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HomeMy WebLinkAboutSenate Bill-Municipal Liability JUDITII T. TERRY TO ;',N CLFRK REGISTRAR OF VITAL STATISTICS OFFICE OF THE TOWN CLERK TOWN OF SOUTHOLD Town Hall, 53095 Main Road P.O. Box 1179 Southold, New York 11971 TELEPHONE (516) 765-1801 April 9, 1986 Marlo M. Cuomo, Governor The State Capitol, Executive Chamber Albany, New York 12224 Dear Governor Cuomo: The Southold Town Board, at a regular meeting held on April 8, 1986, adopted a resolution urging you to favorably support proposed legislation, passed by the Senate, and awaiting a vote in the Assembly, calling for long-term solutions to the municiPal liability insurance crisis, vitally needed for reform of the entire municipal liability system, and absolutely essential to assure the financial survival of our local govern- ments and school districts. (Senate Bill S.6769A) Very truly yours, Judith T. Terry Southold Town Clerk JUDITII T. TERRY TOWN CLERK REGISTRAR OF VITAL STATISTICS OFFICE OF THE TOWN CLERK TOWN OF $OUTHOLD Town Hall, 53095 Main Road P.O. Box 1179 Southold, New York 11971 TELEPHONF, ~516) 765-1801 April 9, 1986 Honorable Stanley Fink Speaker of the Assembly Legislative Office Building Albany, New York 12248 Dear Speaker Fink: The Southold Town Board, at a regular meeting held on April 8, 1986, adopted a resolution urging you to favorably support proposed legislation, passed by the Senate, and awaiting a vote in the Assembly, calling for long-term solutions to the municipal liability insurance crisis, vitally needed for reform of the entire municipal liability system, and absolutely essential to assure the financial survival of our local govern- ments and school districts. (Senate Bill S.6769A) Very truly yours, Judith T. Terry Southold Town Clerk JUDITII T. TERRY TOWN CLFRK ~EGISTRAR OF VITAL STATISTICS OFFICE OF THE TOWN CLERK TOWN OF SOUTHOLD April 9, 1986 Town Hall, 53095 Main Road P.O. Box 1179 Southold, New York 11971 TELEPHONE (516) 765-1801 Honorable Joseph Sawicki, Jr. New York State Assemblyman Legislative Office Building Albany, New York 12248 Dear Joe: The Southold Town Board, at their regular meeting held on April 8, 1986, adopted a resolution urging Governor Marlo Cuomo and Assembly Speaker Stanley Fink to favorably support proposed legislation, passed by the Senate, and awaiting a vote in the Assembly, calling for long-term solutions to the municiPal liability insurance crisis, vitally needed for reform of the entire municiPal liability system, and absolutely essential to assure the financial survival of our local governments and school districts. The Board's resolution also urges you to support this Senate Bill S.6769A in bringing it to the floor of the Assembly for an immediate favorable vote. Very truly yours, Judith T. Terry Southold Town Clerk ' NEW'YQRK STATE SENATE ALBANY. NEWYORK 12247 WARREN M, ANDERSON PRESIDENT PRO TEM MAJORITY LEADER March 25, 1986 Ms. Judith T. Terry Town Of Southold Town Hall Main Road Southold, New York 11971 Dear MS. Terry: The insurance crisis which local governments and school districts are experiencing throughout the State of New York continues unabated. Along with Senator Kenneth P. LaValle, I have sponsored legislation which responds to this crisis. This legislation, S.6769A, passed the Senate on February 11, 1986. Yet as Of this writing, this bill is languishing in the Assembly due to the failure of Governor Cuomo and Assembly Speaker Fink to take positive action. The legislation has been endorsed Dy the New York State Association of Counties, the New York State Conference of Mayors, the New York State Association of Towns, the New York State School Boards Association, and others concerned with this problem. A description of this bill is enclosed, along with a recent "Insurance Update,, which provides background on the overall problem. This bill addresses the vital need for reform of the entire municipal liability system. Its passage is absolutely essential to assure the financial survival of our local governments and school districts. Sadly, Governor Cuomo and Speaker Fink adamantly refuse to allow the Assembly to vote on this bill. Ail we have heard from the Governor and the Speaker has been talk of more studies and commissions. The consequence of the Cuomo/Fink position is that the crisis will continue indefinitely. We cannot afford to let this happen. We need your immediate support to get this bill to the floor of the Assembly. I urge you to make your voice heard Dy urging the Sovernor and Spea~er to support the Senate bill as the best way to bring a prompt end to this crisis. I also urge you to contact your local Assemblyman to request support for the Senate bill. With every good wish, I am Sincerely yours, WMA:jf Encl.(2) MUNICIPAL AND SCHOOL DISTRICT LIABILITY INSURANCE Highlights of Senate 6769A Little has changed since the Senate passed a bill in December of 1985 to provide long-term solutions to the municipal liability insurance crisis. Solutions are still needed. To address the problems of soaring municipal liability insurance costs and the problem of unavailability of municipal liability insurance, the Senate passed the same bill, with minor amendments, that had been passed in December. The Senate's original bill covered villages, towns, counties, cities, schools, BOCES and volunteer fire companies and other special districts. The amendments helped to explicitly spell out that volunteer fire companies were covered and added coverage for certain not-for-profit corporations and for independent school bus contractors providing services to school districts. Our bill would make some basic changes in how municipal liability insurance is offered and how claims are handled. The bill would: -- Set minimum standards for municipal liability insurance policies of: 60-days notice for increases, 60-days notice of non-renewal and one year for length. -- Establish new, separate insurance classifications for municipal policies that are separate from commercial classifications, providing protection for municipalities from fluctuations in the marketplace while providing more consistency and predictability for rates. -- Establish a special term of State Supreme Court to hear claims against public entities. A judge, rather than a jury, would make the decision. -- Limit awards that must be paid by the municipal units to their equitable share of the award. This means that if a municipality is found to be 10 percent at fault, it only would be liable for 10 percent of the award. Although this sounds only fair, it has been a sticking point with the Assembly. Currently, a municipality could be forced to cover all of a jury award that cannot be paid by other defendants. In legal terms this principal is called joint and several liability. -- Require periodic payment of awards, similar to the current requirement for medical malpractice awards. -- Require loss of income awards to be lowered if it can be shown that a plaintiff is receiving income from other sources, such as Workers' Compensation or Social Security. -- Establish a schedule for maximum fees that would be allowed for attorneys, similar to the schedule allowed for fees in medical malpractice cases. -- Allow the courts to award the successful party reasonable costs and attorney's fee of up to $10,000 for frivolous suits. -- Permit municipalities to enter into reciprocal insurance agreements, under the supervision of the Dept. of Insurance. -- Establish a risk management credit for public entities that establish a risk management program that is certified by the Dept. of Insurance. INSURANCE UPDATE from the Senate Committee on Insurance Liability Insurance Crisis: The Senate Takes Action The Chairman Comments: A crisis situation has been reached in professional, corporate and governmental liability insurance. Liability insurance has either increased dramatically (as much as fivefold) or such insurance has become totally unavailable. Virtually all levels of government and many businesses are scrambling to find adequate and affordable coverage. The Senate realizes that the liability crisis is not only an insurance issue or civil justice issue, but that it is also ulti- mately a matter of concern to all our citizens; the taxpayers of New York State -- through property taxes, school taxes and the cost of goods and services -- foot the bill. In this first Insurance Update we will examine muni- cipal liability insurance. In a future Update, we will look at the liability insurance problems of business and others. There is much that needs to be done by the Senate Insurance Committee and the Legislature in the current session. Insurance must be made available and affordable to ensure that society does not become bankrupt in the process. Now is the time for action, not for further study. Sequence of Events The property/casualty insurance business is highly cyclical. It has experienced severe underwriting losses in the past and has rebounded each time. Even though the last two years were the worst ever, with a pre-tax loss of $7.5 billion, one could normally conclude that the insurance industry will right itself again, without legislative action. Unfortunately, that is not the case. The future looks bleak, if not disastrous, for all citizens of New York State without meaningful and effective legislative long-term solutions put into place this Session. Poor underwriting results have been a fact for several years. However, because of the availability of high interest rates some insurers began engaging in what is known as "cash-flow" underwriting. That is, they consciously priced their insurance products below cost, intending to make up the losses with the high interest that could be earned on premiums before the money had to be used to pay claims. Other insurers, even though they recognized the dangers of "cash-flow" underwriting, were forced to underprice their products, too, or else risk losing their customers to the more aggressive competition. As a result, it was not long before most of the property-casualty insurance in- dustry was engaging in the practice, and buyers of continued At an Insurance Commit- tee meeting, Insurance Superintendent James Corcoran talks to com- mittee members. Pic- tured are (1 to r): (center at table) Senator Joseph Bruno, Superintendent Corcoran, Senator James Donovan, Senator Mar- tin Connor and Senator Richard Schermerhom. insurance paid bargain rates as comp~cd to today. While this was occurring, still other forces were at work. Reinsurers (insurance companies that absorb part of the risks assumed by regular insurance companies), many of whom are based in London, were encountering un- precedented losses on the liability business written in the United States. This is primarily due to the changes taking place in our court system. Insurers are called upon to pay claims that were thought to be excluded from their contracts (policies). New and novel theories of liability have been accepted by the courts. This eroded the confidence that reinsurers once had: that it was possible to accurately predict future losses on American liability risks -- especially in states such as New York with unlimited liability exposure. Faced with huge losses, lack of confidence for the future, and better opportunities to write reinsurance on other than U.S. liability business, many simply withdrew from the market, others drastically raised the rates they charged the regula~nsurers. This, in turn, has f~rce~ others to retrench and withdraw altogether f~ofn writing certain kinds of insurance. That is why this cycle is different from previous ones, and why a long-term legislative solution is imperative. It is apparent that the current situation necessitates some refinement and adjustments in the social contract that determines rights and rsponsibilities of government and its citizens and also in the way in which insurance is delivered in this state. Senate Proposes Lon, g-Te. rm Solutions at Special esslon Of December 1985 This fall, the Senate Insurance, Education, Local Gov- ernment and Cities Committees held a series of hearings Questions and Answers About Tort Reform L Wlmt is tort ~,eform and why is it necessary? A "tort" is a civil wrong. Negligence is the most visible tort reason for which people sue each other. Under our system of civil laws, torts can be mitigated by the awarding of money damages through the legal and court system. But this system has been over- burdened by a dramatic surge in lawsuits. In 1940 there were a total of 35,000 civil cases filed in the federal district courts. By 1982, that number had risen to over 206,000 civil cases. In 198Z 26,000 more civil cases were filed before the courts than in 1981 -- a 14% increase. Across the nation, state court filings have reached an unprecedented level of 12,000,000, or one lawsuit for every 13 adults. As the court dockets are jammed with increas- ingly complex cases, delays mount. In 1950, only 20 civil trials in federal courts lasted longer than 20 days. By 1981 that number had risen to 180 cases. Delays in state ~:our~g ca~n be c6unted in 3~ears. Several factors have contributed to this surge in litigation. · Changing social concepts on address'rog wrongs: The trend in court decisions favors compensating the victim, with less emphasis on establishing the exact source of the wrong. Changes m knowledge and technology: As sctence is able to determine the physical effects of materials and goods on our physical health, usually after 20, 30 or 40 years of medical experience, manufacturers and users of these materials are now being held respon- sible for things done and used in the past. · New responsibilities for the courts: Chief Justice Warren Burger has noted that the declining influence of church, family and community has forced in- dividuals to turn to the courts "for relief from a range of personal distresses and anxieties." · Oversupply of lawyers: From 1970 to 1984 the number of lawyers in the United States increased 106 percent. · The "Deep Pockets" Concept: In efforts to com- pensate injured parties, the attorneys have tended to seek redress where financially feasible, rather than where fault exists. As a result, corporations, munici- palities and wealthy individuals with their "deep pockets" are more likely to be chosen as targets for lawsuits and are more likely to be held liable. Thus, even if found to be 10% responsible for a tort, a "deep pockets" defendant can be assessed for up to 100% of the monetary award if the primarily responsible party has inadequate funds to cover his 90% of the award, · Allowing lawyers to advertise: This has opened up a floocl of calla to the public to litigate their com- plaints rather than settle them amicably. Law offices now compete and advertise on television and in the news media to attract clients who might otherwise never have considered a lawsuit. · High compansation awards: The number of million- dollar verdicts awarded each year rose from one in 1962 to 251 in 1982. Also, punitive damage awards and attorney's contingency fees can considerably increase the cost of insurance. 2. Who bears the brunt of litigation costs? For one, consumers bear the costs. When a person bringing a suit wins a large award and the defendant is insured, the insurance company pays the award. Higher prices for insurance premiums are the result. Taxpayers pay through increases in court bud- gets. Individuals pay because the costs associated 6n the subject of liability insurafiEe. After thorough investigation, the problems associated with the availability and affordability of liability coverage were documented. One of the hearings focused on the most vulnerable entities -- school districts and municipalities. The Senate has made it a priority to provide liability insurance relief to these entities, across the state, that are supported by the taxpayers. During the 1985 Special Session (called by the Gover- nor primarily to deal with liability issues), Senators Anderson, Bruno, Donovan, Cook and Flynn introduced the "Public Entity Liability Insurance Reform Act of 1985", a long-term solution designed to lower rates and to induce insurers to return to the municipal and school insurance marketplace. This proposal contains new regulation of the insurance industry and the adoption of civil justice reform, also referred to as tort reform. This measure and other Senate measures directed at medical malpractice insur- ance were rejected by the Assembly and not supported by the Governor. Instead, the Governor and Assembly proposal at the Special Session would serve only to give the appearance of solutions to the problems that municipalities and school districts are fighting with today. Their suggestion was to have public entities insure each other by pooling their risks. Under this concept, two or more municipalities or school districts would agree to set aside monies in a reserve fund to share the cost of claims. With millions el dollars in law suits filed against municipalities and schools every day, there is a very real possibility that these reserve funds would suffer a shortfall or cause a municipal bankruptcy, without the regulatory safeguards and guide- lines provided by the State Insurance Department. If that were to happen, the taxpayers would bear the sole responsibility el making up the difference. Such an approach does not provide the safeguard of the Property/Casualty Insurance Security Fund. Presently, continued with filing a suit and/or appealing a lower court decision are truly phenomenal -- up to $9,000 if a case is appealed to the U.S. Supreme Court. 3. What kind of tort reform is needed? Proposed tort reforms include the following: · A separate rating classification for liability insur- ance purchased by public entities. Currently classi- fied along with commercial lines by the property/ casualty insurance companies, public entities may have better loss records and should be separately identified. · Credits for risk management programs instituted by public entities. Communities that reduce their exposure to risk should be rewarded with premium reductions. · Prohibit midterm cancellations except under spe- cial circumstances and provide reasonable notice for notices of non-renewal and premium increases. where l~ability is limited to a defendant's equitable share of the judgment. A number of states have modified or abolished this common law doctrine. New York State and the State of Louis~ are the only two states that subject a public entity to unlimited exposure. · Establishment of structured awards,to.permit per- iodic, as opposed to lump sum, payments of a judgment. Because of favorable tax treatment, this is beneficial to claimants as well · Permit the offsetting of any judgment by any collateral sources of insurance for the same hurt, such as Workers' Compensation or other disability benefits. · Provision for penalties against a plaintiff who brings a frivolous lawsuit. ® Creation of a special Supreme Court term to hear all contract or tort actions against a public entity. This would remove a public entity's liability assessment from a jury, which history has shown to be sym- pathetic to a plaintiff's injury. · Revamping the contingency fee schedule for a plaintiff's attorney. The current f~e schedule rewards successful attorneys out of proportion to the effort expended. · Permit a public entity to subscribe to a reciprocal or pooling insurance arrangement that would be super- vised by the Superintendent of Insurance. These reforms seem only fair. In 1985, the Gov- ernor and the Legislature passed alaw which provided tort reform to doctors with their medical malpractice insurance. Aren't the towns, villages and cities in which we live and pay taxes as important? How can we provide one class of people with protection, but no others? Transit systems, libraries, schools, BOCES, volunteer fire departments. Ail these entities that provide protective, educational and cultural facilities are as deserving as physicians and dentist. The time has come. Of course, victims of torts would not receive any less for their medical expenses. But who has the right to enrich themselves at taxpayer expense? Not I. Not you. Tort reform would once again provide stability to the insurance market and .give insurance companies the confidence they need to charge realistic pre- miums and write reasonable contracts that provide reasonable coverage by restoring re-insurers' con- fidence in the American insurance market. Without this increase in capacity, the only way insurance companies have to provide enough coverage is to charge larger premiums. Tort reform is the key issue of 1986. Without tort reform, we will all be victims without hope of compensation. insurance policies that are purchas~ from companies licensed to sell insurance in New York are protected by a security fund in the event that the insurance company becomes insolvent. The Senate considers this a "band-aid" approach that does not solve the real problems but could place great financial burden on municipalities. What community could afford to be pooled with a "Love Canal" of tomorrow? 1986 Legislative .Session, to Date: The Senate Again Ready to Act During this current Session, the Senate will continue to press for legislation that will enable public entities to obtain liability insurance -- this includes villages, towns, counties, cities, schools, volunteer fire departments, BOCES, not-for-profit day care centers and other public benefit corporations -- at reasonable rates. The Governor, meanwhile, has established a com- mission to study the liability insurance crisis, with empha- sis on municipal liability. He has given the panel a free hand and directed it to submit its recommendations by April 1, 1986. Further study is not what is required at this time. What is required is for the Assembly to negotiate with the Senate and enact tort (civil justice) reform. What is needed from the Governor is leadership to resolve this crisis. Obviously, without the cooperation of both, there will be no resolution. The Senate is prepared to act now and urges all who are concerned with the present crisis to support their effort for prompt relief for municipalities and school districts. These are difficult times and choices, but the stability of our local governments, school districts and public benefit cor- porations depend on timely and effective action by the Legislature. "The Public Entity Liability Insurance Reform Act" SPONSOR: Senate Majority Leader Warren M. Anderson PRIME SPONSORS: Joseph L. Bruno, Chairman of the Senate Insurance Committee James H. Donovan, Chairman of the Senate Education Committee Charles D. Cook, Chairman of the Senate Local Government Committee John E. Flynn, Chairman of the Senate Cities Committee CO-SPONSORS: Senators Hugh T. Farley, Norman J. Levy, John R. Dunne, John J. Marchi, Caesar Trunzo, Jess J. Present, Jay P. Rolison, Dale M. Volker, Tarky J. Lombardi, Kenneth P. LaValle, William T. Smith, L.S. Riford, L. Paul Kehoe, Frank Padavan, Dean G. Skelos, James J. Lack, John B. Daly, Mary B. Goodhue, Michael J. Tully, John M. McHugh, Walter J. Floss. Senator Dean Skelos (1) and Senator William Smith (c) talked over provisions of the Senate bill to provide long-term solutions to the municipal liability insurance problem with Senator Joseph Bruno, Chairman of the Senate Insurance Committee. Support for Senate Proposal New York State School Boards Assoc. Independent Insurance Agents Assoc. of New York State, Inc. New York State Assoc. of Counties New York State Conference of Mayors New York State Assoc. of Large Towns New York State Insurance Assoc. New York State School Bus Contractors Assoc. Assoc. of Towns of the State of New York The Assoc. of School Business Officials of New York Council of School Superintendents Numerous Charitable Groups Statewide Support for Governor's Proposal Assembly Leadership Trial Lawyers Assoc. INSURANCE UPDATE is the official publication of the New York State Senate Committee on Insurance, Room 814, Legis. lative Office Building, Albany, N.Y. 12247. (518) 455-2346. Joseph L~ Bruno, Chairman Committee Members: Senators John R. Dunne, James H. Donovan, Richard E. Schermerhorn, Kenneth P. LaValte, John B. Daly, Frank Padavan, Dean C Sketos, Martin M. Solomon, Howard E. Babbusl~, ~as ]. Bartosiewicz, lviartio Connor, and Donald M. Hatperln. Volume one, I-*lumber one February 1~6