Insurance crisis:
A dual problem of cost, availability

State lawmakers are being asked to provide a prompt and workable solution for the liability insurance dilemma plaguing park districts and other governmental units.

Editor's Note: Dr. Theodore B. Flickinger, executive director of the Illinois Association of Park Districts, presented the following testimony about liability insurance to the Senate Subcommittee on Local Districts at the Illinois Park and Recreation Conference in November. Committee members were State Sens. Greg Zito (D-Melrose Park), chairman; Richard Kelly (D-Hazel Crest), vice-chairman, and Beverly Fawell (R-Glen Ellyn), minority spokesperson.

Mr. Chairman and distinguished members of the committee, my name is Ted Flickinger, and I am executive director of the Illinois Association of Park Districts. We represent 235 park, forest preserve and conservation districts with nearly 2,100 locally elected citizen board members and more than 27,000 full and part-time employees of these agencies.

Tax levies have been forced up by uncontrollable circumstances.

The liability insurance problem is crippling our industry. In the past, we have, on many occasions, been able to reduce levies for insurance as the result of the initiation and implementation of risk management programs. Now we have to dramatically increase the tax levies due to circumstances we cannot control.

We surveyed our membership on these issues and found that a number of agencies cannot obtain insurance while others experienced dramatic increases in yearly premiums. These ranged from a 33 percent increase to as much as a 1,650 percent increase over last year's premiums.

We have received hundreds of letters from park, forest preserve and conservation districts regarding their specific problems. For instance, one park district director wrote:

When it looked like we may not be insured after June 15, 1985, we formulated a plan to close the operations of the district. It was our feeling that with the attitude of the public relative to lawsuits today, we could not afford to continue to offer services while being without insurance.

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State Sen. Greg Zito (D-Melrose Park), center, responds to testimony presented during his subcommittee's hearing on local districts. Other subcommittee members were Sens. Beverly Fawell (R-Glen Ellyn) and Richard Kelly (D-Hazel Crest).

Our levy for this fiscal year is for $18,000 in the Liability Fund. At the same time, our expenditures will be in excess of $76,000. In order to meet this obligation, we must reduce services by a like dollar amount. Some reward for a good loss record!

A park board member of another agency wrote:

In a recent case, the insurance company agreed to a generous settlement with very questionable negligence. In a number of cases, the city and the village were also sued.

We currently take every imaginable precaution to protect the safety of the thousands of people who enter our parks each year. Our park police assist accident victims and fill out forms on every incident. All park personnel are trained to handle accident victims. Our park staff designs and regularly checks each park to avoid any unsafe condition. The parks are maintained to the highest possible standards within limited financial resources.

Another example of the serious problems facing our membership was stated by a director in his letter when he wrote:

Without some type of legislative assistance, we may be forced to close down some of our facilities and limit certain types of programming.

As an example, the Mt. Prospect Park District recently removed its sled hill at Lion's Park because it could not obtain any insurance coverage for it. It would be a shame if wholesome facilities and activities in our communities such as sled hills, water slides, athletic programs and other family-type facilities were forced to be eliminated.

Due to the insurance problem, our park, forest preserve and conservation districts have been forced to reallocate resources and severely cut the budgets of other funds such as recreation. The result has been the reduction of essential services to the public. To alleviate this situation, we propose investigation of the following recommendations:

1. Passage of legislation which would enable units of local government to retroactively pick up the cost of their insurance on the following year's tax levy. This will allow park, forest preserve and conservation districts to recoup monies which were unanticipated expenditures from their other funds.

2. Approval of legislation requiring insurance companies to quote renewal rates at the time of renewal and not months later when the policy is already in effect.

3. Initiation of legislative action to study the pros and cons of regulating rate increases.

4. Passage of legislation to eliminate joint and several liability. As the statutes and law now state, the entity best able to pay a massive damage claim can be liable for the entire bill if the other parties are unable to pay — regardless of the degree of fault.

William Blogg (right), business manager for the Lockport Township Park District, and Ted Flickinger, executive director of the Illinois Association of Park Districts, outlined their concerns about the costs and availability of liability insurance.

Whether we are 10 percent liable, 40 percent liable or whatever percentage, that is what we should pay. We should not have to pay 100 percent because we have the funds.

Our park, forest preserve and conservation districts should be liable for damages only to the extent for which they are at fault. Local units of government have been looked upon by the federal and State courts as having the tax pocket — the unlimited resource — and, therefore, they were going to be liable.

5. Initiate legislative action to study possible legislation to place caps on certain claims. In cases involving local governments, we recommend that a cap be placed on noneconomic damage awards (such as awards for pain and suffering) and on awards for wrongful death.

6. Initiate a massive overhaul of the State's tort system, specifically related to rules under which citizens can bring suits for damages. The courts have broadly interpreted liability laws, and have encouraged lawsuits and large settlements.

The Illinois Association of Park Districts is a member of a newly formed private and public sector coalition consisting of 25 associations, and we are currently developing proposals for legislation to change the tort system. The tort system must be changed! Some people don't look at incidents as being accidents; they look at them as opportunities to sue.

We are drafting a bill to eliminate the doctrine of joint and several liability in certain types of cases. The Coalition is also drafting a proposed bill

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which would amend the "Code of Civil Procedure." This bill would require a jury to itemize the elements of any award of damages for economic loss, limit contingent fees for lawyers, limit the amount of punitive damages which may be awarded, and provide for scheduled payments of future damages in any personal injury action.

We need reforms in the contingency fee system, under which personal injury lawyers earn more money from the higher the settlement they obtain. This legislation should be drafted to address settling fees or limiting the amount of fees attorneys can charge. Fees are not at the expense of the insurance company; they are at the expense of the victim.

Other considerations for discussion include:

7. Steps to make the insurance industry more competitive by lowering the requirements for a capital surplus to obtain an insurance charter. Then the company would reinsure up to $5 million or whatever level the legislature deems it should have as a chartered company.

8. Passage of legislation that recognizes frivolous suits and requires that people who file such suits be made accountable for the costs of the defense of the other party. (It is my understanding that, in most European countries, the law states that if a person loses his or her lawsuit, then this person would be required to pay the legal fees of the other party. The result, of course, is a limited number of liability lawsuits and claims.)

Recreation agencies should be liable for only those damages for which they are at fault.

There is one other point that I would like to make. I have heard rumors that the insurance industry is pushing what I consider a controversial insurance policy; that is, "claims-made" policies. The legislature should closely scrutinize this proposal and be reluctant to endorse it. Our agencies could possibly have difficulty finding insurance to cover pre-existing claims.

The new standard of "claims-made" form would pay only those claims that an insurer is told about while the policy is in effect. The current standard, referred to as the "occurrence" form, pays even if a claim is filed years after the policy has expired. Five states (Hawaii, Minnesota, New York, North Carolina and Rhode Island) have already turned down the claims-made form. We hope that Illinois will also pursue the same course of action.

The claims-made policy will cover only claims from accidents after a specified date. An example of this appeared in the November 20, 1985, issue of The Wall Street Journal:

Another problem involves the possibility of losing coverage by changing insurers. This could happen because each claims-made policy will only cover claims stemming from accidents or events after a specified date, known as the retroactive date. The date is likely to change if a firm switches carriers.

For instance, if a claims-made policy is issued on January 1, 1986, that will be its retroactive date. The retroactive date usually remains the same if the policy is renewed by the same insurer. But, if say, in 1990 the policyholder wants to switch carriers, the new one would probably change the retroactive date to 1990.

This leaves a four-year gap in coverage unless the policyholder buys an additional policy to provide what is known as "tail coverage." The old insurer would be required to provide such a policy but could charge as much as twice the premium of the expiring policy.

"As a buyer, you are going to have to look very carefully when you change a carrier," says Mr. Blick of Alien Group. "You are really at the mercy of the carrier."

Two other provisions of the revised standard policy have been approved in all states. One will impose a limit on the total dollar amount of claims a policy would pay while retaining current limits on payments for individual claims. At present, aggregate limits don't apply to all types of coverage or to all policyholders.

We need major reforms. At best, it might take six months for the Illinois General Assembly to pass legislation to resolve our insurance problems. As you engage in legislative debate on this important issue, please do not lose sight of the fact that we have agencies without insurance and other agencies which face unaffordable rate increases. These park, forest preserve and conservation districts need resolutions to their problems today.

We urge your immediate attention and quick resolution to our problems.

Insurance assistance program Illinois businesses and local governments now have a recourse for the commercial liability insurance problems that have been plaguing them for the past several months. The Illinois Insurance Assistance Program, a coalition of the Illinois property/casualty insurance industry under the auspices of the Illinois Department of Insurance, became operational in December. Any Illinois consumer who cannot obtain commercial liability insurance coverage through normal channels can apply to the Assistance Program by contacting any insurance producer licensed to write property/casualty business in the State. Duly executed applications may be sent to the Illinois Insurance Assistance Program, P.O. Box 803998, Chicago, IL 60680. The Assistance Program's activities and operations will be directed and reviewed by an Advisory and Operations Committee. Its officers are John T. Carothers, vice-president. Product Management Division, CNA Insurance, co-chairman; Roy Robinson, executive director. Independent Insurance Agents of Illinois, co-chairman, and Robert Schultz, executive vice-president, Illinois Insurance Information Service, secretary. Other members are Thomas A. Paisley, executive vice-president, Illinois Association of Professional Insurance Agents, Inc.; Norman Dubois, chairman, Surplus Lines Association of Illinois; Ted Flickinger, executive director, Illinois Association of Park Districts, and Burness E. Melton, manager, Illinois Trucking Associations, Inc.

Illinois Parks and Recreation 16

January/February 1986