to $312,000, while coverage would fall to a yearly total of $900,000. The deductible was to remain at last year’s $100,000.
Price Too High
But the council rejected that package as too high a price for protecting a city with a history of few big damage awards.
“It was a scary decision,” said Councilwoman Madge Schaefer. “But spending $300,000 for $900,000 in total coverage seemed ridiculous.”
“We’d rather put that money in reserves than give it to a company,” City Atty. Mark Sellers said. “We can earn interest on it at the same time.”
The city’s decision comes as local governments across the United States face skyrocketing premiums and cancelled liability policies. In California alone, 52 cities have insured themselves in the past year, according to the latest tally by the League of California Cities.
Property and casualty companies, stung by an industrywide operating loss of $5.4 billion in 1985, blame the rate increases on two decades of rising litigation costs and court-awarded damage claims.
‘Deep Pockets’ Doctrine
Cited as another cause of liability insurance woes is the so-called “deep pockets” doctrine, a legal concept embraced by California and other states that permits plaintiffs to collect awards from the wealthiest or most heavily insured defendants, even if the richer defendant is judged only minimally at fault.
Opponents of the “deep pockets” doctrine recently gathered more than 500,000 signatures statewide, sending an initiative before June primary voters that would sharply curb its use in California courts.
Meanwhile, several cities in California have joined insurance pools in which municipalities contribute several hundred thousand dollars initially and then chip in an annual fee based on the city’s size and claims history. Pooled funds cover damage awards and the defendant city typically replenishes the fund over a number of years.
About 10 municipal insurance associations have been established so far in California, according to Victoria Clark, communications director for the League of California Cities.
City May Join Association
Thousand Oaks officials said they will consider joining an insurance association now being formed with the cities of Oxnard, Santa Monica, Fresno and Pasadena, among others, but will also assess the prospects for starting a new association that would seek out similar low-risk cities.
“I think we’d be better off forming our own. Then we can pick and choose which municipalities we get in with,” said Schaefer.
Thousand Oaks has avoided the heavy damage awards experienced by other municipalities because, as a contract city, the Ventura County Sheriff’s and Fire Departments provide protective services and accept those liability risks, Sellers said.
Moreover, he said, having no airport, dams or public beaches in Thousand Oaks eliminates certain areas of legal risk.
The largest successful damage claim against the city came in 1981 with an award of $450,000 to a motorcyclist injured in a collision with a city vehicle.
From April, 1984, to April, 1985, 40 claims were filed against the city of Thousand Oaks, and 22 were filed from April, 1985, until February of this year, according to the city attorney’s statistics.
City officials in Thousand Oaks had watched as insurance premiums to cover the city against lawsuits tripled in one year. This year, facing a $72,000 rise in premiums and lowered protection, the city allowed its policy with Planet Insurance Co. to lapse March 31. The city now insures itself with a $1.5-million reserve.
Cost of Per-claim Year Premium Coverage Deductible 1984 $80,000 $10 million $25,000 1985 240,000 10 million 100,000 (Projected) 1986 312,000 900,000* 100,000