Reeling from a string of multimillion-dollar jury awards and a ruinous six-year nationwide price war, insurance companies have increased the cost of basic liability policies for cities in the Long Beach and Southeast areas by as much as 650%.
In Montebello, where premiums have soared from $62,700 to $472,000 in one year, the city received just one bid this spring from an industry elbowing its way out of the municipal insurance business.
In Whittier, where the cost of accident coverage now represents 4% of the city's total budget, a $400,000 premium increase meant the loss of a new park.
And in Long Beach, where liability insurance now costs $637,000, six times that of 1984, the price spiral has bureaucrats scrambling for new ways to protect themselves from a lawsuit-happy public.
Have to Have Insurance
"We're starting to look at our options," said James Hurst, budget manager in Long Beach, "but the bottom line is that we have to have insurance. Anything may happen out in the streets, and somebody will say the city was responsible."
Throughout the nation, "somebodies" have been suing and winning--often in cases where cities have been only marginally liable for an accident, but where their "deep pockets" have paid 100% of the damage award.
The big victories have not come in Long Beach or Whittier or Montebello or in most of the other 21 cities in southeast Los Angeles County, officials said. But large jury awards against many cities, counties and other government agencies are increasingly common.
Insurers Dropping Out
Those decisions and the high legal costs that accompany even unsuccessful claims have prompted most insurers to simply leave the field of municipal insurance, said John McCann, a spokesman for the Insurance Information Institute, a national organization that represents 320 insurance companies.
"When you only have a limited number of premiums you can write, you don't write them in a game with as much risk as municipal liability," McCann said. "You prioritize, and you don't put them in municipal liability under any circumstances, period."
Actually, a handful of the 30 to 40 companies that actively sought city policies in California until last fall are still in the business, but they have been forced to increase premiums a minimum of 300% just to cover costs, McCann said.
Locally the increases have often been much more severe, and some agencies have considered themselves lucky to get insurance at any price. "Everybody was scrambling for insurance at the very same time," said Long Beach's Hurst.
Large Cities Have Reserves
Large cities and counties, such as Los Angeles and San Diego, can put away millions of dollars in reserve to pay lawsuit settlements. But many local cities are too small for that and have been forced to pay the steep going rate for insurance.
Premiums for the 15 area cities that belong to the 45-member Southern California Joint Powers Insurance Authority, the state's largest municipal insurance pool, increased 500% from last year's, up from $282,000 to $1,695,000. Even with that increase, the amount of coverage per accident was reduced from $35 million to $10 million.
But because premiums are only a fraction of the ongoing costs of the insurance authority (legal fees are a large expense), payments by many of those cities increased by just one-third this year. In Lakewood, for example, the payment went from $141,000 to $207,000. Other cities in the authority include Artesia, Bellflower, Bell Gardens, Cerritos, Commerce, Cudahy, Hawaiian Gardens, La Mirada, Maywood, Norwalk, Paramount, Pico Rivera, Santa Fe Springs and Signal Hill.
In the nine other area cities, total premiums are up fourfold from $577,645 to $2,522,125. These independent cities--Bell, Compton, Downey, Huntington Park, Long Beach, Lynwood, Montebello, South Gate and Whittier--had no insurance authority to buffer the impact.
And in most cases, despite soaring premiums, coverage decreased. In Montebello, where premiums are up 650%, coverage dropped from $15 million to $10 million and the deductible the city must pay before insurance coverage begins was increased from $100,000 to $500,000.
"One of our big problems was that we have a (45-bus) transit system," said Ron Chan, Montebello's risk management officer. "We were able to get just one insurance carrier to bid. And in the past 9 1/2 years we have never had a loss that exceeded our deductible."
500% in Long Beach
In Long Beach, the stiff 500% increase also came even though city losses have not exceeded the deductible for at least seven years, said Hurst, and despite a $1-million deductible.