Our publisher Jon asked me to comment on the recent $50 million out-of-court settlement by the City of Dana Point and its insurer, the California Joint Powers Insurance Authority (“CJPIA”), in favor of two joggers who were hit and very seriously injured by an uninsured drunk on Pacific Coast Highway last year. They were jogging in the clearly defined bicycle lane of PCH when the drunk driver swerved over the line and hit them. I was on the City Council when the accident occurred in April of 2006, and Jon thought my insight would be valuable regarding what the implications are of a $50 million liability payout by a city and its insurance company.
Well, the primary implication of this huge payout, characterized by Orange County-based personal injury guru Mark Robinson as “one of the top settlements in the county’s” history, is that basically the City of Dana Point has blown the limits of its insurance coverage, (the Dana Point annual budget itself is around $25 million, half the amount of the settlement!), it very likely has no liability insurance left for the rest of its current policy, the CJPIA now has blown a huge chunk of its reserves, threatening the viability and solvency of its insurance pool reserves into the foreseeable future, and taxpayers all across the state are going to get stuck with the bill in the form of increased premiums, especially the taxpayers in Dana Point.
Municipalities like Dana Point don’t find that all their insurance needs can be covered by the local State Farm Agency. Instead, they rely on quasi-governmental agencies such as the CJPIA to provide their liability insurance. When I was on the Dana Point City Council, I was the City’s representative on the CJPIA’s very large Board of Directors, which is made-up of one representative for each of the 115 or so members from Pismo Beach to Dana Point. Thus, the CJPIA, as authorized by its Joint Powers Agreement, operates as a membership organization for mutual benefit, with the cities all pooling resources and sharing risk together. Cities and other public agencies with good loss experience and risk management attitude are “welcome to apply for membership” according to the CJPIA website. Cities like Dana Point join the CJPIA by making an application. The staff of CJPIA will undertake a risk management audit of the agency, for submission, with recommendations, to the Board’s Executive Committee. After consideration, the Executive Committee may recommend admission to the Board of Directors for formal approval. This is the process Dana Point went thru to become a member of the CJPIA.
In the news reports, one notes there is some fencing between the lawyers about the actual size of the settlement. The city’s attorney says it was close to $49 million, the Plaintiffs’ attorney says it was closer to $50 million. The bickering on this point looks a little odd to the uninformed reader. Let me provide some insight on that point. The bickering has to do with the aggregate insurance limits of the Dana Point policy. CJPIA limits aggregate liability insurance payments of this kind to a total of $50 million per member per year. In other words, a $50 million settlement in the policy year means Dana Point doesn’t have any liability insurance coverage left under its policy for the rest of the current term. That means the actual assets of the city are now exposed, and likely currently at risk in a new liability claim.
Added to this is the fact that the CJPIA, which claims on its website to have $180 million in reserves, will be taking a BIG hit against those reserves by now having to carry a $50 million liability on its books, regardless of the timing of the payout. One or two more similar such drunken driver accidents in member cities, settled out-of-court in the same fashion, could literally wipe-out insurance coverage for cities all across the state.
It is very difficult to balance the “value of a life” against the need for public institutions to continue to function in the public benefit regardless of unfortunate accidents. This is one of the reasons why the Federal government generally has “tort immunity,” and that it is so hard to win such a claim against the Federal government.
In this case however, emotion for the hurt joggers overcame reason. I also think politics played a role. It is no secret that Dana Point Mayor Diane Harkey is running for the Assembly. It is also no secret that, having observed her performance on the Council, I feel she would be a disaster as a member of the Legislature. But just because I am the messenger, my view on the affect of Harkey’s campaign for higher office on this huge out-of-court settlement should not be dismissed too quickly. The media power of the continuing pleas of two highly disabled women and their families from San Clemente seeking justice from a Council amd Dana Point Mayor who must approve their settlement, when the same Mayor will soon be running for Assembly in their city, would be quite compelling to that candidate.
Regardless, public service should not be about winning the next election, or emotions. It should be about doing the right thing. The settlement in this case is greatly out of line with what the unfortunate victims of the drunk driver deserve from a City that is really blameless for the loss, and I believe it greatly exceeds what a jury would have awarded. The City in this case owed it to the taxpayers to not make matters worse by blowing their insurance coverage, and CJPIA owed it to its members to insist that the case get in front of a jury, who could have balanced the blame, and used common sense in assessing whether Dana Point was $50 million in the wrong. Unfortunately, that didn’t happen, and while I am glad the two hurt women will be well taken care of for the rest of their lives, we learn here once again that when policymakers refuse to make the hard decisions, it is the people that end up “holding the bag.”