Insurance Claims Administration

The Corporate Services Committee recommends the adoption of the following report (March11, 1999) from the Chief Financial Officer and Treasurer; and further, that in any future reports relating to insurance claims administration, the City Solicitor be a signatory to the report:

Purpose:

The purpose of this report is to:

(1)harmonize the insurance claims practices and procedures of the former Toronto municipalities;

(2)establish a regular reporting of insurance claims information to City Council; and,

(3)establish staff authority levels necessary for efficient claims processing.

Recommendations:

It is recommended that:

(1)the dollar authority levels outlined in this report for purposes of settlements and claim expenses be adopted. These authority levels will supersede any previous authorizations in the former municipalities;

(2)the Claims Review Group provide a forum for the City's insurance and litigation specialists to review and provide recommendations to claims adjusters and defence solicitors on the handling of claims files over $50,000.00;

(3)the Chief Financial Officer and Treasurer provide Council with an annual financial report on claims activity in conjunction with insurance renewal recommendations and other risk management activity;

(4)the procedures contained in this report be adopted, which define the reporting relationship between the Insurance and Risk Management staff, Third Party Adjusters, the Claims Review Group and the Insurance Companies;

(5)the claims legal procedures contained in this report be adopted, which define the reporting and litigation strategies expected to occur between the Insurance and Risk Management staff and the retained solicitor defending the City's interest; and

(6)Resolution No. 91-21 of the former North York City Council be repealed, being a public no fault grant program which provides financial assistance to former City of North York residents for damages caused by sewer back-ups and watermain breaks. This repeal would be in keeping with the harmonization of insurance practices received in this report and recent legislative changes.

Funding Sources, Financial Implications and Impact Statement:

Savings to the water rates of approximately $300,000-$600,000 will be achieved through the repeal of the former North York City Council Resolution No. 91-21.

Council Reference/Background/History:

This report represents a harmonization of past practices into a new claims process which has been reviewed and concurred by the City's insurance company and is consistent with standard industry practices.

Comments and /or Discussion and/or Justification:

Risk Management is defined as the process of planning, organizing, directing and controlling the resources and activities of an organization in order to eliminate the adverse effects that accidental losses might cause. It is a corporate process requiring the commitment and support of City Council. The City's newly formed Insurance and Risk Management Section within the Finance Department is currently developing a Risk Management Policy.

The City's Risk Management Policy will include the claims administration matters contained in this report as well as other important risk management objectives such as:

(i)responsibility for risk management within the City;

(ii)reduction and prevention of accidental loss;

(iii)retained and transferred loss expense;

(iv)transfer of risk contractually; and,

(v)comprehensive procedures which define the implementation of policy objectives.

As the development of the corporate Risk Management Policy continues, there exists an immediate need to implement operational procedures required for the processing of insurance claims. It is therefore necessary to proceed first with the Claims Administration portion of the Risk Management Policy. A further report will be prepared recommending adoption of the City's corporate Risk Management Policy when it is complete. It is the purpose of this report to recommend adoption of specific claims procedures, which will form part of the City's overall corporate Risk Management mandate.

All City entities insured under the insurance policies arranged by the Finance Department will be required to comply with the City's Risk Management Policy, including the procedures outlined in this Insurance Claims Administration report. These entities include all City Departments, City Agencies, Boards and Commissions as noted on Appendix "A".

Processing the City of Toronto's insurance claims requires the combined involvement of the City's Insurance and Risk Management staff, the City's contracted Third Party Adjuster (the TPA), litigation defence solicitors and the City's insurance companies. Claims processing requires co-ordinating the activities of City staff, external service providers and claimant or plaintiff representatives.

This report recommends procedures which will provide claims handling consistency, define the various claim processing stages and describe a reporting mechanism to ensure that elected officials and senior City management staff are aware of claims activity, particularly significant noteworthy claims.

Type of Claims Contemplated by the Procedures Outlined in this Report:

(1)Claims from the Public

Accidents involving members of the public which arise from the City's operations or services or which take place on property owned or controlled by the City. There are three types of claims that could arise: bodily injury, property damage and economic loss. The City has protection from these claims under various insurance policies such as: Comprehensive General Liability, Automobile, Non-Owned Automobile, Errors and Omissions and other corporate policies under which the City is an additional named insured.

(2)Claims from Departments and ABC's

Vehicle/Automobile:

Motor vehicle accidents involving physical damage to vehicles owned or leased by the City of Toronto. The policy also provides standard coverages prescribed by the Province of Ontario for third party liability, accident benefits and specified perils.

(3)Damage to City Property

Accidents which results in loss or damage to buildings, contents, equipment, stock, supplies, furniture, money, etc. owned by or under the care, custody and control of the City of Toronto. Personal property of employees is not covered by the City's property insurance policy, unless, prior to a loss, an agreement is entered into whereby the City agrees to insure specifically defined personal articles such as tools and equipment necessary to perform employment related duties.

Assignment of Claims Files:

(1)Upon receipt of a claim notice, the Claims Coordinator staff person in the Insurance and Risk Management Section will assign the matter to an adjuster for investigation and assessment. All third party liability claims, auto accident benefit claims and large City property damage claims will be assigned to the City's Third Party Adjuster. Insurance and Risk Management staff will handle the less serious City property damage and City auto damage claims.

(2)When a claim file becomes litigated and a plaintiff solicitor is retained, either the insurance adjuster will continue with carriage of the claim or a senior staff member of the Insurance and Risk Management will be assigned.

(3)The Claims Coordinator will be informed of the progress of all claims above $25,000.00.

Authority Levels:

A hierarchy for dollar authority is required to ensure control over settlements and claim expenses but still allow the less serious more frequently occurring type of claims to be processed in a timely and efficient manner. It is anticipated that between 5,000-8,000 claims will be processed annually. Detailed analysis of City claims for the past five years indicates that 98 percent of all claims are resolved below $25,000.00. Currently, the City has 151 claims between $25,000-$50,000 and 157claims above $50,000.00. The following recommendations for dollar authority levels were established following a review of past practices which existed in the former municipalities. Please refer to Appendix "B" for a comparison of dollar approval authorities for the former municipalities.

The financial authority levels outlined below reflect the best practice in order to effectively handle the volume of claims requiring processing:

Note:Deductible levels on the City's insurance policies will be reviewed annually in conjunction with the City's Insurance Broker when an insurance policy is renewed and this will be reported to Council for approval.

Claims Review Group ("CRG):

(1)The CRG will consist of the Director, Treasury and Financial Services, the Manager, Insurance and Risk Management, the Claims Coordinator, the Senior Risk Management Analyst, all within the Treasury and Financial Services Division, Finance Department, and the two Directors of Litigation from the Legal Division, Corporate Services Department or their designate;

(2)The CRG will review the handling of all claims (automobile, property and liability) over $50,000.00. The CRG will review files for principles of legal liability, financial assessment of damages and to determine whether an independent third party review on behalf of the City is necessary. This group provides a forum for the City's insurance and litigation specialists to review and provide recommendations on the handling of the claims' files. The CRG will also review claims below $50,000.00, which demonstrate sensitivity. This group will meet on a monthly basis;

(3)In addition to reviewing and providing settlement recommendations, the CRG will identify important legal principles and loss prevention measures, which arise from the analysis of claims causes. The participation of senior risk management staff in the CRG will allow this important information to be channeled into the City's risk management process to enhance corporate practices which will ultimately reduce losses and claims costs;

(4)The Claims Coordinator shall report to the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the City's insurance companies summarizing the claims' recommendations that were adopted at CRG meetings;

(5)All outstanding claims and claims that pre-date the inception of the amalgamated City of Toronto's new insurance policies will be handled under this procedure; and

(6)The Insurance and Risk Management Section will provide City Council with an annual financial report on claims activity in conjunction with insurance renewal recommendations and other risk management activity.

City Council and Insurance Claims:

The City of Toronto's insurance coverages are arranged as a traditional placement in the commercial insurance marketplace. The City is not self-insured; meaning that an insurance company is on risk for all claims that are expected to exceed the City's deductible. The City's insurance companies are keenly interested in the processing of all claims including claims falling within the deductible level.

Consequently, claims handling practices are monitored by outside insurance companies. Traditional insurance arrangements require claims handling to be based on the application of fundamental legal principles and standard insurance claims adjusting practices used for assessing liability.

Decisions regarding third party public claims may not be favorable to a claimant. It should be recognized that all decisions are based on facts that were provided by the claimant, the department involved in the claim and independent sources. These facts are then measured against the current case laws to assess legal liability. It is a claimant's prerogative to seek legal advice to fully understand decisions of legal liability and other options available to them.

It is recommended the following procedures be implemented to respond to public complaints received by a member of City Council pertaining to insurance claims:

(1)Any complaints received by a member of Council pertaining to an insurance claim should be directed to the Claims Coordinator, Insurance and Risk Management Section, Finance Department;

(2)The claim will be reviewed to ensure that the adjuster's assessment and decision was correct and fair; and

(3)The results of this assessment will be communicated back to the Council member and the claimant.

Reporting Procedures:

This Section defines the reporting relationship between:

(i)Claims Coordinator;

(ii)Third Party Adjuster;

(iii)Claims Review Group; and

(iv)Insurance Company.

Claims within the City's Deductible:

(1)For claims involving property damage and auto physical damage claims, it is proposed that the Insurance and Risk Management staff has authority to resolve the claim up to $5,000. 00. For claims above $5,000.00 up to $50,000.00, the Claims Coordinator would review approval for settlement. For claims above $50,000.00, a report will be prepared for the Claims Coordinator outlining the claim and enclosing the supporting documentation. After review of the report, the Claims Coordinator will submit the claim to the Claims Review Group for review.

(2)For liability claims valued at $10,000.00 or under, the Third Party Adjuster would have authority to settle these matters pursuant to the City's Third Party Agreement agreement. For claims over $10,000.00, the adjuster will draft a report to the Claims Coordinator outlining the evidence, damages, liability exposure and recommendations for reserve and settlement. The Claims Coordinator will authorize settlements up to $50,000.00 and forward claims above $50,000.00 to the Claims Review Group for consideration and recommendations.

Claims Exceeding (or expected to exceed) the City's Deductible:

The Claims Coordinator will be responsible for reporting all claims to the City's insurers, which are expected to exceed 50 percent of the City's deductible or fall within the criteria outlined in the Self-Insured Retention Endorsement which forms part of the City's Comprehensive General Liability and Automobile insurance policies.

Claims Legal Procedures:

When third party claims become litigated and require the retention of a defence solicitor it is necessary to establish written procedures to define the expectations between the Insurance and Risk Management Section and the retained solicitor defending the City's interest. The following are the recommended claims legal procedures:

(1)All notices of claims, Statement of Claims involving insurance matters received by Legal Services will be directed to the Claims Coordinator, Insurance and Risk Management Section, Finance Department.

(2)When a Statement of Claim is received, the Claims Coordinator will assign the notice or Statement of Claim to the senior insurance staff or the Third Party Adjuster, to review and recommend to the Claims Coordinator whether a waiver of defence should be obtained or if the matter should be referred to a solicitor for a defense.

(3)If a defense is required, the Claims Coordinator will assign the matter to either the City's internal legal division or an external law firm. If the claim exceeds 50 percent of the City's deductible or falls within the Self-Insured Retention Endorsement criteria as outlined in the City's Comprehensive General Liability and Automobile insurance policies, the Claims Coordinator will consult with the City's insurance representative regarding the retention of a solicitor. Whenever possible, internal litigation solicitors in Legal Services will be assigned insurance claims defence work. Such assignment will be governed by the nature of the insurance claim. In cases where a claim is sensitive, involves a serious bodily injury or requires a particular legal expertise, these matters will be assigned to an external law firm.

(4)External law firms will be selected based on the results of Requests For Proposals issued by the Finance and Legal Departments. The Insurance and Risk Management Section is currently drafting an RFP for the retention of external law firms to perform insurance defence work. This process should assist in reducing some of the litigation costs by establishing a fixed hourly rate that will be charged to the City.

(5)When referring a claim for a defence, the Insurance and Risk Management Section will send a copy of the claims file, including original photographs, to either the Director of Litigation or the external law firm, along with the adjuster's report.

(6)Within 30 days of receiving the claim, the solicitor will provide a report to the Claims Coordinator, senior insurance staff or the TPA, outlining their initial assessment of the claim, the reserve and indicate if further information is required.

(7)The solicitor should receive instructions from the Claims Coordinator, senior insurance staff or the TPA regarding settlement payments and file expenses.

(8)It is expected that the solicitor and insurance staff will work as a team discussing the file's litigation strategy. If further investigation is required, the claims' staff will coordinate this for the solicitor.

(9)In consultation with City Departments and ABC's, the solicitor will decide who will be the City's witness at Examinations for Discovery. For claims requiring mediation or Alternate Dispute Resolution ("ADR"), the Claims Coordinator or senior insurance staff will attend such sessions.

(10)Within 15 days of attending litigation proceeding, the solicitor shall prepare a report to the Claims Coordinator, senior insurance staff or the TPA outlining the developments. At the minimum, the solicitor will prepare a status report every 90 days indicating the claims' status. The solicitor should always maintain an awareness of the claims' reserve and communicate with the adjuster to assist in determining whether it is still accurate.

(11)The Claims Coordinator is to be informed of all pending trials by the solicitor assigned to the file. Following a pre-trial hearing, a meeting should be set up with the solicitor, Claims Coordinator and senior Insurance and Risk Management staff or insurance adjuster to discuss the merits of proceeding to trial.

(12)Legal fees on all files shall be prepared and sent to the Claims Coordinator on a quarterly basis.

Repeal of Resolution No. 91-21 of North York City Council:

A review of liability claims practices in the amalgamated municipalities reveals one exception to adjudicating public claims against the City on the basis of a finding of legal liability. The exception is the no fault grant program in the former City of North York for residents who experience flooding resulting from sewer back-ups and water main breaks.

The North York no fault flood grant program was established in 1991, at a time when case laws respecting damage from municipal sewer and water main breaks were changing and at best rendered unreliable outcomes. The North York no fault grant program offered some level of assurance that payment for such damages would be available.

A new standard of care for Municipalities is found in the amended s. 284 of the Municipal Act. The Act received Royal assent on December 19, 1996. Under the amended legislation a Municipality is no longer liable in nuisance for escape of water or sewage from municipal water or sewage works.

In consideration of amended legislation to clarify a Municipality's obligation, the North York no fault grant program is no longer necessary. In addition, most homeowner's insurance policies now include or make available coverage for such perils as flood, sewer back-up and drain blockage. Repealing the North York by-law creating the no fault grant will ensure consistency in the handling of such claims throughout the amalgamated City of Toronto.

Conclusions:

The attached Claims Administration Procedures document sets out new procedures for insurance claims handling. The new procedures represent a harmonization of various past processes and provide a fair and equitable way of dealing with public claims made against the City. The new process involves the application of fundamental legal principles and standard claims adjusting practices to ensure equal treatment to all claims. The City's new Claims Administration procedures are identified in the attached document and following adoption by Council they will be distributed to all City staff.

The City Solicitor and the City's insurance company have reviewed this report and they concur with its content and recommendations.

Contact Name:

Len Brittain, Director, Treasury and Financial Services, 392-5380;

E-mail: lbrittai@toronto.ca

Jeff Madeley, Manager, Insurance and Risk Management, Treasury and Financial Services, 392-6301, E-mail: jmadeley@mta1.metrodesk.metrotor.on.ca

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Appendix "A"

City of Toronto Insured Entities - Departments, Agencies, Boards and Commissions

519 Church Street Community Centre

Applegove Community Complex

Business Improvement Areas

Canadian National Exhibition Association Board of Directors;

Canadian National Exhibition Association, Municipal Section;

Cecil Street Community Centre

Community and Neighbourhood Services

Community Centre 55

Corporate Services

East York Community Centre Advisory Committee

East York Local Architectural Advisory Committee

Eastview Neighbourhood Community Centre

Economic Development, Culture and Tourism

Etobicoke Historical Board

Exhibition Place Board of Governors;

Finance

Forest Hill Memorial Arena

George Bell Arena

Harbourfront Community Centre

Hummingbird Centre for the Performing Arts Board of Directors;

Leaside Memorial Community Gardens

McCormick Playground Arena

Metro Toronto Pension Plan Board of Trustees;

Moss Park Arena

North Toronto Memorial Arena

Ralph Thornton Community Centre

Rosedale Moore Park Association

Scadding Court Community Centre

Scarborough Arts Council;

St. Lawrence Centre for the Arts

Stan Wadlow Park Recreation Complex Board

Swansea Town Hall Community Centre

Ted Reeve Arena

Todmorden Mills Heritage Museum and Arts Centre Advisory Board

Toronto Atmospheric Fund, Board of Directors

Toronto Board of Health;

Toronto District Heating Corporation;

Toronto Economic Development Corporation

Toronto Historical Board (Heritage Toronto)

Toronto Housing Company Inc.;

Toronto Licensing Commission;

Toronto Police Services Board;

Toronto Public Library Board;

Toronto Zoo Board of Management

Urban Planning and Development Services

William H. Bolton Arena

Works and Emergency Services

York Employees Pension and Benefit Fund Committee

York Local Architectural Advisory Committee

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Appendix "B"

Dollar Authority Level for the Former Municipalities