Title
Introduction of Ordinance Amending the Alameda Municipal Code by Revising Section 2-59.3 (Limitation and Power to Make Contracts) of Article IV (Contracts) of Chapter II (Administration), Authorizing the City Manager and the City Attorney to Settle Liability Claims up to $75,000 Unless Otherwise Limited by Law and to Settle Liability Claims Involving Payments by Excess Liability Coverage. (City Attorney 2310)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
This report provides an overview of the City of Alameda’s (City) workers’ compensation program, which provides benefits to employees for work-related injuries and illnesses. The information herein includes the purpose, explanation of benefits, mechanics of administration, and claims history for the City’s program. The report also explains the benefits of revising the Alameda Municipal Code (AMC) to authorize staff to settle claims, including workers’ compensation claims, up to $75,000 unless otherwise limited by law, to be consistent with staff’s existing contract authority.
BACKGROUND
Workers’ compensation is mandated by the State of California under California Labor Code § 3600. Under California Labor Code § 3700, the City is required to secure compensation by either obtaining insurance from an authored insurer or self-insuring.
DISCUSSION
Purpose of Workers’ Compensation
Workers’ compensation laws provide for the medical care and compensation of injured workers on a no-fault basis, i.e., benefits will be provided regardless of how safe the employer makes the workplace. Cal. Lab. Code § 3600. Workers’ compensation is generally the exclusive remedy for workplace injuries or illnesses, and employees cannot seek damages through a separate tort suit. Cal. Lab. Code § 3602(a).
All City employees, elected officials, and specified volunteers (by City Resolution) are eligible to file a workers’ compensation claim. Claims are overseen by the Workers’ Compensation Appeals Board and workers’ compensation administrative law judges.
Benefits
Workers’ compensation benefits may include: medical expenses for injuries or occupational illness, income protection for employees whose absence is due to injury or occupational illness, compensation for serious permanent injury, supplemental job displacement benefits, and death benefits. Cal. Lab. Code §§ 4600, 4650, 4658.5, 4660, 4850. Treatment is subject to review by the employer, and benefits are paid in accordance with statutory guidelines.
The law also forbids retaliation against employees who file workers’ compensation claims. Cal. Lab. Code § 132a.
Third-Party Administrator
The City contracts with a third party administrator (TPA), Sedgwick, to assist in adjusting workers’ compensation claims. The City’s previous TPA, York Risk Services, was acquired by Sedgwick in September 2019 but the transition did not result in any personnel change to the team that handles the City’s account. Sedgwick’s account team for the City includes a claims examiners, claims assistant, claims supervisor, and a designated senior account manager.
As the City’s TPA, Sedgwick provides valuable service by administering multiple facets of the City’s workers’ compensation program, including claims adjusting, bill and utilization review, oversight of nurse case management needs, subrogation recovery, and mandatory Medicare/Medicaid reporting. These services help ensure that the City is properly providing the required benefits and avoiding unnecessary payments.
The Role of the City Attorney’s Office
The City Attorney’s Office (CAO) provides oversight of the workers’ compensation claims process, coordinates review with affected City Departments and in consultation with the Human Resources Department, directs legal strategies for cost effective resolutions and approves settlements as appropriate. This function is largely being handled by a Deputy City Attorney with support from a litigation paralegal.
Claims Process
In the event of a workplace injury or illness, the City instructs all supervisors to provide the employee with a workers’ compensation claims form, also known as the DWC1, within 24 hours of knowledge of the injury or illness. Supervisors are also instructed to fill out an employer’s report of occupational injury or illness, also known as the 5020 form, within five days of knowledge of the injury or illness. These instructions are given to comply with regulations by the California Division of Occupational Safety and Health. Employees who need immediate medical attention are directed to the nearest Emergency Room, and employees with non-emergency injuries and without a predesignated physician are directed to seek treatment at the City’s designated medical provider, Kaiser Permanente On-the-Job in Oakland.
If an injured or ill employee chooses to file a workers’ compensation claim, the claim can be either accepted or denied. Generally, claims are denied where they do not arise out of or in the course of employment.
For accepted claims, medical care and temporary disability benefits are provided while the employee is out on disability and seeking treatment. Updates on an employee’s work restrictions are sent from the treating medical provider to Sedgwick for further evaluation of benefits. In accordance with the California labor laws, the City engages with the employee in a good faith interactive process to determine whether reasonable accommodation can be made for a return to work, including modified work.
Where appropriate, other parties may be joined for cumulative or successive injuries. Cal. Code Regs. Tit. 8, § 10380.
Accepted claims can be resolved in several ways once an employee reaches maximum medical improvement, including: a healthy return to work and stoppage of benefit payments; supplemental job displacement benefits where no return to work is offered, a stipulated award (stips) for periodic payments of permanent disability benefits, and a compromise and release (C&R) lump sum payment.
Stips are determined by a statutory formula and based on a disability rating from medical examiners. The parties are bound by an examiner’s rating and the City is legally obligated to pay Stips. Stips allow the injured or ill employee to reopen his/her workers’ compensation claim with documentation of a New and Further Disability related to the original injury or illness, obtain another Stip, or request a C&R at a later date.
In C&Rs, which are negotiated by the employer’s and employee’s attorneys, employees give up the ability to reopen the workers’ compensation claim, future medical care and any additional permanent disability or temporary disability benefits in exchange for a lump-sum payment. C&Rs have the potential advantage of cutting of liability early and producing cost savings to the City in the long run. Historically, the City has not aggressively pursued C&Rs. Given the potential for long term cost savings to the City, the CAO intends to more seriously focus on this aspect going forward.
Staff Approval Authority Codification
City Council has not formally codified a threshold for staff’s authority to settle liability claims. To efficiently and cost-effectively administer liability claims, including workers’ compensation claims, staff is requesting that the City Council establish and codify that threshold for the City Manager and the City Attorney at $75,000 unless otherwise limited by law. Staff chose this threshold because it is consistent with existing City Manager and City Attorney contracting thresholds. The threshold requested is comparable to limits of other Bay Area cities, as shown below:
|
City |
General Liability |
Worker’s Comp |
|
Livermore |
$100,000 |
No limit |
|
Santa Clara |
$50,000 |
$250,000 |
|
Pleasanton |
$50,000 |
$100,000 |
|
Stockton |
$75,000 |
$75,000 |
|
Santa Rosa |
$50,000 |
$50,000 on top of Permanent Disability rating payment |
|
Sunnyvale |
$50,000 |
$50,000 |
|
A city from Solano County that requested anonymity |
$50,000 |
$50,000 |
Workers’ Compensation Insurance
The City applied for and received a Certificate of Consent of Self-Insurance from the State Department of Industrial Relations, which allows the City to self-insure our program. The City is self-insured with a $500,000 self-insured retention (SIR), and excess coverage is through an accredited excess risk-sharing pool known as the Local Agency Workers’ Compensation Excess Joint Powers Authority (LAWCX). LAWCX provides additional coverage of up to $4.5 million after the City’s SIR. The City’s current annual premium under LAWCX is $519,959.
To further efficiently administer claims, staff is also requesting that the City Council codify that staff has authority to settle liability claims where an entity providing excess coverage for the City authorizes settlement of a claim for an amount above the City’s SIR. When costs to resolve claims exceed the City’s SIR, the burden of making the additional payments and resolving the claim in a financially responsible manner lies with the entity providing excess coverage for the liability. Allowing staff to proceed with settlements where the excess entity has also given settlement authorization would allow for efficient resolution of such claims. Additionally, the City’s refusal to comply with settlement requests from excess carriers could result in loss of coverage. Thus, practically and in typical cases, the City has little discretion to refuse in such cases.
Recent Claims History
The following chart shows the City’s workers’ compensation history for each of the past five Fiscal Years (2014-2019), including the number of new claims, the amount incurred (actual payments plus reserves estimated for future payments) for those claims, total amount paid for those claims, total open claims (inclusive of open claims from previous years), and total outstanding amount (reserves estimated for all open claims). The costs and number of claims can vary widely from year-to-year due to the timing and severity of injuries.
|
|
# New Claims |
Amount Incurred |
Total Amount Paid |
# Total Open Claims |
Total Amount Outstanding |
|
FY 14-15 |
104 |
$1,362,961 |
$756,672 |
177 |
$7,557,288 |
|
FY 15-16 |
100 |
$1,233,687 |
$388,329 |
174 |
$7,385,524 |
|
FY 16-17 |
94 |
$1,062,816 |
$521,353 |
155 |
$7,175,953 |
|
FY 17-18 |
89 |
$1,090,743 |
$308,618 |
153 |
$8,790,197 |
|
FY 18-19 |
103 |
$3,279,454 |
$992,698 |
179 |
$11,097,890 |
|
FY 19-20 YTD |
44 |
$533,611 |
$148,654 |
181 |
$11,271,217 |
The amount incurred for claims in Fiscal Year (FY) 2018-19 is notably higher than in prior years. Review of claims from FY 2018-19 show that the high-expense injuries do not seem to be a result of any common practice or event at the City. Rather, the high-expense injuries seem to be anomalous and a small number of unrelated claims are a large portion of the costs. In fact, four claims-all involving different injuries and incidents-make up $1.39 million of the amount incurred, and the ten most expensive claims-again all unrelated-make up $2.28 million of the amount incurred. Staff does not foresee the cost of claims from FY 2018-19 to repeat as a pattern.
ALTERNATIVES
City Council can take no action regarding revision of the AMC.
Council can also establish staff’s settlement authority at a different threshold.
FINANCIAL IMPACT
There is no financial impact from establishing the dollar threshold for staff’s ability to approve settlements. Adopting the proposed ordinance will have no financial impact on current workers’ compensation practices or budget.
MUNICIPAL CODE/POLICY DOUCMENT CROSS REFERENCE
This action is consistent with the AMC process for amending ordinances.
ENVIRONMENTAL REVIEW
This action is not a project for the purposes of the California Environmental Quality Act (CEQA) pursuant to CEQA guidelines section 15061(b)(3) as there is no possibility that this action may have a significant effect on the environment.
RECOMMENDATION
Introduce an ordinance amending the Alameda Municipal Code to authorize staff to settle liability claims up to $75,000 unless otherwise limited by law and settle liability claims involving payments by excess liability coverage.
Respectfully submitted,
Eric Levitt, City Manager
Yibin Shen, City Attorney
By,
Montague Hung, Deputy City Attorney
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibit:
1. DRAFT Ordinance