Exh 4CAgenda Item: g~_
Date: 2 -~DO
CITY OF ATLANTIC BEACH
CITY COMMISSIONER MEETING
STAFF REPORT
ITEM: Workers' Compensation Premiums
SUBMITTED BY: George Foster, Human Resource Manager
DATE: February 9, 2000
BACKGROUND: The attached letter from the Governmental Risk Insurance Trust
(GRIT) indicates that the city may receive additional bills to assist
in paying GRIT's current overall deficit of approximately
$6,255,000 if other governmental agencies cannot, or do not, pay
their actual costs.
Since October 1, 1999, the City has paid $33,256.51 in additional
premiums. The initial estimate from GRIT was that our "share" of
the deficit was estimated at no more than $48,038. However, the
attached letter now states that we may have to "share" in expenses
not paid by other members.
GRIT was established as the result of an interlocal agreement in
1990 with the City of Atlantic Beach becoming a member effective
October 1, 1995. Losses prior to July 1, 1998 were not protected
by reinsurance with all members to share in the costs and/or
savings. All losses since July 1, 1998 have been on a fully insured
- - basis.
Please note that the attached letter indicates that, over the long
term, GRIT may recover some of their expenses and members may
eventually share in any recoveries.
FUNDING: Funding for $28,397.41 was from last fiscal year's surplus with
$4,859.10 from the current fiscal year. If necessary, a budget
amendment will be submitted by the end of this fiscal year.
REQUESTED ACTION: None. This Staff Report is for information only.
ATTACHMENT: GRiT January 25, 2000 letter.
CITY MANAGER:
-.
January 25, 2000
Dear Member:
GOVERNMENTAL RISK INSURANCE TRUST
' As you are aware, the Governmental Risk. Insurance Trust ("GRIT") has reported
a member's deficit and is in the process of implementing a claims reimbursement billing
program to provide for the ongoing payment of workers compensation claims against the
`members and funding of the deficit. The following material is provided to keep members
and agents apprised of developments with respect to GRIT's financial position and efforts
to fund the reported member's deficit, as well as to provide some background on the
structure of the GRIT Board.
GRIT is an association of local government entities formed by entry into an
interlocal agreement pursuant to the terms of Section 624.4622, Florida Statutes
(formerly Section 440.575, Florida Statutes). The governing Board of GRIT is required
by law to be comprised solely of local government elected officials. The current Board
of Trustees is comprised of Commissioner Stanley Stephens of Manatee County, Fl'o~ida
and Commissioner John Manning of Lee County Florida. Councilman Walt Mallonee of
the City of Gastonia, North Carolina served from September of 1998 until submitting his
resignation in September of 1999. Mr. Mallonee resigned with regret, citing the demands
of a new job, a new baby, and the demands of a campaign for reelection to the City of
Gastonia Council.
Mr. Stephens serves as Chairman of the Board of Trustees and Mr. Manning as
Vice-Chairman and Secretary. Neither Lee County nor Manatee County are now or ever
have been members of GRIT. Mr. Stephens and Mr. Manning agreed to serve as Board
members based on their position as local government elected officials and in a semi-
volunteer capacity. GRIT has historically paid an honoraria of $6,000 a year to its Board
members for their service. Typically service has involved four quarterly Board meetings
at which GRIT's service company has distributed actuarial reports and audited financial
statements prepared by independent actuaries and accountants, as well as management
reports regarding the operation of GRIT.
In June 1999, an audit of GRIT's financial statements for year end 1998 was
completed by an independent outside accounting firm. The financial statements reflected
a member's deficit of approximately $6,200,000. The Board has held approximately 28
special meetings since July 1, 1999 including several meetings to which all members
were invited to attend..The special meetings have been held in order to allow the Board
to stay apprised of developments on a weekly basis and so that the Board is able to
provide increased direction to staff and counsel regarding matters confronting GRIT and
its members.
Governmental Risk Insurance Trust
P.O. Box 4634 • Sarasota, FL 34230-4634
800/22 6-43 99.941 /3 62-6499
Fax 800/850-4748
P.O. Box 25265 • Charlotte, NC 28229-526:
888/562-4748 •704/567-7.448
Fax 704/567-7463 '
The Board has been actively reviewing its options relative to the possibility of
litigation against parties who may arguably have contributed to GRIT's current financial
difficulties. Further, the Board is considering whether any such litigation is warranted or
advisable in light of the costs associated with seeking such recovery and the possible
benefits. This matter remains under review.
Additionally, the Board has worked with actuaries, its service company (Zenith
Insurance Management Sen~ices, Inc.) and counsel to evaluate options to ~ fund the
member deficit. The Board, at duly noticed meetings, met with the membership to
discuss the member deficit reported in its financials and proposed methods to fund the
deficit and provide for continued payment of workers' compensation cla'sms and other
obligations of GRIT and its membership. The Board received input from the membership
at member meetings and through other communications. Effective for all claims with
accident dates before July 1, 1998 and paid on or after September 15, 1999, the Board
determined to implement a claims reimbursement billing process whereby each member
would be billed for all claims payments and associated costs paid on behalf of the
member. This process is consistent with the language of the interlocal agreement which
defines the relationship between GRIT and its members. ~ Specifically, the interlocal
agreement dated June 30, 1998 provides:
Should a deficit develop in the Fund whereby claims or
other expenses cannot be paid, each individual Member
shall be liable for all costs of claims brought against the
individual Member which would otherwise be payable
hereunder, without an obligation to, or a right of
contribution from, other Members. Each individual
Member shall thereafter be responsible for its individual
costs, including but not limited to claims administration
and the payment of indemnity and medical expenses of
injured Employees.
Prior ~ versions of the interlocal agreement provide substantially .similar member
__ _ obligations.
While GRIT's financial statements report substantial assets, GRIT's assets are
primarily illiquid. Much of GRIT's assets are future recoverables such as Special
Disability Trust Fund recoverables, reinsurance recoveries, and premiums receivable in
the future on loss sensitive policies. GRIT only has limited liquid assets available for
payment of current obligations. Attached for your review are the unaudited. financial
statements of GRIT for the nine-month period ending September 30, 1999. It should be
noted that these statements do not include an updated actuarial estimate of ultimate
claims liability. These statements were prepared in an effort to evaluate.GRIT's current
financial condition, but they have not been audited to verify their accuracy.
In light of GRIT's limited liquid assets, a system of funding the deficit other than
direct billing of the members for all claims and claims costs incurred on their behalf
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would not allow GRIT or its members to meet claims and other obligations as they arise.
The Board's determination to implement the claims reimbursement billing process was
necessitated by the deterioration in GRIT's liquid assets.
GRIT issued approximately $892,000 in claims reimbursement billings to the
membership in October, $1,017,000 in November, $966,000 in December, and an
additional $1,930,000 in January. A substantial number of members receiving billings
for medical or indemnity payments have reimbursed GRIT for these expenses or have
indicated that they are working toward payment ofthe billings in the immediate future.
Unfortunately, a substantial number of members from which the fund is seeking
reimbursement for lump sum settlements have not made payment to GRTT. Some of
these members have indicated an inability or unwillingness to make the necessary
reimbursement payments. As of January 19, 2000, GRIT had collected approximately
$316,000.
The Board has instructed counsel to pursue any necessary collection activities
towards members that are unwilling to pay reimbursement billings. It is unfortunate that
this action is necessary, however, the obligations of the members are clear under the
terms of the interlocal agreement and the Board intends to enforce the terms of the
agreement so that obligations of GRIT and its members can continue to be met as they
come due. Notably, some members have retained outside counsel to review the
developments with respect. to GRIT and have advised GRIT that their counsel has
determined that GRIT's actions are consistent with the Interlocal Agreement.
In addition to pursuing collection actions through counsel against members who
are unwilling to honor their obligations with respect to reimbursement billings, the Board
has voted to implement a process whereby claims will not be settled for lump sum
payments without a prior written commitment from the affected member to reimburse the
fund for the full settlement amount and associated expenses. GRIT has contacted
members with settlements in process to obtain such commitments and is coordinating
future settlements with individual members. Initial results from this process are
encouraging as a number of members have promptly responded with written
commitments to fund lump sum settlements. Settlement commitments to date exceed
$359,000, and the GRIT continues to work with alt affected members to finalize payment
commitments.
The Board has adopted a resolution; a copy of which is enclosed, setting forth its
policy with regard to potential future dividends. The possibility exists that GRIT will,
over time, accrue members' equity. In the event that such members' equity does develop
and the Board determines to approve a dividend to Members, the resolution sets forth the
Board's policy with regard to such a dividend. The policy expresses the intent to use any
dividends that might be declared in the future to reimburse members for payments made
to the Fund pursuant to claims reimbursement billings before making dividend payments
to any other members. Please refer to the enclosed Resolution for the specific details of
the policy statement.
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The Board has also moved to marshal assets of GRIT including past due accounts
receivable. A portion of reinsurance premiums paid for aggregate reinsurance obtained
through insurers in the RISCORP holding company structure has been determined to be
recoverable under the terms of the reinsurance contracts. .Zenith Insurance Company
(Zenith) has assumed these contracts from RISCORP in conjunction with its general
purchase of RISCORP assets. GRIT has had ongoing discussions with Zenith regarding
these recoveries and anticipates that an agreement will be reached shortly.
In light of GRIT's financial status, on August 12, 1999, the Board determined to
non-renew all Interlocal Agreements that remained in force. Additionally, GRIT has
waived short term cancellation penalties on all guaranteed premium contracts terminated
mid term and has negotiated equitable cancellation terms for Members with loss
sensitive coverage who wished to terminate coverage mid-term. GRIT's in force
coverage has been reduced substantially as a result.
Finally, GRIT continues to review the possibility of a loss portfolio transfers~r
other reinsurance transaction in order to limit or eliminate member liability. Such a
transaction is not currently within GRIT's financial means, but as liabilities are reduced
through the payment of claims, realistic opportunities to obtain effective reinsurance may
become available for consideration by the Board and the membership.
All efforts undertaken by the Board have been taken in an effort to assure that the
obligations of GRIT and its members are met as they come due and in an effort to
minimize the overall cost of funding GRIT's deficit. Administration of a receivership or
insolvency proceeding by the Florida Department of Insurance or any other entity is a
costly process. For the benefit of the membership, GRIT would like to avoid those costs.
The Board has maintained a commitment to keep the membership apprised of
developments. The Board has considered organizing a meeting with the membership,
but has chosen to provide information through this written communication without a
general meeting of members. Such meetings are costly and the Board believes this
correspondence will serve to provide the members with up to date information regarding
`- - developments with respect to the Fund. Members with specific questions regarding
claims or other matters may continue to direct inquiries to Governmental Risk Insurance
Trust, P.O. Box 4634 Sarasota, Fl. 34230-4634. Members wishing to direct general
inquiries to the Board may do so care of Blank, Rigsby- & Meenan, P.A., P.O. Box 11068,
Tallahassee, FL 32302-3068. A future Member meeting will be considered as
circumstances dictate.
Sincerely,
Governmental Risk Insurance Trust
Board of Trustees -- Stanley Stephens & John Manning
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