01-05-1993 - West Covina Disposal Insurance• City of West Covina
Memorandum
TO: City Manager and City Council
FROM: Environmental Services Director
SUBJECT: WEST COVINA DISPOSAL INSURANCE
SUMMARY:
AGENDA
ITEM NO. F-1
DATE 1-5-93
This is a request from West Covina Disposal to amend the Waste
Disposal Franchise Agreement to specify an A- or better rating
for any required insurance.
On November,17, 1992 the City Council reviewed a report on this
request. A copy of that report and the proposed Agreement
Amendment is attached for review and action. At the November and
subsequent December i meetings further information was requested.
Specifically, information was requested on the actual costs to West
Covina Disposal for their insurance. Attached is.a copy of the
letter from West Covina Disposal and their insurance broker which
provides that information. Staff recommends the City Council
approve the amendment to the Franchise Agreement regarding the
insurance rating requirement.
History
The current Waste. Disposal Franchise Agreement (Agreement) was
negotiated from November, i991 to City Council approval on March 3,
1992. During these negotiations a multitude of matters were under
consideration. These included the provision of services, cost of
the services, the provision of updated equipment, the maintenance.
of the equipment, cost increase control mechanisms, customer
service requirements, insurance,. and other financial matters. Most
of the time during the meetings with the City Council during the
negotiations'focused.on the financial and operational aspects to
the proposed Agreement. A substantial amount of time was devoted
to thepossibility of automating the residential trash collection
and the possibility of obtaining a Materials Recovery Facility
(MRF). The actual agreement document was finally completed just
before being sent to the City Council for approval.
On the evening of March 3, the City Council approved the Agreement.
One of the conditions of the Agreement was West. Covina Disposal was
to furnish the City with endorsements of the required. insurance
policies simultaneous with the execution of the Agreement.
Immediately after the City Council approval these endorsements were
given to the City and the Agreement was executed.
Based on the notes and recollection of.the City Staff involved in
the negotiations there was a comment that an A- rating: for
insurance companies would broaden the field of possible providers
beyond the number of A rated insurance providers.' There is no
recollection by City Staff of any comment by West Covina Disposal
that their current -insurance provider had an A- rating. This is
not ,to say it was not mentioned, rather the collective memories and
notes of City Staff do not recall the comment.
The A- rating of the current provider was brought to the attention
of the City by West Covina Disposal. This was in the context of
their desire to be consistent with the insurance coverage in other
cities where they had a franchise or operation.. These cities have
A- rated. insurance endorsements from the Company. West Covina was
the. only city. that required an A rating. West Covina Disposal
wanted to be all-inclusive of their related operations rather than
be a unique situation and a relatively small operation requesting
insurance bids and services. As the attached letter indicates, a
stand-alone insurance policy ,has a good probability.to be more
costly.
I
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Financial
P
The financial aspects to this issue are explained in the attached
letter from the insurance broker for Athens Disposal. Several
points should be highlighted from the letter. These are:
1. When Athens sought quotes for the current year's insurance L
they indicated they shop for services not just price. The
acceptance of the bid from Planet Insurance is not the most
expensive, but is not the least expensive. This could lead
to the conclusion that there were service -related reasons to
select Planet.
2. Securing insurance for a waste collection business can be
difficult.
3. The added cost,to have West Covina Disposal.be a stand-alone
insured instead of a part of the Athens. Group Program could
be as much as $25,000.
4. Athens is already expecting possible premium increases of 33
to 66 percent.
Ratina Histor
As a point of reference, the rating of the insurance company prior
to Athens' purchase of West Covina Disposal has varied over the
years. There was no requirement in the, old franchise agreement
that specified the rating of the insurance company. In the three
years prior.to the transfer of West.Covina Disposal to Athens, the
insurance carrier history was`:
1989-90..............Planet Insurance ................. A rating
1990-91..............Insurance Company of the West....A rating
1991-92..............Insurance Company of the West .... A rating
Upon the transfer of West .Covina Disposal, Athens obtained a
modification to - their existing insurance coverage to add West
Covina Disposal. Their insurance company's rating at the.time was
A-. Athens is now shopping for insurance for 1992-93.
Conclusions
The information -provided in the earlier staff report, the letter
from West Covina Disposal andithe letter from the Independent City
Risk Management Authority, of ,which the City is a member, indicates
the change to an A- insurance rating requirement will have a
minimal or no effect on the City. The difference in cost may or
may not be significant. The, services provided by the insurance.
company may be more comprehensive. The rate payers should not see
any impact as a result of the change, provided the overall
insurance market does not have significant changes beyond the
control of the Company. ;
Staff views the request as away for the Company to get insurance
company assistance to possibly improve the overall accident
prevention program- and identify potential unsafe conditions or
operations in'the future with minimal or no impact on the City or
rate payers. Such a prevention program is a sound approach for any
company.
2
RECOMMENDATION
J
It is recommended the City Council approve Amendment. No. 2 to the
Agreement between the City of West Covina and Arakelian
Enterprises, Inc. DBA West Covina Disposal for the Collection of
Solid Waste, Recyclables, Yard Wastes and Other Compostibles.
Michael L. Miller
Environmental Services Director
MLM:vs
Attachments
ATHENS DISPOSAL
.,
COMPANY RO. Box 60009 • City of Industry, CA 91715-0009
' (818) 336-3636 • FAX (818) 330-0456
December 10, 1992
Mr. Mike Miller
Community Services Director
City of West Covina
1444 West Garvey Avenue
West Covina, CA 91790
Dear Mike:
As we have discussed by phone, in meetings, and during Council
sessions, West Covina Disposal Company respectfully requests that
our contract be revised to reflect an A- or better carrier for
insurance coverage. The attached letter from our broker, Marsh &
McLennan, Incorporated, outlines the upcost of West Covina re-
quiring a stand alone A rated policy. By the City Risk Manager's
own admission, the City will not be at any additional risk as the
result of this formal revision to the contract. The City was
fully aware.of our A- rated carrier and accepted same.
y
I hope this information is helpful. Please schedule Council
action on our request when you see fit.
Sincerely,
Dennis M. Chiappetta
General.Manager
DMC/dd
attachment
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SENT BY: XEROX Telecopier 7017;12-10-92 ;10:15AM 2134873784 918183300456;# 2
Raymond J.:
Skarzeaski Marsh McLennan, Incorporued
Vice President 3303 Wilshire' Boulevard
Los Angeles, CA 90010.1704
Telephone 213 736,7910
Telefax 213 497 3784
4
1V1`rll�
December 10, 1992
Mr. Dennis Chiappetta
General Manager
Athens Disposal Company
P. O.. Box 60009
City. of Industry, California 91715-0009
City of West Covina
West Covina Disposal Franchise Agreeiment
De
ar Dennis: }
I'
Following our meeting on December 2, .1992, we indicated we would:
• Outline our past marketing strategy for the June 30, .1992-1993 insurance period,
• Supply you with actual premium for the same period.
• Supply you with an abbrevliated explanation
I p atlon for Best s Ratings.
Premium comparison for West Covina Disposal (Stand Alone Basis -vs- West
Covina Disposal included in Athens Disposal Program).
Accordingly, please note:
Document: cA
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SENT BY: XEROX Telecopier 7017.12-10-92 ;10:16AM 2134873784 918183300458;# 3
Marsh McLmim Inco:p Med
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Page 2
December 10, 1992
Mr. Dennis Chiappetta
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Planet Insurance Co.
Quoted Auto and General
A -XI
AL
$436967. 1
Liability
GL
61:874.2
Travelers
Quoted Auto and General
A-XV
AL
$312, 660.
Liability
GL
1.00, 500. 1
The Home
Quoted Auto and General
A -XI
AL
500,000.1
Liability
GL
75,000.6
Hartford
Declined due to the class of.
A+XV
N/A
business
American Home
Declined due to the class of
A +XV
N/A
(AIG)
business
Wausau
Declined due, to the class of
A+XV
N/A
business
CIGNA
Declined due to the class of
A-XIV
N/A
business
Transamerica
Declined due to the class of
A XI
N/A
business
Notes
L AL Subject to a $5,000 deductible per occurrence for property damage.
2. GL Issued on a First Dollar basis.
3. AL Subject to a $101000 deductible per occurrence for property damage.
4. GL Issued on a First Dollar basis.
5. AL $25,000 deductible for each accident. Insured is also responsible for the First
$25,000 of Allocated Claim Expense.
L6-I GL Same as AL (Above)
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SENT BY: XEROX Telecopier 7017;12-10-92 :10:16AM 213487378.4 91818.3300456.# 4
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Mash & Mdeiun IncoM=Md
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Page 3
December 10, 1992
Mr. Dennis Chiappetta
As you can see, extensive marketing efforttook place during the June 30, 1992 renewal. It is
also apparent from various carriers' reactions that Athens Disposal is a difficult account to
underwrite. Keep in mind that premiums shown represent Athens, et al.
Actual Premium
Policy
Period
Carrier
Automobile Liability
Premium
General Liability
Premium
1992/93
Planet
$436,967
$61,874
i
Premium increases in the current policy period were due to increases in exposure (AEI acquired
Bevo and West Covina Disposal), not rate] increases. Again, keep in mind that premiums shown
represent Athens, et al.
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Abbreviated Explanation of Bests Ratings
See attached.
Premium Comparison
Anticipated Stand -Alone.
Premium for West Covina
Disposal Only
Current Program Premium (West
Covina Disposal included within
Athens Program)
Auto Liability
558,000.00
$44,085.00
General Liability
$25,000.00
$15,000..00
Also note the difficulty we encountered during the last renewal, as shown in the marketing recap
chart.. All of the A or A+ Best's rated companies declined due to your class of business. Keep
in mind that we are now reapproaching th'e markets, trying to place a much smaller risk (West
Covina Disposal) while satisfying the insurance security issue associated with this franchise
agreement. If the City of West Covina strictly enforces the insurance requirements section of
the West Covina Franchise Agreement, we expect to be successful in obtaining a
DODUMO c CXWP50RAYATHEN92.WC
SENT BY: XEROX Telecopier 7017;12-10-92 ;10:17AM 2134873784-+ 918183300456;# 5
Marsh & McLea m Incorporated
Page 4
December- 10, 1992
Mr. Dennis Chiappetta
quotation from an A or better rated insurance carrier, However, we anticipate the following;
1. Auto premium will increase bya minimum of 30%.
2. General Liability will increase by a minimum of 664o.
3. Higher deductibles or self -insured retentions.
4. Additional coverage restrictions.
Lasdy, . we Periodically run across 'insurance certificate -holder requests asking that our clients
mainWn coverage with carriers having Best's ratings A or higher. However, we do not consider
this to be a normal practice, and believe it only occurs on a sporadic basis when both our client
and the certificate holder fit the Fortune 100. to Fortune 500 profile.
We trust the enclosed will assist you in your negotiations with the City of West Covina. Let me
know if we can be of further assistance.
Sincerely,
Ray MI. Skarze
Vice -President
RJS/jcm
Enclosure
cc: Dave Thoke
SENT BY: XEROX Telecopier 7017;12-10-92 ,10.17AM . 2134873784-+
GUIDE TO 1992 BEST'S RATINGS
RATING LEVELS AND CATEGORIES
918183300456;a 5
Level Category Level Category Level Category
A ++ , A + ... Superior B, B - .. , ... Good D .... Below Min. Standards
A, A - . , ... , . , .. Excellent C ++ , C + ... . Fair E .. Under State Supervision
B ++ , B + ..... Very Good C, C -
�j
.Marginal F . ........ In Liquidation
RATING MODIFIERS
e - Parent Rating p - Pooled Rating x - Reviaed Rating
g - Group. Rating r • Reinsured Rating w- Rating Watch List
s - Consolidated Rating q • Qualified Rating
RATING "NOT ASSIGNED" CATEGORIES
NA-1 Special Data Filing NA-6 Reinsured by Unrated Reinsurer
NA-2 Lose than Minimum Size NA-8 Incomplete Financial Information
NA-3 Insufficient Operating Experience NA-9 Company Request
NA-4 ' Rating Procedure Inapplicable) NA-11 Rating Suspended
NA-5 Significant Change
i
FINANCIAL PERFORMANCE INDEX (FPI)
FPI Description
The Financial Performance Index (FPI) it assigned 8 .& 9 strong
to companies with Rating "Not Assigned" Categories g g,. 7 Above Average
of NA-2 and NA-3. The FPI measures the financial 4 & 5 Average
strength of small or new companies Viand is based on 2 & 3 Below Average
the following numerical scale. 1.. Not Assigned
FINANCIAL SIZE
CATEGORIES.
(In WW of Reported PolleyholdIore'
Surplus Plus Conditional
Reserve Funds)
Class I
Class II
Up to
1,000 to
11000 ,
2,000
Class IX
Class X
250,000 to
600,00010
5001000
750,000
Class 111
'Class
2,000 to
5,000
Class Xl
760,000 to
1,000,000
IV
6,000 to
10,000
Class xu
1,0001000 to
1,250,000
Class V
Class VI
10,000 to
26,000 to
25,000
50,000
Class XIII
Class XIV
1,250,000 to
1,500,000 to
1,500,000
2.000,000
Clara Vil
501000 to
100,000
Class XV
2,000,000 or
more
Class Vill
100,000 to
260,000
e
For, tha /afwst Ana1's O-I/nw• ^011 0.-.-11 r-- Ann •ww
0
ROLLINS—HUDIG_HALL TEL No. Dec 29 , 92 16 : Q3 t,10 .022 P .02
November 17, 1992
Frank B. Halle Co. of California Insurance Brokers
Northern Dimon
Ms. Erin Hoppe Post CM08 Box ir8w
Risk Manager one Markut Plaza
City of West Covina wear Street rower, suns voo
1444 W. Garvey Avenue South San Francisco, Cafifomia 94119.M
West Cvoina, CA 91793
ARAKELIAN ENTERPRISES INC. DBA: WEST COVINA DISPOSAL
CERTIFICATE OF INSURANCE
Dear Erin
In response to your request for analysis of the companies providing insurance for the captioned waste -
disposal contractor, we have reviewed thein in 13cst's Key Rating Guide and find the following:
1. General and Automobile Liability insurance, at $1 million "old. occurrence" limits, is
provided by the Planet Insurance Company. The planet is an operating subsidiary of the
Reliance Insurance Group and is rated "A- Xl."
2. Workers' Compensation is written at statutory limits . and . Employers' Liability at $1
million limits. The carrier is Reliance Insurance Company, also an operating subsidiary
of the Reliance Insurance Group and rated "A- XI."
3. Excess Liability is written at limits of $9 million and should apploy in exce%s of the
primary General, Automobile and Employers' Liability limits. The carrier is Insurance
Company of the State of Pennsylvania, rated "A+ XV."
I have attached pages from the Uest's guide to show you how ratings are determined.
While we cannot guarantee the financial strength, claims -paying abilitynor stability of an
can confirm that our corporate Y y insurer, we
guidelines allow us to place business with the companies mentioned above.
They are all listed on our "acceptable insurer" list.
Please feel free to call me if you have further questions.
Sincerely,
Rollins Hudig Hall of Northern California, inc.
Gary J. Martin
telephone (415) 543 9360 • Teler 4957656 • raraimde (415) 543.5628'
A Davis On of Frark G. I l.ril irsurance Brokws. Inr,