Claims Manual
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CLAIMS MANUAL Effective November 14, 2013 (Revised May 29, 2014) Texas Association of Public Schools Property and Liability Fund CLAIMS POLICIES AND PROCEDURES MANUAL Table of Contents I. ....... INTRODUCTION A. ...... Purpose of this Manual ..... .......... ......... .......... .......... ............1 B. ...... History of TAPS...... .......... .......... ......... .......... .......... ............1 C ....... TAPS Mission and Vision .. .......... ......... .......... .......... ….…… 2 D ....... TAPS Reinsurance Structure ....... ......... .......... .......... ........... 2 E ....... TAPS Organizational Chart .......... ......... .......... .......... ........... 3 F ....... TAPS Claims Philosophy .. .......... ......... .......... .......... ….…… 4 F ....... Notes on the Use of this Manual .. ......... .......... .......... ….…… 4 II. ...... CLAIM REPORTING AND INITIAL CONTACT A. ...... Claims Reporting Requirements .. ......... .......... .......... .......... B. ...... Initial Contact Requirements ........ ......... .......... .......... .......... C. ...... Acknowledgments……… .. .......... ......... .......... .......... .......... D. ...... Initial Report .……… .......... .......... ......... .......... .......... .......... 5 5 5 5 III. ..... CLAIM FILE SET UP AND MAINTENANCE A. ...... File Set Up Timeframe ...... .......... ......... .......... .......... ………..6 B. ...... Coding.................... .......... .......... ......... .......... .......... ........... 6 IV. ..... RESERVING A. ...... General Philosophy .......... .......... ......... .......... ………… ....... 12 B. ...... Guidelines by Line of Coverage ... ......... .......... .......... .......... 12 V. ...... LIABILITY CLAIMS HANDLING A. ...... Investigation and Settlement Guidelines .......... .......... ...........15 B. ...... Automobile Liability .......... .......... ......... .......... .......... ...........16 C. ...... General Liability ..... .......... .......... ......... .......... .......... ...........17 D. ...... Educators’ Legal Liability .. .......... ......... .......... .......... ...........17 E. ...... Closing Notices ...... .......... .......... ......... .......... .......... ...........17 VI. ..... PROPERTY CLAIMS HANDLING A. ...... Requirements for by Claim Type .. ......... .......... .......... ……… 18 B. ...... Large Claim Procedures ... .......... ......... .......... .......... ............20 C. ...... Subrogation, Arbitration and Salvage..... .......... .......... ............21 VII. .... MEMBER CLAIM DISPUTES A. ...... Appeal to Executive Director ........ ......... .......... .......... ……… 24 B. ...... Appeal to Claims Committee ........ ......... .......... .......... ............24 C. ...... Appeal to Board ..... .......... .......... ......... .......... .......... ............24 VII. .... REINSURANCE CARRIER NOTIFICATION A. ...... General Reinsurance Information ......... .......... .......... .......... 25 B. ...... Current Reinsurance Coverage Details .. .......... .......... ............26 C. ...... Notification Requirements . .......... ......... .......... .......... ........ ... 26 D. ...... Current Reinsurance Contracts .... ......... .......... .......... ....After 28 VIII. ... REPORTING TO TAPS A. ...... Initial Reports Timeline and Formats ...... .......... .......... .......... 29 B. ...... Update Reports Timeline and Formats .. .......... .......... ........ ...30 C. ...... Closing Reports...... .......... .......... ......... .......... .......... ........ ...31 IX. ..... LITIGATION A. ...... Initial Litigation Procedure . .......... ......... .......... .......... .......... 32 B. ...... Defense Counsel Selection .......... ......... .......... .......... ........... 32 C. ...... TAPS Approved Defense Attorney Panel .......... .......... ............ 33 D. ...... Litigation Guidelines .......... .......... ......... .......... .......... ....After 34 E. ...... Reports to TAPS .... .......... .......... ......... .......... .......... ............ 35 .......... Litigation Budgets... .......... .......... ......... .......... .......... .......... 36 F. ...... Mediations .............. .......... .......... ......... .......... .......... ............ 37 G. ...... Trials . .................... .......... .......... ......... .......... .......... ............ 38 H. ...... Settlement Approval by Member .. ......... .......... .......... ............ 38 X. ...... SETTLEMENT AND PAYMENT AUTHORITY LEVELS A. ...... Claims Committee .. .......... .......... ......... .......... .......... .......... 39 B. ...... Executive Director .. .......... .......... ......... .......... .......... ............ 39 C. ...... Claims Director....... .......... .......... ......... .......... .......... ............ 39 D. ...... Claims Unit Manager......... .......... ......... .......... .......... ............ 39 E. ...... Adjusters ................ .......... .......... ......... .......... .......... ............ 39 F. ...... Requests for Additional Authority . ......... .......... .......... ............ 39 XI. .... SYSTEM REQUIREMENTS A. ...... Access to Claim Files by TAPS and Its Members ........ ........ 41 B. ...... Claim Experience Reports .......... ......... .......... .......... .......... 41 C. ...... Deductible Trigger Report . .......... ......... .......... .......... ........... 42 D. ...... Receivables Reports ......... .......... ......... .......... .......... ........... 42 E. ...... Aggregate Experience Report ...... ......... .......... .......... ........... 43 XII. .... CLAIMS ADMINISTRATION CONTRACTS...... .......... .......... .. After 43 XIII. ... GLOSSARY OF TERMS... .......... .......... ......... .......... .. ........ .......... 44 I. INTRODUCTION A. Purpose of the Manual This manual was created to specifically delineate and clarify the roles and responsibilities between TAPS management and its contracted claims personnel as well as a training guide for new claims personnel. The manual offers specific guidelines, but the tenets of professional claims handling will always control. B. TAPS’ History In 2000 and 2001 the markets for property and liability coverage for public schools in Texas were again drying up like they had done in the early 1990’s. Most major commercial carriers including the largest, The Hartford, were withdrawing from the market. The reasons given were weather losses and an unfavorable legal climate. Two other Texas pools, the Texas Association of School Boards Risk Management Fund and Texas Political Subdivisions were offering coverage at this time, but there was a need for additional capacity in the pool marketplace. Until 2000, the largest writer of public school districts in Texas was The Hartford who delivered their product through an exclusive program provided by PENCO, a division of Willis, the international brokerage company. In 2000, they wrote over 300 public school districts in the Texas. When The Hartford announced that they were withdrawing from the public school market, PENCO began looking for another carrier to underwrite the program. They believed they had found such a carrier in St. Paul Fire and Marine through their public sector services branch located in San Antonio. However, instead of becoming the new underwriter for the PENCO program, St. Paul bought PENCO from Willis, moving many of the PENCO people and their Hartford associates that managed the program to their public sector services office in San Antonio. The only problem: they did not want to write schools in Texas either. Because of the goodwill that Willis had developed in Texas, the Willis Pooling Practice assigned two employees in December 2000 to begin developing the concept of an independent agent marketed risk management pool for public school districts in the state. Chapter 791 of the Texas Government Code allows for local governments, like school districts, to contract with other local governments to provide administrative functions including a self insurance fund that is specifically authorized under Chapter 2259 of the Government Code. By August 2001, the reinsurance and other structure for the pool was in place. Eight public school districts formed the association on September 1, 2001. The eight founding members of TAPS were Alamo Heights ISD (San Antonio), Harlandale ISD (San Antonio), Hays CISD (San Marcos), Judson ISD (San Antonio), Midland ISD, Nixon Smiley ISD, Taft ISD, and Van Alstyne ISD. In the next month before the initial membership meeting, Aransas County ISD (Port Aransas), Edgewood Page 1 ISD (San Antonio), Garrison ISD, Northside ISD (San Antonio), Richardson ISD, Southside ISD (San Antonio), and Splendora ISD became members. Within eighteen months TAPS had over 200 members. C. TAPS’ Mission and Vision The TAPS Board of Trustees established the following Mission and Vision in 2012: TAPS Mission The Texas Association of Public Schools Property and Liability Fund (TAPS) will be a sustainable risk management solution for our school district, community college, education service center and cooperative members. TAPS Vision 2020 TAPS will be a risk management partner with our members. We will be an active community of like-minded entities, with TAPS’ stakeholders working together in the long run to manage risks, control losses, and minimize the costs to our members and association. Members who do not share the vision will be replaced by those who do. D. TAPS’ Structure TAPS sets aside a Loss Fund each year to pay reoccurring losses within its reinsurance retention which varies by line of coverage. Reinsurance is purchased to handle the larger less predictable losses. The rates that are charged are based on analyses by independent actuaries each year in determining expected loss per exposure unit (property values, average daily attendance (or budget on community colleges and education service centers), number of employees, and number of vehicles. To this loss fund charge is added the costs of reinsurance, underwriting and reinsurance brokerage cost, claims administration, agency commissions and operations expenses. Member deductible vary by the underwriting requirements for each member, and erode TAPS’ reinsurance retention. The structure of TAPS is represented by the following diagram: Page 2 E. TAPS Organizational Chart: Page 3 F. TAPS’ Claim Philosophy TAPS is a member owned organization, supported by a network of independent professional insurance agents. The members and their agents are an important part of our claims handling process. They both must be kept informed in a timely manner whether the claims is a first party or third party claim. TAPS pledges that Our Members Come First. We must always remember that our members are our sponsors. We must treat them like the owners that they are, in a first class manner. TAPS staff and contracted claims administrators have been given broad authority to act for the Association. We must all honor the authority that we have been given by professionally fulfilling our duties. We always want to be fair and equitable in dealing with our members, resolving gray areas when possible in the members’ favor. However, we must always remember that the term members is plural. We can not make an exception to the currently adopted coverage document for just one member. We must keep the welfare of all members in mind in our decisions. Even third party claimants deserve fair treatment and respect. Like members and agents, they should be kept informed throughout the process. If a claim is handled properly, claimants should wish that TAPS could be their carrier when the claim is closed. G. Notes on the Extent of this Manual This manual is not designed to teach a user how to handle a claim. It is designed to provide guidelines and TAPS’ requirement for claims handling. It is expected that all TAPS claims personnel will use their experience and training to provide professional claims services practiced with good faith for the benefit of TAPS’ members and the public. Throughout this Manual, the use of the verb “will” indicates a requirement. The verb “should” will indicate a best practice that should be followed, but is not required. Page 4 II. CLAIMS REPORTING AND INITIAL CONTACT A. Claims Reporting Requirements A TAPS claim may be reported by our agent, our member directly or even a claimant. 1. TAPS claims administrators will maintain a 24 hour per day, 7 day a week toll free claim reporting number (888.656.088) with emergency access to appropriate claims administrators when required. 2. TAPS claims administrators and support staff will maintain office hours and receive calls from 8:00 am through 5:00 pm Central time. 3. An additional claim reporting email address, Claims@TAPSPLF.org, will be maintained and forwarded to the Claims Manager. B. Initial Contact Requirements 1. For claims reported before noon of any weekday, initial contact with the member and claimant will be before the end of that day, except emergency claims. 2. For claims reported on a weekend, a holiday or after noon of any workday, initial contact with the member and claimant, if applicable, will be before noon of the next work day, except emergency claims. 3. For claims designated as an emergency (serious fires or property damage, serious injury or death), contact with at least the member will be within 2 hours. 4. Although contact may be made with third party claimants, no commitment or payment will be made without a confirmation of the facts from an appropriately qualified member representative. C. Acknowledgements 1. A written acknowledgment must be given to the member representative within 48 hours of a claim’s receipt by email or U.S. Postal Service. The acknowledgement will indicated the name and contact information of the claims administrator and the claim number. Besides the TAPS member representative, other member employees from the department from which the claim originates should be copied as well, if known. 2. The member’s agent will be copied on this and all correspondence with the member. D. Initial Claim Reports The initial report on each claim should be made when the investigation is complete. However, the first report, whether to TAPS or to the file must be made no later than 7 days after the claim is received. Page 5 III. A. CLAIM FILE SET UP AND MAINTENANCE File Set Up Timeframe All claims will have a claim number assigned and an electronic file set up within 24 hours of reporting or by the end of the next business day for claims reported on a weekend or holiday. B. Coding 1. Member Name Fields a. Abbreviations: Other than ISD (Independent School District), ESC (Education Service Center) and SEC (Special Education Cooperative), abbreviations should be avoided in the member name. b. For data analysis purposes, the member names should always be consistent. For example, use Sample ISD, not Sample Independent School District. c. “I.S.D.” may be used in the claimant field for first party claims to avoid “Isd” in check issuance. d. The claims administrator will be responsible for inputting all new members into the system in a consistent manner in September of each, plus the information on any new member brought in during the year within 10 days. 2. Department designations a. There will be an option available for departments or locations assigned for each claim. b. There will be a default set of departments included in the system: 1) Athletics 2) Campus based losses 3) Other location losses 4) Employment related claims 5) Food service 6) Maintenance vehicles 7) Police department 8) Special education 9) Transportation (buses) 10) All other claims c. The TAPS’ Risk Management Consultants will be responsible for setting up any classifications if other than the default classifications. These will be provided to the claims administrator for entry. d. These department/location indicators will be entered if supplied by the member or agent at the time the claim is reported 3. Claim Types TAPS covers these six types of claims: a. Automobile Liability Page 6 b. c. d. e. f. Automobile Physical Damage Crime Equipment Breakdown Educators’ Legal Liability General Liability Each claim event must be classified generally as one of these Claim Types when set up. An Automobile Physical Damage claim (a property claim) will never be the type for the complete claim if there are any liability claimants. (The data for these APD claims will be separated during the automated month end claims report.) 4. Cause of Loss Codes For the purpose of risk management analysis, each claim must be classed with a Cause of Loss Code in the bordereaux fields by the claims administrator. These causes of loss must only describe the claim event and avoid making liability assessments in the classification. All causes of loss must be coded from the standpoint of the member, not any claimant. Each claims system may have alpha numerical codes that designate each description, but that is up to the vendor. The required code descriptions are as follows: Cause of Loss Descriptions Abandoned Passenger Administrative Hearings Adverse Condemnation Advertising Aircraft Damage to Structure Altercation Injury Animal Bite or Injury Animal Collision Animal Damage Arson Assault/Battery Athletic Injury Attendance, expulsion, truancy Backing Backup of Sewer or Drains Bicycle, Non-motorized Vehicle Bodily Injury Other Breach of Contract Bullying Burglary Burn: Heat or Chemical Business Interruption Only Caught in Door/Window (Other) Civil Rights Collapse Collision-Owned Units Intersection Accident-Stop/Yield Sign Intersection Accident-Uncontrolled Jackknife, Overturn - Owned Vehicle Lane Turning or Change Law-Active Pursuit/Response Law-Bodily Injury Law-Excessive Force Law-Malicious Prosecution Law-Misuse of Weapon Law-Unlawful Search Leased Premises - Injury / Damage Lightning Loss of Income Only Loss of Use Only Malpractice, Medical Medical Payment Only Mobile Equipment Motorcycle Non-Contact Accident Non-Owned Vehicle Non-Pecuniary Lawsuit/Claim Opening / Closing Vehicle Door / Gate Overexertion Owned Vehicle Damage, Unknown Cause Parking Passing Page 7 Collision with Other Person Passing Stopped School Bus Computer System Damage Pedestrian Contractor/Vendor Damage/Injury Personal Injury, Other Copyright/Patent Infringement Playground Injury Corporal Punishment/Discipline Pollution Damage to Contractor Equipment Power Surge Deterioration Products/Completed Operations Discrimination-Age Professional Liability Discrimination-Color Property Damage-Other Discrimination-Disability (ADA) Pushed Discrimination-National Origin Ran Off Roadway Discrimination-Other Rear-ended Discrimination-Race Rear-ended other vehicle Discrimination-Sex Release of Confidential Information Discrimination-Wage Retaliation Driver Fell Asleep Retaliation - Whistleblower Driving too Fast/Slowly Right of Way, Failure to Yield DUI Riot or Civil Commotion Earthquake Road Conditions-Injury/Damage Electrical shock/Electrocution Robbery Employee Benefits Liability Sexual Abuse/Misconduct Employee Dishonesty Sexual Harassment Entering/Exiting Vehicle Sideswipe Equipment Breakdown Slander or Libel Equipment Injury Slip & Fall Errors or Omissions Smoke Excavation Soil Subsidence Explosion Spoilage Only Failure Properly Supervise Sprinkler Leakage Failure to Educate Struck by Falling, Thrown Object or Spray Failure to Secure Vehicle Struck by Gate Failure to Signal Struck Object, not vehicle Faithful Performance Struck Overhanging Structure Fall Struck Parked Vehicle Fall from Object/Platform Struck Sharp Object Fall from Vehicle Substance Ingestion/Inhalation Fall from Vehicle-Object, Material Sudden Stop, Start or Bump False Arrest Suicide or Attempt Fell in manhole, other hole Taxation Related Fire Theft Fire - Electrical Tool Injury Fixed object Towed Trailer or Vehicle Flood Transport Forgery Underground Damage Break/Cut Fraud alleged (Other than Theft) Uninsured/Underinsured Motorist Only Freezing-Plumbing HVAC System Vandalism Garage / Garage Keepers Vehicle Damage to Structure Hail Vehicle Damage, Owned Page 8 Harassment, Non-Sexual Head-on Collision Hit and Run Illness: Environmental Condition Improper Design/Construction Improper Illumination Improper Maintenance Imminent Domain/Condemnation Infectious Disease Information Only Insect Bite, Sting Insufficient Information Intersection Accident Intersection Accident-Signal Light Vehicle Damage, Rental Vehicle Equipment Damage Vehicle Mechanical Damage Ventilation/Asphyxiation Voting Rights Water Damage - Other Water Damage-Equipment Breakdown Water Damage-Plumbing Weight of Ice, Snow or Sleet Wind and Hail Windstorm Wrong Lane Wrongful Termination If additional causes of loss codes are determined to be required, the request will be submitted to the TAPS Claims Director for approval. 5. Coverage Types Each claimant or feature of a claim event must receive a separate coverage code in the bordereaux fields. The coverage codes available are: Coverage ALA ALB ALC ALD ALE ALF ALG ALH ALX API APU CRM CRN CRO EBC GLA GLB GLC GLD GLE GLF GLG PLA PLB Type AL AL AL AL AL AL AL AL AL AP AP CR CR CR EB GL GL GL GL GL GL GL PL PL Subtype A B C D E F G H X I U M N O C A B C D E F G A B Page 9 Description AL-Bodily Injury AL-Property Damage Out of State - PD AL-Medical Payments AL-Uninsured Motorist BI AL-Uninsured Motorist PD Garagekeeper’s Liability Out of State - BI AL-Expenses Automobile Physical Damage APD without Reinsurance Employee Dishonesty Money and Securities Forgery or Alteration Equipment Breakdown GL: BI or PD Personal Injury/Advertising Liability Products Liability/Complete Operations Law Enforcement Liability Employee Benefits Liability Fire Legal Liability GL Medical Payments E&O, Employment Practice Liability Non-pecuniary Claim Expense Reimbursement PLC PRA PRB PRD PRE PRF PRG PRH PRJ PRK PRL PRP PRQ PRR PL PR PR PR PR PR PR PR PR PR PR PR PR PR C A B D E F G H J K L P Q R Contractual Liability Claim Reimbursement Building and Contents Damage Windstorm or hail Earthquake Flood Extra Expense Miscellaneous Equipment Mobile Equipment Computer Equipment Damage Data and Media Extra Expense Computer Fraud Business Income Computer Equipment-Breakdown 6. Deductibles The applicable deductible for each claim, property or liability, must be entered in the system. This is important for computing net claims in the end of month reports. 7. Other Bordereaux Fields The following are additional bordereaux fields that must be completed when each claim is set up as soon as information changes. Coastal Property County Hail Reinsurance Compromise TAPS CAT Named Storm Reported to Reinsurer Deductible for Hail Deductible Owed Deductible Paid Date Deductible Received Deductible Vehicle Reinsurance Recovery TAPS Date of Report Under Deductible $ Injury Damage Yes, if affected by coastal property reinsurance Texas Claim County - Important for loss analysis Yes, if loss was a least partially caused by hail Yes, if disputed settled outside of expected recovery Fund year and TAPS designated number of multimember claims Yes, if damage due to storm named by NOAA Yes, if reported to the reinsurance carrier Amount of special hail deductible Normally filled by the automated deductible breach routine Date of last liability deductible payment (entered by TAPS) Amount of liability deductible received (entered by TAPS) The per vehicle deductible for storm related APD claims Amount of recovery to date from reinsurers Date of last written report to TAPS For property claims that are closed below the deductible. This is actuarially important for loss predictions A concise description of the claim that avoids a liability Page 10 determination statement in no more than more than 50 characters. This description is very important since it is the description seen on all claims experience reports extracted from the system. 8. Other TAPS Specific Fields Served Enter “Yes” if for each clamant that is a named plaintiff in a received lawsuit. Page 11 IV. A. Reserving General Philosophy Reserves will be set on claims that reflect the most probable estimate of the ultimate payout given the information at hand. Reserves affect the TAPS balance sheet as much as claims paid. Reserves will be reviewed monthly and, if called for based on new information, adjusted to reflect the new probable payout based on the facts and the claims administrators experience. This applies to both loss reserves and expense reserves. Every claim and every claimant will have an initial reserve, even if the investigation is incomplete and liability is questionable. If initial information is limited, a $1 reserve will suffice. B. Guidelines by Line of Coverage 1. Automobile Liability a. Property Damage: Unless specific information is initially available that points to no liability for our member or when there does appear to be liability and specific damage amount facts are available, each property damage claim will be set up with at least a $1,000 reserve. You must consult with the TAPS Claims Director on any liability reserve above $5,000. b. Bodily Injury: Unless specific information is initially available that points to no liability for our member or when there does appear to be liability and specific injury facts are available, each property damage claim will be set up with at least a $500 reserve. You must consult with the TAPS Claims Director on any liability reserve above $5,000. c. Medical Payments: Individual medical payments reserves should be set up based on the scope of the injury, probable treatment costs and the limits of coverage. (Special arrangements for Medical Payments claims: Use of medical payments, especially in a no liability claim, must be approved by the Member as required by the TAPS Coverage Document.) d. Uninsured/Underinsured Motorist: When information is available to point to coverage in a specific accident, reserves should be set based on the scope of the injury, probable liability and the coverage limits. 2. Automobile physical damage Unless specific information is available on the amount of the loss, all automobile physical damage claims will be set up with at least a $1,000 reserve. You must consult with the TAPS Claims Director on any reserve above $10,000. Page 12 3. Crime Initial reserves will be set up based upon the amount of the loss claimed by the member. Adjustment will be made after the evidence is reviewed. You must consult with the TAPS Claims Director on any crime reserve above $5,000. 4. Equipment Breakdown Unless there is specific information on the amount of the loss, equipment breakdown claims will be initially reserved at $1,000. 5. General Liability a. Since public schools are immune from tort claims other than from the use of a motor vehicle, general liability claims will be reserved at $1 initial loss reserve while the facts are checked. If the general liability claim involves a lawsuit, a $5,000 expense reserve will be established unless there are specific reasons to reserve another amount. b. Premises Medical Payments: This is a rarely selected coverage for our members. If a claim is presented under this coverage, a minimum loss reserve of $500 should be set up unless the known facts, the number of claimants or the limits affect the ultimately anticipated payouts. (Special arrangements for Medical Payments claims: Use of medical payments must be approved by the Member as required by the TAPS Coverage Document since normally immunity would apply.) c. Law Enforcement Liability: If the claim is only for bodily injury and/or property damage, the claim will be reserved like a normal general liability case. If the claim involves a civil rights violation, the initial loss reserve should be at least $2,500. If the claim is in the form of a lawsuit, the initial expense reserve should be at least $5,000. You must consult with the TAPS Claims Director on any liability reserve above $5,000. 6. Educator’s Legal Liability (School Board Liability, Errors or Omissions) TAPS has three types of coverage under this coverage part. a. PLA claims (primarily employment practices and special education claims) will provide a defense if there is a written claim for damages other than attorneys’ fees and court costs alone. If the claim arises out of a lawsuit, a $5,000 minimum expense reserve should be set. Even if there is not a lawsuit and we need assistance from our attorneys, set up a minimum $2,500 expense reserve. The loss reserve is dependent upon the facts the case. On these kinds of cases we either pay nothing or make settlements averaging in the low 5 figures. A $1 reserve may be appropriate, but you must consult with the TAPS Claims Director for any liability reserves above $5,000. b. PLB claims are those involving non-pecuniary demands and legally required administrative hearings (with notice to TAPS no later than 15 days before the hearing or legal proceeding). The reimbursement limit on this coverage is $10,000. The reimbursement limit is reduced by the member’s deductible such that a member with a $10,000 deductible has no coverage. Reserves should Page 13 be set based on these limits and the anticipated costs. c. PLB claims are for reimbursement of defense costs on breach of contract claims (other than employment). The reimbursement limit on this coverage is $10,000. The reimbursement limit is reduced by the member’s deductible such that a member with a $10,000 deductible has no coverage. Reserves should be set based on these limits and the anticipated costs. 7. Property Property claims comprise the biggest loss exposure to TAPS. Claims in excess of $1 million are not that unusual. Loss reserves should be initially set at the best estimate of payable damages. You must confer with the TAPS Claims Director before setting any reserve in excess of $50,000. Page 14 V. LIABILITY CLAIMS HANDLING A. Investigation and Settlement Guidelines 1. A professional, thoroughly documented investigation is the key to the defense of any liability claim. The basic tenants of claim handle remain: 1) Coverage (Is the claim covered by the Coverage Document?); Liability (Is the member liable?); and Damages (What is the monetary valuation of the damages suffered?) 2. If the investigation indicates liability on the part of our member, we should move as fast as possible to a fair settlement with the claimant, applying appropriate comparative negligence in making that determination if it applies. 3. A thorough, defensible investigation of a controverted case usually can not be done without some field work, even if it is just the automobile damage appraiser taking photographs and measurements of an accident scene. 4. We do not engage attorneys to do preliminary investigations and settlement negotiations that our claims administrators should do. 5. Coverage Questions: a. Any coverage question will be referred to the TAPS Claims Director. b. The Claims Director will authorize or make a referral to coverage counsel if necessary. c. Coverage opinions will be paid under an “Opinion” code to avoid inclusion in a member’s deductible computation. 6. Coverage Denials: a. The draft of any coverage denials must be approved by the Claims Director. b. A detailed written response will be sent to the member representative and the member’s agent. c. Coverage denial letters will plainly state why coverage is denied with reference to the language of the coverage document, statute or controlling case law. 7. Reservations of Rights: a. If is determined that: i. Aspects of a claim may require denial upon further investigation; ii. Part of a claim is covered, whether other parts are not; a written reservation of rights will be sent to the member before any action is taken. For the sake of time, the letter should be emailed to the member representative as well as mailed. b. Each reservation of rights is based on the coverage and specific facts so form letter should be avoided. c. Each reservation of rights will plainly state why coverage is denied with reference to the language of the coverage document, statute or controlling case law. d. The TAPS Claims Director must approve the wording on each Reservation of Rights letter. Page 15 B. Automobile Liability 1. Early contact with claimants is the key to controlling automobile liability claims. Recorded or written statements should be used: a. To rule out or limit injury claims that may develop after an attorney gets involved; b. To conduct an effective investigation; c. For use in future arbitration or litigation. 2. In person contact, though not practical in all cases, is the best way to fully evaluate a claimant. 3. Lawsuits in automobile liability cases should be rare with the capped liability limits provided by the Texas Tort Claims Act. Although there may be controversy over comparative negligence on the part of claimants, a thorough documented investigation will go a long way toward reaching settlements in these cases. The majority of automobile liability lawsuits are used to comply with the two year statute of limitations. 4. Lawsuits: Defense counsel selection a. Although we usually let a Member select from the local firms on the TAPS’ Approved Defense Counsel panel, automobile accidents are a specialty field that not all of the TAPS panel attorneys regularly handle. b. Unless TAPS has made a prior special arrangement with a member, all defense attorney assignments must be approved by the TAPS Claims Director. c. A written confirmation of the receipt of the petition and the assignment of counsel will be provided to the member, with an explanation of any reservation of rights that may apply. 5. Investigative tools to be used: a. Police reports: Although the police officer rarely witnesses an automobile accident, the basic investigation done by the officer is a good basis for the investigation. b. Photographs of the vehicles and the accident location. Damage appraisers can be used to photograph accident scenes since the damaged car is usually relatively close to the place that the damage occurred. c. School bus video systems d. Intersection video systems e. Written or recorded statements of claimants, members and witnesses f. Diagrams to scale 6. Diagrams to scale of accident scenes are required in file for: a. Litigated automobile liability claims; b. Claims in arbitration; c. Any claim with reserves or payments in excess of $5,000. Page 16 C. General Liability 1. The majority of General Liability claims are covered by immunity, unless constitutional or other civil rights violations are alleged. 2. A simple investigation should be done to make sure of the facts. 3. A written denial of liability, citing the Texas Tort Claims Act’s rejection of any waiver of sovereign for public school districts except for motor vehicles. 4. Claims alleging law enforcement liability, constitutional or other civil rights claims will be fully investigated using the investigative tools listed under B-5 above. 5. Mobile Equipment: a. It is TAPS’ policy that claims arising out of the use of mobile equipment is not the use of a motor vehicle. As such, immunity will apply. b. Although there is a Texas Attorney General’s opinion that some mobile equipment is a motor vehicle, there are no Texas appeals court decisions that indicate this. c. If there is legislation enabled, or if a trial court rules that a piece of mobile equipment is a motor vehicle (or rejects a formal motion for dismissal because of immunity), the TAPS coverage document indicates that coverage will be provided under the automobile coverage part. The claims will then be converted to automobile liability. 6. Lawsuits a. If a lawsuit is presented that alleges negligence and tort liability, the plaintiff’s attorney should be contacted immediately and given an opportunity to withdraw the petition without us having to answer to avoid our seeking our costs in the lawsuit. A phone call should be followed up with a letter. b. If a plaintiff’s attorney fails to withdraw, we will instruct our defense counsel to file a plea to the jurisdiction (due to immunity) and file for costs. d. We should give the member an opportunity to voice their preference for defense counsel in the general area of the member’s location. However, unless TAPS has made a prior special arrangement with a member, all defense attorney assignments must be approved by the TAPS Claims Director. D. Educators’ Legal Liability 1. Claim trigger: a. The claims made trigger for TAPS is a written claim for damages others than attorneys’ fees or court costs alone. Until this happens a claim is not made that would trigger a duty to defend. b. Incident reports without a written claim for damages represent an opportunity to begin a preliminary investigation in case a claim is later triggered. Non-pecuniary (including administrative hearings required by law) and breach of contract defense reimbursement claims (PLB and PLC coverage types) are not claims triggers but, at least for the non-pecuniary and administrative hearing defense Page 17 reimbursement claims, an opportunity is presented to gather all the facts for any future claim. If the facts are egregious enough, an opportunity presents itself for negotiation of an early settlement prior to litigation. Technically, however, a claim is not made until a claimant or the claimant’s attorney responds is writing to a settlement offer. 2. Investigation a. The majority of claims brought under this line of coverage involve employment practices claims. b. Copies of employee records relating to previous grievances or other administrative action should be obtained. c. Interviews should be conducted with supervisors and involved parties to ascertain the facts. d. Although in case of litigation, most interview results will need to be formalized through depositions; these interviews will assist TAPS’ counsel in developing a litigation plan. e. We do not engage attorneys to do preliminary investigations and settlement negotiations that our claims administrators should so. 3. Lawsuits a. An initial review of the petition will be done to: i. Determine if there is coverage and a duty to defend for the causes of action cited; ii. Determine the answer deadline; iii. Determine if there are any reasons to issue a reservation of rights letter to the member due to coverage issues. b. We should give the member an opportunity to voice their preference for defense counsel in the general area of the member’s location. However, unless TAPS has made a prior special arrangement with a member, all defense attorney assignments must be approved by the TAPS Claims Director. c. A written confirmation of the receipt of the petition and the assignment of counsel will be provided to the member, with an explanation of any reservation of rights that may apply. E. Liability Claims Notice of Closure A letter giving notice will be sent to the member with a copy to the agent when a liability claim is closed. Page 18 VI. A. PROPERTY CLAIMS HANDLING Requirements by Claim Type 1. Buildings and Contents a. The damage to any building and contents claim with an anticipated payout in excess of $10,000 must be physically inspected by an claims administrator. b. The following must be included in each claim file: i. A narrative of the damage observed and its cause ii. Color photographs of the damage iii. A detailed written appraisal of the scope of the damage iv. Estimated costs to repair the damage for claims under $50,000 v. A diagram of the building with the damage indicated c. Claims with an estimated payout of less than $10,000 may be handled by two estimates. (One detailed estimate will be sufficient if detailed photographs are provided.) d. Depreciation holdback from replacement cost may be waived for claims under $50,000 unless there is information that repairs will not be made. e. An evaluation of possible salvage value should be done on damaged property and an approved salvage process will be used to recover value. 2. Automobile Physical Damage (Revised 12-9-13, RLS) a. The damage to any automobile with an anticipated payout in excess of $7,500 must be physically inspected by a claims administrator. (For damages below $10,000 where detailed photographs are provided showing all the damages, damages may be certified by a staff appraiser without a physical inspection.) b. The following must be included in each claim file: i. Color photographs of the damage ii. A detailed written estimate of the damage iii. If the appraisal is done in a repair shop, an agreed price will be obtained. d. Subrogation and salvage recoveries will be sought as applicable. 3. Equipment Breakdown a. Equipment breakdown claims are fully reinsured, in most cases. b. Claims will be reported to the Equipment Breakdown reinsurer the day that they are received. c. Equipment breakdown claims not covered by the reinsurer will be handled under the building and contents procedures. d. Payments will be made to members as soon as a written commitment to pay a certain amount or the actual reinsurance payment to TAPS is received. 4. Crime a. Crime claims are fully retained by TAPS without reinsurance. b. Crime claims will be investigated with the standards of a liability claim. c. No payments will be made under crime without a notarized sworn proof of loss with documentary backup. d. No employee dishonesty claim will be paid without a specific proof of loss form naming the employee or employees with their contact details. Page 19 e. No crime claim in excess of $5,000 will be paid without review and approval of the TAPS Claims Director. f. A key factor in the handling of any crime claim, especially employee dishonesty, is the recovery of the funds paid from an adverse party. If law enforcement is involved, this repayment can be leveraged in the resolution of the crime. B. Large Property Claim Special Procedures TAPS members are all controlled by the purchasing procedures required by the Texas Education Code, § 44.031, excerpted below: § 44.031. Purchasing Contracts (a) Except as provided by this subchapter, all school district contracts, except contracts for the purchase of produce or vehicle fuel, valued at $50,000 or more in the aggregate for each 12-month period shall be made by the method, of the following methods, that provides the best value for the district: (1) competitive bidding; (2) competitive sealed proposals; (3) a request for proposals, for services other than construction services; (4) a catalogue purchase as provided by Subchapter B, Chapter 2157, Government Code; (5) an interlocal contract; (6) a design/build contract; (7) a contract to construct, rehabilitate, alter, or repair facilities that involves using a construction manager; or (8) a job order contract for the minor construction, repair, rehabilitation, or alteration of a facility. (b) If school equipment or a part of a school facility or personal property is destroyed or severely damaged or, as a result of an unforeseen catastrophe or emergency, undergoes major operational or structural failure, and the board of trustees determines that the delay posed by the methods provided for in this section would prevent or substantially impair the conduct of classes or other essential school activities, then contracts for the replacement or repair of the equipment or the part of the school facility may be made by methods other than those required by this section. Large property claims will be defined as estimated damages to member property in excess of $50,000. No claims administration, contractor, independent claims adjuster or TAPS staff person shall commit to pay for the repair or replacement of member property without expressed written authority from appropriate TAPS personnel. With regard to adjusting large property claims for TAPS members, it will be the policy of TAPS to: 1. Determine if the loss is in the large property claims category and immediately request specific authority by phone (with written confirmation) or email from TAPS on how to proceed. 2. Within authority from TAPS, determine the needs for emergency repairs (as defined in (b) of the Texas Education Code, § 44.031) and expedite the payment to the member for such repairs. Page 20 3. Make a determination of the specific scope of the damages and attempt to obtain agreement from appropriate member representative for this scope, allowing for exceptions for hidden damages. (No scope determination of wind or hail damage to any “built-up” or metal roof will be given without specific authority from TAPS, except where hail or wind has obviously penetrated the roof field into the interior of the building. In cases of collapse or potential non-obvious damage to built up roofs, immediate authority will be obtained from TAPS for engineering review. The final scope agreement will be used in the formal request for proposals (RFP) process. 4. It will be the policy of TAPS to make advance payments to members prior to the completion of the RFP process in the amount of TAPS’ un-reinsured retention, when damages are obviously in excess that retention. Claims administrators will expedite documentation to TAPS to support such payments. 5. All TAPS correspondence between TAPS’ claims administration contractor employees, or independent claims administrators or contractors, and the TAPS’ member representatives will include the following disclaimer: On behalf of our principal, Texas Association of Public Schools Property and Liability Fund (TAPS), we must state that neither this letter nor any investigation activity will be construed as any waiver of, nor shall TAPS be estopped from asserting in the future, any rights under the applicable coverage document, regulation or law. All such rights are hereby expressly reserved on behalf of TAPS. C. Subrogation, Arbitration and Salvage 1. Subrogation Generally a. As early as possible in a claims investigation, the adverse party and their carrier will be put on notice of our subrogation claim. The carrier will be given an opportunity to assume handling of the claim of our member. If the carrier does not respond, upon final payment on the claim, the supporting documents and a demand for reimbursement will be sent. b. Most subrogation processes will be handled by the handling claims administrator. Use of legal counsel or outside agencies, like Trover, must be approved by the TAPS Claims Director. 2. Arbitration a. TAPS is a member of Arbitration Forums, Inc. (AFI), a non-profit organization of which most major carriers are members. We are members of both the automobile section and the property section. Disputes with other carriers will be submitted to arbitration if the other carrier is an AFI member. b. The TAPS Claims Director will register each TAPS claims administrator for access to the online system and provide instructions on submissions. TAPS AFI Page 21 Member number is #06052. c. Each AFI arbitration submission must be approved by the TAPS Claims Director before submission. 3. Uninsured Adverse Parties a. Claims administrators will aggressively use the Safety Responsibility Act processes through the Department of Public Safety (DPS) to leverage adverse parties to pay damages in full or enter into installment agreements or lose their driving privileges. b. The originals of all installment agreements will be sent to TAPS. An electronic copy will be maintained in file. c. All payments on installment agreements will be made to “Texas Association of Public Schools.” d. New installment agreements and payments on installment agreements will be entered on the monthly pending recoveries spreadsheet set to the TAPS Operations Director at the end of each month. e. Notice will be given to DPS on any installment agreement more than 60 days past due for them to initiate the license suspension process. 4. Salvage a. Automobile 1) TAPS will use insurance salvage pools whenever possible on automobile total losses to recover as much as possible for the Fund. 2) Salvage may be negotiated and awarded to vendors if there are at least two bidders. If there are less than two private bidders, the TAPS Claims Director must approve the sale. 3) Salvage may be left with the member or claimant is some cases, but the amount of the salvage allowance must be approved by the claims administrator’s manager. 4) Salvage titles will be obtained on all totaled vehicles. b. Other damaged property 1) Salvage pools and other similar services may be used to dispose of other salvage. 2) Salvage sale on other property may be negotiated and awarded to vendors if there are at least two bidders. If there are less than two private bidders or the value of the salvage is over $1,000, the TAPS Claims Director must approve the sale. 3) Salvage may be left with the member or claimant is some cases, but the amount of the salvage allowance must be approved by the claims administrator’s manager. 4) Building materials have salvage value and should not be missed in the process. c. Crime loss salvage 1) In crime loss situations, law enforcement involvement can make the recovery of the funds a part of the resolution of the criminal process if the perpetrator is known. The Assistant District Attorney handling the case should be contacts. Probation is usually dependent upon arrangements for repayment. 2) Claims administrators will aggressively use the courts and other law Page 22 enforcement organizations to achieve recovery of losses. 3) Reimbursement of losses in full or installment agreements are allowed resolutions in crime salvage cases. 4) The originals of all installment agreements will be sent to TAPS. An electronic copy will be maintained in file. 5) All payments on installment agreements will be made to “Texas Association of Public Schools.” 6) New installment agreements and payments on installment agreements will be entered on the monthly pending recoveries spreadsheet set to the TAPS Operations Director at the end of each month. Page 23 VI. MEMBER CLAIM DISPUTES (Added by Board 1-29-2014) It is the policy of TAPS to try to resolve disputes with our Members over the amount of damages or coverages at the adjuster or Claims Director level. However, if a dispute persists, the following dispute procedure must be followed by the Member: A. Appeal to the Executive Director a. A written appeal will be submitted to the Executive Director by paper mail or email stating the nature of the dispute, the requested determination and the reasons for the determination requested. b. The Executive Director will respond in writing within 7 calendar days of the receipt of the written appeal. B. Appeal to the Board Claims Committee a. Any appeal to the Board Claims Committee requires the completion of the Executive Director appeal process. b. To appeal to the Board Claims Committee, a written appeal by paper mail or email will be submitted to the Board Claims Committee in care of the Executive Director. c. The written appeal should state the nature of the dispute, the requested determination and the reasons for the determination requested. d. The Executive Director will forward the appeal to the Claims Committee with the results of the prior appeal within 2 working days. e. The Board Claims Committee will consider the appeal and the Chairman will respond within two weeks of the receipt of the appeal by TAPS. f. If the Board Claims Committee requires additional time for their investigation and determination, they may take this time by notifying the Member in writing with an indication of the date that the determination will be completed. g. Except for coverage disputes, the decision of the Claims Committee is final. C. Appeal to the Board of Trustees a. No appeal, except for one involving a coverage issues, may be appealed to the Board of Trustees. b. Any coverage appeal to the Board of Trustees requires the completion of the Board Claims Committee appeal process. c. For an appeal to be heard by the Board, a written appeal must be received at least 21 calendar days prior to a scheduled meeting of the Board. d. The written appeal should be sent to the Chairman of the Board with a copy to the Executive Director. e. The written appeal should state the nature of the dispute, the requested determination and the reasons for the determination requested. The appeal should also state if an appearance by a representative of the member is requested and how much time is requested. f. Appeal presentations to the Board will limited to 20 minutes unless the board acts to extend the time to a specific extent. g. The Board will respond in writing to the Member on the appeal within 7 calendar days of the Board meeting through their designated representative. Page 24 VII. A. REINSURANCE CARRIER NOTIFICATION Reinsurance TAPS purchases separate reinsurance contracts for its various property and liability exposures above its retentions. Retentions and limits may vary from year to year - the current retentions and limits are provided at the end of this section and will be updated at each renewal. 1. Property: TAPS is reinsured separately for coastal (first and second tiers of counties) and inland property. Retentions are different for named storms, hail and all other perils. Property includes buildings, contents, mobile equipment (tractors, lawn mowers, etc.), and miscellaneous property (for property that moves around: musical instruments, lap top computers, uniforms, etc.). Automobile physical damage is also covered under the property reinsurance. 2. Liability TAPS is reinsured for liability claims to a specific limit. Our reinsurance carrier provides excess liability coverage for members on an individual basis through TAPS. Liability includes general liability, law enforcement liability, employee benefits liability, automobile liability and educators’ legal liability (employment practices and professional liability for teachers and administrators). 3. Equipment Breakdown TAPS is fully reinsured for equipment breakdown coverages without a retention of loss for TAPS. This used to be called boiler and equipment insurance, but this now covers more than boilers, including air conditioning systems, refrigeration systems and other mechanical equipment. The coverage pays for the repairs and the consequential damage. Our carrier adjusts the claims, reimburses us for all loss payments and performs required jurisdictional inspections of boilers and other equipment. 4. Crime TAPS retains the full risk of all crime losses without reinsurance. The usual limits are below TAPS normal retention on property losses, so there is no reinsurance cost to this line of coverage. Crime includes employee dishonesty, robbery and other theft of money, computer fraud and forgery. Cash and other money are excluded from regular property coverage. B. Current Reinsurance Insurance Details The current reinsurance structure details for TAPS appears on the following page: Page 25 TAPS Current Schedule of Reinsurance Line Property As of September 1, 2013 Coastal Property Named Storm Hailstorm All Other Perils Liability Excess Liability Equipment Breakdown 2%* $ 500,000 250,000 * Values of affected structures 150,000 Up to None Crime C. Retention 250,000 Limit Per Claim $ 25,000,000 250,000,000 250,000,000 850,0000 4,000,000 100,000,000 250,000 Carrier Lexington Lexington Lexington United Educators United Educators Travelers Boiler Re None REINSURANCE NOTIFICATION REQUIREMENTS 1. All Claims: Our reinsurers require that claims be reported to them when the potential loss exceeds 50% of TAPS retention amount. 2. Liability Claims: a. TAPS’ liability reinsurer requires that certain types of claims be reported to them as well. These are: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. Fatality; Major paralytic conditions such as paraplegia and quadriplegia; Second and third degree burns on 25% or more of the body; Amputation, permanent loss of use or permanent loss of sensation of a major extremity; Head or brain injuries resulting in permanent disorientation or behavior disorders; Loss of sight in one or both eyes or loss of hearing; Spine or back injuries; Injury resulting in incontinence of bowel or bladder; Sexual molestation, sexual assault, rape or sexual harassment; Multiple injury occurrences, including those involving students; Any employment related dispute involving more than one employee resulting in a class action suit. b. Litigated Cases Prior to Trial: TAPS requires that regardless of the reserves on a case, all litigated files be reported to the liability reinsurance carrier 60 days prior to any scheduled trial. Page 26 D. Current Reinsurance Contracts The TAPS’ current reinsurance contracts for 1) Property Inland; 2) Property Coastal; 3) Liability; 4) Excess Liability; and 5) Equipment Breakdown are provided on the following pages: Page 27 Page 28 Reinsurance contracts here Page 1 Reinsurance contracts here Page 2 VIII. A. REPORTING TO TAPS Initial Reports 1. An initial written report must be provided to the claim file within 7 days. 2. If the claim is a property loss over with an anticipated payment over $50,000, a liability claim with an anticipated payment over $25,000, or litigated claim, the initial report and all subsequent reports must also be sent by email to the TAPS Claims Director. 3. Initial report paragraph captions: a. Liability Member: (Member name) Claimant: (Claimant(s) name(s) Date of Loss:(Occurrence Date or Claims Made Date) Type Claim: (Automobile Liability, General Liability, Law Enforcement Liability, Educators’ Legal Liability) Claim Number: Adjuster: Defense Attorney (if any) Plaintiff Attorney (if any) Nature of Claim: (Brief description of basis for claim) Coverage: (Line of coverage, limits and deductible) Claimant damages/injuries: (Brief description of damages or injuries) Liability Evaluation: Reserves: (By Loss and Expense, Paid, Outstanding Reserves): Additional Investigation Needed: Action Plan: b. Property Member: (Member name) Date of Loss: Type Claim: (Automobile Physical Damage, Building and Contents, Crime, Mobile Equipment) Cause of Loss: Claim Number: Managing Adjuster: Field Adjuster: Reinsurer Notified: (Name of reinsurer and Examiner if put on notice) Nature of Claim: (Brief description of claim) Coverage: (Line of coverage, limits and deductible) Damage: (Brief description of damages claimed) Reserves: (By Loss and Expense, Paid, Outstanding Reserves): Additional Investigation Needed: Subrogation Potential: Action Plan: Page 29 B. Update Reports 1. Investigation Updates (Liability and Property) a. Update reports will be provided after each major activity, but no less than every 30 days until the investigation is completed. b. Formats Liability Member: (Member name) Claimant: (Claimant(s) name(s) Date of Loss:(Occurrence Date or Claims Made Date) Type Claim: (Automobile Liability, General Liability, Law Enforcement Liability, Educators’ Legal Liability) Claim Number: Adjuster: Defense Attorney (if any) Plaintiff Attorney (if any) Nature of Claim: (Brief description of basis for claim) Claimant damages/injuries: (Brief description of damages or injuries) Liability Evaluation: (Note any changes since last report) Reserves: (By Loss and Expense, Paid, Outstanding Reserves): Report of Investigation: Additional Investigation Needed: Activity Plan: Property Member: (Member name) Date of Loss: Type Claim: (Automobile Physical Damage, Building and Contents, Mobile Equipment) Cause of Loss: Claim Number: Managing Adjuster: Field Adjuster: Reinsurer Notified: (Name of reinsurer and Examiner if put on notice) Nature of Claim: (Brief description of claim) Damage: (Brief description of damages claimed) Reserves: (By Loss and Expense, Paid, Outstanding Reserves): Additional Activity Since Last Report Additional Activity Needed: Subrogation Potential: Activity Plan: Page 30 Crime Member: (Member name) Date of Loss: Type Claim: (Employee Dishonesty, Money and Securities, Forgery, Computer Fraud) Claim Number: Adjuster: Nature of Claim: (Brief description of claim) Damage: (Brief description of damages claimed) Reserves: (By Loss and Expense, Paid, Outstanding Reserves): Additional Activity Since Last Report Additional Activity Plan: Salvage Plan: C. Closing Reports Closing reports will briefly state what happened, the damages incurred, the liability assumed (including any application of comparative negligence and the basis for any settlement). For liability claims, this will include the total special damages plus any compensatory damages (pain and suffering). In general, the closing report should show any reviewer what was done and why the settlement was justified. Page 31 IX. LITIGATION A. Initial Litigation Procedures 1. Immediately upon receipt of a lawsuit, the TAPS Claims Director must be provided with an electronic copy of the petition. 2. Defense Counsel Selection a. The TAPS member will be given a chance to express their preference for defense counsel from the TAPS Approved Defense Panel within their geographic area. b. Unless prior arrangements have been made with a specific member, the TAPS Claims Director must approve each defense counsel engagement. c. The TAPS Claims Director will consider possible conflicts, effectiveness of the firm and the member’s preferences before approving a defense counsel assignment. B. Defense Counsel Selection 1. All defense counsel assignments will be made from the TAPS Approved Defense Panel except when additional counsel is required and no firm on the panel is available due to conflicts. 2. Additions to the TAPS Approved Defense Panel may be made by the TAPS Board of Trustees Claims Committee or the Executive Director based on a need in an area of the state or that the firm has experience in school law and/or member needs. Generally, appointment of a member’s general counsel as a prerequisite to a member joining TAPS will be discouraged. Any such appointment must be approved by the Claims Committee. 3. Subtractions from the TAPS Approved Defense Panel may be made by the TAPS Board of Trustees Claims Committee or the Executive Director with cause. C. TAPS Approved Defense Attorney Panel The current TAPS Approved Defense Attorney Panel list appears on the following page: Page 32 Page 33 Page 34 D. TAPS Current Litigation Guidelines TAPS Litigation Guidelines (11-14-2013) The Texas Association of Public Schools Property and Liability Fund (TAPS) believes that successful defense requires a three-way joint approach. TAPS works closely with our member and defense counsel to reach the best possible conclusion for each matter reported to us. In some cases that may mean seeing a claim through a summary judgment motion or trial (and even appeal), but in many others it means a negotiated resolution. TAPS must receive sufficient information about each matter for which we provide coverage to evaluate its merits. To that end, for each matter we require that defense counsel: complete an early assessment and budget within 30 days, consider whether mediation or another form of ADR may be appropriate, respond promptly to all TAPS requests (whether by phone, letter, or email) for information about the claim, routinely provide copies of all major pleadings for matters in litigation, report timely any significant legal events that may cause a change in exposure for the institution or TAPS, consult with TAPS and the member about major strategy decisions and before preparing or filing dispositive motions, provide case status reports to the TAPS claims administrator and TAPS Claim Director every 60 days, notify TAPS and the member promptly of any settlement demands, and provide timely, appropriately detailed invoices for professional services to both TAPS and the member. These Guidelines govern all claims for which TAPS provides coverage: Educators Legal Liability (ELL), General Liability (GL) and Automobile Liability (AL) claims. Failure to comply with the Guidelines can have serious consequences. Inappropriate or unauthorized legal fees and costs may be disallowed, and in some cases TAPS’s member may lose valuable coverage. Egregious or repeated instances of failure to comply with the Guidelines may result in revocation of defense counsel’s appointment. Exceptions to the Guidelines. TAPS occasionally may approve departures from the Guidelines. Although it should be the exception rather than the rule, if you believe that a deviation from the Guidelines is necessary, you must bring the situation to TAPS’s attention before incurring any additional expenses that are inconsistent with these Guidelines. It is counsel’s responsibility to request any exceptions to the Guidelines, and obtain the TAPS’ approval, in advance. Otherwise, the unauthorized costs will be disallowed. Staffing of cases. TAPS typically appoints a particular attorney, not the attorney’s firm, to represent a member. We consider the attorney we appoint (or approve) as the “Primary Attorney,” who will have ultimate responsibility for all legal work in the matter. Generally, we expect the Primary Attorney to personally handle most of the significant work and appearances in the case. We also expect the Primary Attorney to use “billing judgment” and make any appropriate adjustments to invoices before submitting them for payment. Unless TAPS approves a different arrangement in advance, each lawsuit should be staffed by a maximum of two attorneys, generally one partner and one associate, assisted by one paralegal during trial. TAPS Litigation Guidelines, Page 1 If staffing changes or substitutions are necessary during the pendency of a claim, TAPS should be advised as soon as possible. Defense counsel should not bill TAPS or its member for any transition time that a new attorney or paralegal spends becoming familiar with the matter. Defense counsel will not bill for more than one attorney to attend or participate in witness interviews, depositions, court hearings/arguments, or settlement negotiations (including mediations). Communication. Consistent with our belief that a team approach is essential and to avoid surprises for both TAPS and our members, we place great importance on communication among our claims administrators, claims director, defense counsel, and our members. In addition to requiring counsel to be responsive generally to our inquiries about the status of claims, TAPS also expects that we (along with the member) will be advised promptly of all important court dates, including but not limited to discovery deadlines, dispositive motion deadlines, trial setting conferences, settlement conferences, and trial dates. Absent other arrangements, in each matter the claims administrator and TAPS Claims Director should routinely receive copies (electronic format preferred) of: All substantive pleadings Copies of legal research or factual investigative memos Summaries of written discovery responses, including medical records, which address how the information may affect previous assessments of liability and damages When requested by the TAPS claims administrator or Claims Director, deposition transcripts or (if prepared) summaries. Communication with TAPS Members: Defense counsel will keep both TAPS and its member fully informed of developments in the claim. The member, as well as TAPS, will receive copies of case assessments, status updates, substantive motions, pretrial briefs, and mediation statements. Initial Assessments and Budgets The TAPS claims administrator’s appointment letter requests an early assessment report and litigation budget. The preferred formats for those reports will be provided by TAPS. An initial assessment and budget must be provided within 30 days; if the materials are not received by that date, and no extension has been arranged with the claims administrator o Claims Director, TAPS may disallow fees and costs incurred between the due date and the date the items are received. This means that those charges would not be paid by TAPS or credited against the member’s self-insured retention. Although TAPS understands that it may be difficult at an early stage to assess a claim or budget for it through trial, we believe it is very important to do so. In our experience, this exercise enables all of the concerned parties (TAPS, our member, and defense counsel) to obtain the information needed to evaluate the case properly at the earliest possible date and, if liability appears likely, to consider settlement. Assessments. The full initial assessment will include: Brief summary of case The results of defense counsel’s factual investigation of the claim, including any problems with witnesses or any documents damaging to the defense Legal and factual defenses to the claim, including any applicable immunities or caps on damages Whether counsel considers the claim a case of liability or exposure TAPS Litigation Guidelines, Page 2 Monetary damages and any other relief that may be recoverable by the claimant The strengths and weaknesses of each party’s position Counsel’s recommended defense strategy (including anticipated discovery, motion practice, expert witnesses, ADR recommendations, and settlement strategies) The probable range of verdicts if the case is tried An evaluation of the claim’s settlement value, including possible non-monetary aspects. Updated 60 day status reports will include: Brief summary of the case Updates or changes from initial assessment Discovery deadlines Deposition summaries Hearing notices Demands Resolution strategy For GL and AL tort claims, specific items that will be considered and addressed in the assessment include: Immunity and tort caps (this is primary) Liability and causation issues Joint and several liability Negligence of others/fault of non-parties Indemnity, contribution, and collateral source Medical specials (past, present and future) Loss of earnings (past, present and future) The possible range of non-economic damages. Budgets. TAPS asks defense counsel to provide the most realistic budget possible through trial, including fees projected for any likely dispositive motion work. Budgets may specify any reasonable assumptions, such as the number of depositions anticipated or the anticipated course of action by adversary counsel. Consistent with TAPS’s preferred format, budgets will be broken down into the stages of litigation (e.g., discovery, pretrial pleadings and motions, trial preparation and trial) and show approximately how many hours of work in each stage counsel anticipates being performed by the assigned partner, associate, and paralegal. We will review and approve a budget for the litigation, but TAPS does not necessarily “hold” counsel to this original budget. We understand that developments in litigation may require increases, and we expect to be advised promptly when that occurs. If counsel exceeds the original budget without having first notified TAPS of needed modifications, however, any fees and costs incurred that exceed the original or approved revised budget may be disallowed. Pretrial Assessments and Budgets In addition to the initial assessment and budget, TAPS requires a Pretrial Assessment (PTA) and updated budget information for claims that will be tried. We generally require completion of the PTA at least 45 days before trial. Our preferred format for the PTA is also sent with the attorney appointment letter. TAPS Litigation Guidelines, Page 3 Invoices and Billing Practices Unless agreed otherwise with TAPS in advance, counsel will submit detailed invoices for professional services and disbursements (expenses) on a monthly basis. Invoices must include the following information: A description of the specific task performed by an attorney or paralegal; if multiple tasks are aggregated in a single time entry, that time will be disallowed Time billed for a specific task in increments no greater than .1 (one-tenth) of an hour The hourly billing rate of the attorney or paralegal who performed the task A summary of hours billed and the billing rate for each timekeeper on that invoice, accompanied by a summary of fees to date An itemized statement of expenses, including the number of photocopies billed. TAPS expects to receive the final bill (which should be marked as such) within 30 days after a claim is completely resolved. Maximum Hourly Rates Payable for Defense Counsel by TAPS Counsel with in excess of 20 years trial experience Counsel with in excess of 15 years trial experience Counsel with in excess of 10 years trial experience Counsel with at least 5 years of trial experience Counsel with less than 5 years of trial experience Certified Paralegals $225 200 175 150 135 75 Permissible Expenses. TAPS will cover the actual cost of the following expenses: Photocopying (maximum .10/page) Long distance telephone charges Approved out of town travel (including the lowest available coach class airfare and reasonably priced hotels/meals) Deposition transcripts Computer research Medical records Court filing fees Witness fees Approved outside vendor costs (including experts) Overhead Expenses. TAPS does not cover, and counsel will not bill for, the following expenses that we consider overhead: Word processing Clerical or secretarial salaries or overtime Work that is clerical in nature, even if performed by attorneys or paralegals Training of firm personnel Library charges Office supplies or software Local travel (mileage and parking) Travel time less than one hour round trip. (Travel time over one hour may be billed at 50% of the normal rate. If flight service would be appropriate for a trip, that flight travel time is the maximum charge that may be submitted.) TAPS Litigation Guidelines, Page 4 Airline flight charges above standard coach fare Meals (unless related to approved out of town travel) Messenger services Fed Ex and other overnight delivery services (with limited exceptions for necessary court filings) Postage Fax charges Database management/imaging (unless we have given prior approval) Entertainment or personal expenses Preparation of bills or responding to billing inquiries or audit inquiries Experts and Jury Consultants. TAPS must approve the use of any expert witnesses or jury consultants in advance, and counsel must provide an estimated budget for their work and consult us if any budget increases appear necessary. Fees or expenses that exceed the budget may not be covered. Internal conferences. Defense counsel will not bill for more one than timekeeper attending an internal office conference on the case. Billing by additional timekeepers for the same meeting generally is disallowed. In addition, the time entry must describe the specific issue discussed. General entries such as “discussed status” do not meet this standard and will likely result in the time being disallowed. Billing for basic research. TAPS appoints or approves defense counsel primarily on the basis of their expertise in areas of law germane to the particular claim. Counsel will not bill either TAPS or its members for basic research on areas where we would reasonably expect the attorney’s firm to have adequate experience and existing research – for example, the plaintiff’s burden of proof in a Title VII discrimination claim, or the notice standard in a premises liability case. Billing by summer associates. As a rule, defense counsel will not bill for summer associate time, which we consider part of a firm’s overhead and training costs. However, if counsel believes that a summer associate can make a valuable contribution in a particular case (e.g., a discrete research project on a novel issue of law); approval for that work should be sought from the TAPS’ claims administrator in advance. If the claims administrator approves the summer associate work, he or she may cap the time that will be covered. Mediations and Settlements TAPS encourages mediation in general. In most cases a TAPS representative will need to attend and participate in the mediation, so defense counsel will not schedule any mediation without consulting the TAPS Claims Director (or designee) in advance. TAPS requires that counsel complete a written premediation analysis of the claim no later than two weeks prior to the mediation. This analysis will include: a brief summary of the facts, an overview of the applicable law, a discussion of liability that applies the governing law to the facts, the likelihood of prevailing on any pending dispositive motions, history of any negotiations between the parties, claimed damages, medical specials and wage loss (past, present and future), likely range of jury awards, and a recommended settlement range. TAPS Litigation Guidelines, Page 5 All settlements, regardless of whether they are achieved through mediation, require TAPS’s prior approval. Accordingly, any settlement demands received by counsel will be reported promptly to the TAPS claims administrator as well as to the TAPS member. Similarly, defense counsel will not make any settlement offers without consulting TAPS in advance. Failure to do so could result in the loss of the member’s coverage for the amount of the offer. Particularly if counsel requests TAPS’s approval of a significant settlement, we may request written justification before giving authority for the settlement. TAPS Litigation Guidelines, Page 6 E. Reporting to TAPS on Litigation 1. TAPS (The Claims administrator and the Claims Director) will receive an electronic copy of the original answer within 24 hours of its filing. 2. TAPS will receive an initial assessment and budget within 30 days of the assignment. 3. The outline of the required Initial Assessment is as follows: Member: (Member name) Plaintiff: Date of Loss:(Occurrence Date or Claims Made Date) Type Claim: (Automobile Liability, General Liability, Law Enforcement Liability, Educators’ Legal Liability) Claim Number: Adjuster: Plaintiff Attorney and Firm: Trial Date Set: Plaintiff’s Causes of Action Plaintiff’s Specific Allegations Results of Counsel’s Factual Investigation Summary of Proposed Defense Liability Assessment Strengths of Case Weaknesses of Case Damages Estimate of economic damages Likelihood of emotional distress damages Prejudgment interest Attorney’s fees Probably range of verdicts if case were to be tried Settlement Settlement value estimate Mediation recommendation Settlement demands Negotiations to date Defense strategy Next six months to a year Additional investigation needed Anticipated discovery and expected discovery disputes Dispositive motions pending Other motions pending Experts needed Evaluation of plaintiff’s counsel Evaluation of judge Other unique issues or extraordinary cost that may be required 4. The initial budget template follows on the next page. Page 35 Page 36 5. Litigation Update Reports a. Update reports are required every 60 days. b. The following is the format that will be followed: Member: Plaintiff: Date of Loss:(Occurrence Date or Claims Made Date) Type Claim: Claim Number: Adjuster: Plaintiff Attorney and Firm: Trial Date Set: Nature of the Case: (Brief case synopsis to refresh readers) Activities Since Last Report: Updates or Changes Since Prior Assessments Trial Setting/Scheduling Order Liability assessment Deposition Results and Summary Pending Motions Activities Pending Demands and Negotiation Update Resolution Strategy F. Mediations 1. TAPS believes that mediation is a valuable tool to resolve litigated claims. Usually counsel recommends delaying mediation until after dispositive motions are filed and the plaintiff’s deposition is completed, but TAPS recommends mediation as early as the facts are reasonable clear. 2. In most cases the TAPS Claims Director will represent TAPS at all mediations. Defense counsel will not schedule any mediation without clearing the schedule with the Claims Director. 3. TAPS requires that counsel complete a written pre-mediation analysis of the claim no later than two weeks prior to the mediation. (This is important for the Claims Director be able to re-evaluate the case and to obtain appropriate authority from the Executive Director or the Board Claims Committee to be able to settle a case.) This analysis will include: a) A brief summary of the facts, b) An overview of the applicable law, c) A discussion of liability that applies the governing law to the facts, d) The likelihood of prevailing on any pending dispositive motions, e) History of any negotiations between the parties, f) Claimed damages, g) Medical specials and wage loss (past, present and future), h) Likely range of jury awards, and i) A recommended settlement range. 4. TAPS insists on opening statements at each mediation session. This is one of the best opportunities to evaluate the case, the plaintiff (eye to eye) and the plaintiff’s attorney. Page 37 G. Trials 1. Regardless of the reserves, if not already done, lawsuit cases will be reported to our liability reinsurer no later than 60 days prior to a scheduled trial. 2. The current TAPS Litigation Guidelines will be strictly enforced. 3. A pre-trial evaluation will be provided to TAPS by the defense counsel no later than 45 days prior to a scheduled trial using the following outline: Member: (Member name) Plaintiff: Date of Loss:(Occurrence Date or Claims Made Date) Type Claim: (Automobile Liability, General Liability, Law Enforcement Liability, Educators’ Legal Liability) Claim Number: Adjuster: Plaintiff Attorney and Firm: Trial Date Set: Presiding Judge and Court Summary of the Case Primary Strengths Primary Weaknesses Evaluation of Judge and Venue Settlement Discussion Status Damages Estimate of economic damages Likelihood of emotional distress damages Prejudgment interest Attorney’s fees Potential Verdict and Exposure Analysis 6. A daily update by email will be provided by telephone or email to the TAPS Claims Director and claims administrator. H. Settlement Approval by Members 1. Under the Educators’ Legal Liability coverage part, though not Automobile Liability or General Liability, approval is required by the member, through their Board or other an authorized individual, for all settlements. 2. If a member rejects a tentative settlement that has been worked out tentatively between the parties, TAPS has the option to withdraw a defense from that point and reimburse the member for legal expenses and judgments only up to the amount for which the case could have been settled. This should be conveyed in writing to the member immediately upon notice of the rejection of the proposed settlement. 3. TAPS always reserves the right to make courthouse steps settlement on a cost of defense basis before a trial. The final briefing on the case to the member’s governing body should include that possibility, even if they do not give authority for a settlement offer. Page 38 X. AUTHORITY LEVELS Approved by Claims Committee 5-29-14 A. TAPS Board Claims Committee The Claims Committee of the TAPS Board of Trustees will have the authority to settle claims and approve payment on claims up to the reinsurance or excess insurance retention of TAPS. The Claims Committee will have the authority to approve payments above the Fund’s retention from received or committed funds from reinsurers or excess insurers. The committee may delegate their authority to the Executive Director in writing including email. B. Executive Director The Executive Director will have authority to settle claims, execute payments and approve checks up to $250,000 on property claims and up to $100,000 on liability claims. The Executive Director may delegate his/her authority to the Claims Director or Claim Unit Manager in writing including email. C. Claims Director The Claims Director will have authority to settle claims, execute payments and approve checks up to $100,000 on property claims and up to $50,000 on liability claims. The Claims Director may delegate his/her authority to the contracted Claims Unit Manager in writing including email on a case by case basis. D. Claims Unit Manager The approved contracted manager of the dedicated TAPS Claim Unit has settlement authority up to $30,000 on property claims and $20,000 on liability claims. He/she will have signature authority up to $20,000 except for legal invoice payments that will be limited to $5,000. E. Adjusters Each approved adjuster will have $5,000 settlement authority with checks bearing the TAPS Treasurer’s electronic signature making payments. F. Requests for Additional Authority Approval of requests for additional authority on a case by case basis must be made in writing, including email to the approving authority. Page 39 Page 40 XI. A. SYSTEM REQUIREMENTS Access to Electronic Claim Files by TAPS and Its Members 1. Access will be made available to the electronic claim files in the claims administrator’s system including claim details, paid and reserved financial details, and adjuster’s notes for all TAPS employees, agents, designated contractors and member representative. Security will be provided to let agents and members access only those records to which they have relationships. 2. The TAPS Claims Director and the Executive Director will have the ability to enter notes on open claims that will be transmitted to the handling adjuster. 3. Ad hoc reporting will be made available to create reports from all the fields available. 4. TAPS employees will have access to the classification bordereaux fields for editing online. These will include: a. Cause of loss b. Claim type c. Claim subtype d. Coastal property identifies e. County f. Hail loss indicator g. Reinsurance compromise indicator h. TAPS Cat number i. Named storm indicator j. Reported to reinsurer indicator k. Deductible for hail l. Deductible amount owed m. Deductible paid n. Date of deductible payment o. Injury Damage (claim description) p. Vehicle deductible q. Reinsurance recovery r. Date of report to TAPS s. Under deductible amount B. Claim Experience Reports 1. All users will have access in the claims administrators system to canned reports to include: a. Five year loss summary report in a PDF file by line of coverage by fund year including the data on: 1) Total Incurred 2) Paid 3) Outstanding Reserves 4) Claim Count 5) Open Claims Page 41 b. A claim detail report by member by claimant in an Excel file to include: 1) Date of Loss 2) Claim Number 3) Claimant Name 4) Claim Type 5) Status (Open, closed, litigated) 6) Total Incurred 7) Claim description 8) Total Paid 9) Loss Paid 10)Expense Paid (Including legal expense) 11) Outstanding Reserves 12) Loss Reserve 13) Expense Reserve 14) Deductible 15) Deductible Received c. Security will be provided to give access only to the specific members account or the agency’s accounts for the requester. C. Deductible Trigger Reports, Invoices and Member Statements 1. Prior to 8:00 am on the 1st of every month, the claims administrator’s system will run a Deductible Trigger Report that will calculate any liability deductibles owed, less payments made. 2. The amount owed will be placed into the system field “deductible owed”. 3. The system will produce an invoice with detailed back up for each member. 4. TAPS will enter deductible amounts received during the month into the system. D. Receivables Report The claims administrator’s system will include a calculated report, to be run automatically and emailed to TAPS, or run on call, that provides a detail on each claim (including an aggregation of all member claims included in a designated “Cat” event) that includes the following fields: 1. Member name 2. Claim number 3. Date of loss 4. Fund year 5. Claim type 6. Status 7. Close Date 8. Total Incurred 9. Injury Damage (Brief Claim Description) 10. Cause of Loss Code Description) 11. Total Loss Payments 12. Total Expense Payments 13. Total Reserves 14. Loss Reserves Page 42 15. Expense Reserves 16. Deductible 17. Under Deductible Amount (for property claims closed without payment) 18. Deductible Owed (liability) 19. Deductible Received) 20. Salvage or Subrogation Recovery 21. Reinsurance Compromise (“Yes” limits reinsurance due to amount recovered) 22. Reinsurance Recovery 23. Reinsurance Due 24. Reserve Reinsurance Recoverable (RRR) 25. Reserved and Unbilled Deductible Recoverable (RUDR) 26. TAPS Cat Designation (if any) 27. Coastal Property Indicator 28. Named Storm Indicator 29. Hail claim indicator 30. Retention 31. Adjuster 32. Broker E. Aggregate Report The claims administrator will provide a report to enable TAPS to track experience relative to any reinsurance aggregate stop loss for each fund year. Page 43 TAPS/Crawford Contract 2014-2018 STATE OF TEXAS § COUNTY OF BEXAR § CRAWFORD & COMPANY and TEXAS ASSOCIATON OF PUBLIC SCHOOLS PROPERTY AND LIABILITY FUND CLAIMS HANDLING CONTRACT I PARTICIPANTS This contract is between Texas Association of Public Schools Property and Liability Fund (hereinafter “TAPS”) and Crawford & Company (hereinafter “Crawford”) for the administrative, investigative and adjustment services for all automobile liability, automobile physical damage, crime, general liability, professional liability (educators’ legal liability) and property claims being made by or against TAPS members under the TAPS coverage document, including first party and third party claims. II TERM OF CONTRACT This contract begins January 1, 2014 and ends December 31, 2016 with two optional one year extensions to the contact available through December 31, 2018. Notice of the exercise of any optional one year extension must be given by TAPS at least 90 days prior to an existing termination date to be enforceable. At any time, this contract may be terminated without cause by either party if written notice is given to the other party at least ninety (90) days prior to date of termination in the current period. The contract may be extended beyond the final termination date with the mutual agreement of both parties. This contract involves the claim administration for claims occurring during the contract period as well as open claims at the beginning of the contract period and claims that reopen during the contract period. III TERRITORY This contract covers all claims by or against a member client arising both within and outside of Texas and the United States as defined in the TAPS coverage document, unless prior written consent of TAPS is obtained to assign claims handling outside of Texas. TAPS/Crawford Contract, 2014-2018, Page 1 IV SERVICES Crawford will review, investigate, adjust, settle and pay all reported claims within the written authority granted by TAPS. This will be done in accordance with proper professional adjustment practices, including but not limited to state and federal law, and all administrative, professional certificate and license rules of the Texas Department of Insurance or other state or federal agencies. Adjustment practices will follow the TAPS claims handling guidelines policies for the various lines of coverage. Crawford will follow and enforce with approved defense counsel the TAPS litigation management guidelines currently in effect. Branding is important to TAPS. All correspondence will be branded primarily with TAPS logo, but the Crawford logo and address may be used in addition if submitted to TAPS and approved in advance. All logos must conform to any Texas Department of Insurance requirements or other state or federal law. No use of the TAPS name or affiliation may be used by Crawford absent prior written approval of TAPS. In addition, a dedicated toll-free telephone line will be provided answered with an appropriate TAPS message, either live or recorded with such message to be approved by TAPS in advance of use. Crawford shall provide all necessary postage, stationary, supplies, forms, check stock, letters of coverage, letters of reservation, etc. for proper handling of the claims. These supplies and processes will be at no additional cost to TAPS. No expense of any kind may be incurred by Crawford beyond those charges and expenses authorized in this contract absent prior written approval of TAPS. Crawford shall consult and advise TAPS and its members on all settlement matters, as indicated by the current written settlement authority provided by TAPS. Proper reporting to TAPS and its members on all open claim files with reserves, payments, or anticipated damages in excess of Crawford’s settlement authority will be provided: first reports in seven (7) days, and all other status reports every thirty (30) days until the case is closed or as often as necessary. In addition, online access to claims records shall be made available to TAPS management. Crawford will pursue, on behalf of TAPS, appropriate salvage and subrogation recoveries on all claims. For shared recovery compensation on subrogation, there must be a written declination of payment by the adverse party or its carrier, or there must be an indication that there is no insurance to cover the occurrence for the adverse party. The fees for the subrogation services (“Subrogation Fees”) described above shall be 25% of all subrogation recoveries. The Subrogation Fees will be calculated on the gross recoveries of the claims that are recovered, before subtraction of any expenses, including, but not limited to, court ordered attorney fees. Initiation of subrogation procedures subject to subrogation fee payments will require written approval by TAPS. A subrogation assignment approval form may be used for this purpose. TAPS reserves the right to handle any subrogation directly. Settlements of subrogation claims below the amounts paid by TAPS and its member will require written approval by TAPS. Page 2 Following the termination of this contract, will TAPS elect to have Crawford or its subcontractor continue to recover any such claims, which as of the termination date have been referred for recovery, then Crawford or its subcontractor shall be entitled to compensation at the subrogation fee in effect on the termination date. Should TAPS elect to have Crawford or its subcontractor cease recovery efforts on any such Claim, then TAPS agrees to reimburse Crawford and/or its subcontractor for any reasonable expenses incurred in its recovery efforts to date. Crawford will maintain its primary TAPS unit office in San Antonio, Texas. The unit will consist of a supervisor, and at least two adjusters who will be dedicated exclusively to TAPS. The adjusters assigned to the TAPS unit will not be decreased nor will be claims assignments given on other non-TAPS claims without the written approval of TAPS. TAPS will not unreasonably refuse to approve such non-TAPS claims assignments if justified by lack of TAPS claims activity, or urgent situations. Crawford will assign a person reasonably acceptable to TAPS to be the liaison between Crawford and TAPS. Crawford will give TAPS input on new hires specifically for handling TAPS claims. As a third party administrator for TAPS, Crawford shall provide to TAPS in the approximate form provided to Crawford prior to their proposal for services, in electronic format, a description of loss experience data necessary to negotiate reinsuring agreements, set member rates which Crawford shall supply at no additional cost on an as-needed basis promptly upon request or under the terms and conditions defined by TAPS or its designee. Monthly paid and reserves reports, in a format prescribed by TAPS, are included in the foregoing pricing. Additionally, Crawford will provide the same monthly reports to the TAPS’ reinsurers and excess carriers for review, if requested. This contract assumes provision of actuarial and financial services by separate independent contractors or TAPS employees. Crawford will use its commercially best efforts to perform services in cooperation with all other providers as well as TAPS in such a manner as to protect TAPS against unnecessary loss and harm. Crawford shall perform at all times in accordance with the standards of professionalism expected of agents and entities licensed by the Texas Department of Insurance to provide services as described in this agreement. Crawford shall promptly notify TAPS of its failure to perform under this contract when such failure or omission shall delay provision of the required information to any independent contractor and/or TAPS employees. V COMPENSATION Beginning January 1, 2014, the fees for Crawford handling the automobile liability, automobile physical damage, property, crime, professional liability and general liability claims for TAPS will be based on a percentage of the total earned contributions for each month, payable within fifteen (15) days after the end of month of service. TAPS will provide Crawford with an electronic detail of the earned premium calculation within seven (7) days of the end of the month. Upon ten (10) days prior written notice, Crawford may conduct an audit of the TAPS records regarding contributions as they apply specifically to this agreement. Equipment Page 3 breakdown coverage contributions will be excluded as long as these claims are adjusted directly by the carrier, although Crawford will record these claims in the Crawford/TAPS claim management system, pay the claims from TAPS accounts and follow up on reimbursement to TAPS. The percent of earned contribution fee for each contract year will be dependent upon the annualized contributions for the applicable month. Annualization will be calculated by multiplying the earned contribution on the first day of a specific coverage by the remaining days in the year. The fee for each month will be: 3.50% for annualized contributions of $10,000,000 or below; 3.45% for annualized contributions over $10,000,000 up to $15,000,000: 3.40% for annualized contributions over $15,000,000 up to $20,000,000; and 3.35% for annualized contributions over $20,000,000. No interest shall accrue. TAPS agrees to pay, in addition to the stated contract fee, time mileage charges in excess of 100 miles per trip for building and contents claims appraisals located above 50 mile from an existing Crawford office (offices as of September 1, 2013, or from additional offices set up by Crawford), at a rate of $1.70 per mile. The charge will be an “Adjust” expense on the claim file account. An invoice will be issued and forwarded to the TAPS along with a check for approval and signature. No payments will be made to Crawford without a TAPS’ signature. TAPS agrees to pay, in addition to the stated contract fee, but only if approved in writing in advance by the TAPS Executive Director or his/her designee, the cost incurred for travel and expense in providing additional experts and/or professional assistance (i.e. medical, legal, engineering, etc.), as required to investigate and adjust claims beyond the services normally provided by Crawford, pursuant to terms of this contract, to include any experts and/or professional assistance used with the authorization of TAPS and their members. This also includes other appropriate allocated expenses, which are not included in claims administration fees, but does not include damage appraisal fees. These approved expenses will be paid from the bank accounts made available to Crawford within the specific authority granted. (See Attachment “A” for a listing of typical anticipated allocated expenses.) The cost, including travel expense, of normal automobile and property damage appraisals through independent adjusters or Crawford staff will be at the expense of Crawford. The cost of investigative travel expense of Crawford staff will be at the expense of Crawford. If it is required that Crawford personnel attend the TAPS board meetings, TAPS will pay Crawford an annual fee of $3,500 at the beginning of each calendar year for which attendance is required. TAPS is a public entity, exempt from sales taxes. As TAPS’ claims administrator, TAPS will provide to Crawford, when applicable, documentation for goods or services purchased in TAPS behalf by Crawford to take advantage of this exemption. TAPS will be responsible for any other non-exempt taxes as required by law. New computer system projects will be limited to 15 hours per calendar year without charge. After that, a development rate of $150.00 per hour will be incurred by TAPS. At the termination of this contract, Crawford will provide to TAPS or its designee copies of all electronic data from the Crawford system on claims payments, reserves, documents and Page 4 adjuster notes, along with a data map in a form that would allow conversion to another claims management system. The data will be provided in two sets: a sample data set with mapping no later than 90 days prior to termination, and a final set at the end of the last business day prior to the termination. These data sets will be provided at no cost to TAPS. VI HOLD HARMLESS To the extent allowable by applicable law, Crawford shall indemnify and hold harmless TAPS from any and all loss, cost, or expense incurred as a result of the execution or performance this contract by Crawford, unless caused by the negligent act committed by a TAPS employee or contractor other than Crawford. This exclusion for contractors other than Crawford does not apply to contractors hired by Crawford to fulfill any of the duties for which Crawford is responsible under this agreement. VII LIABILITY AND INSURANCE COVERAGE Each party shall bear the risk and expense of its own negligent acts or other misconduct. Crawford is a named insured on an errors and omissions – miscellaneous professional liability insurance policy with a five million dollar ($5,000,000) limit. Attached to this contract is a valid certificate of insurance for this coverage. Crawford will notify TAPS within sixty (60) days if the coverage is terminated or amended. It is understood that Crawford will not name TAPS as an additional insured on its errors and omissions policy. Crawford shall also provide a certificate of insurance reflecting insurance limits acceptable to TAPS naming Crawford as an insured on general liability, automobile liability, and workers’ compensation with TAPS as an additional insured on general liability and automobile liability. In no event shall the coverage limits be for less than five million dollars ($5,000,000) per incident and shall cover all acts of Crawford, its agents and assigns and acts of employees, agents and officers of TAPS. Should such coverage be altered in any way from the terms of this agreement, Crawford will provide written notice to TAPS within sixty (60) days. Crawford will provide TAPS with notice within sixty (60) days if any required coverage contract reaches 50% of the aggregate limit by payments or reserves in any coverage year. If requested, Crawford will provide TAPS with copies of the declaration pages or complete coverage contracts for each required coverage. Failure by Crawford to strictly comply with the coverage and limit requirements of this section shall be construed as a material breach and shall entitle TAPS to recover from Crawford directly any loss of any kind including but not limited to coverage under any required policy. Page 5 VIII VENUE Venue for all purposes shall be in Bexar County, Texas. IX NOTICE All notices, requests and other communications concerning this Agreement from either party to the other shall be in writing and delivered either personally, by certified mail, return receipt requested, or by a recognized overnight courier. Any such notice, request or other communication shall be deemed to have been given on the date of personal delivery, or if mailed, on the date of mailing. All communications shall be addressed as follows: If to TAPS: R. Lamar Sawyer, Jr., Executive Director Texas Association of Public Schools Property and Liability Fund 342 West Woodlawn Avenue, Suite 300 San Antonio, Texas 78212-3314 If to Crawford: Crawford & Company Attn: Legal Department 1001 Summit Boulevard, 10th Floor Atlanta, Georgia 30319 Agent of Service: C T Corporation System 350 North St. Paul Street Dallas, Texas 75201 X ASSIGNMENT Neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party. Page 6 XI DISPUTES The parties to this agreement encourage the prompt and equitable settlement of all controversies or claims between the parties relating to this Agreement. The parties agree to negotiate their differences directly and in good faith for a period of no less than thirty (30) days after receiving written notification of the existence of a dispute. In the event a dispute between the parties concerning the terms of this Agreement cannot be resolved through direct negotiations, or upon expiration of the thirty (30) days after receiving written notice of the dispute, whichever occurs later, the parties hereby agree to submit the dispute to formal pre-litigation mediation. The parties further agree that mediation of the dispute shall be conducted by a third-party independent mediator who is a licensed attorney and an experienced mediator located in Bexar County, Texas. Each party shall be responsible for its respective expenses and attorney’s fees relating to mediation, but the cost of the mediator shall be shared equally by the parties. Such mediation is a condition precedent to either party filing litigation of any kind. The mediation conducted pursuant to this Agreement is a compromise negotiation for purposes of Rule 408 of the Federal Rules of Evidence and Texas Rules of Evidence and is an alternative dispute resolution procedure subject to Section 154.073 of the Texas Civil Practice & Remedies Code. If after mediation occurs the dispute is not resolved, the parties are free to exercise all other legal and equitable remedies available XII SOLE AND ENTIRE AGREEMENT The provisions set out herein, Attachment A, the certificate of insurance from Crawford, the TAPS’ request for proposals for this contract, the response of Crawford attached hereto, and the Crawford revised response on takeover claims, constitute the whole and entire agreement between the parties hereto and may be altered only by mutual agreement, reduced to writing and executed by authorized officers of both parties. [Signatures on following page] Page 7 For Crawford with expressed authority to bind the corporation in contract: ___________________________ David Repinski, CEO, U.S. Property & Casualty _________ Date Crawford & Company 1001 Summit Boulevard Atlanta, Georgia 30319 (Corporate Headquarters) For TAPS with authority from TAPS Board of Trustees: ___________________________ _________ R. Lamar Sawyer, Jr. Date Executive Director Texas Association of Public Schools Property and Liability Fund 342 West Woodlawn Avenue, Suite 300 San Antonio, Texas 78212-3314 Page 8 ATTACHMENT “A” ALLOCATED EXPENSES The following are considered as allocated expenses, and are included in the fees paid to Crawford by TAPS: Attorney fees related to defense of covered losses or other covered legal expenses; Court costs and fees; Court reporter and transcript fees; Expenses chargeable to the defense of a particular claim; Expenses to obtain copies of public records, at cost; Mediation fees; Weather service fees for confirming events; Witness fees and associated travel expense; Other extraordinary services performed by Crawford at TAPS’ request Page 9 XII. GLOSSARY OF INSURANCE, REINSURANCE AND POOLING TERMS ACAS – Associate of the Casualty Actuarial Society (Casualty Actuarial Society). Active Negligence - The party that was negligent took an active part in doing whatever caused the damage. For example, digging a hole and someone falls in. ACV - Actual Cash Value. Value of property at the time of its loss or damage, determined by subtracting depreciation of the item from its replacement cost. Applies to vehicles and mobile (contractor’s) equipment and other property subject to a higher rate of depreciation than the typical property types. Adjuster – A employee or contractor charged with preparing a claim for settlement through investigation and appraisal, either within given authority, or to refer to a higher authority for approval. Admitted Reinsurance - Reinsurance provided by a reinsurer licensed or authorized in the jurisdiction in question. A company is “admitted” when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country. Aggregate - The term used to describe the cumulative amount of all losses for a period of time. Aggregate Excess of Loss Reinsurance - A form of excess of loss reinsurance that indemnifies the reinsured against the amount by which the reinsured’s losses incurred (net after specific reinsurance recoveries) during a specific period (usually 12 months) exceed either an agreed upon amount or an agreed upon percentage of some other business measure, such as aggregate net premiums over the same period or average insurance in force for the same period. This form of reinsurance also is known as Stop Loss Reinsurance, Stop Loss Ratio Reinsurance or Excess of Loss Ratio Reinsurance AGRiP - Association of Governmental Risk Pools. The national membership association of public entity pools. Formed for educational, information gathering and advocacy purposes, “to unite the pooling community to achieve excellence in pooling management, operations and services”. AIS - Associate in Insurance Services (American Institute for CPCU and Insurance Institute for America). ALAE - Allocated Loss Adjustment Expense ALCM - Associate in Loss Control Management (American Institute for CPCU and Insurance Institute for America). Alien Company - An insurer or reinsurer domiciled outside the U.S. but conducting an insurance or reinsurance business within the U.S. Arbitration Clause - A clause within a reinsurance agreement providing that if the ceding company and the reinsurer fail to agree, then they select neutral arbitrators with the authority to bind both parties to a solution. Resolving differences without litigation. ARe – Associate in Reinsurance (Insurance Institute for America). ARM - Associate in Risk Management (Awarded after coursework and exams by Insurance Institute for America). ARM-P - Associate in Risk Management – Public (and Insurance Institute for America). ARPM - Associate in Risk Pool Management (Insurance Education Association). Association Captive Insurance Company - A captive insurance company established by members of an association to underwrite their own collective risks. An association captive usually only insures members of the sponsoring association. Assumed Portfolio - The transfer of in-force insurance liability by an insurer to a reinsurer (or vice versa) by the Page 44 payment of the unearned premium reserve on those policies alone, or by the concurrent transfer of liability for outstanding losses under those policies by the payment of the outstanding loss reserve by the insurer to the reinsurer (or vice versa). The former is a premium portfolio, the latter a loss portfolio. Attachment Point - The dollar amount of a loss where the next layer of insurance begins to pay for the loss. Automobile Liability - Designed to afford bodily injury and property damage liability coverage associated with owned, non-owned and hired vehicles. May include medical payments, uninsured/underinsured motorists’ liability coverages or non-fault coverage. Automobile Physical Damage - Usually a first party coverage; however, some entities have “Bailment” or “care, custody and control” liability exposures such as garages, maintenance facilities that service vehicles of others, and parking lots. Bordereau - A report providing exposures with respect to identified specific risks, which is furnished the reinsurer by the reinsured. This report typically includes the insured’s name, premium basis, premium and the amount of coverage. Burning Cost - The premium needed to cover losses based on historical experience for a proposed reinsurance agreement. Cancellation - Run-off basis means that the liability of the reinsurer under policies, which became effective under treaty prior to the cancellation date of such treaty, shall continue until the expiration date of each policy; Cut-off basis means that the liability of the reinsurer under policies, which became effective under treaty prior to the cancellation date of such treaty, shall cease with respect to losses resulting from accidents taking place on and after said cancellation date. Usually the reinsurer will return to the company the unearned premium portfolio, unless the treaty is written on an earned premium basis. Capacity - The maximum limit an insurer or reinsurer will make available, per policy, based on its current underwriting standards. It is a reflection of its surplus condition, its reinsurance or retrocession treaties, and also an expression of not just how much it has available, but how it wants to allocate its risk financing strength across various classes of business, coverage lines, or individual risks". Captive Insurance Company - A risk-financing method or form of self-insurance involving the establishment of a subsidiary corporation or association organized to write insurance. Captive insurance companies are formed to serve the insurance needs of the parent organization and to escape uncertainties of commercial insurance availability and cost. The insureds have a direct involvement and influence over the company’s major operations, including underwriting, claims, management policy, and investments. Catastrophe Reinsurance - A form of reinsurance that provides coverage for losses resulting from a catastrophic event such as conflagration, earthquake or windstorm. Catastrophe loss generally refers to the total loss of an insurance company arising out of a single catastrophic event. These losses typically must exceed a specified amount and number of insurers and locations. CEBS – Certified Employee Benefit Specialist (co-sponsored by The International Foundation of Employee Benefit Plans (IFEBP) and the Wharton School of the University of Pennsylvania) Cede - When a company transfers risk to another company. Ceding Commission - An amount paid by a reinsurer to the ceding company to cover the ceding company’s acquisition and other expenses. The cedent’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits - sometimes expressed as a percentage of the gross reinsurance premium. Ceding Company or Cedent - The original or primary insurer; the insurance company that transfers its risk to a reinsurer. Page 45 Claim - A demand of a right. In general a demand for compensatory damages resulting from the actions of another. Claims Committee – This is a group of TAPS Trustees that serves on a committee to, in behalf of the board, extend authority beyond that granted to the Executive Director. Claims Made Basis - The provision in a contract of insurance or reinsurance that coverage applies only to losses that occur and claims that are made during the term of the contract. (Losses occurring before the contract term are sometimes covered by the addition of “prior acts” coverage to the contract. Losses reported after the contract term are sometimes covered by the addition of “tail” coverage.) Once the policy period is over in claims-made covers, the approximate extent of the underwriter’s liability is known. On the other hand, the traditional “occurrence” liability insurance method provides coverage for losses from claims that occurred during the policy period, regardless of when the claims are assessed. With the traditional “occurrence” liability coverage method, the underwriter may not discover the extent of liability for years to come from losses asserted to have occurred within the policy period. With claims-made covers that are renewed, however, losses that occurred during any period when the policy was in force are again covered if reported during the renewal term. In summary, the traditional method is similar to claims-made if the latter has added to it both “prior acts” and “tail” coverage. Claims Director – An employee of TAPS charged with overseeing the claims operation, providing authority to adjusters when required. Claims Manager – An employee or contractor charged with managing the complete claim process. Clash Cover - (also known as Casualty Catastrophe Cover). Reinsurance that is not exposed on a policy limit basis, i.e., the deductible on the treaty is equal to or exceeds the reinsured's maximum net exposure on any one policy. Therefore, such treaties protect against the infrequent loss involving two or more insured’s in the same loss occurrence. Stated another way, it is a casualty excess of loss agreement with a retention higher than the limits on any one reinsured policy. The agreement is thus only exposed to loss when two or more casualty policies (perhaps from different lines of business) are involved in a common occurrence in an amount greater that the clash cover retention. (See also “Contingency Cover”). Commutation Clause - A clause in a reinsurance agreement, which provides for estimation, payment and complete discharge of all future obligations for reinsurance losses incurred regardless of the continuing nature of certain losses. Contingency Cover - Reinsurance protection against an unusual combination of losses. (See also “Clash Cover”). Contingent Commissions - A payment to the ceding company in addition to the normal ceding commission allowance. It is a fixed percentage of the reinsurer’s net profits after a charge for the reinsurer’s overhead, derived from the subject treaty. Contributing Excess - Where there is more than one reinsurer sharing a line of insurance on a risk in excess of a specified retention, each reinsurer contributes towards any excess loss in proportion to his original participation in such risk. Cost of Defense Settlement - Public entities are frequently sued without a clearly stated cause of action. They are brought into litigation with the hope that they will pay something to avoid the costs of litigation, hence the term cost of defense settlement. Coverage Year - The year commencing with the effective date of the policy or with an anniversary of that date. CPCU - Chartered Property and Casualty Underwriter (American Institute for CPCU and Insurance Institute for America). CRM - Certified Risk Manager (The National Alliance for Insurance Education & Research). CSP - Certified Safety Professional (Board of Certified Safety Professionals). Page 46 Cumis Counsel - Cumis refers to a lawsuit against the Cumis Insurance Society in which they were found to have controlled the defense attorney to the detriment of their insured. The court determined that the Society should have assigned separate counsel to represent the exclusive interests of the insured. The need for cumis counsel arises in situations where there are significant coverage issues and defense counsel is conflicted between his duty to his client and the obligations to the insurance carrier. Data Warehouse - copy of transaction data stored on a server specifically structured for query and reporting. Deductible - That portion of any claim for which the insured is obligated to reimburse the insurer, or to pay in a first party loss. Defense - A defendant's denial to a complaint or cause of action. Deposit Premium - Premium required at the beginning of a policy period based on estimated costs. DIC - Difference In Conditions. A specialized property insurance policy written to provide coverage for perils not covered in a standard property policy. In particular, it is most often used to provide coverage for earthquake and/or flood losses. Directors, Officers and Trustees Liability - Intended to protect nonprofit board members, officers, and directors for faulty decisions, which imperil the entity. Usually written to include entity reimbursement for legal actions and personal liability of specific wrongdoers. Domestic Company - An insurer conducting business in its domiciliary state from which it received its charter to write insurance. (As opposed to a foreign company, an insurer conducting business in a state other than its domiciliary state; or an alien company, one domiciled outside the U.S. but conducting business within the U.S.) Employers’ Liability - Included as part of a worker’s compensation insurance policy. Covers liability for losses arising out of injuries to employees that are not covered by statutory workers’ compensation benefits. Employment Practices Liability - Written to protect an entity from liabilities arising from allegations of discrimination, failure to promote or hire, harassment, ADA responsibilities, wrongful termination, etc. Environmental Impairment Liability - Also referred to as “Pollution” and “Pollution Legal” Liability; can be written to protect an entity from actions resulting from contamination of air, water, and property. First-party (damage to owned property) and third-party (liability for damage to others) protection can often be combined. Errors and Omissions Clause - A provision in insurance agreements which is intended to neutralize any change in liability or benefits as a result of an inadvertent error by either party. To the extent possible the parties are placed in the position they would have been if the error had not occurred. Errors and Omissions Liability - Damages, other than bodily injury or property damage, caused by protection for the misfeasance, malfeasance or nonfeasance of public officials, employees and volunteers. May also include incidental medical personnel (paramedics), police and fire personnel, architects and plan checkers, engineers, and on-staff attorneys. Ex Gratia Payment - A payment made for which the company is not liable under the terms of its policy. Usually made in lieu of incurring greater legal expenses in defending a claim. Excess Insurance - Insurance that is purchased to provide higher limits than the primary policy provides. Excess Loss - The portion of a loss that is allocated to, or paid by, excess insurance. Excess of Loss Reinsurance - A generic term describing reinsurance which, subject to a specified limit, indemnifies the ceding company against all or a portion of the amount in excess of a specified retention. The term includes various types of reinsurance, such as catastrophe reinsurance, per-risk reinsurance, per-occurrence Page 47 reinsurance, and aggregate excess of loss reinsurance. It should never be confused with “surplus share,” which always refers to a pro rata form of reinsurance. Also known as NON-PROPORTIONAL REINSURANCE. Expense Ratio - The percentage of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance. Experience - The loss record of an insured or of a class of coverage. Classified statistics of events connected with insurance, of outgo, or of income, actual or estimated. What figures show to have happened in the past. Extra Contractual Obligations (ECO) - When used in reinsurance agreements, refers to damages awarded by a court against an insurer which go beyond the coverages of the insurance policy, typically due to the insurer’s bad faith, fraud, or gross negligence in the handling of a claim. Facultative Reinsurance - The reinsurance of part or all of (the insurance provided by) a single policy, with separate negotiation for each cession. The word “facultative” connotes that both the primary insurer and the reinsurer have the faculty or option of accepting or rejecting the individual submission (as distinguished from the obligation to cede and accept, to which the parties agree in treaty reinsurance). Facultative Treaty - A reinsurance contract that describes how individual facultative reinsurances shall be handled. FASB - Financial Accounting Standards Board. FCAS – Fellow of the Casualty Actuarial Society (Casualty Actuarial Society). Fidelity Bonds - Written as financial guarantees of employees’ honesty. Personnel with money-handling responsibilities are considered exposures to loss. Fiduciary Liability - Covers board members, executives and other decision-making personnel with responsibilities for pension funds, retirement plans and employee benefit monies for negligent decisions that result in losses to such funds. Financial Reinsurance - A form of reinsurance which considers the time value of money and has loss containment provisions, and is transacted primarily to achieve financial goals, such as capital management, tax planning, or the financing of acquisitions. Flat Rate - A percentage rate applied to a ceding company’s premium writings for the classes of business reinsured to determine the reinsurance premiums to be paid the reinsurer. Following the Fortunes - The clause stipulating that once a risk has been ceded by the reinsured, the reinsurer is bound by the same fate thereon as experienced by the ceding company. Foreign Reinsurer - A U.S. reinsurer conducting business in a state other than its domiciliary state, where it is known as a domestic company (as opposed to a alien reinsurer: one domiciled outside the U.S. but conducting business within the U.S.). Fronting - Most commonly refers to the practice of a non-admitted insurer (or an insured with a captive insurance company) contracting with a licensed insurer to issue an insurance policy for regulatory or certification purposes. This fronting insurer assumes little or no loss exposure; instead, financial arrangements are made to guarantee claims administration and payments. The fronting insurer is usually paid a percent of the premium. Full Value - A term used to provide “guaranteed” replacement cost coverage, which will pay the full cost to replace damaged property regardless of the “limit” carried. Applies to buildings and personal property. Fund Year – The year from September 1 until August 31 of the next year that is the fiscal year for TAPS. GAAP - Generally Accepted Accounting Principles. Page 48 GASB - Governmental Accounting Standards Board. General Liability - Written to protect the member's assets against liability for property damage of or bodily injury to third parties. IBNR - Incurred But Not Reported. That part of the total ultimate claim that is unknown at any point in time. Incurred Loss - This is the ultimate expected total value of any claim. It includes the amount already paid, plus the estimated amount yet to be paid (reserves). Incurred Loss Ratio - The percentage of losses incurred to premiums earned. Inflation Factor - A loading to provide for increased medical costs and loss payments in the future due to inflation. Intergovernmental Risk and/or Benefits Pool - (A) “…a cooperative group of governmental entities joining together to finance an exposure, liability or risk” (GFOA); (B) “An organization of public entities joined together to provide alternative risk financing/transfer mechanisms to themselves and other public entities through which particular types of risk are underwritten with contributions (premiums), losses and expenses shared in agreed rations. Intergovernmental Risk Pool includes, but is not limited to pools, authorities, joint power authorities, associations, agencies and trusts” (AGRiP Bylaws). (C). “A pool is a separate and distinct legal entity composed of public entity members that have joined together to finance an exposure, liability or risk” (AGRiP Public Entity Risk and Benefits Pool Taxonomy). Intermediary - A reinsurance broker who negotiates contracts of reinsurance on behalf of the reinsured, receiving a commission for placement and other services rendered. Intermediary Clause - A provision in reinsurance agreements, which identifies the intermediary negotiating the agreement. Most intermediary clauses shift all credit risk to reinsurers by providing that: the cedent’s payments to the intermediary are deemed payments to the reinsurer; and the reinsurer’s payments to the intermediary are not payments to the cedent until actually received by the cedent. Inverse Condemnation - The United States Constitution and state Constitutions require that a private citizen be compensated if property is "taken" by a public entity. When the property is taken proactively it is called eminent domain. When the property is taken "accidentally," without due course, it is called inverse condemnation. Negligence need not be proven. The claimant’s legal expenses are payable in addition to actual damages. Law of Large Numbers - A mathematical concept which postulates that the more times an event is repeated (in insurance, the larger the number of homogeneous exposure units), the more predictable the outcome becomes. In a classic example, the more times one flips a coin, the more likely that the results will be 50% heads, 50% tails. Layer - A horizontal segment of the liability insured. Lead Reinsurer - The reinsurer who negotiates the terms, conditions, and premium rates and first signs on to the slip; reinsurers who subsequently sign on to the slip under those terms and conditions are considered following reinsurers. Letter of Credit - A financial guaranty issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party. Limit - The most that will be paid in a loss. Long-Tail Liability - A term used to describe certain types of third-party liability exposures (e.g., malpractice, products, errors and omissions) where the incidence of loss and the determination of damages are frequently subject to delays that extend beyond the term the insurance or reinsurance was in force. An example would be contamination of a food product that occurs when the material is packed but which is not discovered until the product is consumed months or years later. Page 49 Loss Adjustment Expense - All expenditures of an insurer associated with its adjustment, recording, and settlement of claims, other than the claim payment itself. Loss Development - The process of change in amount of losses as a policy or accident year matures, as measured by the difference between paid losses and estimated outstanding losses at one point in time, and paid losses and estimated outstanding losses at some previous point in time. In common usage it might refer to development on reported cases only, whereas a broader definition also would take into account the IBNR claims. Loss Event - The total losses to the ceding company or to a reinsurer resulting from a single cause. Loss Portfolio Transfer - The transfer of incurred losses to a third party. The assuming party hopes to profit by investing the sale price it has received over the length of time it requires to settle the claims it has assumed. Loss Ratio - Proportionate relationship of incurred losses to earned premiums expressed as a percentage. MAAA – Member of the American Academy of Actuaries (American Academy of Actuaries). Malfeasance – An act that is positively unlawful. Managing General Agent – A licensed individual, partnership or corporation holding specific contractual authority to perform supervisory underwriting and/or managerial functions on behalf of insurers in a designated geographical area and whose principal source of premium volume derives from retail sub-producers not owned by the managing general agent. Misfeasance – Doing a lawful act in an unlawful or improper manner. NFIP – National Flood Insurance Program administered by the Federal Emergency Management Agency in the Department of Homeland Security. Non-Admitted Insurers - Insurance companies not licensed in a state may engage in business in the state if an admitted, properly filed company issues the policy and reinsures losses to the non-admitted reinsurer. Non-Admitted Reinsurance - Reinsurance is non-admitted when placed in a non-admitted company and therefore may not be treated as an asset against reinsured losses or unearned premium reserves for insurance company accounting and statement purposes. Nonfeasance – Failure to do what duty requires to be done. Occurrence - (A) An accident, event, act or omission to act which results in "damages," "bodily injury," or "property damage" neither expected nor intended from the covered parties’ conduct. (B) A provision of an insurance policy that requires it to pay for a claim caused during the policy period regardless of when it is presented. With regard to limits on occurrences, property catastrophe reinsurance agreements frequently define adverse events having a common cause and sometimes within a specified time frame. (See also “Claims Made Basis”). Offset Clause - A condition in reinsurance agreements that allows each party to net amounts due against those payable before making payment. Operating Ratio - The arithmetic sum of two ratios: incurred loss to earned premium, and incurred expense to written premium. Considered the best simple index to current underwriting performance of an insurer. Participating or Pro Rata Reinsurance - Includes Quota Share, First Surplus, Second Surplus, and all other sharing forms of reinsurance where under the reinsurer participates pro rata in all losses and in all premiums. Passive Negligence - The party that was negligent did not take part in the action that caused the damage, but was responsible for somehow allowing it to take place. For example, a district allowed a contractor to dig a hole on district property and someone fell in. Page 50 PE - Registered Professional Engineer (National Society of Professional Engineers). Per Risk Excess Reinsurance - Retention and amount of reinsurance apply “per risk” rather than on a per accident or event or aggregate basis. Peril - The causes of possible loss in the property field - for example: Fire, Windstorm, Collision, Hail, etc. Plaintiff - The party who complains or sues in a personal action. A claimant becomes a plaintiff by filing suit. Pool - A joint underwriting operation of insurance or reinsurance in which the participants assume a fixed interest in all business written. Portfolio Reinsurance - In transactions of reinsurance, it refers to all the risks of the reinsurance transaction. Portfolio Run-Off - Permitting premiums and losses in respect of in-force business to run to their normal expiration upon termination of a reinsurance treaty. Premium (Written/Unearned/Earned) - Written premium is premium registered to an insurer or reinsurer at the time a policy is issued. Premium for a future exposure period is said to be unearned premium for an individual policy. Written Premium minus unearned premium equals earned premium. Premium, Deposit - When the terms of a policy provide that the final earned premium be determined at some time after the policy itself has been written, companies may require tentative or deposit premiums at the beginning which are readjusted when the actual earned charge has been later determined. Premium, Pure - The portion of the premium calculated to enable the insurer to pay losses and, allocated claim expenses or the premium arrived at by dividing losses by exposure and in which no loading has been added for commission, taxes, and expenses. PRIMA - Public Risk Management Association. A national association for risk managers in the public sector. Formed for educational and information gathering purposes. Pro Rata Reinsurance - A generic term describing all forms of reinsurance in which the reinsurer shares a proportional part of the original losses and premiums of the ceding company. Also known as Participating Reinsurance or Proportional Reinsurance. Professional Reinsurer - Reinsurers that offer reinsurance to other than affiliate companies. The majority of professional reinsurers provide complete reinsurance and service at one source directly to the ceding company. Profit Commission - A provision found in some reinsurance agreements that provides for profit sharing. Parties agree to a formula for calculating profit, an allowance for the reinsurer’s expenses, and the cedent’s share of such profit after expenses. Property Insurance - This covers damage to property, sometimes called first-party coverage. Punitive Damages - Damages awarded separately and in addition to compensatory damages, usually on account of malicious or wanton misconduct, to punish the wrongdoer and possibly others. Sometimes referred to as “exemplary damages” when intended to “make an example” of the wrongdoer. Pure Captive Insurance Company - Any company that insures risks of its parent and affiliated companies. Pure Premium - That portion of the premium which covers losses and related expenses, i.e. includes no loading for commissions, taxes, or other expenses. Quota Share Reinsurance - A form of pro rata reinsurance (proportional) in which the reinsurance assumes an agreed upon percentage of each insurance being insured and shares all premiums and losses accordingly with the reinsured. Quota share reinsurance is usually arranged to apply to the insurer’s net retained account (i.e., after deducting all other reinsurance except perhaps excess of loss catastrophe reinsurance), but practice varies. A Page 51 quota share reinsurer may be asked to assume a quota share of a gross account, paying its share of premium for other reinsurance protecting that gross account. Reciprocal or Reciprocal Risk Retention Group - An unincorporated association; reciprocal insurance is that which results from an interchange among subscribers of reciprocal agreements of indemnity, the interchange being effectuated through an attorney-in-fact common to all subscribers. Reinstatement - The restoration of the insurance limit of an excess treaty to its full amount after payment by the reinsurer of loss as a result of an occurrence. Reinstatement Clause - When the amount of reinsurance coverage provided under a treaty is reduced by the payment of a reinsurance loss as the result of one catastrophe, the reinsurance cover is automatically reinstated usually by the payment of a reinstatement premium. Reinstatement Premium - An additional premium paid to replenish the limit consumed in the event of a loss. Reinsurance - The transfer of some or all of an insurance risk to another insurer. The company transferring the risk is the ceding company, and the company receiving the risk is the reinsurer. Reinsurer - An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction. Rent-a-Captive - Rent-a-Captives offer the benefits of a captive insurance company without the capitalization requirements, administrative costs and legal ramifications associated with establishing and operating an insurance subsidiary, and can return underwriting profits and investment income to a participant. Replacement Cost - The cost to replace damaged property with like kind and quality, with no deduction for depreciation, but still subject to a “limit”. Reserve Recoverable Reinsurance (RRR) - An asset account on TAPS’ books that reflects the amount reserved on a claim that, if paid, would be recoverable from the reinsurer Reserved and Unbilled Deductible Recoverable - An asset account on TAPS’ books that reflects the amount reserved on a claim that, if paid, would be recoverable from a member as a deductible. Retention - The net amount of risk which the ceding company or the reinsurer keeps for its own account. Retrocedent - The ceding reinsurer in a retrocession, where the assuming reinsurer is known as the retrocessionnaire. Retrocession - A reinsurance of reinsurance. The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed. Retrocessionnaire - The assuming reinsurer in a retrocession, where the ceding reinsurer is known as the retrocedent. Retrospective Rating Plan - A method of establishing a premium on large commercial accounts. One in which the final premium is based on the insured's actual loss experience during the policy term, subject to a minimum and maximum premium, with the final premium determined by a formula. RIMS - Risk and Insurance Management Society. National professional organization to promote principles of risk management and assist risk managers in their daily activities. Risk - The net negative impact of the exercise of a vulnerability, considering both the probability and the severity of occurrence. Risk Control - Those risk management techniques designed to minimize the frequency and/or severity of claims. Page 52 Risk control techniques include exposure avoidance, loss prevention, loss reduction, segregation of loss exposures, and contractual transfer to shift losses to others. Risk Financing - Techniques for generating funds to pay for losses that risk control methods do not entirely eliminate. There are two types of risk financing techniques -- retention and transfer. Retention involves paying for losses using an organization’s own assets; transfer involves covering losses using an outside intermediary for a consideration (such as a payment of a premium). Risk Management - One of the specialties within the general field of management, the process of managing an organization’s activities to minimize the adverse effects of accidental losses on a cost-effective basis. Risk management has two components: risk control and risk financing. Risk Retention Group - A group self-insured program or group captive insurance company formed under provisions of the Liability Risk Retention Act of 1986, by or on behalf of businesses joined to insure their liability exposures. Such a group is exempt from most state laws, rules or regulations, except for the state in which it is domiciled. Risks - A term used to denote the physical units of property at risk or the object of insurance protection and not Perils or Hazard. The word is also defined as chance of loss or uncertainty of loss. RMIS - A Risk Management Information System is a systematic process for collecting, storing and analyzing data so that it can be converted into actionable information, such as key performance indicators. Salvage and Subrogation - Those rights of the insured that, under the terms of the policy, automatically transfer to the insurer upon settlement of a loss. Salvage applies to any proceeds from the repaired, recovered, or scrapped property. Subrogation refers to the proceeds of negotiations or legal actions against negligent third parties and may apply to either property or casualty coverages. Self-Insurance - The planned assumption of risk. Self-Insured Retention (SIR) – An amount per occurrence, or in the aggregate, below where excess insurance attaches, for which the insured retains the responsibility for claim handling and payment. Sliding Scale Commission - A ceding commission, which varies inversely with the loss ratio under the reinsurance agreement. Slip - A binder often including more than one reinsurer, particularly at Lloyds of London. Special Acceptance - The facultative extension of a reinsurance treaty to embrace a risk not automatically included within its terms. Special Events Policy - Designed to cover sponsorship of events, such as fireworks shows, festivals, community/entity celebrations; often written to protect other policies’ loss integrity. Another type of special event coverage, known as a “tenants’ and users’” policy, can be issued for third parties who rent or use facilities. (See also “TULIP”). Specialty Lines Market – Both admitted (or licensed) insurers and surplus lines insurers who underwrite specialized or hard to place insurance. “Surplus lines” is short for excess and surplus lines and is also referred to as non-admitted. Sponsored Captive - A captive insurance company in which the minimum capital and surplus required by applicable law is provided by one or more sponsors, insures the risks of separate participants through the contract, and segregates each participant’s liability through one or more protected cells. Spread Loss - A form of reinsurance under which premiums are paid during good years to build up a fund from which losses are recovered in bad years. Statutory Accounting Principles (SAP) - Those principles required by state law that must be followed by Page 53 insurance companies in submitting their financial statements to state insurance departments. Such principles differ from generally accepted accounting principles (GAAP) in some important respects, e.g., SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue. Stop Loss - A form of reinsurance under which the reinsurer pays some or all of a cedent’s aggregate retained losses in excess of a predetermined dollar amount or in excess of a percentage of premium. Subject Premium - A cedent’s premiums to which the reinsurance premium rate is applied to calculate the reinsurance premium. Surplus - The excess of assets over liabilities. Surplus is an indicator of an insurer’s or reinsurer’s ability to write new business. In pools this is referred to as member equity Surplus Lines – See “Specialty Lines Market”. Surplus lines insurers have freedom from rate and form filing, but are generally subject to other state insurance department rules. Generally accept business only after it is declined in the standard market. Coverage placed with surplus lines insurers is generally not protected by state guarantee funds. Surplus Share - A form of proportional reinsurance where the reinsurer assumes pro rata responsibility for only that portion of any risk, which exceeds the company’s traditional retentions. Syndicate - An association of individuals or organizations to pursue certain insurance objectives. For example, individual underwriters in Lloyd’s of London associate in separate syndicates to write marine insurance, reinsurance life insurance, etc., entrusting the administrative details of each syndicate to a syndicate manager. Tax Reform Act of 1984 - One section of this act redefined income related to the insurance of US-based risks as US-source income instead of foreign-source income. Another section made income from the insurance of related risks in foreign countries taxable in the current year. The net effect of these two changes was to eliminate most tax advantages for an offshore single parent captive. Tax Reform Act of 1988 - The major change imposed by this act affected offshore group captives in that the definition of a U.S. shareholder was changed from an ownership interest of 10 percent or more to any shareholding interest. TIV - Total Insured Values. The values shown on an insured’s schedule or appraisal for property coverage. Only those items shown on the schedule are covered for loss. Treaty Reinsurance - A standing agreement between reinsured and reinsurer for the cession and assumption of certain risks as defined in the treaty. While most treaty reinsurance provides for automatic cession and assumption, it may be optional or semi-obligatory and is not necessarily obligatory. The treaty contains provisions defining the terms of the agreement including specific risk definition, data on limits and retention, and provisions for premium payment and duration. Trending - The necessary adjustment of historical statistics (both premium and losses) to present levels or expected future levels in order to reflect measurable changes in insurance experience over time, which are caused by dynamic economic and demographic forces, and to make the data useful for determining current and future expected cost levels. TRIA/TRIP – Terrorism Risk Insurance Act of 2002, and the Terrorism Risk Insurance Program set up in the U.S. Department of Treasury to implement the Act. Ultimate Net Loss - The total sum that the assured, or any company as his insurer, or both, become obligated to pay either through adjudication or compromise. Unearned Premium - That portion of the original premium that applies to the unexpired portion of risk. Page 54 UST - Underground Storage Tanks. Refers primarily to underground fuel tanks; used most often in reference to Underground Storage Tank Pollution Liability Program. It also includes coverage for government mandated cleanup costs. Wholesale Broker – A licensed broker providing specialized insurance products to retail insurance agents and brokers. A wholesale broker will utilize insurers who can consider accounts that the retail agent cannot place with their standard markets. These insurers underwrite specialized or hard to place insurance. Workers’ Compensation - A statutory coverage designed as the “sole remedy” for workers injured in the course and scope of their duties. Working Layer - The first layer above the cedent’s retention wherein moderate to heavy loss activity is expected by the cedent and reinsurer. Page 55
