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Published by the Public Risk Management Association

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JANUARY 2015

Student Bullying and Peer Harassment:

How to Manage the Risk to Your Public Entity When Different Standards are Being Applied PUBLIC-PRIVATE PARTNERSHIPS ARE HERE TO STAY Risk Managers are Critical to the Overall Success of the P3 Contract

THIRD-PARTY ADMINISTRATORS: What Public Entities Need to Know

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Volume 31, No. 1 | January 2015 | www.primacentral.org

The Public Risk Management Association promotes effective risk management in the public interest as an essential component of public administration. PRESIDENT Regan Rychetsky, ABCP Director, HHS Enterprise Risk Management and Safety Texas Health and Human Services Commission Austin, TX

CONTENTS

PAST PRESIDENT Betty Coulter Director of Risk Management and Insurance University of North Carolina at Charlotte Charlotte, NC PRESIDENT-ELECT Dean Coughenour, ARM Risk Manager City of Flagstaff Flagstaff, AZ

6 STUDENT BULLYING AND PEER HARASSMENT:

Amy Larson, Esq. Risk and Litigation Manager City of Bloomington Bloomington, MN

By Julie E. Lewis, Esq.

10 PUBLIC-PRIVATE PARTNERSHIPS ARE HERE TO STAY

Risk Managers are Critical to the Overall Success of the P3 Contract

By Jeffrey Welsh, CPCU, AU

What Public Entities Need to Know

By Aaron Stone

Scott Moss, MPA, CPCU, ARM-E, ALCM P/C Trust Director CIS Salem, OR Tracy Seiler, ARM-P Director of Risk Management Services Texas Association of Counties Austin, TX NON-VOTING DIRECTOR Marshall Davies, PhD Executive Director Public Rick Management Association Alexandria, VA

16 THIRD-PARTY ADMINISTRATORS:

Terri Evans Risk Manager City of Kingsport Kingsport, TN Scott Kramer Risk Manager Montgomery County Commission Montgomery, AL

How to Manage the Risk to Your Public Entity When Different Standards are Being Applied

DIRECTORS Ed Beecher Risk Manager City of Pompano Beach Pompano Beach, FL

EDITOR Jennifer Ackerman, CAE Deputy Executive Director 703.253.1267 • jackerman@primacentral.org

ADVERTISING Donna Stigler 888.814.0022 • donna@ahi-services.com Public Risk is published 10 times per year by the Public Risk Management Association, 700 S. Washington St., #218, Alexandria, VA 22314 tel: 703.528.7701 • fax: 703.739.0200 email: info@primacentral.org • Web site: www.primacentral.org Opinions and ideas expressed are not necessarily representative of the policies of PRIMA. Subscription rate: $140 per year. Back issue copies for members available for $7 each ($13 each for non-PRIMA members). All back issues are subject to availability. Apply to the editor for permission to reprint any part of the magazine.

IN EVERY ISSUE 4 News Briefs | 19 Advertiser Index | 20 Member Spotlight

JANUARY 2015 | PUBLIC RISK

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The Industry’s Premier Risk Management Training Program

Message from PRIMA President Regan Rychetsky, ABCP

WELCOME 2015!

appy New Year! This is another promising year for PRIMA. The 2015 PRIMA Annual Conference will take place June 7–10, at the George R. Brown Convention Center in Houston, Texas, and the schedule of sessions look terrific. PRIMA Institute 2015 will be in Albuquerque, New Mexico the first week of November, and the educational offerings are currently being planned. In order for PRIMA to continue to be the leader in public risk management education, products and services, we have to evolve with the profession and be the trail blazer when it comes to public risk management educational programs. PRIMA has done that with its new training program, Enterprise Risk Management: Applying the ISO 31000 Standard. PRIMA has partnered with the University Risk Management and Insurance Association (URMIA), in a Public Entity Risk Institute (PERI)-funded endeavor, to deliver ISO 31000 training to public entities and institutions of higher learning. The ISO 31000 training is three-part program that is designed to teach public sector entities and higher education institutions how to implement ERM by applying the standard throughout their organizations. The practice of organization- or enterprisewide risk management has been steadily increasing in the public sector for the last 10 years and with the 2009 publication of the ISO/ANSI/ASSE 31000 risk management standard, more government entities and universities will implement programs. This training is designed to teach individuals how to do exactly that. Workshops will bring together industry experts that will provide attendees the building blocks for a successful ERM program. Please take advantage of this tremendous opportunity to learn from the experts.

by the PRIMA president: the education, external affairs, membership and chapter relations committees. The Leadership Development Committee is tasked with determining the number of available director positions and nominate sufficient members to fill the board positions through an interview process. This committee nominates the future leaders of PRIMA. The Finance and Audit Committee reviews and provides guidance for PRIMA’s financial matters and approves the PRIMA budget for submission to the board of directors. The Conference Planning Committee develops the educational programs for PRIMA’s Annual Conference by reviewing session proposals submitted during the call for presentation period. The Education Committee oversees PRIMA’s educational objectives and initiatives. The Chapter Relations Committee links with PRIMA chapter leaders and members to further PRIMA’s mission and implements communication with PRIMA chapters. The External Affairs Committee is responsible for monitoring, reviewing and analyzing current legislative and regulatory decisions and processes impacting public risk management. Each of these committees serves the important purpose of furthering the mission and goals of PRIMA. Volunteering to serve on a committee is a great opportunity to gain more of an understanding of PRIMA and its resources on a national scale while growing your personal portfolio.

In order for PRIMA to continue to be the leader in public risk management education, products and services, we have to evolve with the profession and be the trail blazer when it comes to public risk management educational programs.

Remember to thank our veterans and members of our armed forces. I wish all of you a healthy and prosperous 2015. Regards,

COMMITTEES Shifting gears a bit, PRIMA has six committees consisting of PRIMA members and non-members, a board liaison and a PRIMA staff liaison. There are only two standing committees specified in the PRIMA Bylaws: the Leadership Development Committee and the Finance and Audit Committee. The other four committees are designated

Regan J. Rychetsky, ABCP 2014–2015 PRIMA President Director, HHS Enterprise Risk Management and Safety Texas Health and Human Services Commission

JANUARY 2015 | PUBLIC RISK

News Briefs

NEWS

BRIEFS DO FIREHOUSES NEED WASHING MACHINES? The grieving mother of deceased firefighter Michael Kennedy, who perished in a Back Bay inferno in 2014, urged city councilors to support a simple method she said would curb cancer in the Boston Fire Department: equip each firehouse with a commercial washing machine. Kathy Crosby-Bell said a washing machine at each of the city’s 34 firehouses would allow firefighters to quickly clean their gear after a blaze and remove dangerous carcinogens stuck to clothing, curbing the risk of getting the disease, reports the Boston Globe. Currently, firefighters bag their gear and send it to headquarters for periodic cleaning, a process Crosby-Bell calls “cumbersome, inadequate, and outdated.” A machine in every firehouse would mean firefighters can clean their gear every week, Crosby-Bell and fire authorities said. “This major health threat deserves urgent action on all our parts,’’ Crosby-Bell said at the hearing.

PUBLIC RISK | JANUARY 2015

WELLNESS PROGRAMS UNDER ATTACK Do it or else. Increasingly, that’s the approach taken by employers who are offering financial incentives for workers to take part in wellness programs that incorporate screenings that measure blood pressure, cholesterol and body mass index, among other things, reports Kaiser Health News. The controversial programs are under fire from the Equal Employment Opportunity Commission, which filed suit against Honeywell International in October charging, among other things, that the company’s wellness program isn’t voluntary. It’s the third lawsuit filed by the EEOC in 2014 that takes aim at wellness programs and it highlights a lack of clarity in the standards these programs must meet in order to comply with both the 2010 health law and the landmark Americans with Disabilities Act. Honeywell, based in Morristown, N.J., recently got a reprieve when a federal district court judge declined to issue a temporary restraining order preventing the company from proceeding with its wellness program incentives next year. But the issue is far from resolved, and the EEOC is continuing its investigations. Meanwhile, business leaders are criticizing the EEOC action, including a recent letter from the Business Roundtable to administration officials expressing “strong disappointment” in the agency’s actions. In the Honeywell wellness program, employees and their spouses are asked to get blood drawn to test their cholesterol, glucose and nicotine use, as well as have their body mass index and blood pressure measured. If an employee refuses, he’s subject to a $500 surcharge on health insurance and could lose up to $1,500 in Honeywell contributions to his health savings account. He and his spouse are also each subject to a $1,000 tobacco surcharge. That means the worker and his spouse could face a combined $4,000 in potential financial penalties. “Under the [Americans with Disabilities Act], medical testing of this nature has to be voluntary,” the EEOC said in a press release announcing its request for an injunction. “The employer cannot require it or penalize employees who decide not to go through with it.” Honeywell sees the situation differently. “Wellness is a win-win,” says Kevin Covert, vice president and deputy general counsel for human resources at Honeywell. In time, the company expects to see lower claims costs while workers avoid health problems. Sixty-one percent of employees who participated in the company’s screening last year reduced at least one health risk, he says. Under the ADA, employers aren’t allowed to discriminate against workers based on health status. They can, however, ask workers for details about their health and conduct medical exams as part of a voluntary wellness program. What constitutes a voluntary wellness program under the law? Employers, patient advocates and policy experts want the EEOC to spell out what “voluntary” means under the ADA and clarify the relationship between the health law and the ADA with respect to wellness program financial incentives.

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POLICE BODY CAMERAS COMING TO PHILADELPHIA The Philadelphia Police Department launched a pilot body-camera program in which more than two dozen officers will wear the cameras while on duty for six months, reports the Philadelphia Inquirer.

"We would plan this out over a couple of fiscal years," he said. But Obama's announcement of a body-camera funding proposal, he said, might help the department pay for the program.

It's a move that Commissioner Charles H. Ramsey has been advocating for months, and one that department officials say will increase transparency and "build community trust."

The president proposed an investment of $75 million over three years to help state and local departments purchase body cameras—matching 50 percent of funds spent locally on cameras and video storage.

Ramsey was appointed by President Obama to cochair the Task Force on 21st Century Policing, which aims to provide recommendations for local departments on building trust within communities, especially those of color.

Ramsey said his appointment to the president's task force was unexpected but "quite an honor." His co-chair is Laurie Robinson, a professor at George Mason University who formerly taught at the University of Pennsylvania and served as an assistant U.S. attorney general.

"We've got to change that," Ramsey said of tense relations with police. "And I think we can—in fact, I know we can."

Speaking at the White House after Ramsey's appointment, Mayor Nutter praised Obama's decision to select "an experienced law enforcement person who understands the challenges in the communities."

Body cameras, Ramsey said, are one step on the road to that goal. Civil rights advocates have long pushed for police to implement body-camera programs, and calls for the technology have intensified in light of policeinvolved shootings like the killing of Michael Brown in Ferguson, Mo. "This is the future of policing, and we want to be at the forefront of that," said department spokesman Lt. John Stanford. Up to 31 officers from the 22nd District—who all volunteered to wear the cameras—will participate in the pilot program and will start recording when responding to a call or stopping someone on the street. The 22d was selected, Ramsey said, because "it's one of our busier districts." Stanford said the officers would inform those they interact with that they were wearing recording devices, but by law, they would be required to turn them off only if they were entering a home and a resident asked them to do so.

Ramsey said his goal for the task force was to develop "actionable steps" that departments could take to reach out to their communities. He said the task force intended to deliver a report to the president by April and would look at police training and education, technology like body cameras, and police policy and crime-fighting tactics. "There's a way to drive crime down," he said, "and at the same time not alienate an entire community." Ramsey said he planned to get "as much input as we possibly can" from community members, clergy, and police officers, as well as young people. "Establishing trust with young people—that is an area where you have a generational gap, even when I was young," he said. "It's really magnified when it comes to talking about police issues."

The officers will test six camera models, Stanford said. David Rudovsky, a prominent Philadelphia civil rights lawyer, said he supported the department's initiative. "Where police cameras have been used in other localities, there has been both a decrease in the number of complaints against police officers and a decrease in the use of force by police officers," he said. "Both of those are very encouraging trends." Stanford said the department aimed to implement the program permanently after its six-month trial run. The department may buy up to 3,500 cameras, Ramsey said, but "it's not as if we're going to be able to purchase huge numbers of cameras overnight."

JANUARY 2015 | PUBLIC RISK

STUDENT BULLYING AND PEER HARASSMENT: How to Manage the Risk to Your Public Entity When Different Standards are Being Applied By Julie E. Lewis, Esq.

itigation filed against educational institutions and officials over the issue of studenton-student/peer bullying is on the rise, despite the fact that the U.S. Supreme Court set a high standard for proving liability against school districts in lawsuits

for monetary damages as a result of peer sexual harassment under Title IX in 19991. Moreover, the U.S. Department of Education Office for Civil Rights (OCR) has ramped up its investigation and enforcement efforts by focusing a great deal of attention on the issue and by applying an expansive reading of the applicable laws to its investigations. In addition to other laws, OCR enforces Section 504 of the Rehabilitation Act of 1973 and Title II of the Americans with Disabilities Act, both of which prohibit disability discrimination.

PUBLIC RISK | JANUARY 2015

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ADDITIONAL INFORMATION TO REVIEW:

OCR would find a disability-based harassment violation under Section 504 and Title II when: (1) a student is bullied based on a disability; (2) the bullying is sufficiently serious to create a hostile environment; (3) school officials know or should know about the bullying; and (4) the school does not respond appropriately.2 OCR acknowledges that the standard they apply for administrative enforcement is “different from the standard in private lawsuits for money damages, which, many courts have held requires proof of a school’s actual knowledge and deliberate indifference.”3 When OCR issued new guidance to public schools regarding the bullying of disabled students in the form of a Dear Colleague Letter on October 21, 2014, it was the third time OCR issued guidance on this topic in the past 4 years. While there is no federal statute that prohibits bullying, litigants and complainants seek protection under federal statutes that protect students from discrimination based on disability4, race/color/national origin5 and sex6. They assert that peer harassment or bullying is a form of discrimination prohibited by these federal statutes. In Davis v. Monroe County Board of Education, the U.S. Supreme Court held that a school district, as a recipient of federal funds, can only be liable for peer harassment based on sex when an “appropriate” school official with authority to remedy the harassment (1) had actual knowledge of severe, pervasive, an objectively offensive harassment based on sex that deprived the victim of access to an educational opportunity or benefit, and (2) was deliberately indifferent to the harassment. In Davis, the mother of a fifth-grade student sued the Monroe County Board of Education alleging that school officials failed to prevent her daughter’s suffering sexual harassment at the hands of another student. Ms. Davis asserted that the school’s deliberate indifference to the student’s persistent sexual advances toward her daughter created an intimidating, hostile, offensive, and

abusive environment that violated Title IX of the Education Amendments of 1972. While the Davis decision involved a harassment claim based on sex, lower federal courts have applied the same standard to harassment claims that were filed by litigants based upon disability and race as well. Conversely, OCR stated in its October 2010 Dear Colleague Letter that it would find that a school district in violation of the various federal civil rights statutes mentioned above where (1) the harassment is severe, pervasive, or persistent, (2) the harassment interfered with or limited the student’s educational benefits and opportunities, and most significantly, (3) a school official knew or reasonably should have known about the harassment.8 OCR says that a “school has notice of harassment if a responsible employee knew, or in the exercise of reasonable care should have known, about the harassment.” A responsible employee would include “any employee who has the authority to take action to redress the harassment, who has the duty to report to appropriate school officials sexual harassment or any other misconduct by students or employees, or an individual who a student could reasonably believe has this authority or responsibility.”9 This is drastically different than the actual knowledge standard applied by courts.

• OCR & the Office of Special Education and Rehabilitative Services (“OSERS”) joint guidance informing schools that disabilitybased harassment may deny a student equal educational opportunities under Section 504 and Title II (See OCR Dear Colleague Letter on Prohibited Disability Harassment, July 25, 2000, available at http:// www2.ed.gov/about/ offices/list/ocr/docs/ disabharassltr.html). • OSERS Dear Colleague Letter on Bullying of Students with Disabilities, which provides additional guidance to schools that the bullying of a student with a disability on any basis can result in a denial of FAPE under IDEA that must be remedied (See OSERS Dear Colleague Letter on Bullying of Students with Disabilities, August 20, 2013, available at http://www2. ed.gov/policy/speced/ guid/idea/memosdcltrs/ bullyingdcl-8-20-13.pdf).

IN ATTEMPTING TO MANAGE THE RISK OF ANY TYPE OF PEER HARASSMENT/BULLYING, WHAT SHOULD A RISK MANAGER DO? ➊ Once a complaint of peer harassment/bullying is made, conduct a prompt, thorough, and impartial inquiry. a. The inquiry should be conducted regardless of whether a student has complained, asked the school to take action, or identified the harassment as a form of discrimination. b. Ensure that the individuals conducting the inquiry/ investigation are well-trained investigators and thoroughly understand your processes and policies.

JANUARY 2015 | PUBLIC RISK

Student Bullying and Peer Harassment

By taking proactive and preventive steps to manage the risk based upon OCR’s standards and guidance, schools ensure that they will not run afoul of the various federal laws under which claimants and litigants bring complaints and lawsuits.

➋ Take immediate and appropriate action to investigate the issue (what occurred). ➌ If bullying or discriminatory harassment occurred, take steps to stop the bullying/harassment, eliminate any hostile environment and its effects, and prevent it from recurring. a. The school should take steps such as separating the accused harasser and the target, providing counseling for the target and/or harasser, or taking disciplinary action against the harasser. b. The school must be careful not to penalize the student who was harassed. c. The school may need to provide training or other interventions not only for the alleged perpetrator(s), but also for the larger school community. ➍ If bullying/harassment occurred based on disability, remedy the effects of the bullying/harassment on the services that the student with a disability receives to ensure the student continues to receive a free appropriate public education (FAPE) (any remedy should not burden the student who has been bullied). ➎ Take steps to stop further harassment and prevent any retaliation against the person who made the complaint (or was the subject of the harassment) or against those who provided information as witnesses. ➏ Issue/revise policies on harassment and ensure wide dissemination of existing policies/procedures. Ensure that the policies include the names and contact information of specific female and male employees to whom students, parents, and employees can report harassment/bullying. ➐ Train employees and the students on the updated policies/procedures. By taking proactive and preventive steps to manage the risk based upon OCR’s standards and guidance, schools ensure that they will not run afoul of the various federal laws under

PUBLIC RISK | JANUARY 2015

which claimants and litigants bring complaints and lawsuits. While developing policies, procedures, and training based on the OCR standards and guidance may take additional time up front, it will pay off in the long run with less claims, less lawsuits, and successful motions to dismiss/motions for summary judgment in federal court without having to pay monetary damages if the school and its officials are implementing the policies, procedures, and training appropriately. Julie E. Lewis, Esq., is a claim executive with Genesis Management and Insurance Services. FOOTNOTES 1 Davis v. Monroe County Bd. of Educ., 526 U.S. 629 (1999). 2 See Office for Civil Rights (“OCR”) Dear Colleague Letter on Responding to Bullying of Students with Disabilities (October 21, 2014), http://www2. ed.gov/about/offices/list/ocr/letters/colleaguebullying-201410.pdf , at page 4. 3 See OCR 2014 Dear Colleague Letter, note 18 (Long v. Murray Cnty. Sch. Dist., 522 Fed. Appx. 576, 577 & n. 1 (11th Cir. 2013) (applying the test enunciated in Davis v. Monroe Cnty. Bd. of Ed., 526 U.S. 629, 643 (1999)). 4 Section 504 of the Rehabilitation Act, 29 U.S.C. § 794 (2014); Title II of the Americans with Disabilities Act, 42 U.S.C. § 12131 et seq (2014). 5 Title VI, 42 U.S.C. § 2000d (2014). 6 Title IX, 20 U.S.C. § 1681 et seq (2014). 7 Title IX of the Education Amendments of 1972 prohibits a student from being “excluded from participation in, be[ing] denied the benefits of, or be[ing] subjected to discrimination under any education program or activity receiving Federal financial assistance,” 20 U.S.C. § 1681(a). 8 See OCR Dear Colleague on Harassment and Bullying (Oct. 26, 2010), available at http://www2.ed.gov/about/ offices/list/ocr/letters/colleague-201010.pdf. 9 U.S. Department of Education, Office for Civil Rights. Revised Sexual Harassment Guidance: Harassment of Students by School Employees, Other Students, or Third Parties; Title IX. Retrieved October 31, 2014, from http:// www2.ed.gov/about/offices/list/ocr/docs/shguide.html. 10 See 2010 OCR Dear Colleague Letter, available at http://www2.ed.gov/about/offices/list/ocr/letters/ colleague-201010.pdf.

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PUBLIC-PRIVATE PARTNERSHIPS

ARE HERE TO STAY

Risk Managers are Critical to the Overall Success of the P3 Contract By Jeffrey Welsh, CPCU, AU

Public-private partnership, or P3, agreements are not a new concept around public entities. Privatization of port operations, road construction and road maintenance, particularly on toll roads, has been occurring for over a century. Over the past 25 years, we have experienced privatization of publically-owned jails, school bus services, county mental health services, responder services and more. And, in todayâ&#x20AC;&#x2122;s environment, we can add information technology and data solutions to the list. What is new about P3 agreements is the breadth and depth of services being privatized by public entities and the complex insurance risks and contract terms surrounding privatization. Public-private partnerships always include a public entity outsourcing or privatizing a service or function to a private company. Creative government and business thinkers are exploring new approaches to providing services and infrastructure to the public, while maintaining or lowering expenses.

PUBLIC RISK | JANUARY 2015

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Public-private partnerships always include a public entity outsourcing or privatizing a service or function to a private company. Creative government and business thinkers are exploring new approaches to Although not always welcomed by an entity’s constituents, privatization has become a critical necessity to manage expenses in a restrictive budget environment. With great frequency, public entity procurement departments are issuing requests for information (RFIs), inviting private companies to provide expertise to build new infrastructure or to transfer, lease or operate existing public infrastructure or services. Usually, these agreements are called “concessionaire” agreements or contracts. The private business has been given the right to manage or operate an asset on behalf of someone else; the private company has been given a “concession.” Over the years, the P3 concept has evolved into two forms or phases: • Finance-design-build, also known as “greenfield,” agreements for new infrastructure, with a standard contract term for the life of the build, usually two-to-six years. • Finance-operate-maintain, also known as “brownfield,” agreements for existing infrastructure with a lengthy contractual term. Standard finance-operate-maintain agreements may have terms such as 30, 60 or 99 years. By comparison, the short-term finance-design-build agreement—even as complex as it is to negotiate and manage risk for a construction contract—should be an easier contract negotiation based upon the period of time involved. The long-term finance-operate-maintain agreement is a more difficult agreement to negotiate and manage the risk given the need to look into the future—often decades ahead of current time.

THE LIMITATION OF CONTRACTUAL LIABILITY Public entities tend to shift as much of the cost for the life-cycle of the P3 contract to the private company, including the future cost and placement of insurance. As a result, public entities can lose critical control over a very significant risk management element: the placement and terms of the risk transfer for a contracted operation for which the public entity is, at the very least, vicariously liable. The public risk manager needs to maintain control of the insurance portfolio, even when coverage is arranged by the private company.

providing services and infrastructure to the public, while maintaining or lowering expenses.

Of course, many public entities rely upon their own insurance coverage to protect their interests for the scope of the negotiated P3 concessionaire contract under their contractual liability coverage section. While many types of contracts are included within the definition of an “Insured Contract” in the ISO Commercial General Liability Coverage Form (CG 0001), the contractual liability section may not be wholly reliable for coverage in P3 contracts—particularly when the contract involves a ministerial duty of the public entity. A P3 concessionaire contract should not be mistaken for simply a vendor contract. The P3 concession requires a legal basis to perform, a vendor contract does not. For example, only government entities have the right by law to hold people against their will as declared in the constitution. It takes a special change in law to provide this concession, which is to allow private companies to hold people in a jail. It is not just a matter of hiring someone to

JANUARY 2015 | PUBLIC RISK

Public-Private Partnerships Are Here to Stay

Public entities are compelled to see to it that the public interest is served fairly and effectively. Therefore, P3 contracts can require public entity participation in the private company’s rate making whether it is for tolls, fares or water and sewer rates. Public entities in P3 contracts often direct public transit routes, school curriculums and minimal school safety requirements such as sprinklers and exits. They also may require standards on jail guidelines, prisoner transport procedures and even hiring practices.

do a job like a vendor; it requires a public entity to give up a constitutionally required duty to a private party. A vendor relationship does no such thing. Some concessionaire contracts may resemble a partnership or joint venture between the public entity and the private business that could make the public entity directly liable for negligence—not just vicariously. Public entities are compelled to see to it that the public interest is served fairly and effectively. Therefore, P3 contracts can require public entity participation in the private company’s rate making whether it is for tolls, fares or water and sewer rates. Public entities in P3 contracts often direct public transit routes, school curriculums and minimal school safety requirements such as sprinklers and exits. They also may require standards on jail guidelines, prisoner transport procedures and even hiring practices. The question of contractual liability responding to these and many other issues

PUBLIC RISK | JANUARY 2015

is dependent on the merits of each claim. There is no certainty of a contractual liability response despite these issues being part and parcel of the P3 contract itself. Depending on the agreement, it could be incorrectly construed that the private business is working in ‘agency’ for the public entity when in reality they are not. Relying upon contractual liability alone for comprehensive protection may be dubious and can be affected by both insurance and non-insurance risk transfers. Public risk managers and legal counsel should collaborate during the contract formation stage to better assess future exposure and to incorporate appropriate risk management vehicles into the contract RFP requirements. How a public entity’s contractual liability section responds to a claim will depend on whether the claim is a function of the negligence of the private business or the public entity’s own negligence. The contractual liability section will not necessarily protect a public entity in a P3 contract where the public entity sets policy over operations within the contract. For example, if a private company is required by the public entity to use a particular new “green” purification chemical that was later found to cause harm, then it is likely that the contractual liability of the public entity’s own insurance coverage would not protect the public entity in the claim as the action was directed by the public entity—even in the case where it is a specified section of the P3 contract. Coverage may, however, be found in other sections of the public entity’s policy depending on the merits of the case.

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P3 AXIOMS: 5 TIPS FOR PUBLIC RISK MANAGERS There is no one-size-fits-all approach to the risk management issues between the public sector and private business operating and maintaining formerly governmental functions. And while P3’s are rapidly expanding, as of yet there are no U.S. P3 specific best practices in either insurance or risk management that can serve the public risk manager as a focal point. However, there are some truisms that can assist the public risk manager to help better protect the public interest in such transactions. 1. The public risk manager should be engaged as early as possible while the P3 proposal is being formulated.

Further, if a private company is operating and maintaining existing public infrastructure, the negligence may have nothing to do with the contract itself. Consider a bus terminal designed and built by the public entity 40 years earlier, which is today operated and maintained by a private business. In a case of a passenger exiting the terminal and being hit by a bus, the merits of the case may focus on the faulty and archaic design of the terminal rather than on the operation of the bus. The liability, in this example, would be directed at the public entity instead of the private company.

INSURANCE ACQUISITION FOR P3’s An insurance policy will usually be retained by the private company for the formerly public operation. This may be acquired through a domestic U.S. policy or a captive program (international or domestic) with ISO-based coverage language and terms being the norm. Unfortunately, ISO-based commercial insurance for private commercial business can be deficient when used for insuring a public sector exposure now run by a private entity. Standard commercial insurance for private business will not likely respond to excluded or unaddressed vicarious liability issues of the public entity—even though in most privatized situations the public entity will be sued jointly with the private business.

2. Contractual liability alone should not be relied upon. Insist on risk management vehicles that serve to protect the public entity in the company placed insurance. After all, in a litigation, both the public entity and the company will probably be sued together. 3. The public risk manager should take an active role in assessing the risk and the coverage issues as well as determining the risk transfer requirements of the insurance section of the P3 concessionaire contract. 4. Consider requiring specialty insurance contracts that focus on the coverage of public exposures being assumed. 5. Review the P3 agreement’s insurance section and its coverage periodically during the entire long life-cycle of the contract, making sure that coverages evolve as do liability doctrines, statutes and precedents.

Public risk managers need to be sure the selected insurer has specific P3 experience to ensure that risks are appropriately evaluated and managed. There are numerous “everyday” examples where a standard commercial insurance policy will not appropriately address liability. Some examples are the dispensation of medications, students in practicum or violence response in a school under a charter contract. In a privatized corrections setting, standard insurance contracts do not address mutual aid agreements between a private company warden and a county sheriff, the deliberate indifference to provide medical care in jails and civil rights issues in incarceration settings.

P3 INSURANCE SPECIALIZATION P3 risks are best addressed by specialty insurance coverage forms as part of the main body of a policy or by endorsement. Without such specialized insurance coverage, the public entity—the main signatory of the P3 contract and customer of the private

JANUARY 2015 | PUBLIC RISK

Public-Private Partnerships Are Here to Stay

company—is likely to be involved in a suit with the company over an unaddressed coverage issue. There are two solutions to this problem from the public risk manager’s perspective: ➊ Require the private company’s selected insurance carrier to adapt their coverage with the attendant coverages usual to a public entity carrier. This requires the public risk manager to identify and give instruction on those coverages important to the public entity. This creates a public entity policy for a private business operating a public exposure. ➋ Require the company to obtain a public entity insurance policy modified to apply to private business engaging in public operations. This type of policy would benefit both the private company and its client (the public entity) by having coverages used by the public sector already built-in.

THE LONG P3 RELATIONSHIP OF UNEQUAL PARTIES A public risk manager must continue to monitor and adapt to change in an aging contract to be sure the entity’s interests are upheld to the same level of risk tolerance in a dynamic tort environment. For example, in a 30-year transit P3 contract, where buses belong to the city but are operated by a private entity, will the city be as sufficiently protected in 2030 as it was in 2014? Probably not, considering the evolving changes in tort liability doctrines, statutes and precedents.

respective state. This unequal relationship could have unintended consequences for governmental subdivisions engaging in P3 contracts. Public entities do not expect to relinquish protective rights to the statutory tort claims act of its respective state. This can include state tort caps on damages, exemptions from punitive damages, limitations from liability in joint and several liability, etc. Private business does not benefit from such statutory protection. Public risk managers are advised to involve qualified counsel during the drafting of the insurance requirements including additional insured status and non-insurance risk transfer language, always with an eye as to how the public entity will stand in future tort actions under the tort claims act for their state. This becomes more than a matter of procurement. The question in some states may be whether or not the public entity may forfeit those rights to tort limitation in some contractual agreements and could be found jointly and severely liable with the private business. Public-private partnerships remain a necessary choice for elected public officials. Still there are no current P3 specific best practices in either insurance or risk management that can serve the public risk manager as a focal point. To make a P3 arrangement successful, the public risk manager must be an active participant—early on and with ongoing periodic contract reviews. Jeffrey Welsh, CPCU, AU, is senior vice president, Central Region Manager, Specialty Markets for Munich Reinsurance America.

In a P3 contract, there is a marriage of unequal parties in the respective interests before the statutory law of the

PUBLIC RISK | JANUARY 2015

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Managing risk in our cities, counties, schools, states and tribal nations presents unique challenges, and PRIMAâ&#x20AC;&#x2122;s Annual Conference is the only conference dedicated to YOU: public sector risk management professionals.

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Third-Party Administrators: WHAT PUBLIC ENTITIES NEED TO KNOW By Aaron Stone

PUBLIC RISK | JANUARY 2015

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nsurance programs for public entities and local governments are complex. Risk managers have numerous programs and variables to consider, including vital services communities require. These services are expensive to run, and, in an economic situation where governments are still experiencing tight budgets, risk managers must often make difficult decisions on maintaining or prioritizing essential services, while remaining cost effective. There are a variety of options available to public entities in creating and procuring their insurance programs. One of the options local governments are increasingly considering is a self-insured retention program (SIR), which can lower an entity’s upfront insurance premium cost. This option very often involves the participation of a Third-Party Administrator (TPA) for claims. A TPA, as the name suggests, is an outside vendor that can provide a wide array of claim handling services for the local government based on their specific needs. While the idea of “outsourcing” claims services can save an entity money, it can also expose the entity to a subset of new issues and potential pitfalls. These factors should be carefully considered and understood before utilizing this method.

BEFORE EMPLOYING A TPA Before a local government decides to retain a TPA to administer claims, several questions should be asked, including: • What are the costs? A TPA’s charges will vary depending on the type of program the local government wants to create. Charges may be on a per claim basis, a percentage of overall loss incurred, or a percentage of loss paid. Entities should consider all the cost options carefully and choose an option that best coincides with its business model. An additional cost that is often overlooked is the cost of transitioning responsibilities to another vendor, should you choose to make a change. • Is the TPA properly licensed and insured? As the TPA will be adjusting claims for the local government, it is essential that it be properly licensed and in good standing with the states in which it operates. Additionally, it is essential that entities ensure that the TPA carries appropriate Errors & Omission insurance in order to protect the local government from any mistakes made by the TPA. • What qualifications does the TPA have? Depending on the TPA, the person fulfilling the role of the claims adjuster may have a varied educational and industry background. This could include industry claims adjusting designations such as Accredited Claims Adjuster (ACA), Certified Claims Adjuster (CCA) and Chartered Property and Casualty Underwriter (CPCU), or the person may be an attorney with specific experience in evaluating coverage and handling claims. Additionally, most states have vigorous licensing and fee requirements for TPAs. • How will financials be captured and accessed? Similar to an escrow account, the local government will need to set aside funds and then define who has control and access to the account. Not only will substantial consideration and calculation be required to properly identify the correct sum to set aside for actual claims, but equal consideration must

also be given to expected claims, known in the industry as IBNR (incurred but not yet reported), which may require actuarial expertise. Access to bank accounts is accompanied by a unique risk that may be alleviated in part by ensuring your TPA has a bond in the case of theft or misappropriation inuring in the favor of the local government. • Has the TPA previously worked with the local government’s insurance carrier? A TPA and the insurance carrier have a unique relationship and it is important for all parties that the TPA and carrier can work together to best serve the local government’s interests.

TPA ROLES AND RESPONSIBILITIES In most instances, a TPA acts as the claims adjuster for the local government employing it until the entity’s SIR is exhausted. Once a public entity decides to move forward with retaining a specific administrator it is important that risk managers have robust discussions regarding the role of the TPA and ensure the TPA’s duties and responsibilities are clearly stated. Some of these responsibilities may include: • Reporting claims to the insurance carrier. Even though the local government is responsible for the administration and payment of any claim within its program, many claims exceed or have the potential to exceed the SIR and fall to the carrier for further adjusting and payment. It is essential the TPA provide timely and comprehensive notice of the claim to the carrier in order to protect the local government’s rights. Under most standard policies, the carrier will require the TPA report all claims in which the total estimated loss is a certain percentage (usually 50 percent or more) of the SIR. Additionally, many carriers will require the TPA to report certain claims that involve specific severe factors or injuries such as paraplegia, quadriplegia, fatalities, sexual

JANUARY 2015 | PUBLIC RISK

Third-Party Administrators

CALENDAR OF EVENTS PRIMA’s calendar of events is current at time of publication. For the most up-to-date schedule, visit www.primacentral.org.

WEBINARS 2015 • January 14 – Best Practices in Driver Risk Management • March 18 – Enterprise Risk Management: Basic Principles • May 13 – Marketing Your Insurance Program • July 15 – Ergonomics & Injury Prevention • September 16 – Social Media Horror Stories: Don’t Become One! • November 18 – Employment Practices Liability: Mitigating Risks

PRIMA ANNUAL CONFERENCES June 7–10, 2015 PRIMA 2015 Annual Conference Houston, TX George R. Brown Convention Center June 5–8, 2016 PRIMA 2016 Annual Conference Atlanta, GA Hyatt Regency Atlanta June 4–7, 2017 PRIMA 2017 Annual Conference Phoenix, AZ Phoenix Convention Center June 3–8, 2018 PRIMA 2018 Annual Conference Indianapolis, IN Indiana Convention Center

ENTERPRISE RISK MANAGEMENT: APPLYING THE ISO 31000 STANDARD Intro Workshop Dates & Locations January 21 – Austin, TX April 14 – Baltimore, MD July 15 – Reno, NV September 29 – Savannah, GA Implementation Workshop Dates & Location February 23 & 24 – Austin, TX May 7 & 8 – Baltimore, MD August 10 & 11 – Reno, NV November 18 & 19 – Savannah, GA

abuse, class action allegations and punitive or extra-contractual damages. • Initial claim investigation and coverage determination. Generally, a TPA will conduct the initial investigation regarding a claim. The TPA will also review coverage and may make a coverage determination, which usually is done in conjunction with the insurance carrier. • Retention of defense counsel and other outside vendors. In those instances where defense counsel is necessary, a TPA is responsible for vetting and selecting defense counsel to defend the local government. The TPA may also retain the services of independent adjusters, appraisers and other experts to assist in the evaluation of the claim. • Setting reserves. After assessing coverage and any potential exposure to the local government, the TPA will set appropriate reserves within the SIR and any adjustments as the claim further develops. • Resolving claims. The TPA may work with the claimant, claimant’s counsel, defense counsel, the local government and where appropriate, involve the carrier to try to resolve claims within the SIR. In the process of thoroughly defining each of these roles for a TPA, public entities should also consider and discuss a number of other related specific issues to ensure the highest standard level of claims handling. Some of these issues include: claims handling best practices; regulatory and statutory compliance; the handling of subrogation; trend analysis; and the number of claim files assigned to each TPA adjuster. While the TPA plays a significant role in the handling and resolving of claims, including any legal actions, and while those duties and responsibilities may be wide ranging, the ultimate decision-making authority should rest with the local government with clear letters of authority.

THE TPA/INSURANCE CARRIER RELATIONSHIP As noted, the roles and responsibilities of a TPA often overlap and intersect with a public entity’s insurance carrier. Therefore, the relationship between the TPA and carrier is extremely important. Typically, the relationship is driven by the TPA handling the claim and the insurance carrier’s claim adjuster. Both parties play important roles in the process and, to the extent they can build a trusting and professional working relationship built on open communication, the process works smoothly. Because the TPA is on the “front line” evaluating the actual claim, the carrier is reliant upon the TPA for information and updates. The TPA additionally may possess relevant and important information about the local government, the facts of the claim and other localized issues. When that information is flowing freely, the carrier is able to assess its potential exposure and set appropriate reserves quickly and efficiently. On the carrier side, the claim adjuster may possess more generalized information regarding the broad type of claim, the jurisdiction in which the claim exists and valuation of the claim based on experience in adjusting similar claims. Thus, this should be a symbiotic relationship where each party can offer unique information, strategy, experience and perspective in order to achieve optimal results for the local government. However, when information is not freely flowing, or relations between the TPA and carrier are strained, tensions between the carrier, the local government and TPA may arise, creating an unnecessary source of conflict. Every local government is different and has distinct insurance needs. The decision to contract with a third-party administrator may seem like an easy choice, but comes with a set of separate risks and concerns that should not be taken lightly. However, if handled correctly, retaining a TPA can allow local governments to attain the efficiencies of claims management processes, systems and personnel with minimal effort. Aaron Stone is vice president of claims for OneBeacon Government Risks.

PUBLIC RISK | JANUARY 2015

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Advertiser Index

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Has your entity launched a successful program? An innovative solution to a common problem? A money-saving idea that kept a program under-budget? Each month, Public Risk features articles from practitioners like you. Share your successes with your colleagues by writing for Public Risk magazine! For more information, or to submit an article, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.

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JANUARY 2015 | PUBLIC RISK

Member Spotlight

PALM BEACH COUNTY SHERIFF’S WELLNESS INITIATIVE KEEPS EMPLOYEES HEALTHY features a member who has gone above and beyond

“This makes it easier to provide this information to the employee’s personal physician or to one of our wellness centers,” said Adriance.

in a feature column titled “Member Spotlight.” Do you know someone who deserves recognition, has made a contribution or excelled in their profession? If so, we’d like to hear from

“A public entity or law enforcement agency is one of the few establishments that retain employees throughout their adult life,” said Catherine Adriance, section manager for PBSO. “Since there is very little turnover, we have the opportunity to observe our employees throughout their lives, to observer changing trends with regard to health habits. It is important to be ahead of the game in preparing for the inevitable and common issue of middle age. Thus, our wellness initiative was implemented.”

you for this exciting column, as PRIMA shines the spotlight on its members. To be considered for the Member Spotlight column, contact Jennifer Ackerman at jackerman@primacentral.org

Adriance also points out the 2002 Presumptive Heart/ Lung Bill, which says that if a firefighter, law enforcement or corrections officer is diagnosed with hypertension, heart disease or tuberculosis, it is presumed they acquired it due to their job duties. One of the goals of PBSO’s wellness plan was to decrease the entity’s liability by giving employees tools to circumvent these conditions.

or 703.253.1267.

One of the most popular tools was the addition of three Higi machines at selected PBSO sites. The machines, located in a conspicuous yet private place, monitor personal data such as blood pressure and heart rate. The machine is equipped with a blood pressure cuff, a BMI calculator, a heart rate monitor and a scale built into the seat. All of the data is combined to give employees their “Higi score.” The machines keeps track of employee’s scores, so they can track their progress.

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In addition to the Higi machines, PBSO opened its second wellness center in 2013 in an area with a high concentration of employees. The center also employs a physician who sees patients as young as two-years-old. “We continue to have annual walking challenges, biggest loser contests, Lunch and Learns and a very strong representation at the Law Enforcement Olympics,” said Adriance. “We have also begun exploring the possibility of replacing some of our more high-calorie vending machines with healthier options like fresh fruit or yogurt.” PBSO’s other health initiatives include twice-yearly visits from the Boca Raton Regional Hospital MammoVan, which provides mammograms to employees, and weekly Alcoholics Anonymous meetings designated specifically for law enforcement. “Anyone can launch a wellness program. The key is the level of commitment shown at all levels of PBSO, beginning with our sheriff,” Adriance said. “Our sheriff recognized the importance of wellness for employees and their families in order to keep them at their best.” For more information on PBSO’s wellness initiatives, contact Catherine Adriance at adriancec@pbso.org.

Anyone can launch a wellness program. The key is the level of commitment shown at all levels of PBSO, beginning with our sheriff. Our sheriff recognized the importance of wellness for employees and their families in order to keep them at their best. Catherine Adriance, section manager for PBSO

PUBLIC RISK | JANUARY 2015

“

Each month, Public Risk

s baby-boomers age, their health tends to decline unless concerted efforts are implemented to circumvent it. The risk managers at the Palm Beach County Sheriff’s Office (PBSO) found their employees were no different.

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BILL KOSTNER, ARM-P RISK MANAGER, CITY OF LINCOLN, NE

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Everyone else is doing it. WHY ARENâ&#x20AC;&#x2122;T YOU?

Enterprise risk management is everywhere we turn these days. Universities are using it. Corporations are using it. And now, more and more public entities are embracing ERM. PRIMAâ&#x20AC;&#x2122;s new training will teach you to implement an enterprise-wide approach to risk in your entity using the ISO 31000 standard. This three-part training starts in January and will held in cities across the United States. For more information, visit primacentral.org/ermtraining.