Schools May Face Bus Service Crisis if Company Loses Insurance

An Anaheim bus company that is under investigation by the state Department of Insurance may lose its liability insurance this month, which could cause bus service problems in 100 California school districts, according to documents filed in an Orange County lawsuit.

The state Department of Insurance is investigating whether Taylor Bus Service Inc. has adequate liability coverage. Taylor last week filed suit against its primary insurance carrier, Nationwide Insurance, to prevent cancellation of its coverage on Jan. 15.

If Taylor’s insurance problems cannot be resolved, attorneys said, school districts across the state will face the difficult task of finding new bus service in the middle of the school year.

Taylor provides bus service to school districts from San Francisco to Irvine, Tustin and Santa Ana. It also provides about 500 buses under contract each day for the sprawling Los Angeles Unified School District, or an estimated 20% of the district’s total buses, said Richard K. Mason, principal deputy county counsel for the district.

In the Tustin Unified School District, where about 10% of the 10,000 students are bused, a spokesman said that if Taylor has not provided “proof of its financial responsibility” by Friday, the district will be forced to consider other transit alternatives.

“We’re monitoring it closely; we are very interested,” Tustin Unified business manager Lawrence E. Sutherland said of Taylor’s insurance problems.

Today was set as a deadline for Taylor by three Sonoma County school districts, according to Robert Henry, a Santa Rosa lawyer. The districts north of San Francisco received a telegram Monday from Taylor, which promised to provide proof of insurance in two days, but Henry said the school districts are seeking replacement service for 7,000 students in the event the firm’s insurance problems are not resolved.

In Santa Ana, where limited busing is provided under contract with Taylor, a spokeswoman said the unified school district was notified Friday about the possibility of the loss of insurance. She said Taylor has assured district officials that there will be no interruption in coverage.

In Los Angeles Unified, Mason said that Taylor missed a Jan. 2 deadline to provide proof of adequate coverage beyond Jan. 15 and added that “time is running out.” Cancellation of Taylor’s insurance would “pose very serious problems” for the huge school district, he said.

“The district will take all steps necessary to provide a continuation of that service,” Mason said. “It won’t be easy, but we’ll do it if we have to.”

Taylor’s dispute with Nationwide Insurance centers on a missed premium payment of $27,900, according to declarations by Taylor President Tom W. Berthold filed in the Orange County Superior Court lawsuit last week.

Superior Court Commissioner Jane D. Myers ordered Nationwide not to cancel Taylor’s coverage pending a full hearing Thursday.

The firm claimed in its lawsuit that no other insurance is available to Taylor and that cancellation would not only disrupt school bus service but would also force layoffs of hundreds of employees and destroy the company.

Taylor officials also contended that Nationwide was maliciously motivated when it mailed notices of pending cancellation to the 100 districts served by the bus firm.

Neither representatives of Taylor nor Nationwide Insurance could be reached for comment Tuesday.

But in his court declaration, Taylor president Berthold stated: “There are no available buses by other carriers to (fill) this void. . . . Districts will either discontinue busing children throughout the state of California or face a situation where there will be no liability insurance to cover any possible accidents.”

Taylor came under the scrutiny of the Department of Insurance recently when “several” districts in the state raised questions about the Mesa Verde Insurance Trust, which Taylor lists as its primary or excess liability insurer in many bus contracts, said D.N. Blackey, supervising investigator for the department in Southern California.

Blackey said the Mesa Verde Insurance Trust is not listed as a “viable insurance carrier” and is not licensed by the state of California.

Concern over the adequacy of Taylor’s insurance coverage is not new. It has been the main issue in several lawsuits in past years. In San Jose, for example, school officials rejected the firm’s low bid last summer because of concerns over the Mesa Verde Trust and instead awarded a contract to a different firm. Taylor sued.

A similar dispute arose two years ago with Los Angeles Unified School District, Mason said. Under pressure, Taylor replaced the Mesa Verde Trust with a $4-million letter of credit that provided a pool from which any liability claims could be paid during the 1985-86 school year. In the Los Angeles Unified contract, Nationwide provided $1 million in primary insurance, with the letter of credit used to cover $4 million in excess coverage required by the district.

When that letter expired last summer, Mason said, Taylor again failed to provide adequate coverage. He said the district then purchased insurance on its own and has been deducting the cost from contract payments to Taylor.

Richard V. Godino, a lawyer for San Jose Unified School District, said the Mesa Verde Trust, about which little was known, appears to be a form of self-insurance. Based on legal discovery so far in his case, including depositions from Taylor President Berthold, Godino said Taylor Bus Service Inc. pledged assets to the trust, which would then be available to satisfy any insurance claims. Godino said Taylor has claimed that the fund has $11 million in “inviolable” assets.

This self-insurance approach is “not a bad theory,” Godino said, especially at a time when insurance costs are skyrocketing. For San Jose, however, “it’s just not what we bargained for,” he said.