To:Corporate Services Committee

From:Chief Administrative Officer,

Chief Financial Officer and Treasurer and

City Solicitor

SUBJECT:EXTERNAL LEGAL FIRMS RETAINED FOR INSURANCE CLAIM DEFENCE

Purpose:

This report provides specific information relating to the hiring of external legal firms retained by the City of Toronto for insurance claim defence purposes.

Funding Sources, Financial Implications and Impact Statement:

There are no immediate funding implications relating to this report. Any cost reductions will ultimately be reflected in corporate insurance charges to Departments and applicable Agencies, Boards and Commissions.

Recommendation:

It is recommended that this report be received as information and forwarded to the Budget Committee for information.

Council Reference/Background/History:

At its meeting on February 19, 1999, the Budget Committee had before it a joint report (February 2, 1999) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer, providing specific information relating to external legal firms retained by the City of Toronto for insurance claim defence purposes and a recommendation that the report be received for information. The Budget Committee requested the Chief Administrative Officer and the Chief Financial Officer and Treasurer to report back to the Budget Committee on:

(1)savings pertaining to the hiring of external legal firms retained by the City of Toronto for insurance claim defence purposes; and

(2)when and how they intend to amalgamate Requests for Proposals for these services.

Discussion:

This report deals solely with claims defence work which is assigned to external legal firms. The report identifies possible savings which may be achieved when retaining these firms. Historically, the claims defence work was handled by using a combination of the City's legal services and external legal firms and it is anticipated that this practise will continue. External legal firms are assigned work on the basis of matching the nature of the claim to the speciality of the law firm.

1. Savings pertaining to the hiring of external legal firms retained by the City of Toronto for insurance claim defence purposes.

(i)Cost Savings Through Request for Proposals for External Legal Firms

Currently, the City has 832 open liability insurance claims which are being defended by fourteen different external legal firms. The assignment of claims to the fourteen external legal firms are partly based on the various practices of the former municipalities and their insurance companies. It is necessary to continue to allow the fourteen firms to defend the current claims for the following reasons:

-costs would increase when transferring an existing claim to a new litigation lawyer because the solicitor would need time to become familiarized with the claim file;

-thirty percent of the claims have exceeded the former municipality's insurance policy deductible and insurers are now financially responsible for the legal fees and settlement costs and therefore have an interest in the selection of legal counsel; and

-the current external firms have a particular expertise in defending municipal liability insurance claims. Such experience provides distinctive advantages in defence and settlement negotiations, which often lowers the overall claim cost.

Consolidation of all former insurance claims practices has been adopted by City Council and now it is appropriate for the new City, in consultation with its insurance companies, to select external legal firms for insurance claim defence purposes through a Request for Proposals. This process will ensure that City staff can analyse submissions from interested legal firms and recommend the selection of qualified experienced firms at the fairest market price. The City's insurance companies will also participate into which legal firms are to be assigned to defend the City.

(ii)Savings by Reducing Legal Defence Preparation Work

It is important that the City select legal firms who possess extensive experience and knowledge in defending municipal claims. The fourteen external legal firms currently defending City claims possess the required municipal experience. By knowing the current case laws governing municipalities, the legal costs would be reduced as less research and preparation time is required. Consequently, selection criteria for the RFP will focus on cost savings measures and require legal firms to demonstrate the following:

Cextensive experience in defending municipal claims and prove that this experience has produced lower claims pay out or have had the City released from legal actions without any payments being made;

Cthe external legal firms have a full range of support staff which will ensure that part of the defence work is performed by a junior lawyer or clerk level position at a more economical hourly rate;

Cthe law firms should have different divisions which would allow easy access to a diverse selection of legal expertise; and

Cthe external legal firms have invested in computerized case law systems which allow instant review of the most current court cases.

(iii)Savings by Utilizing the Most Cost Effective Methods of Litigation

Fees paid to external legal firms by the former Toronto Municipalities in the years 1993 to 1998 fluctuated between $2.2 and $3.8 million on a yearly basis. The fees can be attributed largely to high value losses and the number of claims proceeding to trial. High value claims and trials require extensive legal defence work. Therefore, it is difficult to predict a fixed annual savings on legal fees. The key to legal fee savings is through the effective management of claims that are involved in litigation. Staff in the Insurance & Risk Management Section of the Finance Department will ensure that the most cost effective methods are explored throughout the various stages of litigation, such as:

-early assessment and resolution of claims;

-attend mediation, normally a one day session, instead of the solicitors attending two to three week trials;

-ensure that the legal work is delegated to solicitors with the appropriate level of experience, to minimize costs (eg. senior solicitors should work on high value losses while junior lawyers are assigned small claims matters);

-audit the legal firms to ensure their fees are cost efficient.

(iv)Cost Savings Through Implementation of the City's Claims Administration Procedures

Staff has developed Claims Legal Procedures which outline time requirements when solicitors are to report on claims. These guidelines will assist in having most claims reviewed on a quarterly basis, which will ensure that files do not sit idle but are dealt with in an expeditious manner. Throughout the litigation process, it is important to maintain a balance between legal principals and insurance practises.

(v)Cost Savings by Adopting an Aggressive Defence Posture for Insurance Claims

The City is considered to be a "deep pocket" in the legal and insurance community and as such, is frequently named in law suits even if the City is not legally liable. The City could obtain savings by encouraging the selected external legal firms to adopt an aggressive defence posture for insurance claims and to promote the City as a difficult target. Selected firms must agree to adopt such a strategy.

(vi)Cost Savings Through Development and Implementation of Risk Management Practises

Savings can also be obtained through the development, implementation and monitoring of pro-active risk management practises, such as loss control measures; employee safety training; proper record keeping; facility inspections; and feedback to Departments, Agencies, Boards and Commissions regarding files that are currently in litigation which involve them. The Insurance & Risk Management staff will encourage post-loss reviews with the solicitors to ensure methods are developed to enhance the Departments, Agencies, Boards and Commissions? safety procedures and record keeping systems. Acquisition of a Risk Management Information System by the Insurance & Risk Management Section will provide the necessary tools to implement such risk management practices.

2. When and how they intend to amalgamate Requests for Proposals for these Services.

Staff in the Insurance and Risk Management Section in consultation with the City Solicitor are currently preparing a Request for Proposals for external legal firms to defend the City's insurance claims. The Request for Proposals will be advertised in a local Toronto newspaper and will invite all qualified legal firms to respond pursuant to pre-established requirements and selection criteria which is currently being developed. It is anticipated that the selection will be completed by the summer of 1999.

Part of the selection criteria for this proposal will require the legal firm to:

-demonstrate that they have experience in defending municipal claims;

-fix their hourly rates in accordance with years of experience;

-outline experience with municipal emergency services? claims (police, fire and ambulance); and

-demonstrate success in its defence of claims brought under the Municipal Act, Occupiers Liability Act, Negligence Act, Landlord & Tenant Act, and for Building & Inspections Errors & Omissions and Public Officials Errors & Omissions.

It is believed that the City will need between three and seven firms to ensure that all areas of expertise are covered.

Conclusions:

Measures to achieve cost savings pertaining to hiring external legal firms can be achieved by proceeding with a Request for Proposals for external legal firms; reducing legal defence preparation work; utilizing the most cost effective methods of litigation; implementing the City's Claims Administration Procedures; adopting an aggressive defence posture for insurance claims; and developing and implementing of risk management techniques. Any cost reductions will ultimately be reflected in corporate insurance charges to Departments and applicable Agencies, Boards and Commissions.

A Request for Proposals for municipal insurance defence work is currently being drafted. It is anticipated that law firm selections will be made by the summer of 1999.

Contact Name:

Jeff Madeley, Manager, Insurance & Risk Management, 392-6301

E-mail: jmadeley@mta1.metrodesk.metrotor.on.ca

Len Brittain, Director of Treasury & Financial Services, 392-5380

E-mail: lbrittai@toronto.ca

M.R. GarrettW.A. Liczyk

Chief Administrative OfficerChief Financial Officer & Treasurer

H.W.O. Doyle

City Solicitor

:DB