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ADOPT A RESOLUTION AUTHORIZING THE CITY MANAGER TO PROCURE GENERAL LIABILITY COVERAGE FOR THE CITY OF STOCKTON, EXCEEDING THE CITY MANAGER’S SIGNING AUTHORITY UP TO A MAXIMUM OF $14,000,000 FOR THE POLICY PERIOD OF THE 2025/2026 FISCAL YEAR.
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RECOMMENDATION
It is recommended that City Council adopt a resolution to:
1. Approve findings that justify and support an exception to the competitive bidding process pursuant to Stockton Municipal Code 3.68.070(A)(5), for cooperative purchasing agreements;
2. Authorize the City to expand participation in a Joint Powers Agreement with PRISM (Attachment A), without limitation, allowing the City of Stockton to participate in the General Liability program;
3. Authorize the City Manager to execute the Memoranda of Understanding for the General Liability program, and
4. Authorize the City Manager to procure General Liability coverage on behalf of the City of Stockton (City), in an amount exceeding the City Manager’s standard signing authority in an amount up to a maximum of $14,000,000 for the policy period of the 2025/2026 fiscal year.
It is also recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of this resolution.
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Summary
Risk Pools are Joint Powers Authorities (JPA) formed by public entities to pool their funds and obtain Excess (Stop Loss) coverage for members. CJPRMA is a smaller Risk Pool and more sensitive to losses from its larger members, the City being one of those larger members. The CJPRMA Board of Directors voted to expel the City from their Risk Pool, leaving the City without General Liability coverage when the policy expires on June 30, 2025. On June 18, 2025, Public Risk Innovation Solutions Management (PRISM) voted to accept the City to participate in their General Liability (GL2) program. PRISM is still out to market on behalf of the City and GL2 coverage is not yet secured. Staff anticipates the GL2 coverage will be obtained and secured for a July 1, 2025, date to ensure no lapse in coverage.
DISCUSSION
Background
The City has been self-insured since 1979, covering the cost of smaller claims out of the general fund, and purchasing Excess (Stop Loss) coverage through CJPRMA and PRISM for larger claims. The City passed a resolution to become a member of CJPRMA on April 8, 1986. Due to current trends such as “social inflation”, an increasing litigious society, nuclear verdicts, and reptile theory tactics, the City’s severity and frequency of losses has exceeded CJPRMA’s loss ratio threshold of 100% for three (3) years in a row. The loss ratio measures the relationship between the total losses to premiums. When the loss ratio is over 100% it indicates the risk pool is paying out more in losses than it is gaining in premiums. In other words, the losses are directly impacting the pool’s financial stability and its other eighteen (18) public entity members. CJPRMA Board Policy required that the City be recommended for expulsion based on this continuing loss ratio. CJPRMA’s Board voted to expel the City effective June 30, 2025.
Present Situation
On August 15, 2024, CJPRMA’s Board unanimously voted to expel the City effective June 30, 2025. However, as of the date of this council meeting, the City has been approved by Public Risk Innovation Solutions Management (PRISM) to participate in their General Liability (GL2) program. PRISM is still out to market on behalf of the City and GL2 coverage is not yet secured. Essentially, PRISM is “shopping” the market for GL2 coverage on behalf of the City. Staff anticipate the GL2 coverage will be obtained and secured for a July 1, 2025, date to ensure no lapse in coverage.
Staff is also seeking alternative coverage through the market should PRISM not secure an option. The City’s goal is to ensure there is no lapse in General Liability coverage. Staff recommend the City Manager be given authority to procure General Liability coverage for the City, exceeding the City Manager’s signing authority up to a maximum of $14,000,000 for the policy period of the 2025/2026 fiscal year.
Should the City Council approve the resolution authorizing the City Manager to procure General Liability coverage in an amount exceeding the City Manager’s signing authority in an amount up to a maximum of $14,000,000, staff will ensure there is no gap in the expiring General Liability coverage. Primary Cyber Liability, Property, and Crime coverages will be addressed separately in another agenda item. In addition, once coverage is secured, whether it be PRISM or a different entity, the City Manager will report back to the City Council regarding any final actions taken consistent with this delegation authority.
FINANCIAL SUMMARY
Premiums for FY 24/25 from CJPRMA totaled $8,700,000 with an expected 30% or $11,300,000 increase for FY 25/26. Procuring General Liability coverage for $14,000,000 would be an additional increase of $2,700,000.
In addition, carriers may require the City to raise its Self-Insured Retention (SIR) from $1,500,000 to no less than $5,000,000, and possibly as high as $7,500,000. Based on the City’s most recent actuarial study, staff expect that this could increase retained losses by $4,000,000 to $7,000,000.
The projected annual increase in annual premiums may be $6,700,000 to $9,700,000 million for FY 25/26. A preliminary estimate of the cost increase has been included in the proposed annual budget.
Attachment A - MOU General Liability Program 2