Nine Cities in County Pool Their Funds in a Self-Insurance Program

Faced with rising premiums and dwindling coverage, nine of the 11 Orange County cities that joined together eight years ago to purchase group insurance coverage now are pooling their funds in a shift to a self-insurance plan.

The cities, all members of the 11-city Orange County Cities Risk Management Authority, will begin paying into a self-insurance pool today, when their current policy lapses, said David Barrett, Cypress assistant city manager and president of the authority. Cypress, Irvine, La Palma, Laguna Beach, Los Alamitos, Orange, San Clemente, Westminster and Yorba Linda have voted to join the pool.

Tustin is expected to decide next week whether to join the pool and will go without insurance until the decision is made, Tustin City Manager William Huston said. Huston said he is recommending that the council vote to join.

The final member, Stanton, voted Wednesday night to leave the risk management authority and join a pool operated by the Coachella Valley Joint Powers Insurance Authority.

The 11 cities’ insurance company under the group plan, Philadelphia-based Planet Insurance Co., wanted to lower their coverage from $5 million to $1 million and raise premiums a total of more than $100,000 a year, Barrett said. A spokesman for the firm said Thursday that Planet officials would not comment.

Barrett said that Planet also was discontinuing coverage for claims by people who say that the design of a city street caused a traffic accident. “And that’s a significant percentage of any city’s claims,” he said.

Under the pool system, an insurance expert decides exactly how much each city pays into the pool, and all claims will be paid from the common fund. The premiums will range from about $100,000 for smaller cities to $500,000, Barrett said.

He added that the system could amass a fund of about $8 million in five years. At that “safe” level, cities could greatly reduce their premiums, he said.

Stanton City Council members voted unanimously to join the Coachella Valley group strictly because the premiums will be smaller, said City Manager Jim Buell.

Buell said Stanton would have had to pay about $165,000 a year to join the Orange County risk management authority pool, contrasted with $89,000 with the Coachella Valley group. “If we had the financial resources to do it, we would have gone with OCCRMA,” Buell said.

Self-insurance by groups of cities is becoming increasingly common.

The reasons, said Orange City Manager J. William Little, are easy to spot. “All you have to do is read your newspaper to see what the atmosphere is today. When someone dies as the result of an accident, the body’s hardly cold before someone’s filing a lawsuit.”

Little said recently passed Proposition 51, the “deep-pockets” initiative that limits the amount of damages co-defendants must pay in personal-injury lawsuits, is the first step in the right direction. There also need to be responsible limits set on jury awards and attorney’s fees, he said.