YCPARMIA

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GOVERNMENT CODE PROCEDURAL PRIMER

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Compliance with the procedural requirements of the Tort Claims Act found in the California Government Code is a condition precedent to most lawsuits against California public entities. They are designed to give the public entity an opportunity to conduct a timely investigation, and appropriately respond to the claimant before litigation is commenced.

• In most cases, a claimant must file a written, formal, timely claim containing specific information to recover money or damages from a local public entity.
• Government Code section 815 states, "except as otherwise provided by statute a public entity is not liable for an injury, whether such injury arises out of an act or omission of the public entity or a public employee or any other person."

• Therefore all California governmental liability is statutory, except as required by the state and federal constitutions.

• A public employee is liable for any injury caused by his or her act or omission "to the same extent as a private person," except as provided by statute.

• Included in the statutory exceptions are a number of immunities.
• GC 825 requires the governmental employer, subject to certain qualifications, to defend and indemnify their employee for acts within the course and scope of employment.

• There is a statutory requirement, subject again to certain exceptions, that an action for "money or damages" may not be maintained against a public entity, or its' employees, unless a written claim has first been timely presented to the defendant public entity and rejected in whole or in part.
• There can be a settlement of a loss without a filed claim, but subject to some exceptions, there cannot be a suit without a timely claim and rejection.
• The facts underlying each cause of action in the suit must have been fairly reflected in a timely claim.
• The claims requirements apply to claimants who are minors, disabled or incompetent.
• The doctrine of substantial compliance excuses incomplete claims as long as they give the public entity needed essential information.

• The public entity's actual knowledge of the facts of the claim does not excuse the claimant from non-compliance with the claim filing requirements.

Presentation of claim:

• The claim must be written, but need not be on the local public entity's form.
• Essential elements of the claim:

• The names and addresses of the claimants and the person to whom notices are to be sent;
• A statement of the date, place, and other circumstances of the occurrence or transaction;
• A description of the indebtedness, obligation, injury, damage or loss incurred as far as they are known when the claim is presented;
• The name of the public employee who caused the injury, if known;
• The amount claimed, if less than $10,000, or an indication that it is to be a limited civil case (under $25,000) if over that amount.

• A claim may be prepared, signed, and presented by a third person acting on the claimant's behalf.

• The signature of the person presenting the claim authenticates it and assures its truthfulness and reliability.
• Anyone signing a false or fraudulent claim and presenting it to the public entity is guilty of a misdemeanor or felony.

• Time Limits — measured from the "date of accrual":

• Must be submitted within 6 months for death, injury to a person, injury to personal property and damage to growing crops.
• Must be submitted within 6 months of service of suit when seeking indemnity through a cross-complaint.
• Must be submitted within 1 year for "any other" cause of action.
• The "date of accrual" is normally considered the date of injury.
• Generally the time limits are mandatory, and contain no authorization for tolling or extending the time limits. (See late claims provisions, below)

• Presentation of the claim is to be made to the clerk, secretary, or auditor of the public entity either in person, or by mailing the claim to one of these people or the governing body at its principal office.
• The time of notice is based on personal delivery or when the claim or response is placed in the mail.

Consideration of claim:

• Notice of Insufficiency: the entity has 20 days to return the claim for a substantial defect; failure to do so waives the defect.
• Acceptance or Rejection: the entity has 45 days from receipt of claim to reject in whole or in part, or accept in whole, or in part.

• Public entities are allowed to reconsider rejected claims for the purpose of settlement.

• Failure of the entity to formally act within 45 days results in the deemed rejection of the claim by operation of law.
• Written notice, including language specified in the Government Code, of the entity's action is required by personal delivery or mail to the claimant's designated address.
• Claimant normally is limited to 6 months from the date of rejection to file suit.
• If the public entity fails to respond with proper written notice, the claimant has two years from the date of accrual to file suit.
• The public entity can give notice of late claim, and return, within 45 days of receipt, a "6 month claim" that has been submitted after the time limit. Failure to send a timely notice waives the defense of untimeliness.

• Claimant can then make an application to the public entity for leave to present a late claim within a year of the date of accrual.
• If denied, the claimant can petition the court for relief from the claims requirements by citing "mistake, inadvertence, surprise or excusable neglect," and a showing that the public entity's defense was not prejudiced by the delay.
• There is no late claim provision for "1 year claims."

• Applications for leave to present a late claim must be granted by the entity when:

• The claimant was a minor during the entire 6-month claims presentation period.
• The claimant was physically or mentally incapacitated during the entire 6-month period, and that incapacity caused the failure to file a timely claim.
• The claimant died during the 6-month period.

Causes of Action Outside the Tort Claim Act:

• A claimant can bring suit against a public entity without complying with the Government Code claims requirements for certain causes of action, including:

• Deprivation of state civil rights;
• Employee discrimination and harassment claims under California law;
• Inverse condemnation;
• Actions not strictly for "money or damages" like injunctive relief;
• Actions brought under federal law.

Suit:

• The claimant/plaintiff's civil complaint must allege the presentation and rejection of a claim in all actions to which the claims procedures apply. Failure to plead compliance leaves the pleadings vulnerable to attack.

Conclusion:

While the claims requirements can provide a valuable defense to public entity exposures, the greater importance lies in the opportunity it affords to conduct a timely investigation, and to make an appropriate informed decision that hopefully will avoid the conflict and expense of litigation.

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CONTRACT RISK TRANSFER

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Axioms:

• Each entity should have their own risk philosophy that meets their individual risk tolerance, and that philosophy should be reflected in their required contract provisions.
• The primary purpose of the contract is not risk transfer, but rather to obtain needed services or goods.
• The purpose of risk transfer is to have the contractor, rather than the entity, responsible for exposures/losses that might grow out of the contracted service.
• The potential exposure from each contract must be considered separately, and on occasion may allow for some flexibility in terms.
• The "cost" of the contract is not necessarily an indicator of potential exposure.
• The indemnity/hold harmless clause in the contract defines the obligation and scope of the risk transfer accepted by the contractor.
• The insurance provisions attempt to ensure that there is adequate independent funding available to satisfy the indemnification obligation found in the indemnity/hold harmless clause.
• The entity's status as an "additional insured" under the contractor's policy creates an indemnity/hold harmless and defense obligation independent of, but generally more limited in scope, than the contractual indemnity clause.
• The entity's contract specifications/requirements are integrated and designed to work together to obtain the desired results; these specifications are probably not unique to the entity, but are consistent with most public entities in the State.
• While most contractors cannot redesign their insurance programs to satisfy the unique requirements of each party they contract with, hopefully their broker has obtained coverage that is broad enough to meet the requirements generally found in the type of areas that the contractor conducts business.
• The waiver or changing of risk transfer provisions after the awarding of a contract could create an exposure to unsuccessful bidders in the form of a lawsuit.

Indemnity Agreement:

An indemnity agreement, often called a "hold harmless", is found in the contract.

• This is completely independent of any insurance coverage.
• The clause does not relieve the entity of liability, but rather substitutes the contractor's assets in satisfying any liability or defense costs.
• Classified by the scope of obligation the contract language places on the contractor/indemnitor.

• Broad = transfers all the risk: not allowed in construction or design.
• Intermediate = transfers all the risk except for the sole negligence of the entity/indemnitee; strongly preferred.

• " ... except such loss or damage which was caused by the sole negligence or willful misconduct of the entity."
• " ... whether or not it is caused in part by a party indemnified hereunder ... "

• Limited/comparative fault = only to the extent of the contractors fault, but generally gives the entity unapportioned defense costs.
• Reciprocal = dual clauses where each party agrees to hold the other harmless for their own acts.
• Hybrid = different levels of protection for different specified risks.
• In addition to the scope, you need to look at possible limitations on the subject matter of the obligation = "arising from"; "arising out of the project"; "arising out of or resulting from the performance by" "arising out of, incident to, or in connection with the agreement or performance of the work or services hereunder."

Insurance Types:

You will usually need:

• General Liability (premises and negligence),
• Auto Liability (when vehicles used in any way),
• Workers' Compensation/Employer's Liability (whenever there is an employee).

You might need:

• Professional Liability (Errors and Omissions/Malpractice for professional services),
• Environmental Impairment Liability (pollution),
• Fidelity (employee dishonesty) and other coverage's required by the applicable contract or exposures.

Carriers & Ratings:

The entity wants to be sure that the insurance company will be financially able to meet its contractual/coverage obligations. The AM Best Company rates insurance carriers on their financial condition (A++ on down) and financial size (XV on down). We generally look for a minimum of "A" (Excellent) "VII" ($50 to $100M in assets).

(Currently the State Fund is not rated due to fiscal disputes.)

Forms:

Most insurance companies use standardized policy forms created by the Insurance Services Office (ISO). Self-insured companies might have manuscript forms with unique language. If there is not an ISO number (ex. CG 10 03 97) you might need to see the policy to determine what is included and excluded from the coverage.

Occurrence and Claims Made Policies:

• Occurrence:   The insurance contract covers incidents that occurred during the policy term regardless of when the claim is submitted to the carrier.
• Claims Made:   Only provides coverage for written claims that are submitted to the carrier during the policy term or during an extended reporting period called a "tail." Generally there is no problem with coverage as long as the policy is renewed each year. If not, the entity should require the purchase of a tail for a specified period.
• Professional Liability policies are only written on a "claims made" basis.

Deductibles & Retentions:

• Deductible: The carrier's responsibilities under the insurance contract start at dollar one; the carrier has the responsibility of getting the deductible payment from their insured.
• Retention: The carrier's responsibilities do not start until the insured has paid the full amount of the retention. The entity generally reserves the right to review retentions to protect against an insured that might not have the financial ability to trigger coverage by satisfying the retention limit.
• Limits: Minimum limits should be established not by what should happen, but by what could happen; to establish required limits, each exposure needs to be evaluated looking at all the involved factors in anticipation of the worst scenario. It is better to set the limits too high, than to set them too low.
• Aggregate Limit: This is the maximum amount that will be paid out on an insurance policy for all claims, from all projects, throughout the entire policy term. The policy limits could be reduced below the required level by payments on other claims that collectively approach or exhaust the aggregate. The aggregate should either be avoided, or set substantially higher than the required limits; an alternative would be requiring a separate policy covering the entity's contract.
• Primary: The entity needs to ensure that the contractor's policy states that it is primary — that their limits will be exhausted before any contribution from the entity's coverage is made; this may require a separate endorsement.
• Additional Insured: This is an endorsement that modifies the contractor's insurance policy adding the entity as an insured under their coverage. This status allows the entity to deal directly with the insurance carrier without going through the contractor/named insured, and can create additional duties by the carrier running to, and for the benefit of the entity. The new ISO form endorsements end coverage when the contractor's work is completed even though the exposure for the work might continue. An entity cannot be named as an additional insured on a Workers' Compensation policy, or an Errors and Omissions/Professional Liability/Malpractice policy.
• Certificate of Insurance: Has the limited purpose to state that the described insurance existed for that brief moment of time when the certificate was issued. The certificate states it is for "information only" and confers "no rights," nor does it "amend, extend or alter" the coverage. The Certificate is probably adequate proof of insurance if it includes endorsed copies of any coverage endorsements (especially the additional insured endorsement), and promises adequate notice of cancellation.
• Notice of Cancellation: The entity usually asks for sufficient notice of cancellation of the contractor's insurance to allow the entity to take steps to maintain protection against potential exposures. Carriers, in their Certificates of Insurance, state that they will "endeavor" to mail notice, but try to avoid promising notice that could create an exposure for them should they fail to comply. The compromise position seems to be 30 days notice for cancellation, but only 10 days notice if it was for failure to pay the premium.
• Waiver of Subrogation: Endorses the contractor's policy to cut off any right of recovery for the contractor or carrier when the entity caused or contributed to the injury or damage.

Additional information on risk transfer can be found in Section "J" of the YCPARMIA "Blue Binder."

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YCPARMIA
77 West Lincoln Avenue
Woodland, California 95695

Tel: (530) 666-4456
FAX: (530) 666-4491