A $20.8 million fund set up by the City of Durham to pay for insurance claims has run dry six years ahead of schedule, and another $10.8 set aside for risk operations will not last until its projected 2003 date.
The larger fund was created in 1993 to be the equivalent of an insurance policy and was designed to cover workers' compensation and general liability claims incurred by the city through 2007, said Finance Director Nav Gill. At that time, another $10.3 million was budgeted for a risk operations fund.
"The [insurance] fund was a way to set up a mechanism that the designers believed would allow us to self-insure at a lower cost [than an insurance company would charge]," said Mayor Nick Tennyson.
Gill said the $20.8 million fund is empty already, and the $10.3 million is projected to be gone by June 30, something that has some city officials concerned. "My opinion is that it is a problem," said Durham City Council member Lewis Cheek. "It's a serious issue."
The fund's exhaustion will not prevent the city from paying claims for the next six years, but the money for those claims will have to come from sources that the city has not yet budgeted for.
City officials pointed to a few reasons the fund ran dry. "The worst of it would seem to be a temporary increase in the number of workers' compensation claims, chiefly from the Police Department," Tennyson said, also citing an increase in the number of catastrophic accidents that the city has been liable for.
In addition, Durham has paid out claims more easily than other cities of similar size.
"We've got to change the way we're doing things," Cheek said. "I don't think that we're doing it in a cost-effective way.... It may be that some of Durham's policies have been more liberal than the policies of some municipalities."
For instance, the city has been reluctant to assert governmental immunity-the government's ability not to be held liable for claims incurred during government business-if it has been negligent, even if it would be legally justified in claiming immunity. "In the past, the city has not invoked [governmental immunity] as aggressively as some of the other cities have," Gill said. "Whenever a case comes in, it is looked at on the merits. If the city deems that it was wrong, it will go ahead and pay... where some other cities might say, 'Tough luck, we have immunity.'"
Tennyson said city employees had acted reasonably in paying out the claims. "My experience with the people who have been doing this work is that they have been responsible in their decision making," he said.
City officials would not say whether the act of putting money aside made it more likely that it would actually spend it. "That is the ultimate chicken-and-egg question," Gill said. "I really can't answer that."
The insurance subcommittee of the city council is looking into ways to change the city's system of paying claims to avoid similar expenditures in the future.
"I think there are more payment policies that we need to be a little stricter in," said Cheek, who serves on the subcommittee. "At least we need to take a closer look at it... not to just let things rock along because that's the way they've been done in the past."
In addition to reconsidering its policies, the city is trying to prevent future claims by paying more attention to reducing the chance of on-the-job injuries or other sources of insurance claims.
"The mission is to avoid a reason for somebody to have a legitimate claim," Tennyson said.
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