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Insurance Pools
For additional information, download the Illinois Tort Immunity Handbook.
Ancel, Glink, Diamond, Bush, DiCianni &
Krafthefer, P.C. has helped organize and represent more governmental self-insurance
pools than any other law firm in the United States. In 1978, the firm wrote
the contract and by-laws for the first comprehensive governmental self-insurance
pool in the country. In addition to developing general liability defense
pools, the firm has developed specialized pools to provide high-level excess
coverage as well as pools for workers' compensation and the group health
and accident claims of employees.
Frequently Asked Questions About
Governmental Self-Iinsurance Pools
1. What is the authority for the organization of inter-governmental self-insurance Pools?
ANSWER: Illinois benefits from having one provision in its constitution and several provisions in its state statutes which permit the organization of governmental self-insurance Pools. Most Pools in this state are organized under the authority of the constitutional and statutory provisions allowing inter-governmental agreements. Any governmental body in Illinois can help to create or join a governmental self-insurance Pool without further statutory authorization. Governments can lawfully enter into a Pools which contain some members which were not governmental bodies. The presence of non-governmental bodies would complicate certain issues such as the tax exempt nature of interest earned on reserves and the use of the tort immunity act to defend claims against Pool members. Some Pools have been organized as not-for-profit corporations or under other statutory mechanisms.
2. How long can a governmental body commit itself to be a member of a self-insurance Pool?
ANSWER: State law allows governmental self-insurance Pools to operate under contracts which can be up to 12 years in duration. Most Pools contain a separate provision for the duration of the Pool itself and the period of time for which any member must remain within the Pool. Most Pools are not interested in casual members which wish to drift in or out of a governmental Pool in an effort to perhaps, gain better rates for a single year when the insurance market is seeking increased rates. Pools are interested in membership by governmental bodies which are willing to make a long term commitment and to participate in loss prevention procedures and in training programs. Many Illinois Pools require initial members to remain within the Pool for a three year period with the ability to thereafter withdraw upon the giving of at least one year's annual notice prior to commencement of the fiscal year. Some Pools which provide specialty coverages such as excess coverage, after loss of a million dollars, require membership for a term of up to 10 years.
3. How are cases against Pool members defended?
ANSWER: Most governmental self-insurance Pools tend to choose a single law firm or a small number of law firms to defend claims which result in the filing of lawsuits. Frequently these attorneys are also called into the investigation of claims with serious potentials shortly after they are reported to the Pool. The employment of single or a small number of defense firms tends to reduce the cost to the Pool and to give it more control in achieving a consistency in defense strategies. The Contract and By-Laws document of most Pools contains a provision which allows the member to object to the settlement of the case but thereafter obligate that member to pay any increases over the proposed settlement costs of the case, including witness and attorneys fees, in the event that the ultimate judgment or settlement exceeds what the total cost to the Pool would have been if the case had been settled at the time that the Pool asked for permission to do so. When faced with the obligation of possibly paying for the additional costs of defense, most governmental bodies have accepted the recommendation of the Pool to settle. While Pools settle the majority of cases filed, decisions are often made, by a Pool board of directors or executive committee to fight a case, even at costs greater than a proposed settlement because a favorable decision in that case will assist the Pool in defending other cases with similar facts.
4. How do Pools save their members money?
ANSWER: Typically governmental self-insurance Pools result in savings for their members over the cost of conventional insurance. Pools achieve these savings through a number of advantages over conventional insurance. Most Pools do not seek to achieve profits and directly return any surplus amounts to their members or place such funds into multi-year reserves. Pools generally negotiate the brokerage fee charged for procuring the individual stop loss and aggregate insurance which most Pools purchase. The use of conventional insurance, in this limited way, spreads the risk of major losses with large nationally-based insurance companies. Pools can also "unbundle" and negotiate and achieve savings for such other costs as those of third party administrators, defense attorneys, auditors and other consultants. In addition to negotiating rates, costs and charges the Pool board of directors, executive committee or risk manager has greater control over the tasks performed by those individuals and companies which provide services to the Pool. Finally neither interest earned by the Pools through investments nor surplus funds are subject to federal income tax.
5. Are members of Pools entitled to utilize the provisions of the Tort Immunity Act?
ANSWER: When Pooling started in Illinois in 1979, conventional insurance companies which provided coverage for Illinois governments could not defend these governments in lawsuits through the use of the extensive defenses available to the Illinois Governmental Tort Immunity Act. Those defenses were only available to governmental bodies which were uninsured. Attorneys at Ancel, Glink assisted in the preparation of the Contract and By-Laws document for Illinois' first intergovernmental Pool. In those documents, the Members asserted their rights to utilize the Tort Immunity Act, and our attorneys successfully argued for that right in a series of cases in the Illinois Appellate and Supreme Courts. Since 1986, self-insured governmental bodies, members of Pools, and even insurance companies have the right to defend all public bodies and their employees and officers through the use of the Tort Immunity Act. That Act provides extensive immunities which have saved governmental bodies tens of millions of dollars.
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