Imagine a 45-year-old driver with a perfect safety record and tolerable insurance rates. One day his policy runs out.
Although he has not been involved in any accidents, when he tries to renew his policy, the agent tells him that because of recent changes in the market, he no longer can offer this driver coverage--not at any price.
The unfortunate driver is obligated to use his car. So, he calls every company around, and is finally "lucky" enough to get a new policy . . . at a whopping 200% increase in premiums.
This is the equivalent of the dilemma faced by school districts when it comes to finding insurance to cover liabilities.
The insurance protects the school from potentially bankrupting legal settlements. Such suits could arise from a football player suffering a broken neck, a gymnast falling off the balance beam, or a swimmer drowning.
When a suit is filed, everyone from the coach to the equipment manufacturer to the school district to the CIF may be named as potentially liable.
In fact, the paradox of "deep pockets" means that the more insurance coverage an entity has, the more inviting a target it may become for a bank-busting lawsuit.
Although few schools have had any tragic accidents, the specter of a multimillion dollar legal judgment has caused the insurance industry to grow increasingly reluctant to offer liability insurance.
For example, the Garden Grove Unified School District paid $61,200 for its liability insurance last year. That looks like a veritable bargain compared to the 159% jump in rates, to $158,500, for this year.
At the Laguna Beach Unified School District, business manager Clyde Lovelady says the district paid about $30,000 for liability coverage last year. When the company raised its price to about $60,000 for the same policy this year, Lovelady initially balked.
After shopping around, however, he found that his district had no choice but to accept the premium. Other companies were not offering less expensive premiums.
"Insurance companies do not want to take public agencies anymore because (public agencies such as schools) are known to have 'deep pockets,' " Lovelady said. "They are sued at the drop of a hat, and (those filing suit) shoot for the bank. They sue you for as much as you have.
"The (insurance) industry has taken quite a few baths on judgments. They want to be able to go to the bank and make a profit."
But even with insurance prices so dear, districts such as Garden Grove and Laguna Beach are still among the lucky ones. Unable to find an insurance carrier, some districts have been forced to "self-insure."
In other words, the district banks money against the eventuality of lawsuits, a calculated gamble when jury settlements for football injuries have climbed as high as $5 million, much more than most districts could afford to put aside or lose.
Even the CIF has found itself with a similar problem, according to State Commissioner Thomas Byrnes. Since its policy lapsed this spring, the CIF has been unable to find a company willing to extend the same coverage. Byrnes and his broker are still looking and hoping, however.
"If you hear of anybody, tell them to give me a call," he joked.
The gigantic increases in premiums for school liability coverage is actually just one facet of a bigger trend in the insurance industry.
It's the same trend that has made it difficult for everyone from preschool operators to architects to truckers to get liability insurance recently, according to William George, chief consultant to the state assembly's committee on finance and insurance.
The situation has affected cities and the medical industry alike, making it impossible for some cities to afford insurance, and forcing doctors to pay staggering premiums against the risk of malpractice suits, if they can get insurance at all, George said.
"Public entities have been the hardest hit and high school athletic departments are one part of this," George said.
Said Karen Troyer, commercial underwriter with Robert W. Noel Associates, the broker which handles the CIF, "The market has closed up to all types of accounts, whether it's the CIF or a homeowner's association. The insurance companies felt they couldn't charge a premium that would make it worth their while.
"It's a tight market. Sometimes you can't obtain coverage at any price. That's what's scary . . . There are always cycles in the insurance industry, but from my understanding, it's as bad now as it's ever been in insurance history."