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Mike Nowatzki, Published October 04 2009

Fargo scrapping self-insured liability plan

Feeling the financial drain of two major settlements, Fargo plans to scrap its self-insured liability plan and will likely sign on with the North Dakota Insurance Reserve Fund by Jan. 1, the city’s finance director said.

The city recently paid $450,000 to the family of 8-year-old Amanda Leininger, who died as a result of a Dec. 10 accident that Mayor Dennis Walaker blamed on a rut in South University Drive.

The city also faces having to refund up to $1.5 million to more than 53,000 drivers who were charged more for traffic fines than state law allowed.

Finance Director Kent Costin said moving away from the self-insured plan should help the city stabilize costs over time and “eliminate the volatility of the claims history.”

Fargo is the only major city in North Dakota with a self-insured liability plan.

More than 90 percent of North Dakota cities are members of NDIRF, a not-for-profit organization created in 1986 to help cities, counties and other political subdivisions struggling with tough market conditions for purchasing insurance, CEO Steve Spilde said.

“The only cities other than Fargo that are not covered with us tend to be very, very small,” he said.

Fargo became self-insured in the 1980s as a money-saving proposition, Costin said.

Rather than pay premiums and administrative costs to an outside insurer, the city sets aside general fund dollars each year to cover claims, which are handled by a third-party administrator, Atlanta-based Broadspire.

“But, at some time, you have to evaluate and look at the (claims) history, as well,” Costin said.

The recent history hasn’t looked good.

At the end of last year, the self-insurance reserve fund used to pay liability claims was running a deficit of about $136,000.

To cover the potential payout of the traffic fines settlement, the city made a midyear budget adjustment, transferring $1.1 million into the reserve from the city’s rainy-day fund, officially called the revenue stabilization fund.

As part of NDIRF, Fargo would join other cities in paying premiums into a self-insurance pool from which claims are paid.

Spilde said he’s aware of discussions between Fargo and NDIRF officials over the past several months, but he’s not sure how close the two parties are to an agreement. The city already does business with NDIRF, having purchased auto insurance since 2007.

“We’re hopeful to work with the city on the rest of their coverage, as well,” Spilde said.

Going with NDIRF would mean the city’s claims-related legal costs would be covered. As a self-insured entity, the city now pays its own legal fees, which have stacked up in recent years.

The city has paid about $145,800 from its self-insurance fund to cover legal fees related to the traffic fines case, while $38,320 has been paid to cover legal fees, experts and miscellaneous expenses in the Leininger matter, according to a list of fund payments compiled by Broadspire.

The $450,000 settlement of the Leininger claim isn’t on the list. Costin said that’s because it was paid directly by the city instead of being routed through Broadspire, due to the confidential nature of the settlement agreement, which City Attorney Erik Johnson has said is sealed by court order.

The city also directly pays small claims to avoid administrative costs, Costin said. Last year’s total was $8,363, and the city had paid $10,041 this year as of last week.

If additional money is needed to cover liability claims this year, it will come from the city’s general fund, about a quarter of which comes from property taxes. Costin wouldn’t speculate on whether that will be necessary, noting the $1.5 million figure in the traffic fines case is just an estimate of what the city may have to pay.

“We’ll know when the case is closed what the final total is,” he said.

Costin said the city plans to continue with its self-insured health plan – at least for now. The city has explored joining the North Dakota Public Employees Retirement System’s health plan, but will wait to see what success NDPERS has with its contract renewals before making the decision, he said.

The State Fire and Tornado Fund is the city’s primary insurer for buildings and equipment.

Readers can reach Forum reporter Mike Nowatzki at (701) 241-5528