agenda item no - csrma.orgper government code section 54954.2, persons requesting disability-related...

2010 agendas.xls 1 9/16/2010

100 Pine Street, 11th Floor, San Francisco, CA 94111 Tel: 415.403.1400

OFFICERS: PAST PRESIDENTS:Robert Reid, President Kevin Hardy408.378.2407 2003-2006Russ Baggerly, Vice President Randall Musgraves805.646.5548 2001-2003

POOLED LIABILITY PROGRAMCOMMITTEE AGENDA

Date/Time: Thursday, September 23, 2010 LOCATION: Alliant Offices9:30 AM 100 Pine Street, 11th Floor

San Francisco, CA 94111A. CALL TO ORDER A = Action

I = InformationB. PUBLIC COMMENTS V = Verbal

H = HandoutC. GENERAL ADMINISTRATION

1. Meeting Minutes: May 13, 2010 A p. 72. Reporting and Ratification of Claim Settlements A/H3. CSRMA Member Satisfaction Survey I p. 134. Proposed 2011 Meeting Calendar A p. 17

D. CLOSED SESSION TO DISCUSS PENDING CLAIMSAction may be taken per Government Code Section 54956.95. ASee reverse for full listing of claims to be discussed.

E. CLAIMS ADMINISTRATION1. Quarterly Claims Report as of June 30, 2010 I p. 19

F. UNDERWRITING ISSUES1. PY 25 (2010-2011) Renewal Update V2. Actuarial Study A p. 213. Deductible Selection Policy and Procedure I/H p. 294. Criminal Liability Defense Coverage I p. 355. Lake Arrowhead Community Services District - Notice Received I p. 39

G. LOSS CONTROL 1. Fall/Winter 2010 Area Training Update I p. 432. Sewer Ordinance Review I p. 45

H. INFORMATION ITEMS1. "New EPA Rules for contractors go into effect" - Article I p. 492. "Privacy of Employee text messaging under review by U.S. Supreme Court" - Article I p. 513. "Shifting soil linked to increase in foundation failures" - Article I p. 534. Reinsurance Basic Guide - Munich Re I p. 55

CSRMA California Sanitation Risk Management Authority

Insurance License No.: 0C36861Fax: 415.402.0773

c/o ALLIANT INSURANCE SERVICES, INC.

2010 agendas.xls 2 9/16/2010

5. Committee Comments V6. CSRMA 2010 Meeting Calendar I p. 837. CSRMA Organization Chart I p. 858. CSRMA Service Team I p. 87

I. ADJOURNMENT

Per Government Code section 54954.2, persons requesting disability-related modifications or accommodations, including auxiliaryaids or services in order to participate in the meeting, are requested to contact Alliant at (415) 403-1400 twenty-four hours inadvance of the meeting. Entrance to the meeting location requires routine provision of identification to building security. However,CSRMA does not require any member of the public to register his or her name, or to provide other information, as a condition toattendance at any public meeting and will not inquire of building security concerning information so provided. See Government Codesection 54953.3.

The next meeting is scheduled for November 11, 2010

As of 09/15/2010

Member District File Code Claimant Date of Loss Claim Description

CARMEL AREA WASTE WATER DISTRICT 1520233 CALAFIORE, LINDA 2/15/2010 SEWER BACK-UPCARMEL AREA WASTE WATER DISTRICT 1522864 DIAZ, REVI 2/9/2010 MAINTENANCE/OPERATIONS

CITY OF HALFMOON BAY 1452702 BARTON, JOSEPH 5/19/2007 SBU/TREE ROOTSCITY OF HALFMOON BAY 1491757 GASBARRI, JULIE 1/17/2009 SEWER BACK-UP

DUBLIN SAN RAMON SERVICES DIST. 1447729 RIDGEWATER, ASSOCIATES, LLP 12/22/2006 DMG TO BLDG & CONCRETE/WTR SEEPAGEDUBLIN SAN RAMON SERVICES DIST. 1522245 REGAS, MELODY 6/11/2009 WATER DAMAGEDUBLIN SAN RAMON SERVICES DIST. 1530934 ANDERSON, DARYL 6/15/2010 WATER DAMAGE

ENCINA WASTEWATER AUTHORITY 1524101 RUBEN, LOUIS B ET AL, . 9/7/2007 UNKNOWN

GRANADA SANITARY DISTRICT 1496726 MOORE, ADRIENNE 1/22/2009 SEWER BACK-UP

LAKE ARROWHEAD COMMUNITY SERVICES DIST. 1478351 OTT, PIERRE 5/24/2008 SILT IN FIXTURES RE METER CHANGELAKE ARROWHEAD COMMUNITY SERVICES DIST. 1503676 MIZIKER, RONALD 7/12/2009 SBULAKE ARROWHEAD COMMUNITY SERVICES DIST. 1530305 CHRISTIE, EDWARD & BONNY 7/25/2009 CIVIL SUIT FILED/EMPLOYMENT PRACTICESLAKE ARROWHEAD CSD (SBU) 1495580 ELION, CHASEY 4/27/2009 SEWER BACK-UPLAKE ARROWHEAD CSD (SBU) 1515915 KINZER, GENE 12/22/2009 SEWER BACK-UP

LEUCADIA COUNTY WATER DIST. 1499496 HOLDER, LINDA 6/27/2009 SLIP/TRIP/FALLLEUCADIA COUNTY WATER DIST. 1522175 DAVIS, JANET 4/6/2009 SBU

MONTARA WATER AND SANITARY DISTRICT 1499361 RUSTAY, THERESA 4/7/2009 UNKNOWN INJURYMONTARA WATER AND SANITARY DISTRICT 1515648 PRINGLE, KEVIN 1/14/2008 PLUMBER EXPENSE

MONTEREY REGIONAL WATER 1521062 STATE FARM INSURANCE, (MIGUEL, KEVIN) 3/5/2010 INTERSECTION ACCIDENT

MT. VIEW SANITARY DISTRICT 1516436 MELLO, DAN 1/7/2010 SEWER BACK-UPMT. VIEW SANITARY DISTRICT 1521651 COOLEY, JANELLE 3/29/2010 SBUMT. VIEW SANITARY DISTRICT 1528490 BICOMONG, SOPHIA 5/26/2010 UNCLASSIFIED

NORTH OF RIVER SANITARY DIST. 1517206 KEETER, CONNIE/BROOKE 1/18/2010 AUTO

NOVATO SANITARY DIST. 1473575 ADAMS, EDWARD 3/20/2008 SBU/CONTRACTOR LIABNOVATO SANITARY DIST. 1491568 LAFFERTY, MARK 2/16/2009 EMPLOYEE DRIVER STRUCK BICYLCISTNOVATO SANITARY DIST. 1496593 ENVIRONMENTAL, PROTECTION AGENCY 5/13/2009 CLEAN WATER ACT VIOLATIONSNOVATO SANITARY DIST. 1519488 BRAND, DESHA 2/24/2010 SEWER BACK-UP

OJAI VALLEY SANITARY DIST. 1442319 SEDLAK, JR., MICHAEL 6/19/2006 CLMT INJ WHILE LEVELING ROCK IN TRENCH/TRENCH COLLAPSED

SANITARY DISTRICT NO. 1 OF MARIN COUNTY 1432360 PAGE, RUTHANNA 12/31/2005 LANDSLIDE FROM UPHILL PROP SANITARY DISTRICT NO. 1 OF MARIN COUNTY 1485744 WATSON, JAMES 10/19/2008 SEWER BACK-UPSANITARY DISTRICT NO. 1 OF MARIN COUNTY. 1431481 ADE ET AL, ANDREAS 12/31/2005 MAIN SURCHARGE FLOODING / SBU ALLEGEDSANITARY DISTRICT NO. 1 OF MARIN COUNTY. 1451898 ARENA, ANNA 5/8/2007 INS'D GOING AROUND O/V IMPACT OCCURRED

CSRMA Open / Active Claim Register Re 09/23/2010 Pooled Liability Committee Meetingjcy

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SANITARY DISTRICT NO. 1 OF MARIN COUNTY. 1481929 AJAMIAN, VARTAN & MARGARITA 2/23/2008 LAND SUBSIDENCESANITARY DISTRICT NO. 1 OF MARIN COUNTY. 1531136 DIGIROLAMO, LISA 7/8/2010 INSURED BACKING/STRUCK PARKED, UNATTEND VEHSANITARY DISTRICT NO.1 OF MARIN COUNTY 1482601 GALEA, VICTORIA 6/6/2006 HILLSIDE DAMAGE/SEWER LINESANITARY DISTRICT NO.1 OF MARIN COUNTY 1485739 CAMPUS ST. JAMES, LARKSPUR LLC 11/9/2007 POLLUTANT REMOVAL/LOST PROFITSSANITARY DISTRICT NO.1 OF MARIN COUNTY 1516091 WONG, JOHN 1/2/2010 SEWER BACK-UPSANITARY DISTRICT NO.1 OF MARIN COUNTY 1534688 GAY, BARBARA 8/11/2010 INSURED WAS R/E BY CLAIMANT

SANITARY DISTRICT NO.5 OF MARIN COUNTY 1519485 LOUBE, SHIRLEY 2/24/2010 SEWER BACK-UP

SANTA MARGARITA WATER DISTRICT 1482474 EIMERS, KATHERINE 8/2/2008 MINOR FELL OVER RAILINGSANTA MARGARITA WATER DISTRICT 1520090 USAA, . 1/21/2010 O/P REAR ENDED INSUREDSANTA MARGARITA WATER DISTRICT 1521442 DEMOLAS, MARIA/REZANOUR 3/21/2010 SEWER BACK-UPSANTA MARGARITA WATER DISTRICT 1533069 HOJJATPANAH, SHAYDA 8/5/2010 SEWER BACK UP

SAUSALITO-MARIN CITY SANITARY DISTRICT 1522872 LOPEZ, YOLANDA 3/24/2010 ROCK FROM DIST TRK HIT WINDSHIELD

SEWERAGE AGENCY OF SOUTHERN MARIN 1431358 ARENA, ET AL, ALEXANDRA 12/31/2005 MAIN SURCHARGE FLOODINGSEWERAGE AGENCY OF SOUTHERN MARIN (SBU) 1470283 GLENOVICH, JAMES 1/31/2008 2.7 MIL GALLON SPILL INTO BAY

SOUTH TAHOE PUBLIC UTILITY DISTRICT 1495107 THE WOODFORDS INN, LLC 4/20/2009 TWO IRRIGATION DITCHES COLLAPSEDSOUTH TAHOE PUBLIC UTILITY DISTRICT 1503117 MYRICK, MERLENE 8/27/2009 VEH VS. MANHOLE COVERSOUTH TAHOE PUBLIC UTILITY DISTRICT 1516048 WEST, CHARLES 12/30/2009 OPERATIONS/MAINTENANCESOUTH TAHOE PUBLIC UTILITY DISTRICT 1521972 GRIMES, JEAN 4/2/2010 SEWER BACK-UPSOUTH TAHOE PUBLIC UTILITY DISTRICT 1528827 BIGELOW, JULIANNE 5/25/2010 SEWER BACK UPSOUTH TAHOE PUBLIC UTILITY DISTRICT 1529243 HALL, STEPHEN 6/7/2010 LAT BRKN DURING WTR MAIN REPLACEMENTSOUTH TAHOE PUBLIC UTILITY DISTRICT 1530173 KEENEY, STEVE 6/18/2010 MAINTENANCESOUTH TAHOE PUBLIC UTILITY DISTRICT 1532241 MCCARTHY, JAN 7/27/2010 OPERATIONS/MAINTENANCESOUTH TAHOE PUBLIC UTILITY DISTRICT 1533582 TAHOE KEYS PROPERTY, OWNERS ASSOC. 4/30/2010 SEWER LINE MISMARKEDSOUTH TAHOE PUBLIC UTILITY DISTRICT 1535697 BAKER, BRET & AMY 8/26/2010 OPERATIONS/MAINTENANCE

STEGE SANITARY DISTRICT (SBU) 1502612 PARDINI, DAVID 8/24/2009 SEWER BACK-UPSTEGE SANITARY DISTRICT (SBU) 1520016 EDWARDS, MARK 3/3/2010 SEWER BACK-UPSTEGE SANITARY DISTRICT (SBU) 1529272 GREGORY'S LOUNGE, . 6/6/2010 SEWER BACK-UP

TRIUNFO SANITATION DIST. 1525031 WILCOX, LARRY 5/12/2010 UNNKNOWN

UNION SANITARY DISTRICT 1518653 COOK, RANDY 2/1/2010 ALLEGES DIST MAINT BROKE LATERALUNION SANITARY DISTRICT 1521839 COLGLAZIER, JULIE 3/24/2010 SEWER BACK-UP

VALLEJO SANITATION AND FLOOD DIST. 1480453 BLANTON, SPENCER 7/26/2008 SBUVALLEJO SANITATION AND FLOOD DIST. 1486016 GRENNAN/ PLATERO, ETAL 6/10/2008 USE OF EQUIP/DMG TO RETAINING WALLVALLEJO SANITATION AND FLOOD DIST. 1501107 LOPEZ, ELVA 7/10/2009 MANHOLE COVER V. VEHICLEVALLEJO SANITATION AND FLOOD DIST. 1502131 SALLEE, LAVONNE 8/16/2009 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1518363 TERRY, REBECCA 2/5/2010 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1523400 LEE, MICHAEL 4/26/2010 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1523965 WATTS, ROBERT & MARY 5/4/2010 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1524127 SMITH, DENISE 5/5/2010 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1528450 SORIANO, INES 5/25/2010 SANI TRK STRUCK CLMT'S PARKED VEHVALLEJO SANITATION AND FLOOD DIST. 1529153 AMOS, JOHN 6/7/2010 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1532138 NORFLEET, RON 7/26/2010 SEWER BACK-UP

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VALLEJO SANITATION AND FLOOD DIST. 1533409 BOWERS, ANDRELLA 8/10/2010 SEWER BACK-UPVALLEJO SANITATION AND FLOOD DIST. 1533579 DIERKHISING, J. ROGER 4/30/2010 PROPERTY DAMAGE

VENTURA REGIONAL COUNTY SANITATION DIST. 1529845 MONADJEMI, FRED 6/8/2010 DMG TO LIGHT POLE BY DIST VEH

WEST BAY SANITARY DIST. 1483793 CLAYTON, TIMOTHY 8/27/2008 BREACH OF CONTRACTWEST BAY SANITARY DIST. 1489593 TURNER, JAMES 7/10/2008 CLMT FELL DUE TO GRAVEL ON ROADWEST BAY SANITARY DIST. 1508062 DOUGLAS, MICHAEL ETAL 8/14/2009 INVERSE INJUNCTIVE / DECLARATORY RELIEFWEST BAY SANITARY DIST. 1520182 SAN FRANCISCO, BAYKEEPER 12/2/2009 DECLAR & INJUNCTIVE RELIEF/ CLEAN WTR WEST BAY SANITARY DIST. 1523575 UNKNOWN, . 4/16/2010 AUTO ACCIDENT

WEST COUNTY WASTEWATER DISTRICT 1506674 GREGORY, BOB 10/14/2009 SEWER BACK-UPWEST COUNTY WASTEWATER DISTRICT 1517322 ANACLETO, GABE 1/15/2010 SEWER BACK-UPWEST COUNTY WASTEWATER DISTRICT 1522814 ANDREWS, LAURA 4/16/2010 SEWER BACK-UPWEST COUNTY WASTEWATER DISTRICT 1524856 PEACOCK, WILLIAM/DELPHINE 10/30/2009 ALLEG DMG TO LAT SEWER LINE.WEST COUNTY WASTEWATER DISTRICT 1531267 RAMIREZ, LUZ 7/6/2010 SEWER BACK UP

WEST VALLEY SANITATION DISTRICT 1483534 DOUGHERTY, KELLY 9/15/2008 SEWER BACK-UPWEST VALLEY SANITATION DISTRICT 1506147 LEARD, MARINA 10/2/2009 SEWER BACK-UPWEST VALLEY SANITATION DISTRICT 1522156 VALLI, CONSTRUCTION 4/6/2010 SBUWEST VALLEY SANITATION DISTRICT 1524827 VADAS, KUMIKO 5/16/2010 SEWER BACK-UPWEST VALLEY SANITATION DISTRICT 1529169 FOLEY, MIKE 6/4/2010 SEWER BACK-UPWEST VALLEY SANITATION DISTRICT 1531803 GIESTER, DORIS 7/20/2010 SEWER BACK-UPWEST VALLEY SANITATION DISTRICT 1534901 NEIDER, LEROY 8/17/2010 SEWER BACK-UPWEST VALLEY SANITATION DISTRICT 1535432 CRAIG, MICHAEL 8/5/2010 DIST EE BACKUP/DMGD FENCE & SHEDWEST VALLEY SANITATION DISTRICT 1535514 TUCKER, MELINDA 8/17/2010 SEWER BACK-UP

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MINUTES OF THE POOLED LIABILITY COMMITEE MEETING

MAY 13, 2010 SAN FRANCISCO, CA

MEMBERS PRESENT Mr. Talyon Sortor, Chair, Fairfield-Suisun Sewer District Mr. Bert Michalczyk, Dublin San Ramon Services District Mr. Craig Murray, Carpinteria Sanitary District Mr. Logan Olds, Victor Valley Wastewater Reclamation Authority Mr. Al Miller, Stege Sanitary District Mr. Richard Currie, Union Sanitary District MEMBERS ABSENT None GUESTS AND CONSULTANTS PRESENT Mr. Dennis Mulqueeney, Alliant Insurance Services, Inc. Mr. Seth Cole, Alliant Insurance Services, Inc. Mr. Myron Leavell, Alliant Insurance Services, Inc. Mr. P. J. Skarlanic, Alliant Insurance Services, Inc. Mr. Byrne Conley, Gibbons & Conley Mr. David Patzer, Risk Management Solutions Ms. Janice Yardley, Carl Warren & Company A. CALL TO ORDER Chairperson Talyon Sortor called the meeting to order at 10:08 am. B. PUBLIC COMMENTS None. C. GENERAL ADMINISTRATION C.1. Meeting Minutes of November 10, 2009 & February 8, 2010 The minutes of the meeting of November 10, 2009 & February 8, 2010 were reviewed. A motion was made to accept the Meeting Minutes of November 10, 2009 & February 8, 2010 as presented. MOTION: Logan Olds SECOND: Bert Michalczyk MOTION CARRIED

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C.2. Reporting and Ratification of Claims Settlements None. C.3. CSRMA Employee Driving Standards Policy & Procedure Seth Cole reviewed this item with the Committee. The Pooled Liability Program Policy & Procedure No. 3-L was last updated in August 2006, and differs from the most recent Department of Motor Vehicles Violation Point Assessment and Point Counts. The Program Administrators recommended that the Committee review this Policy & Procedure and consider updating accordingly. The Committee decided to proceed with making a recommendation to the Executive Board that the Violation Point Count portion of the Policy & Procedure be updated to match that of the DMV. It was decided by the Committee that the Violation Point Assessment remain unchanged, as the Policy & Procedure is stricter on this issue than the DMV. Committee member Bert Michalczyk suggested that David Patzer include an overview of this Policy & Procedure during his training sessions.

D. CLOSED SESSION The Committee entered Closed Session at 10:38 a.m. pursuant to Government Code Section 54956.95. The Committee left Closed Session at 11:27 a.m., at which time it was announced that the Claims Administrator was provided with direction concerning the disposition of certain claims; however, no final settlements were approved, nor was any action taken. E. CLAIMS ADMINISTRATION E.1. Quarterly Claims Report as of March 31, 2010 Seth Cole reviewed the Quarterly Claims Report with the Committee. He drew the Committee’s attention to the 4.87% loss ratio for the current program year. This reflects claims activity for the first quarter of the current program year. There was discussion regarding the downward trend in frequency and severity in the current program year, with the result being lower total incurred claims costs. E.2. CSRMA BPD Notification Letter to Homeowner Dennis Mulqueeney reviewed this item with the Committee, and discussed the circumstances under which the letter should be used. Carl Warren & Company believes the current CSRMA notification letter sent to claimants advising of the requirements to install a Backflow Prevention Device is insufficient and should be revised. The Program Administrators redrafted the letter.

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The Program Administrators recommended to the Committee that the attached redline strikeout version of the letter be accepted to replace the older version. The Committee agreed to accept the changes presented and directed Carl Warren to begin using the letter, as appropriate. F. UNDERWRITING ISSUES F.1. MOC: Proposed Additional Covered Party Endorsement Seth Cole discussed this item with the Committee. Many Vendors require an Additional Insured Endorsement before approving contracts or granting annual permits. This has historically presented a problem for CSRMA member agencies as CSRMA does not issue an Additional Insured Endorsement. Seth explained that Additional Insured Endorsements are specific to “commercial insurance”, whereas the Pooled Liability Program is a self-funded program covered under a Memorandum of Coverage. The Program Administrators recommended that the Committee create and adopt an Additional Covered Party Amendatory Endorsement to address this issue, similar to what other California JPAs have done. Byrne Conley indicated that he would draft an endorsement, which would then have to go to the Executive Board and Board of Directors for final approval. A motion was made to draft an endorsement for the Executive Board’s review and approval. MOTION: Bert Michalczyk SECOND: Richard Currie MOTION CARRIED F.2. New Member – San Elijo Joint Powers Authority Dennis Mulqueeney discussed this item with the Committee. The Board of Directors approved the San Elijo Joint Powers Authority’s (SEJPA) participation in the Pooled Liability Program effective July 1, 2010, at their April 30, 2010 meeting. Dennis further explained that SEJPA’s current liability coverage is provided by SANDPIPA JPA on a claims made basis. Coverage afforded by CSRMA is on an occurrence basis. To accommodate converting from claims made to occurrence based coverage, the Board approved providing nose coverage (2-years with a sublimit of $5,000,000 and a retroactive date of July 1, 2000) to SEJPA for a one-time charge of $20,000, in addition to the pool deposit of $41,933. G. LOSS CONTROL G.1. Risk Control Workplan for 2010/11 David Patzer introduced this item to the Committee. Every March CSRMA Risk Control prepares an outline of the proposed initiatives to be undertaken in the coming year to address ongoing and new exposures. The workplan is then presented to the Executive Board at the Long Range Planning Meeting. This year’s workplan has been approved by the Executive Board. David reviewed the workplan with the Committee.

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Committee member Richard Currie asked for an overview of the reimbursement program. David provided a brief description of the program. David commented that the program was going well, and CSRMA is reviewing items and approving checks to be sent to members as appropriate. G.2. Spring/Fall/Winter 2010/11 Area Training Update David Patzer briefly reviewed the Spring/Fall/Winter 2010/11 area training schedule with the Committee. The training is provided on topics of interest to the CSRMA membership at multiple locations throughout the year. G.3. Employee Handbook Reviews David Patzer discussed this item with the Committee. Over the past ten years, CSRMA has periodically provided reviews of member employee handbooks. It has been a few years since the last review was performed and the question arose if CSRMA should undertake this activity again. David mentioned that as part of his risk control audits, he requires members to provide information specific to employment related policies and procedures at the member agency. The consensus of the Committee was to not review member employee handbooks this year and review this item again next year, or as the need arises. G.4. Emerging Exposure: Power Generation Seth Cole discussed this item with the Committee. He posed the question of whether or not Power Generation by member agencies created a Liability exposure to the pool. More and more of our members are getting involved in this activity and the Program Administrators felt a discussion on this exposure was warranted. The general consensus from the Committee was that they felt this didn’t present an undo exposure to the pool. The Program Administrators agreed to research this topic further and include on a future agenda. It was noted that there is no exclusion in the MOC for Power Generation. H. INFORMATION ITEMS H.1. “San Leandro Company Grows as Demand for Water Grows” - Article The Committee reviewed this article. H.2. EBMUD Fats, Oils, and Grease mailing to Oakland Residents The Committee reviewed this information item.

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H.3. Medicare, Medicaid, and SCHIP Extension Act of 2007 Reporting Requirements - UPDATE The Committee reviewed this information item. H.4. Committee Comments There were no Committee Comments H.5. CSRMA 2010 Meeting Calendar The Committee reviewed the 2010 Meeting Calendar. H.6. CSRMA Organization Chart The Committee reviewed the CSRMA Organization Chart H.7. CSRMA Service Team The Committee reviewed the CSRMA Service Team Chart. I. ADJOURNMENT The meeting was adjourned at 12:30 p.m. The next meeting is scheduled for September 23, 2010.

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Agenda Item No. C3 Pooled Liability Committee Meeting

Meeting Date: September 23, 2010

CSRMA Member Satisfaction Survey ISSUE: The Program Administrators conducted a short member satisfaction survey in advance of the 2010 Long Range Planning Session in order to surface any potential areas of concern. The results were generally positive. Survey questions specific to claims handling for the Pooled Liability Program were as follows: 14) Please rate the TIMELINESS of the claims handling response. 15) Please rate the QUALITY of the claims handling results. For question #14, 8% of those surveyed were “dissatisfied” with the timeliness of the claims handling response. For question #15, 4% of the respondents felt that the quality of the claims handling was “below” expectations. The Executive Board directed the Program Administrators to examine more closely the results of the survey focusing on those areas where members have noted concerns regarding claims handling for the Pooled Liability Program, and to work with the Committee to address those concerns. RECOMMENDATION: The Program Administrators recommend that the Committee discuss this item and provide direction. FISCAL IMPACT: None. BACKGROUND: From time to time the Executive Board has commissioned member surveys to determine member attitudes towards various services provided by the JPA. ATTACHMENTS: CSRMA Member Satisfaction Survey Results – Pooled Liability Program.

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POOLED LIABILITY PROGRAM

Yes 23 96%

No 1 4%

24 100%

Yes 0 0%

No 24 100%

24 100%

Very Dissatisfied 0 0%

Dissatisfied 2 8%

Reasonable 5 19%

Satisfied 7 27%

Very Satisfied 8 31%

N/A 4 15%

26 100%

Total

12. The program currently provides a maximum of $25.75MM in limits. Do you feel this is adequate?

Total

13. Are there coverages that you would like offered that you feel are missing from the program?

14. Please rate the TIMELINESS of claims handling response.

Total

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mleavell

Text Box

Zoomerang Survey Results CSRMA Member Satisfaction Survey Response Status: Completes Filter: No filter applied Mar 15, 2010 11:13 AM PST

Far Below Expectations 0 0%

Below Expectations 1 4%

Met Expectations 10 38%

Exceeded Expectations 9 35%

Far Exceeded Expectations 2 8%

N/A 4 15%

26 100%

Yes 0 0%

No 26 100%

26 100%

Yes 7 28%

No 18 72%

25 100%

Yes 3 12%

No 22 88%

25 100%

15. Please rate the QUALITY of the claims handling results.

Total

16. Does your agency need CSRMA to provide assistance with Sewer Overflow and Backup Response Plan development?

Total

17. Does your agency need CSRMA to provide assistance with contract safety specification development?

Total

18. Do you need CSRMA to provide assistance with employee policy development and review?

Total

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Agenda Item No. C4 Pooled Liability Committee Meeting


Proposed 2011 Meeting Calendar ISSUE: Every year the Executive Board adopts a meeting calendar. The Pooled Liability Committee Meetings are included in that calendar. The Pooled Liability Committee should review the proposed meetings dates and approve their calendar dates for the upcoming year. RECOMMENDATION: The Program Administrator recommends that the Pooled Liability Committee approve their dates on the 2011 meeting calendar. FISCAL IMPACT: None. BACKGROUND: None. ATTACHMENTS: Proposed 2011 Meeting Calendar

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CSRMA MEETING CALENDAR 2011JANUARY FEBRUARY MARCH APRIL

CSRMA OC - TUES - 12/21/2010 CSRMA WC - THUR - 10 CSRMA LRP - SUN - TUE - 13, 14 & 15 CSRMA OC - TUES - 5CSRMA EB - THUR - 13 CSRMA FIN - MON - 11CSRMA BD - FRI - 14 CSRMA EB - WED - 27

CSRMA BD - FRI - 29

CASA January 12-14 Desert Springs CASA April 27-30 Sacramento

MAY JUNE JULY AUGUSTCSRMA LIAB - THUR - 12 CSRMA WC - THUR - 2 CSRMA OC - TUES - 19 CSRMA EB - THUR - 11CSRMA OC - TUES - 24 CSRMA EB - THUR - 9 CSRMA BD - FRI - 12

CASA August 10-13 San Diego

SEPTEMBER OCTOBER NOVEMBER DECEMBERCSRMA OC - FRI - 23 CSRMA EB - THUR - 13 CSRMA FIN - FRI - 4 CSRMA EB - THUR - 8CSRMA LIAB - THUR - 29 CSRMA WC - THUR - 27 CSRMA LIAB - THUR - 10

CSRMA OC - FRI - 18

CAJPA September 6-9South Lake Tahoe

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POOLED LIABILITY PROGRAMQuarterly Claims ReportAs of June 30, 2010

PY1-10 PY 11 PY 12 PY 13 PY 14 PY 15 PY 16 PY 17 PY 18 PY 19 PY 20 PY 21 PY 22 PY 23 PY 24 Program Avg Program Year 1987-1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 over 24 yrs

Number of Members 335 39 40 40 40 40 39 38 39 39 39 39 39 40 40 37

Total Number of Claims 783 102 94 125 91 126 141 106 125 150 106 115 158 133 78 101

Initial Pool Deposits 11,640,397 1,938,539 2,050,652 2,406,869 1,697,239 1,375,433 1,164,474 1,614,093 1,763,205 2,148,027 2,266,790 2,436,557 2,643,576 2,854,387 2,472,578 1,686,367

Total Paid To Date 4,939,628 502,120 772,072 610,585 349,902 1,557,923 1,774,022 281,071 878,844 2,401,185 1,413,727 1,211,820 788,535 1,476,005 50,806 792,010

Total Reserved 0 0 0 0 0 0 0 0 0 494,432 172,641 57,938 97,254 224,992 165,022 50,512

Total Incurred 4,939,628 502,120 772,072 610,585 349,902 1,557,923 1,774,022 281,071 878,844 2,895,617 1,586,368 1,269,758 885,789 1,700,997 215,828 842,522POOL PENETRATION

No. of Occurrences Over Deductible 77 14 7 12 10 16 24 11 12 12 11 18 20 18 3 11

Total Paid Over Deductible (per occurrence) 4,204,628 417,120 727,072 530,585 267,402 1,372,923 1,299,022 188,571 721,344 2,633,117 1,181,368 972,258 495,789 1,465,997 173,328 693,772

Total Reserves Over Deductible (per occurrence) 0 0 0 0 0 0 0 0 494,432 172,641 57,938 52,060 187,984 153,605 46,611

Total Incurred Over Deductible 4,204,628 417,120 727,072 530,585 267,402 1,372,923 1,299,022 188,571 721,344 3,127,549 1,354,009 1,030,196 547,849 1,653,981 326,933 740,383Total Incurred Over Deductible 4,204,628 417,120 727,072 530,585 267,402 1,372,923 1,299,022 188,571 721,344 3,127,549 1,354,009 1,030,196 547,849 1,653,981 326,933 740,383

Total Incurred Over Deductible / Pool Deposits (%) 36.12 21.52 35.46 22.04 15.76 99.82 111.55 11.68 40.91 145.60 59.73 42.28 20.72 57.95 13.22 43.90

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

1987-1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Percent

Program Year

Pooled Liability ProgramQuarterly Loss Report

Total Incurred Over Deductible / Pool Deposits (%)Program Rolling Avg. over 24 Yrs.

G:\Share\CLIENT\jpa\CSRMA\Pool Liability\lossrun\2010 06 30 Loss Reports - Pooled Liability\lqtr 06_30_2010.xls19

mleavell

Typewritten Text

E1

Agenda Item No. F2 Pooled Liability Committee Meeting


Actuarial Study ISSUE: The biennial actuarial study for the Pooled Liability Program will be performed prior to the December 31, 2010 renewal of the Program. The actuarial study will be used to re-evaluate past projections using current loss data and to project future payment patterns to determine rates. Towers Watson performed the last study in 2008 and is proposing to perform the study for the upcoming Program renewal. As a result of discussion at the 2010 Long Range Planning session, the Executive Board directed the Program Administrators to work with the Committee to evaluate whether or not the current $10,000 minimum deductible for sewer overflow claims should be increased. The actuary will analyze the fiscal impact to the pool of implementing a $25,000 minimum deductible for sewer overflow claims for review and consideration by the Committee. RECOMMENDATION: The Program Administrators are recommending that CSRMA continue to engage Towers Watson to perform this study. FISCAL IMPACT: The cost of the Actuarial Study is $34,000. $34,125 is budgeted for FY 2010/11. BACKGROUND: Each pooled program has an actuarial study performed in order to project outstanding liabilities from previous Program years, and to project funding requirements for future Program years. The actuarial study assists the Program in the following areas:

1. Analyzing whether prior pool deposits are sufficient to cover known and unknown liabilities for expired program years.

2. Setting adequate rates for future years in order to fund for future unknown loss amounts.

3. Calculating retrospective returns/assessments, updating the matrix, completing the financial audit and determining potential for dividend declaration.

ATTACHMENTS: Towers Watson Proposal Letter

21



Deductible Selection Policy and Procedure ISSUE: Each year prior to the renewal of the Pooled Liability Program, the Program Administrators perform a review of member agency loss history for the two most recent program years to determine appropriate deductible levels. If a member agency’s loss history constitutes “Adverse Loss Experience” as defined in the Deductible Selection Policy and Procedure, a risk management audit is triggered and the member agency’s deductible will be established as provided for in Procedure Section 3 of the Policy and Procedure. Based on loss data valued as of June 30, 2010 for the two most recent program years, the Program Administrators have prepared a Deductible Selection Worksheet. By definition, three members qualify as having adverse loss experience. The Program Administrators will discuss their findings at the meeting. RECOMMENDATION: The Program Administrators recommend that the Committee discuss this issue and provide direction. FISCAL IMPACT: Unknown at this time. BACKGROUND: The Board of Directors approved the attached Deductible Selection Policy and Procedure. The Policy and Procedure incorporates a member agency’s loss experience into the deductible selection process. Deductible levels range from $2,500 to $500,000 with a minimum deductible for sewer overflows set at $10,000. ATTACHMENTS: 1. Deductible Selection Worksheet (handout) 2. Deductible Selection Policy & Procedure #8-L

29

CSRMA - Pooled Liability Program Manual ______________________________________________________________________________ CSRMA POLICY & PROCEDURE MEMORANDUM # 8-L EFFECTIVE: May 2, 2003 Revised August 6, 2004 SUBJECT: Deductible Selection PURPOSE This Policy & Procedure Memorandum (P&P) governs the manner in which a member’s annual deductible will be selected for purposes of the coverage provided by CSRMA’s Pooled Liability Program (PLP). APPLICATION; EXCEPTIONS This P&P applies to the selection of annual deductibles for all CSRMA members participating in the PLP. However, if the PLP Memorandum of Coverage (MOC) specifies a minimum deductible for any coverage, the amount of which is greater than the deductible selected pursuant to this P&P, then in that case the minimum deductible established by the MOC controls. Nothing in this P&P is intended to, nor does it, preclude CSRMA from exercising other available remedies for a members’ unsatisfactory claims history, such as removal of a member from participation in a program or removal from membership in CSRMA. POLICIES The following are policies of CSRMA: 1. Subject to the provisions of this P&P, each member participating in the PLP may select the annual deductible amount that will be applicable to the member during each annual coverage period. 2. A member may not select an annual deductible that is less than the Recommended Minimum Deductible set forth in the Table below, unless the smaller deductible amount is approved by CSRMA.

30

Participant’s Pool Deposit Amount* Recommended Minimum Deductible From

To

$20,000 or Less

$2,500

$20,001

$30,000

$5,000

$30,001

$50,000

$10,000

$50,001

$70,000

$25,000

$70,001 90,000 $50,000

$90,001

$110,000

$100,000

$110,001

$135,000

$250,000

$135,000 or More

$500,000

3. A member may select a deductible that is greater than the Recommended Minimum Deductible amount, except that the maximum deductible amount may not exceed $500,000. 4. Unless precluded by Adverse Loss Experience, a member may select a deductible that is less than the recommended minimum deductible shown in the Table if the member’s selection is approved as provided in this P&P. 5. If a member’s loss history constitutes Adverse Loss Experience, the member’s deductible will be established as provided in Procedure Section 3 of this P&P. 6. Adverse Loss Experience is defined as follows:

*For the purposes of this Table, a member’s Pool Deposit Amount is the premium deposit payable by the member exclusive of the deposit required for Public Officials Errors and Omissions Coverage and before allowance is made for any deductible credits.

31

(a) Three or more losses incurred by the member in any one of the two most recent program years where each loss exceeds the member’s deductible for that year; or

(b) Total incurred losses by the member in any one of the two most recent program years equal to $100,000 or more in excess of the member’s deductible for that year.

For these purposes, the phrase two most recent program years means the PLP program year then in effect and the program year preceding it. PROCEDURES 1. Unless (a) the member selects another deductible amount, or (b) other provisions of this P&P allow or require a different selection, a member is deemed to have selected the Recommended Minimum Deductible indicated in the Table above. 2. If a member wishes to select a deductible other than the Recommended Minimum Deductible, the member must notify CSRMA’s Program Administrators of the member’s selection not later than 90 days before the commencement of the program year.

(a) Subject to the provisions of this P&P concerning Adverse Loss Experience, selection of a deductible greater than the Recommended Minimum Deductible will be approved without further action.

(b) In the case of any PLP Participant that, as of the effective date of this P&P, has an

annual deductible which is less than the Recommended Minimum Deductible, the participant is entitled to select and retain that lesser deductible amount so long as the PLP participant’s loss history does not reflect Adverse Loss Experience, as defined in Policy Section 6 above.

(c) In cases not covered by Subsection (b) above, if the member wishes to select a

deductible that is lower than the Recommended Minimum Deductible, the selection shall be referred to the PLP Committee for determination. The PLP Committee shall review the member’s selection in relation to relevant underwriting considerations including, especially, the member’s loss experience. The requested deductible selection may be approved by the Committee if the Committee believes:

i. It is more probable than not that the member will not experience more than

32

one loss during the next coverage period that would exceed the member’s selected deductible amount, and

ii Other pertinent underwriting considerations do not favor selection of a

larger amount. 3. During any interval that a PLP participant’s loss history reflects Adverse Loss Experience, as defined in Policy Section 6 above, the member’s minimum deductible shall be established by CSRMA as follows:

(a) A Risk Management Audit will be triggered The Risk Management Audit will be performed by CSRMA’s Risk Control Adviser.

(b) CSRMA’s Program Administrators will make a recommendation to the PLP Committee on an appropriate deductible level for the member, based on the results of the risk management audit and an analysis of the member’s loss history. 4. At such time as a PLP participant’s loss history no longer reflects Adverse Loss Experience, as defined in Policy Section 6 above, the provisions of Procedure Section 3, above, shall no longer apply. 5. Any decision or determination by the PLP Committee may be appealed by the affected member or any other member of the PLP to CSRMA’s Executive Board, who shall hear and determine the appeal as promptly as possible. The decision of the Executive Board is final. #615896

33

Agenda Item No. F.4 Pooled Liability Committee Meeting


Criminal Liability Defense Coverage ISSUE: CSRMA has completed its first use of the Criminal Liability Defense coverage which was first written into the Memorandum of Coverage a few years ago. The claim settlement process was educational for all who were involved and the Program Administrators would like to formally incorporate this knowledge gained into CSRMA, generally. RECOMMENDATION: The Program Administrators recommend that the Pooled Liability discuss the following:

1. Scheduling a training or presentation at an upcoming CASA Conference 2. Revising the coverage limits and deductibles to better align the interests of the member

with CSRMA if and when this coverage is utilized in the future. Currently the limit is $250,000 per person, with a $25,000 deductible, and a maximum of $500,000 per event/year.

3. Clarify that adjusting fees are included in the limit. 4. Clarify that payment of defense costs is dependent upon timely and reasonably detailed

description of defense activities. FISCAL IMPACT: For item one, nominal and within the training budget. For item numbers two through four, unknown, but likely favorable for CSRMA. BACKGROUND: The one case thus far encountered by CSRMA involved defense of five individuals. It is expected that the maximum limit of $500,000 will be reached in this event. ATTACHMENTS: Criminal Liability Defense Endorsement

35

Endorsement Number: 1 This endorsement forms part of the Memorandum of Liability Coverage for the California Sani-tation Risk Management Authority. SUPPLEMENTAL COVERAGE ENDORSEM ENT FOR DEFENSE OF CRIMINAL ACTIONS BROUGHT AGAINST EMPLOYEES Government Code Section 995.8 provides that, under certain circumstances, a public entity may

provide for the defense of criminal actions brought against employees. A defense may be pro-

vided only if the criminal action or proceeding is brought on account of an act or omission in the

scope of employment as an employee of the public entity; and where the public entity determines

that such defense would be in the best interests of the public entity and that the employee or the

former employee acted or failed to act, in good faith, without actual malice, and in the apparent

interests of the public entity. Government Code sections 6500, 990.4 and 990.8 provide author-

ity for California public agencies to jointly exercise any power common to all of them, including

the power to self-insure claims of losses. Pursuant to this authority, this Endorsement pools the

authority of the member districts to provide for a defense of criminal actions, under certain cir-

cumstances.

Where any criminal action or proceeding is brought pursuant to State or Federal criminal statutes

relating to environmental hazards or environmental exposures, or the release or escape of

POLLUTANTS, and the ENTITY has determined that it is appropriate to provide a defense to

the COVERED INDIVIDUAL pursuant to Government Code Section 995.8, the Authority will

indemnify the ENTITY for any DEFENSE COSTS expended, subject to the terms and limitation

in this Endorsement, and any other terms or limitations in the MEMORANDUM OF

COVERAGE.

Notwithstanding any MAXIMUM COVERAGE LIMIT stated within the DECLARATIONS, the

limit of coverage under this Supplemental Coverage Endorsement is limited to $250,000 for any

COVERED INDIVIDUAL, regardless of the number of criminal actions or proceedings brought,

A - PLP - 09-10 - Memorandum of Coverage - FINAL.doc 136

2009-10 Edition G:\Share\client\jpa\CSRMA\Pool Liability\renewal\2009-2010\Policy Forms-Documents\CSRM P - 09-10 - Memorandum of Coverage - FINAL.doc A - PL

2

Endorsement Number: 1 (continued) or the number of jurisdictions (including Federal or State) within which a criminal action or pro-

ceeding is brought, arising from any accident or event, including continuous or repeated expo-

sure to substantially the same generally harmful conditions.

Notwithstanding what is stated in the Declarations Pages, this COVERAGE shall be subject to a

DEDUCTIBLE of $25,000, payable by the ENTITY and applicable to the defense of each

COVERED INDIVIDUAL.

This Endorsement does not create any rights of any third party beneficiary, and specifically, is

not intended to provide any direct right or claim in favor of the COVERED INDIVIDUAL. In-

stead, this Endorsement is intended only to provided an indemnity benefit to the ENTITY itself.

The ENTITY retains the sole discretion in determining whether the conditions of Government

Code Section 995.8 are met. Any decision of the ENTITY that the act or omission occurred

within the scope of employment, and that defense would be in the best interests of the ENTITY,

and that the employee acted or failed to act, in good faith without actual malice and in the appar-

ent interests of the ENTITY, shall be conclusive and determinative with respect to this

COVERAGE.

Notwithstanding any other provision of the MEMORANDUM OF COVERAGE, this Supple-

mental Coverage Endorsement shall be subject to an annual aggregate limit, such that $500,000

is the most that the Authority shall be required to pay on account of all DEFENSE COSTS for all

COVERED INDIVIDUALS employed by the ENTITY for all OCCURRENCES arising during

any COVERAGE PERIOD. For the purposes of this Supplemental Coverage Endorsement, an

OCCURRENCE with a duration of more than one COVERAGE PERIOD shall be treated as a

single OCCURRENCE arising during the latest dated COVERAGE PERIOD.

37



Lake Arrowhead Community Services District – Notice Received ISSUE: The Program Administrators have received notice from Lake Arrowhead Community Services District that they intend to explore alternatives to CSRMA for their insurance, coverage and loss control needs. RECOMMENDATION: The Program Administrators recommend that the Pooled Liability Committee discuss this issue. FISCAL IMPACT: Unknown at this time. BACKGROUND: Lake Arrowhead CSD has been a member of the JPA since 09/01/96 and is currently a member of the Pooled Liability, Workers’ Compensation, Primary Insurance and Property Programs. ATTACHMENTS: Lake Arrowhead CSD Notice of Non-Renewal

39

Agenda Item: G1 Pooled Liability Committee


Fall/Winter 2010 Area Training Update

ISSUE: As part of CSRMA’s ongoing risk control efforts, training is provided on topics of interest to the CSRMA membership at multiple locations throughout the year. The topics and locations scheduled for Fall/Winter 2010 are listed below:

Topic Dates Tentative Locations Sewer Overflow and Backup Liability Update

September 2010 Emeryville Tahoe City Santa Barbara Encinitas

Verbal Judo October 2010 Emeryville Union City Tahoe City

Underground Utility Locating November 2010 Truckee SD Union SD Leucadia WD West County WD

Workers’ Compensation and Return to Work Practices

December 2010 Union SD West County WD Leucadia WD Goleta SD

RECOMMENDATION: None – information only. FISCAL IMPACT: Approximately $30,000. This training program is part of the 10/11 Risk Control training budget. BACKGROUND: As part of CSRMA’s ongoing risk control efforts, training is provided on topics of interest to the CSRMA membership at multiple locations throughout the year. Each training topic is selected based on timeliness and member need. Further, each training event has two goals:

To provide information and training that is timely, useful, understandable and practical for the purpose s of loss control and regulatory compliance;

To reach the largest number of people for which the training was designed in the most cost-effective manner possible.

ATTACHMENTS: None

43

Agenda Item: G2 Pooled Liability Committee


Sewer Ordinance Review

ISSUE: The Pooled Liability Committee directed the Program Administrators to review member ordinances for language addressing lateral and backflow prevention device ownership and maintenance responsibilities. This review is being performed in light of two recent claims that have highlighted the need to properly address such language in the ordinance to be effective at raising a defense against damages. Below is a summary of the results of the preliminary review of the ordinances submitted: -Number of Members Contacted: 36 -Number of Members Responding: 17 -Number of Requests Made: 2

Parameter Yes Notes Ownership of Upper Lateral Identified?

15/17

Maintenance of Upper Lateral Identified?

15/17

Ownership of Lower Lateral Identified?

15/17

Maintenance of Lower Lateral Identified?

15/17

Identifies who’s responsible for problems in the private sewer when a cleanout at the property line does not exist?

12/17

Specifies when a backflow prevention device is required on the private sewer lateral?

10/17 The conditions requiring a BPD vary greatly. Most mirror the Uniform Plumbing Code requirements (ie. Lowest drain elevation relative to nearest upstream manhole).

Requires testing, video or other “certification” of lateral upon transfer of property?

3/17 Truckee SD has a very comprehensive set of conditions requiring lateral inspection/testing.

Specifies type of BPD allowed?

3/17 This may not be accurate since an agency’s Standard Specifications may specify BPD type.

Failure to install BPD relieves District of responsibility for flooding?

4/17 4/17 specifically addresses this in their ordinance. An additional 4 agency’s may address this through establishing conditions when a BPD is required and then using their Code Violations section to deny liability.

Requires BPD installation after backup?

2/17 Only two ordinances specifically state this. All of the other ordinances addressing conditions requiring BPD installation have a “catch-all” phrase similar to: “or whenever conditions warrant installation as

45

determined by the District Manager.” RECOMMENDATION: Discuss and provide direction on the following: 1. What, if any, further review is necessary on the ordinances submitted? 2. What, if any, additional follow-up is necessary with those members whose ordinances have

not been reviewed? 3. What type of feedback should be provided to those members who submitted their ordinance? 4. Should CSRMA create a model ordinance addressing lateral ownership (under all possible

permutations), backflow prevention device installation, ownership, maintenance and failure to install/maintain a backflow prevention device when required?

FISCAL IMPACT: None at this time. BACKGROUND: Over the past several years, CSRMA has seen an increase in liability exposure to member districts because of SSO backups into homes and businesses. Generally the frequency of these types of claims seems to be decreasing, but the dollar exposure on individual claims has been going up, particularly since a 2006 Court of Appeal decision, CSAA v. City of Palo Alto, expressly determined that such claims can support inverse condemnation liability, which means plaintiffs can collect attorney fees as well as actual damages. An agency’s Sewer Use Ordinance can be a tremendous resource to control many of these risks. One unpublished Court of Appeal opinion involving the City of Los Altos indicated that a homeowner's failure to install a backflow prevention device, as required by ordinance, cut off all damages under the inverse condemnation theory. However two recent CSRMA claims have highlighted, if the language in the ordinance (dealing with lateral and device ownership, maintenance responsibilities, and backflow relief/prevention device installation and maintenance requirements) is not addressed properly, the ordinance may not be effective at raising this defense. Proof issues such as documenting notice of ordinance requirements to the property owner, and code enforcement at the time building permits are issued, can also affect this defense to liability. Of course, the best prevention is prevention of the SSO itself, and getting property owners to comply with such ordinances will also reduce liability claims. To assist members with ensuring their ordinance language is providing the necessary protection, CSRMA has requested members send us their ordinances to review. CSRMA’s aim is to provide each member with feedback on the following: 1. Does the ordinance address the necessary elements regarding lateral ownership and

maintenance? 2. Does the ordinance address the necessary elements regarding sewer relief valve/backflow

prevention device installation triggers, ownership and maintenance?

ATTACHMENTS: Draft Ordinance Review Results

46

2010 CSRMA Sewer Use Ordinance Review

Member Ordinance Submitted

?

Ownership of Upper Lateral

Identified?

Maintenance of Upper Lateral

Identified?

Ownership of Lower Lateral

Identified?

Maintenance of Lower Lateral

Identified?

Identifies who’s

responsible for problems in the private sewer when a

cleanout at the property line does not

exist?

Specifies when a

backflow prevention device is

required on the private

sewer lateral?

Requires testing, video or other

“certification” of lateral upon transfer of property?

Specifies type of

BPD allowed?

Failure to install BPD

relieves District of

responsibility for flooding?

Requires BPD

installation after

backup?

Notes

Carmel Yes Y Y Y Y NA – agency owns no portion

Y N N Unsure – see notes

N Failure to install a BPD when required is a Code Violation.

Carpinteria No Castro Valley

No

CCCSD No DDSD Yes Y Y Y Y N N N N N N BPD requirements may exist in

Standard Specs DSRSD Yes N N N N N N N N N N FSSD Yes NA NA NA NA NA NA NA NA NA NA NA Goleta No Goleta West

No

Ironhouse No LACSD Yes Y Y Y Y Y N N N N N

Las Gallinas

Yes Y Y Y Y Y Y N Y Unsure – see notes

N Failure to install a BPD when required is a Code Violation.

Leucadia Yes Y Y Y Y NA N N N N N Montecito No Mt View No Napa* Yes Y Y Y Y N N N N N N Novato Yes Y Y Y Y NA – agency

owns no portion


N Failure to install a BPD when required is a Code Violation. Ordinance indicates, “Any person violating any of the

provisions of the ordinances, rules or regulations of the

District shall become liable to the District for any expense,

loss or damage occasioned by the District by reason of such

violation.” Ojai No

Oro Loma Yes Y Y Y Y NA – agency owns no portion


Y Failure to install a BPD when required is a Code Violation. Ordinance indicates, “Any person violating District

Ordinances, rules, regulations, or standards becomes liable to

the District for any costs incurred by the District

because of those violations.”

47

Member Ordinance Submitted

?

Ownership of Upper Lateral

Identified?

Maintenance of Upper Lateral

Identified?

Ownership of Lower Lateral

Identified?

Maintenance of Lower Lateral

Identified?

Identifies who’s

responsible for problems in the private sewer when a

cleanout at the property line does not

exist?

Specifies when a

backflow prevention device is

required on the private

sewer lateral?

Requires testing, video or other

“certification” of lateral upon transfer of property?

Specifies type of

BPD allowed?

Failure to install BPD

relieves District of

responsibility for flooding?

Requires BPD

installation after

backup?

Notes

San Rafael No SD #5 No Santa

Margarita Don’t have

one N N N N N N N N N N Staff indicated the District does

not have an Ordinance but are working to develop one.

Sausalito No Selma-

Kingsburg No

Sewer Authority

No

S. Tahoe Yes –see notes

Unable to review – the link provided to their ordinance isn’t working but they are sending to me for review

Stege Yes Y Y Y Y Y Y Y Y Y Y Truckee Yes Y Y Y Y Y Y Y – very

comprehensive set of conditions requiring testing

of the lateral

Y Y N

Union SD No Vallejo No

Valley SD Yes Y Y Y Y NA – agency owns no portion

Y N N Y N

Ventura Yes Y Y Y Y N N N N N N Victor Valley

No

West Bay No West

County Yes Y Y Y Y Y Y Y N Y N Requires BPD on all

connections and verification of BPD installation upon sale or

transfer of property West Valley Yes Y Y Y Y Y Y N N N N

48

EMERGING EXPOSURES NEWS ITEM June 2010, Volume VI, #2

MISCELLANEOUS

New EPA rules for contractors go into effect

In April 2010, the Environment Protection Agency (EPA) began to enforce new regulations pertaining to renovations that disrupt paintwork in homes and some commercial buildings built before 1978.

The new rules – Lead Renovation, Repair and Painting Program – apply to dwellings where children under six years old live or spend more than three hours per day over the course of at least two days per week. Buildings include single-family homes, apartments, schools, and day care centers among other facilities.

Individuals and companies that do not comply with the new regulations could face “tens of thousands of dollars in fines” and risk being sued, according to an EPA fact sheet for contractors.

As of April 2010, firms performing work such as renovation, repair, or painting covered under the new regulation must be certified, and individual renovators must be trained by an EPA-accredited training facility.

Source: Property Casualty Insurers Association of America. (2010). EPA lead contractor rule. April 7.

555 College Road East, Princeton, NJ 08543 (609) 243-4200 The Munich Re America name and logo are marks owned by Munich Reinsurance America, Inc.

©Copyright 2010 Munich Reinsurance America, Inc. All rights reserved. This material was prepared based on industry sources for informational use only, and is not permitted to be further distributed without the express written permission of Munich Re America. No representation or warranty of any kind, whether express or implied, is provided with respect to the accuracy, completeness, or applicability of this material to any recipient's circumstances. This material is not intended to be legal, underwriting, financial or any other type of professional advice. Munich Re America and its affiliates disclaim any and all liability whatsoever resulting from use of or reliance upon this material.

49

mleavell

Typewritten Text

H1


CYBER LIABILITY AND INTERNET RISK

Privacy of employee text messaging under review by U.S. Supreme Court

The U.S. Supreme Court heard arguments on a case involving the privacy of text messaging, an issue that has scarce legal precedent. How the court rules could cause changes in employers’ electronic monitoring practices and enforcements, according to some legal experts.

The case City of Ontario, Calif., et al. vs. Jeff Quon et al. involves a member of a California city police department’s SWAT team who sent sexually explicit text messages on a department-provider pager to his wife and another woman, his mistress, both of whom were employed by the police department.

Quon, one of the plaintiffs in the case, had signed a department statement, acknowledging that the city could monitor all “network activity, including e-mail and Internet use, with or without notice,” and that employees should not expect any level of privacy or confidentially when using city-provided electronic devices.

Despite the department’s written policy, employees were told they could pay overage fees for text messaging that exceeded the monthly limit to avoid questions about personal use. This practice became commonplace.

An audit of transcripts of employee messaging that were turned over by Arch Wireless without employees’ consent uncovered that Quon had been sending sexually explicit messages to his wife and another woman.

Quon and the recipients of his messages sued the city of Ontario, Calif., charging that their protections for unlawful search and seizure provided under the Fourth Amendment were violated. The suit also maintains that disclosure requirements of the 1986 Stored Communications Act for communications stored by an electronic communications service company were also violated.

In 2008, the 9th U.S. Circuit Court of Appeals in San Francisco ruled that employers could not read their employees’ text messages and the city’s actions also violated the Stored Communications Act.

Even though the case involves a public employer, some legal experts say that the high court’s decision is likely to influence the policy and practices of private employers as well. Over the past 20 years, the Court has provided little guidance on the monitoring of electronic communications.

A decision that bounds public employees’ privacy expectations to written policies could give private companies new motivations “to develop and enforce robust electronic communication and privacy policies (that) would be stronger than ever,” according to Farrah Pepper, of counsel with law firm Gibson, Dunn & Crutcher L.L.P.

However, this may not necessarily be the case, say other legal experts, who maintain that the court’s decision is likely to have little impact on the practices of private companies because unlike government agencies, private employers are not subject to the unreasonable search and seizure measures under the Fourth Amendment.

What may have great significance for private employers is a ruling by the Ninth Circuit Court of Appeals that held that the inspection of communications by an outside vendor without an employee’s consent most probably violates the Stored Communications Act. While the Supreme Court will not address this issue, third-party vendors are unlikely to turn over communications without employees’ consent in the future.

One point on which legal experts agree is that if policy and practice had been consistent, the department would probably not have been faced with the suit.

A decision by the Court is expected shortly.

Source: Greenwald, J. (2010). Texting case shows need for clear rules on tech tools. BusinessnessInsurance.com, April 25. Troutman Sanders.com. (2010). Will Supreme Court’s ruling in Quon v. Ontario yield big changes for private employers? May 27.



51

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H2


CONSTRUCTION DEFECT

Shifting soil linked to increase in foundation failures

Over the past two decades, there has been a huge increase in foundation failure in homes across the U.S., the result of shifting soil, which has partly been attributed to extremes in the weather.

Large cracks in walls, grout popping, out-of-plumb doors and windows, and bowing basement walls, among other problems, have prompt many homeowners to seek the help of foundation repair companies, which have seen their business double and in some cases triple over the past two decades.

In many cases, foundation failures have been attributed to soil movement, which has worsened with recent sudden swings between extreme dry periods and heavy downpours, or extreme hot and cold weather. These types of extreme conditions can undermine the integrity of the soil.

The huge housing boom, which led some developers to build on less stable ground, may have also contributed to the problems of homeowners.

The foundation repair market is estimated to be around $4 billion.

Source: Greenwire. (2010). Climate: Shifting solids endanger homes’ foundations. March 4.



53

mleavell

Typewritten Text

H3

re•in•sur•ance: a Basic Guide to Facultative and Treaty reinsurance

55

mleavell

Typewritten Text

H4

ii MunicH re re•in•sur•ance: a Basic Guide To Facultative and Treaty reinsurance

introduction 1

What is reinsurance? 2 Functions of reinsurance 3 Providers of reinsurance 3 regulation 4

reinsurance concepts 5 Facultative and Treaty 5 Pro rata and excess of Loss 6

applying the Basics: Facultative reinsurance 8 Pro rata 8 excess of Loss 10 Facultative casualty reinsurance 12 Facultative Property reinsurance 13 Facultative Programs: casualty and Property 14

applying the Basics: Treaty reinsurance 15 Pro rata 15 Quota share 16 surplus share 20 excess of Loss 22 Variations 25

Glossary 26

This publication is intended only as a reference tool for the insurance and reinsurance industry. While the publication is designed to provide general information with regard to the subject matter covered, it does not address all of the technical aspects of a defined term or topic and does not constitute a legal consultation or legal opinion. no decision should be made on the basis of the definitions or the overview provided herein. instead, readers should consult with legal counsel. The definitions or the overview contained herein are intended to apply only to property and casualty reinsurance.

56

MunicH re re•in•sur•ance: a Basic Guide To Facultative and Treaty reinsurance 1

inTroducTion

Munich re stands for solution-based expertise, consistent risk management, financial stability and client proximity. our clients trust us to develop solutions for the whole spectrum of reinsurance – from traditional reinsurance agreements to the management of complex specialty reinsurance risks.

our u.s. operations is, on a standalone basis, one of the largest property-casualty reinsurance companies in the united states. Together with our affiliates, american Modern insurance Group and Hartford steam Boiler Group, we deal with the issues that affect society and work to devise cutting-edge solutions that render tomorrow’s world insurable. our recipe for success: we anticipate risks early on and deliver solutions tailored to clients’ needs, creating opportunities to achieve sustained profitable growth.

This book is intended to be a brief and basic introduction to reinsurance concepts. The numerical examples given are merely to illustrate the concepts discussed, and are not intended to suggest any particular price or condition for any of the reinsurance described. We have also included a comprehensive glossary of terms used to understand these concepts. For additional information, however, the reader should consult more comprehensive reinsurance publications.

Keep in mind that developing a financially sound reinsurance program must take into account the unique risks that an insurer faces. our professional specialists combine their expertise in applying the fundamental concepts found in this brochure with their extensive experience in designing reinsurance programs to address the unique needs of each client.

Please visit our website www.munichreamerica.com if you would like additional information about Munich re.

57

2 MunicH re re•in•sur•ance: a Basic Guide To Facultative and Treaty reinsurance

WHaT is reinsurance?

reinsurance is a transaction whereby one insurance company (the “reinsurer”) agrees to indemnify another insurance company (the “reinsured, “cedent” or “primary” company) against all or part of the loss that the latter sustains under a policy or policies that it has issued. For this service, the ceding company pays the reinsurer a premium.

The purpose of reinsurance is the same as that of insurance: to spread risk. reinsurance helps protect insurers against unforeseen or extraordinary losses by allowing them to spread their risks. For example, a catastrophic fire at an industrial enterprise could financially devastate its insurer. With reinsurance, no single insurer finds itself saddled with a financial burden beyond its ability to pay.

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Functions of Reinsurance The most common reasons for purchasing reinsurance include:

Capacity Reliefallows the reinsured to write larger amounts of insurance.

Catastrophe ProtectionProtects the reinsured against a large single, catastrophic loss or multiple large losses.

Stabilization Helps smooth the reinsured’s overall operating results from year to year.

Surplus Reliefeases the strain on the reinsured’s surplus during rapid premium growth.

Market Withdrawal Provides a means for the reinsured to withdraw from a line of business or geographic area or production source.

Market Entrance Helps the reinsured spread the risk on new lines of business until premium volume reaches a certain point of maturity; can add confidence when in unfamiliar coverage areas.

Expertise/Experience Provides the reinsured with a source of underwriting information when developing a new product and/or entering a new line of insurance or a new market.

Providers of Reinsurance Direct Writersreinsurers enter into reinsurance relationships directly with the ceding company. The collection of premiums and payment of claims are handled directly by the reinsurer.

Broker-Market Reinsurersassume business through reinsurance intermediaries (i.e. brokers) who typically negotiates reinsurance contracts between the ceding company and the reinsurer(s), and provide the production or sales support.

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Brokers generally represent the ceding company and receive compensation in the form of commission, and/or other fees, for placing the business and performing other necessary services. The brokerage commission is almost always paid by the reinsurer. Typically, the broker will collect premiums and handle disbursements of claims payments.

Reinsurance Departments of Insurersa primary insurance company’s reinsurance department assumes reinsurance business.

Pools or AssociationsPools or associations consist of individual primary insurers that have banded together to increase their underwriting or large line capacity, premium capacity or to provide coverage for risks which are uninsurable by conventional means. Pools can be organized to provide insurance or reinsurance. Pools or associations are typically managed by a separate company which provides underwriting and loss handling experience and administration.

Regulationreinsurers are generally subject to many of the same regulations as primary insurers. Both insurers and reinsurers are mostly regulated at the state level, where state insurance departments create and enforce state regulations. regulation of both insurance and reinsurance aims at ensuring the solvency of the insurer/reinsurer to pay claims on the contracts that it issues.

state insurance departments also license insurers/reinsurers to do business in their state.

Admitted Company (Authorized Company)an insurer or reinsurer licensed to conduct business in a given state.

Non-Admitted Company (Un-authorized Company)an insurer or reinsurer not licensed in a given state.

The national association of insurance commissioners is an organization of the chief insurance regulatory officials of the 50 states, the district of columbia, american samoa, Guam, Puerto rico and the Virgin islands. its purpose is to coordinate regulatory activities among these states and territories and provide a forum to discuss insurance issues

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reinsurance concePTs

Facultative and Treaty There are essentially two types of reinsurance arrangements:

Facultative Reinsurance reinsurance transacted on an individual risk basis. The ceding company has the option to offer an individual risk to the reinsurer and the reinsurer retains the right to accept or reject the risk.

Treaty Reinsurance a transaction encompassing a block of the ceding company’s book of business. The reinsurer must accept all business included within the terms of the reinsurance contract.

Characteristics

Facultative(individual risk)

Treaty(Book of Business)

– individual risk review– right to accept or reject each risk on its own merit– a profit is expected by the reinsurer in the short and long term, and depends primarily on the reinsurer’s risk selection process– adapts to short-term ceding philosophy of the insurer– a facultative certificate is written to confirm each transaction– can reinsure a risk that is otherwise excluded from a treaty– can protect a treaty from adverse underwriting results

– no individual risk acceptance by the reinsurer– obligatory acceptance by the reinsurer of covered business– a long-term relationship in which the reinsurer’s profitability is expected, but measured and adjusted over an extended period of time– Less costly than “per risk” reinsurance– one treaty contract encompasses all subject risks

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Pro Rata and Excess of Loss Facultative and treaty reinsurance can be written on either a pro rata or excess of loss basis.

Pro Rata

a term describing all forms of quota share and surplus share reinsurance in which the reinsurer shares the same proportion of the premium and losses of the ceding company. Pro rata reinsurance is also known as “proportional reinsurance”. along with sharing proportionally in premium and losses, the reinsurer typically pays a ceding commission to the ceding company to reimburse for expenses associated with issuing the underlying policy.

advantages– easy to administer.– Good protection against frequency/severity potential.– Protection of net retention on first-dollar basis.– Permits recovery on smaller losses.

=

Premium

l 40% ceding company $

l 60% reinsurance $

Losses

l 40% ceding company $

l 60% reinsurance $

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Excess of Loss

a term describing a reinsurance transaction that, subject to a specified limit, indemnifies a ceding company against the amount of loss in excess of a specified retention. excess of loss reinsurance is also called “non-proportional reinsurance”

in excess of loss reinsurance, premiums are typically negotiated as a percentage of the primary insurer’s premium charge.

advantages – Good protection against frequency or severity potential, depending upon the retention level.– allows a greater net premium retention.– More economical in terms of reinsurance premium and cost of administration.

Premium Losses

reinsurer $ negotiated

reinsurer $

retention of Primary company

excess of retention

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aPPLyinG THe Basics: FacuLTaTiVe reinsurance

Pro RataThe ceding company and reinsured share premium and losses on specific risks in proportion to an agreed percentage.

Example 1

commercial umbrella Policy Limit $1,000,000annual Premium $10,000

The ceding company retains 25% net and places 75% facultative reinsurance on a pro rata basis. reinsurance participation is expressed as $750,000 (75%) part of $1,000,000.

PremiumThe premium due the reinsurer is $7,500 (75% of $10,000) less the ceding commission it pays to the ceding company to defray expenses and acquisition costs.

Premium = $10,000

l $2,500 Premium (25% ceding company)

l $7,500 Premium (75% reinsurer)

Lossesif a covered loss of $400,000 occurs, the ceding company would pay $100,000 (25% of $400,000), and the reinsurer would pay $300,000 (75% of $400,000).

Loss = $400,000

l $100,000 (25% ceding company)

l $300,000 (75% reinsurer)

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Example 2

restaurant/Hotel, 100% PML (Probable Maximum Loss)

Buildings $ 10,000,000contents $ 2,000,000Total insurable Value (TiV) $ 12,000,000

annual Premium $ 20,000

Because of potential high severity of loss from a burn-out situation (100% PML), pro rata protection is appropriate. if the ceding company’s net retention is 80% and a reinsurer participates at 20%, a 20% pro rata protection on each and every loss will result.

PremiumThe reinsurer receives 20% of the premium ($4,000) less a ceding commission.

Premium = $20,000

l $16,000 Premium (80% ceding company)

l $4,000 Premium (20% reinsurer)

Lossesassuming a loss of $9,000,000, the ceding company would pay 80%, or $7,200,000, and the reinsurer would pay 20%, or $1,800,000.

Loss = $9,000,000

l $7,200,000 (80% ceding company)

l $1,800,000 (20% reinsurer)

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Excess of Lossexcess of loss facultative placements require an analysis of potential severity of losses. The ceding company selects a loss level compatible with net and treaty guidelines and uses this as its retention. The facultative reinsurer provides a limit of reinsurance in excess of this retention.

Example 1 (see page 8)

commercial umbrella Policy Limit $ 1,000,000annual Premium $ 10,000

assume the ceding company also writes a $1,000,000 underlying policy. its net and treaty retention may be limited to $1,250,000 per risk. since the total combined limit of the two policies is $2,000,000, the reinsurance cover is excess of the net and treaty retention, expressed as $750,000 excess $250,000 excess underlying ($1,000,000)

$750,000 x/s

$250,000

umbrella retention $250,000

underlying Limit/retention

$1,000,000

umbrella Limit $1,000,000

Treaty

net

unlike premium determination for pro rata agreements, where premium to the reinsurer is the same as the percentage of risk assumed, excess layer pricing is based on various formula guidelines, the underwriter’s evaluation of risk, primary rates, increased limits rates, and market conditions. excess pricing may be net of commission or gross (before commission), depending on the arrangements between the ceding company and reinsurer.

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Example 2 (see page 9)

restaurant/Hotel, Fire resistive 4-story office Building (2-story PML)

Building $ 10,000,000contents $ 2,000,000Total insurable Value (TiV) $ 12,000,000

PML $ 6,000,000annual Premium $ 20,000

Because loss severity is not expected (note PML estimate above), excess protection may be the most cost-efficient solution. if the ceding company retains the PML net and facultatively reinsures the remaining limit on an excess basis, the layering and possible price allocation might look like this:

ceding company:$6,000,000 net $15,000 Premium

Facultative reinsurer:$6,000,000 excess $6,000,000 $5,000 net Premium

assuming a loss of $9,000,000, the facultative reinsurer pays $3,000,000 excess of the ceding company’s $6,000,000 first dollar retention.

$20,000 Premium

$9,000,000 Loss

reinsurer $5,000

Premium

reinsurer Pays 3,000,000 (9,000,000 – 6,000,000)

$15,000 Premium

ceding company Pays

$6,000,000

$6,000,000 x/s $6,000,000

ceding company retention$6,000,000

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Facultative Casualty ReinsuranceTypical Reinsurance Lines Of Business

– General Liability– umbrella– Personal/commercial automobile– Workers’ compensation and/or employer’s Liability– excess Liability

Generally, the above lines - except for umbrella - are reinsured as excess transactions. However, reinsurers may provide pro rata reinsurance of excess layers. umbrella/excess Liability can be reinsured on a pro rata or excess of loss basis.

capacity and attachment requirements vary by risk and reinsurer. Generally speaking, buffer layers can attach as low as $250,000. umbrella/excess Liability often requires a minimum of at least $1,000,000 underlying policy limits.

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Facultative Property ReinsuranceTypical Reinsurance Lines Of Business

Property lines of business are numerous and varied. They can fall into any one of the following categories

– standard Lines– Technical risks– excess and surplus Lines

Property reinsurance is offered on both a pro rata and excess basis. The amount of reinsurance written by a reinsurer depends heavily on individual risk characteristics, including the result of a Probable Maximum Loss (PML) and Maximum Foreseeable Loss (MFL) analysis.

Placement of Facultative casualty or Property reinsurance

1. The ceding company provides the reinsurer with their risk information. The reinsurer analyzes the information, which becomes part of the reinsurer’s permanent file.

2. if the reinsurer is willing to write the risk, it gives a quote and sends the ceding company a written confirmation.

3. if the quote is accepted, the reinsurer sends a confirmation of binder.

4. The ceding company sends the reinsurer a copy of its policy from which the reinsurer prepares a certificate of reinsurance.

5. if a broker is used by the ceding company, all transactions including exchanging risk information, quotes, and binders occurs through the broker.

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Facultative Programs: Casualty and PropertyWhen a ceding company’s underwriting standards match the standards of a facultative reinsurer, a “program” approach may provide the greatest benefit to both parties. a “program” provides automatic coverages for the specific line or types of business.

a program may be written to cover a line of business, such as low to moderate hazard commercial umbrellas, or a book of fairly homogeneous classes of property business. Programs terms and conditions are typically documented in more sophisticated binding agreements written up as formal contracts. These contracts often provide the right of rejection on the part of the reinsurer. However, they can also be written on an obligatory basis as well.

such agreements require the utmost good faith between the parties.

advantages– instantaneous binding by the ceding company.– reinsurance terms, including pricing formulas, are predetermined by both a written contract and established underwriting guidelines.– Bordereau reporting of premiums.– Lower administrative cost.

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aPPLyinG THe Basics: TreaTy reinsurance

Treaty reinsurance is a transaction encompassing a block of the ceding company’s book of business. The reinsurer must accept all business included within the terms of the reinsurance contract. as with facultative reinsurance, treaty reinsurance contracts can be grouped into two main categories — pro rata and excess of loss.

Functions of Pro Rata Reinsurance

– Provide the cedent with automatic reinsurance on every risk to be insured within the applicable classes.– increase the cedent’s capacity to accept greater limits.– Finance growth through unearned premium assumption by the reinsurer, reduction in written premium thus improving the written premium to surplus ratio or increasing assets due to the release of equity in the unearned premium reserve.

Characteristics of Pro Rata Reinsurance

– Liability of the reinsurer begins simultaneously with that of the ceding company.– Premium and losses shared proportionally by ceding company and reinsurer.– ceding company is paid a reinsurance commission compensating for acquisition costs, premium taxes, and the cost of servicing the business.

There are two distinct types of pro rata reinsurance - quota share and surplus share.

Pro Rataas described earlier, pro rata, also called “proportional,” is a form of reinsurance in which the reinsurer shares a proportional part of the original losses and premiums of the ceding company. Pro rata forms are often used in property insurance, since this form provides catastrophic protection in addition to individual risk capacity.

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Quota ShareQuota share reinsurance is a form of pro rata reinsurance whereby the ceding company is indemnified for a fixed percent of loss on each risk covered by the treaty contract. all liability and premiums are shared from the first dollar. “Quota” or “definite” share relates to the fixed percentage as stated in the treaty.

on premiums ceded, the reinsurer pays the ceding company a commission. The commission to the ceding company is an important factor in quota share reinsurance as it provides a financial benefit to the primary company (illustrated on next page).

also referred to as an “obligatory reinsurance contract,” the quota share treaty requires the primary company to cede and the reinsurer to accept each and every policy underwritten by the reinsured. The treaty will usually include a maximum dollar amount over which the reinsurer is not willing to be committed on any one risk.

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Premium = $2,000

l $800 Premium (40% ceding company)

$1200 Premium (60% reinsurer) $360 commission Paid Back to ceding company

Lossesassume a total loss of $400,000 occurs. For this loss, the ceding company would pay $160,000 (40% of $400,000) and the reinsurer would pay $240,000 (60% of $400,000).

Loss = $400,000

l $160,000 (40% ceding company)

l $240,000 (60% reinsurer)

Example

The ceding company has a 60% quota share treaty. Therefore, 40% of all premiums and losses will be retained by the company and 60% of all premiums (less commission) and losses will be ceded to the reinsurer subject to the limit of the treaty. The commission to the ceding company is agreed upon at 30%.

Premiumassume a risk is written for a limit of $400,000 at a premium of $2,000.

Premium retained by ceding company: 40% of $2,000 = $ 800Premium paid to reinsurer: 60% of $2,000 = $ 1,200commission to ceding company: 30% of $1,200 = $ 360

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Financing Function

as a financing mechanism, a quota share treaty is very important to providing surplus relief. Theoretically, barring other negative factors, it makes sense that the more surplus (assets minus liabilities) a company has to “back up” its premium writings, the more financially stable that company will be, particularly when it is growing its new business. regulators focus on insurer solvency and apply what is known as “statutory accounting principles” which are very conservative. This approach requires that when a policy is issued, the insurer must immediately and fully recognize all the expenses associated with issuing the policy (e.g., taxes, administrative, commissions paid) but can only recognize the premium over the life of the policy.

When a policy is written, an unearned premium reserve (a liability) in the amount of the policy premium must be established. The amount of this reserve shrinks over the life of the policy as the premium becomes “earned”. For example, a 12 month policy issued at 1/1 for $100 will have an unearned premium of $100 at 1/1, $75 at 4/1, 50 at 7/1 and so on until the entire premium is earned and the unearned premium reserve is $0 at 12/31. This mis-matching of when the assets (premium) and liabilities (expenses) are recognized for accounting purposes results in a situation where the more premium that is written (i.e., the more the business grows), the more surplus shrinks.

a quota share treaty has the effect of sharing both the unearned premium reserve (through the insurer ceding part of the written premium to the reinsurer) and the administrative expense (through the ceding commission that the reinsurer pays to the insurer for the portion of the written premium that is ceded). The net effect on the insurance company balance sheet is a replenishment of surplus, the amount of which depends on the amount of business ceded to the reinsurer and the level of ceding commission paid to the insurer by the reinsurer.

Example

a ceding company wants to create surplus relief and strengthen its balance sheet. The reinsurer agrees to assume 50% quota share of all premiums and losses. The reinsurer will pay 30% commission on the premium assumed.

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Balance sheet

(Before the Quota share)

assets Liabilities/surplus

cash/Premium $8,000,000 unearned Premium reserve $8,000,000

other $14,000,000 other $12,000,000

surplus $2,000,000

$ 22,000,000 $ 22,000,000

(after the Quota share)

assets Liabilities/surplus

cash/Premium1 $ 5,200,000 unearned Premium reserve 2 $ 4,000,000

other $14,000,000 other $12,000,000

surplus 3 $3,200,000

$ 19,200,000 $ 19,200,000

notes

1 $8,000,000 cash before $4,000,000 Paid to reinsurer (50%) + $1,200,000 commission from reinsurer (30%) $5,200,000 cash after

2 unearned premium reserve (before) less 50% ceded to reinsurer.

3 $2,000,000 surplus before + $1,200,000 commission received $3,200,000 surplus after

Premium-to-surplus ratio

one of a number of tests applied to an insurance company to ascertain its financial stability is the Premium-to-surplus ratio. For example, a ratio of 3:1 or less (premium is three times that of surplus) may be considered acceptable for a given line of business. Quota share reinsurance ceded to a financially sound reinsurer will positively impact the written premium/surplus ratio of the reinsured company.

note in the example above that the Premium-to-surplus ratio before the quota share was 4:1 ($8,000,000/$2,000,000). after the quota share, the Premium-to-surplus ratio improved to 1.6:1 ($5,200,000/$3,200,000).

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Surplus Shareunder a surplus share type of treaty, the pro rata proportion ceded depends on the size and type of risk. The ceding company has the right to decide how much it wants to retain on any one risk. This retention is called a “line.” any risk that falls within this retention or line is handled totally by the primary company. Whenever the company insures a risk that is larger than the retention, the amount over the retention is ceded to the surplus share treaty as a multiple of the retention. all losses between the insurer’s retention on the risk and reinsurer’s participation are pro rated.

since the ceding company decides how much of each risk it will cede to the treaty, the particular percentage between the insurer and reinsurer will vary. This concept differs from a quota share treaty where the percentage is fixed between the insurer and the reinsurer’s participation, for all risks.

From a reinsurer’s perspective, it is possible to experience adverse selection under the treaty. The ceding company may retain most of the lines on low and moderate hazard risks and may cede most of the lines on high hazard risks to the treaty. as a result, the reinsurer may not experience a good spread of all risks written by the ceding company.

a surplus share treaty can aid the ceding company by helping to build policyholders’ surplus, providing capacity needed to write larger lines, stabilizing results, and minimizing insurer’s exposure to large losses and catastrophic events.

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insurer cedes$100,000

insurer retains$250,000





Example

assume the minimum retention or line is $50,000. The limit of the treaty is then expressed as a multiple of the line. a 9-line surplus treaty would be (9 x $50,000) or $450,000. The total capacity to the insurer is $500,000.

any risk with a value of $50,000 or less is retained and not ceded to the treaty. For risks greater than $50,000, the insurer determines how many lines it will retain above the $50,000 and how many lines will be ceded up to the $450,000 limit.

risk aa low hazard risk with a limit of $350,000. The insurer may retain 5 lines or $250,000 and cede 2 lines or $100,000 to the treaty.

Low Hazard $350,000 Limit

risk B a moderate hazard risk with a limit of $400,000. The insurer may retain 3 lines or $150,000 and cede 5 lines or $250,000 to the treaty.

Moderate Hazard $400,000 Limit

risk c a high hazard risk with a limit of $500,000. The insurer may retain 2 lines or $100,000 and cede 8 lines or $400,000 to the treaty.

High Hazard $500,000 Limit

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Excess of Lossin pro rata type treaties, the operative word is “sharing.” The ceding company and reinsurer share premium and losses according to a predetermined percentage.

in excess of loss, or “non-proportional” treaties the operative word is “retention.” The reinsurer does not get involved with a loss until a predetermined retained limit of loss or retention, which the ceding company will pay, is exceeded.

an excess of loss treaty provides the insurer capacity to write large risks. it primarily provides protection against severity of loss. While casualty reinsurance is generally written on an excess of loss basis, increased application of this approach is being used with property per risk business.

Functions of Excess of Loss Reinsurance

– Provide the cedent with the ability to provide greater coverage limits.– reduce the fluctuation in loss experience by limiting the amount of sustained losses.– Lessen the impact of losses from a single large event with multiple losses or the accumulation of losses from frequent events.

Characteristics of Excess of Loss Reinsurance

– Liability of the reinsurer begins when the insured loss amount exceeds a specified dollar figure (the attachment point).– The ceding company retains losses less than the attachment point. The reinsurer typically covers all losses above the attachment point (subject to any limitations contained in the reinsurance contract). For complex or high dollar value reinsurance deals, multiple reinsurers may participate at various layers of the coverage.– Premiums are shared non-proportionally between ceding company and reinsurer. Premiums are typically negotiated as a percentage of the primary insurers premium charge.– reinsurers may pay a profit commission (contingent commission) for an insurer’s favorable loss experience.– it generally involves much less ceded premium than a pro rata structure and therefore does not provide the cedant with meaningful surplus relief as would be the case under a pro rata arrangement.

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insurer Pays $300,000

reinsurer Pays $300,000

Example

assume an insurer needs capacity to write casualty business of $1,000,000 in order to compete in its market niche. Because it is a small company, it determines that it can retain the first $300,000 loss on any risk. However, it needs reinsurance to apply to that part of any loss that exceeds the retained limit of $300,000. in this example, an excess of loss treaty would be expressed as $700,000 x/s $300,000.

assume each of these risks is written by the insurer for a limit of $1,000,000.

risk aHas a loss of $600,000. The insurer pays the first $300,000 (retention) and the reinsurer the remaining $300,000.

$600,000 Loss

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risk B Has a loss of $250,000. The insurer pays the entire loss with no indemnification by the reinsurer as the loss is within the retention of $300,000.


reinsurer Pays $700,000

reinsurer Pays $0


$250,000 Loss

risk c Has a loss of $1,000,000. The insurer pays the first $300,000 (retention) and the reinsurer, $700,000.

$1,000,000 Loss

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unlike pro rata treaties, the premium paid for an excess of loss contract has no proportional relationship to the premium paid by insureds to the primary company. rather, premium charged by the reinsurer is subject to individual analysis and negotiation and may be based on a number of factors. These include the ceding company’s prior loss experience, loss potential and premium estimates for the book of business, geographic area for business, underwriting policies, and desired retention level.

VariationsProperty Per-Risk Excess Of Loss

The reinsurer indemnifies the primary company for any loss in excess of the specified retention on each risk.

Catastrophe Per-Occurrence Excess Of Loss

The purpose of a catastrophe excess treaty is to protect a primary company against adverse loss experience resulting from the accumulation of losses arising from a single, major natural disaster or event such as a hurricane, tornado, earthquake, flood, windstorm, etc. For a given event, the treaty applies once the accumulation of losses paid by the primary company, less inuring reinsurance (the amount the ceding company expects to receive via other reinsurance agreements), reaches a predetermined retention.

Stop Loss/Aggregate Stop Loss

This excess of loss cover is designed to protect a company’s overall underwriting results after application of other types of reinsurance it may have. it provides reinsurance for losses incurred during the treaty term, usually one year, in excess of either a specified loss ratio or a predetermined dollar amount.

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CSRMA MEETING CALENDAR 2010JANUARY FEBRUARY MARCH APRIL

CSRMA OC - WED - 12/23/09 CSRMA WC - THUR - 11 CSRMA LRP - SUN - TUE - 14, 15 & 16 CSRMA OC - MON - 5CSRMA EB - THUR - 14 CSRMA FIN - MON - 12CSRMA BD - FRI - 15 CSRMA EB - THURS - 29

CSRMA BD - FRI - 30

CASA January 12-15 Desert Springs CASA April 28-30 Newport Beach

MAY JUNE JULY AUGUSTCSRMA LIAB - THUR - 13 CSRMA WC - THUR - 3 CSRMA OC - THUR - 15 CSRMA EB - THUR - 19CSRMA OC - THUR - 20 CSRMA EB - THUR - 10 CSRMA BD - FRI - 20

CASA August 18-20 Monterey

SEPTEMBER OCTOBER NOVEMBER DECEMBERCSRMA OC - TUE - 21 CSRMA EB - THUR - 14 CSRMA FIN - FRI - 5 CSRMA EB - THUR - 9CSRMA LIAB - THUR - 23 CSRMA WC - THUR - 28 CSRMA LIAB - THUR - 11

CSRMA OC - THUR - 18

CAJPA September 8-10South Lake Tahoe

G:\Share\client\jpa\CSRMA\Agenda\Admin\Calendars\Meeting Calendar2010.xls83

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CSRMA Board of Directors

60 Members

Pooled Liability Program Committee

Talyon Sortor, Fairfield-Suisun Sewer District, Chair

Bert Michalczyk, Dublin San Ramon SD

Craig Murray, Carpinteria SD

Logan Olds, Victor Valley WRA

Al Miller, Stege SD

Richard Currie, Union SD

Workers’ Compensation Program Committee

E.J. Shalaby, West County Wastewater

District, Chair Greg Baatrup, Fairfield-Suisun Sew. Dist.

Jason Dow, Central Marin SA

Jason Warner, Oro Loma SD

Dan Child, SBSA

Tom Selfridge, Truckee SD

Program Management Alliant Insurance Services, Inc.

JPA Administration & Insurance

Dennis Mulqueeney

Seth Cole

Myron Leavell

Marilyn Schley

P.J. Skarlanic

Thary Ou

Tevea Him

Loss Control Services

David Patzer, Risk Management Solutions CSRMA Risk Control Advisor

Heather Truro, HT Consulting

Return to Work Consultant

Accounting

Tami Giovanni

Financial Auditor

A.J. Major Vavrinek, Trine, Day &

Co., LLP Coverage Counsel

David J. Garthe, Esq. Boornazian, Jensen &

Garthe

Legal Counsel

Byrne Conley, Esq. Gibbons & Conley

Secretary

George Emerson

Officers Committee

Robert Reid

Russ Baggerly

Executive Board Robert Reid, West Valley Sanitation District (President)

Russ Baggerly, Ojai Valley Sanitary District (Vice President)

Talyon Sortor, Fairfield-Suisun Sewer District

Marcia Beals, Tahoe Truckee SA

Zoeanne Tafolla, Vallejo Sanitation & FCD

Paul Bushee, Leucadia Wastewater District

E.J. Shalaby, West County Wastewater District

Tom Rosales, SOCWA (Alternate)

Finance Committee

Kenneth Spray, Chair

Ron Shepherd

Jeff Moorhouse

Roland Williams

Treasurer

Kenneth Spray

Claims

Janice Yardley Carl Warren & Co.

Claims

Nancy Hutton York Insurance Services, Inc.

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CSRMA California Sanitation Risk Management Authority

Service Team

Dennis Mulqueeney Senior Vice President

JPA Manager (415) 403-1421

[email protected]

Seth Cole Vice President

Assistant JPA Manager (415) 403-1419

[email protected]

Tami Giovanni Accounting

(925) 963-0951 [email protected]

Thary Ou Account Administrator

Account Support Services (415) 403-1433

[email protected]

Myron Leavell Account Manager JPA / Insurance Administration (415) 403-1404

[email protected]

Marilyn Schley Account Manager

Insurance Administration (415) 403-1432

[email protected]

David Patzer Risk Control Advisor

Risk Control Consulting Services

(707) 373-9709 [email protected]

Tevea Him Administrative Support

Services (415) 403-1416

[email protected]

P.J. Skarlanic Account Manager

JPA / Insurance Administration (415) 403-1455

[email protected]

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