SENATE BILL REPORT

SB 6226

BYSenators Talmadge, Pullen, Halsan, Nelson and Garrett

Establishing the risk management liability account and the risk management property account.

Senate Committee on Law & Justice

Senate Hearing Date(s):January 21, 1988; January 28, 1988

Majority Report:  That Substitute Senate Bill No. 6226 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Pullen, Chairman; McCaslin, Vice Chairman; Halsan, Hayner, Madsen, Nelson, Newhouse, Niemi, Talmadge.

Senate Staff:Dick Armstrong (786-7460)

                  January 28, 1988

Senate Committee on Ways & Means

Senate Hearing Date(s):February 4, 1988

Senate Staff:Lynn French (786-7715)

AS REPORTED BY COMMITTEE ON LAW & JUSTICE, JANUARY 28, 1988

BACKGROUND:

The state of Washington has experienced significant increases in liability claims and costs.  During the last biennium the Tort Claims Revolving Fund, which pays for liability claims against the state, paid over $23,000,000 in claims, an increase of 68 percent over the prior biennium.  Future projections of liability claims against the state indicate that costs will continue to escalate.

In recent years the state of Washington has experienced significant damage to some of its buildings, notably the DSHS office building and the Everett Community College.  At the present time there are no adequate funding mechanisms available to enable the state to respond in a timely and effective manner to major property losses.  In many instances it is important to put these properties back in an operational status in order to minimize interruption of vital public services.

During the interim a special task force was appointed to study the risk management program and make recommendations to the Legislature.  The task force consisted of representatives from (1) private and public risk management programs; (2) private insurance companies; and (3) various state agencies which deal with budget, insurance and risk management.

SUMMARY:

Liability Account

The method of processing, reviewing, settling and paying for liability claims against the state is revised to establish fiscal responsibility and accountability.

A liability account is created to:  (1) pay all claims resulting from the tortious conduct of state employees (similar to the tort claims revolving fund, which is being repealed); (2) pay for costs relating to the administration of the risk management program and all other related costs such as claim settlement and legal costs; and (3) purchase liability insurance including catastrophic insurance.

The liability account is funded through annual premiums assessed to state agencies by the risk manager, with the assistance of a risk management policy board.  Premiums are to be based on sound actuarial principles consistent with loss history and liability exposure of the agency.

Procedures are set forth to handle liability claims.  Claims under $10,000 are to be processed by the risk manager, claims over $10,000 are to be processed by the Attorney General's Office.  Claims adjusters are to be used to settle claims and a centralized claims tracking system is established to assist agencies with the status of claims.

The risk manager is to establish a coordinated safety and loss control program to reduce liability exposure and preserve state assets.

Annual reports are to be submitted to the Legislature on the financial status of the liability account.

The existence of the Risk Management Office is extended from 1989 to 1995.

A lawsuit against the state cannot be filed in a court of law until six months from the date that the claim was filed for review and settlement with the risk manager.

All state contracts which call for indemnification by the state are to be reviewed and approved by the risk manager.

Property Account

A financial mechanism is established to allow the state to respond to major property losses and minimize interruption of public services.

A property account in the risk management fund is established for:  (1) payment to state agencies for loss or damage to real and personal property, including payment to agencies for loss of income from revenue-producing facilities; (2) purchase of property insurance, including catastrophic insurance; and (3) payment for costs of the administration of the property insurance program and other related costs of claim settlement and legal costs.

The property account is to be financed by (1) direct appropriations by the Legislature and (2) actuarially based insurance premiums determined by the risk manager with the assistance of the risk management policy board.

State agencies are to inventory real and personal property to determine the value of any losses.

Three million dollars is appropriated from the general fund to the property account.

EFFECT OF PROPOSED SUBSTITUTE:

The effective date of the bill is July 1, 1989.  The appropriation of $3 million to the property account is deleted.  The Department of General Administration is required to do a study on the amount of money needed to properly fund the account.  Information on loss history and reserving practices is to be privileged and not available to the opposing side in a court case.  The risk manager is to report to the Legislature on methods for state agencies to reduce the cost of industrial insurance coverage.  New language is developed to clarify the intent of the bill that the University of Washington is subject to the risk management act, but the UW program will not be affected because of delegation of duties.  The risk manager is to develop standardized indemnification contract language for use by state agencies.  The risk manager is also to develop guidelines for state agencies entering into indemnification agreements.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested January 13, 1988

Senate Committee - Testified: LAW & JUSTICE:  Mary Faulk, Director, Department of General Administration; Gary Alexander, Risk Manager; Bob Edie, University of Washington; John Pettit, University of Washington; Ed Mackie, Attorney General's office