SENATE BILL REPORT

HB 1657

BYRepresentatives R. Fisher, McLean, H. Sommers, Locke, Dellwo, Appelwick, Belcher, Silver, Winsley and R. King; by request of  Department of General Administration and Office of Financial Management

Creating a risk management program and agency accountability.

House Committe on Judiciary

Rereferred House Committee on Appropriations

Senate Committee on Law & Justice

Senate Hearing Date(s):March 29, 1989

Majority Report:  Do pass as amended.

      Signed by Senators Pullen, Chairman; McCaslin, Vice Chairman; Hayner, Madsen, Nelson, Niemi, Rasmussen, Rinehart, Talmadge, Thorsness.

Senate Staff:Dick Armstrong (786-7460)

                  March 29, 1989

AS REPORTED BY COMMITTEE ON LAW & JUSTICE, MARCH 29, 1989

BACKGROUND:

Liability claims and costs for the state have increased significantly in recent years.  Future projections indicate that the costs will continue to rise.  In 1987-88, for example, the state paid nearly $28 million in claims, as compared to $15.5 million in 1985-86.

Since the early 1960s the state has paid for claims against state agencies as they arose, whether the settlements or judgments were for property damage or personal injury.  Such claims have been paid from the tort claims revolving fund and are charged back to the affected agency or agencies.  In instances where a claim is too large for the agency to absorb out of its current budget, the agency requests the Office of Financial Management (OFM) for a waiver.  If the waiver is approved, a direct appropriation is requested from the Legislature in the next session.

The Attorney General plays a lead role with the agencies in pursuing liability actions.  The Risk Management Office in the Department of General Administration has been responsible for coordinating agency efforts and liability studies.

Special appropriations have been made to agencies with higher than average liability exposure.  Among these have been for the motor vehicle fund for transportation-related liability and vehicle claims; the agencies primarily affected are the Department of Transportation (DOT) and the Washington State Patrol (WSP).  In addition, the Department of Corrections has received a small direct allowance in its budget.  None of the other agencies receive direct appropriations for prospective claims.

A few special exposures -- such as pollution, aircraft and marine liability -- are covered under insurance contracts outside the tort claims revolving fund.

In the last interim, a special task force was created to study the risk management program and make legislative recommendations.  The task force consisted of representatives of private and public risk management programs, private insurance companies, and various affected state agencies.  In addition, the Office of Financial Management and the Attorney General's Office contracted with Price Waterhouse for a special study of the legal aspects of risk management.

SUMMARY:

Legislative intent is to reduce tort claims costs by:  restructuring the state's risk management program; increasing accountability of individual agencies; establishing an actuarially sound funding mechanism to pay legitimate claims; and establishing an effective safety and loss control program.

Significant elements of the management program to be carried out by the Risk Management Office include:

      --Requiring that all liability claims be filed with the Office;

      --Establishing a centralized claim tracking system;

      --Requiring that all claims and loss records and communications are not discoverable nor admissible in court for any purpose;

      --Standardizing procedures for program operations, including the use of qualified claims managers;

      --Requiring the Office of Risk Management to determine an initial valuation and either delegate investigation, negotiation and settlement to the appropriate agency, or retain the responsibility on behalf of the agency;

      --Providing that all claims resulting in a lawsuit be forwarded to the Attorney General's Office, for resolution in collaboration with the affected agency; and

      --Establishing reserves to recognize financial liability and monitor effectiveness of claims management.

A new, nonappropriated liability fund is created to replace the tort claims revolving fund.  The purpose of the fund is to:  pay legal liabilities expeditiously; promote risk control through a cost allocation system based on agency loss experience, levels of self-retention and levels of risk exposure; and establish an actuarially sound system for payment of losses incurred.

Earnings on the fund's assets must be credited to the fund rather than to the state general fund.  Annual premiums assessed to state agencies for liability coverage in excess of budgeted self-retention levels provide the financial base for the fund.  Annual premium levels are determined by the Risk Management Officer, in consultation with the Risk Management Advisory Committee and concurrence from OFM.  An actuarial study will assist in determining appropriate funding levels.

The liability fund must not exceed 50 percent of the actuarial value of outstanding liability, determined annually by the Office of Risk Management.  Premiums may be adjusted if the fund exceeds the limit, and excess amounts thereafter are prorated back to the appropriate funds.

A risk management fund is created to meet costs of administering the program and purchasing liability insurance, including catastrophic insurance.  Earnings are credited to the fund, which is financed by a combination of direct appropriations and agency assessments.

The Office of Risk Management must establish a coordinated safety and loss control program.  Agencies must provide top management support and commitment to the program.  Centralized loss histories must be developed to identify agency risk exposures.  The Office of Risk Management is charged with monitoring agency loss control programs and assisting small agencies in their efforts.

A Risk Management Advisory Committee must be established by the Director of GA, who serves as committee chair.  The committee provides guidance for the appropriate role of the Office of Risk Management and program policies as well as establishing premiums or other cost allocation systems, and making appropriate determinations for self-insurance as opposed to purchased insurance.

The Director of GA may adopt rules for the program and the Risk Manager may delegate powers to individual agencies.  The University of Washington, including its hospitals, is exempt from the program.  Repealers include the former system of settlement of claims by agencies and payment of claims through the tort claims revolving fund.  The June 30, 1989 termination date of the Risk Management Office is also repealed.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Effective Date:The bill takes effect on July 1, 1989.

SUMMARY OF PROPOSED SENATE AMENDMENTS:

The liability fund and the risk management fund are converted to accounts in the treasury.  Provisions relating to privileged and confidential information are clarified.  Representation on the Risk Management Advisory Committee is specified.

A waiting period of six months is required, after a claim has been presented to the Risk Management Office, before a cause of action could be commenced.  The Risk Manager is required to develop procedures for standard indemnification agreements to be used by state agencies.  The Risk Manager, along with OFM, must study the potential in state government for the utilization of retrospective rating programs and submit recommendations to the appropriate legislative committees by December 1, 1989.

Senate Committee - Testified: Wendy Holden, Skip Houser, Office of Financial Management (pro); Gary Alexander, Office of Risk Management (pro)