This article was produced in partnership with Amwins.
Bethan Moorcraft, of Insurance Business, sat down with Brian Frost, executive vice president and public entity liability practice leader for Amwins Brokerage, to discuss public entity exposure to tort-based liability claims for municipalities.
Public entities are the backbone of state and local infrastructure, providing crucial services like schooling, law enforcement, and social care to communities across the United States.
When fulfilling their many obligations to citizens, there are certain legal doctrines and statutes that grant qualified public agencies certain immunities from tort-based liability claims. These tort protections are determined on a state-by-state basis, and typically serve as the first level of defense that public entities will deploy if a claim for damages is filed against them.
In addition to granting immunity from tort-based liability claims, many states also apply specific caps for damages, which legislators will adjust over time and in line with inflation. Like the individual tort claims legislation, the caps for damages vary by state.
Certain states, like Arizona, Alaska, California, Connecticut, Hawaii, Illinois, Michigan, Virginia, Washington, New York, and New Jersey offer no legislatively effected damage caps for public entities facing tort-based liability claims. Meanwhile, other venues like Alabama, Colorado, Texas and Florida have significant damage caps on what could ultimately be levied upon and paid by a public agency – on both a per person, or per occurrence basis.
“Those two elements, available immunities and tort caps, work in conjunction in the state court system to create effective borders around prospective awards by a plaintiff against a public agency,” explained Brian Frost, executive vice president and public entity liability practice leader for Amwins Brokerage.
However, plaintiff attorneys are perpetually seeking ways to challenge the application of public entity immunity and damage caps from tort-based liability claims.
According to Frost, a trend that public entity underwriters and their claims counterparts are watching closely at the moment is how plaintiff attorneys are attempting to bypass state tort protections afforded to governmental entities with novel civil rights assertions, including those under the 1st, 4th, 5th, 8th and 14th Amendments to the US Constitution.
“This strategy creates pathways to the federal court system, where there are no such caps for damages, with the further incentive that plaintiff counsel has the ability to get their attorney fees awarded as part of those damages,” explained Frost. “It’s a whole different ball game for states with significant limitations on the awards that can be rendered from a public agency to a plaintiff.”
Public entity liability issues being heard in the federal court system is not a new phenomenon. For example, employment practices liability cases have a clear path into the federal system if a public agency is accused of violating US Equal Employment Opportunity Commission (EEOC) doctrines.
Likewise, law enforcement and police professional liability cases have been heard in federal court for 40+ years.
Often, claims are brought under Section 1983 of Title 42 of the United States Code, which provides an individual the right to sue state government employees and others acting “under color of state law” for civil rights violations. This was made possible after the 1978 court case Monell v. Department of Social Services, in which the US Supreme Court uprooted absolute or ‘sovereign’ immunity for public entities if they were deemed to practice unconstitutional acts and procedures.
“On that path – using Section 1983 and Monell – those claims can go into the federal courts and plaintiffs can get significant damages awarded, even in tort-protected venues like Texas, where the caps for damages are well substantiated and holed up in the state system,” said Frost. “What we’re seeing now, especially with heightened media attention around civil rights concerns, is plaintiff attorneys using Section 1983 to broaden what type of action can get into the federal courts.
“For example, if a public K-12 school district is involved in a sexual abuse claim, there are elements of Section 1983 that can apply and create a civil rights violation. This is called ‘state created danger’ and it moves beyond normal negligence. School shootings are another big concern. You can assert civil rights violations based on a public entity’s failure to prevent a shooting. You can also assert civil rights violations based on bullying, and when you overlay that with the prevalence of social media today, it becomes another heightened exposure.”
The theories and endeavors by the plaintiff’s bar to use this approach have been around for the past decade, but they’re starting to pick up steam with the alignment of more successful outcomes along with social inflation and the escalation of claim severity trends, especially around sexual abuse.
For public entities, awareness of this trend allows for early preparation for a prospective defense within the federal system, explained Frost. This gives public entities more control over the direction and the narrative of the early stages of their defense strategy, as well as how they prepare their evidence, discovery, and even their defense counsel selection. If there’s the potential for a constitutional rights violation or a civil rights federal environment, public entities will need a defense attorney who is familiar with the application of federal laws.
“From an underwriting perspective, an awareness of the loss potential is something underwriters are paying close attention to,” Frost told Insurance Business. “So much of their rate promulgation that they use to establish premium is based on the historical body of loss data. If that’s based on a majority of loss data that’s been developed out of one court system, and then there’s a migration towards a different court system that allows for increased damages, then that has to be taken into consideration within actuarial models and selections, and ultimately the premiums they charge and potentially the retentions they set.
“From a buyer’s perspective, this influences the assessment, selection, and purchase of appropriate limits of liability to protect public agencies. If you are a public agency in what has historically been a relatively well protected tort cap venue, you may not buy significant limits of liability. But now, because of this increasing trend [in Federal Civil Rights Liability] we’re seeing public agencies request options for increased limits, especially for law enforcement.”
However, at a time when public entities are seeking higher limits of liability, many insurers are limiting capacity due to negative loss trends. Frost said the public entity liability market has been “one of the more dramatically impacted segments” of the hardening casualty insurance market, with many insurers either pulling out of the market entirely or significantly cutting their capacity.
In challenging markets like this, Frost’s advice for retail agents it to take a collaborative approach throughout the underwriting process and to work closely with claims adjusters.
“Agents sometimes underutilize the expertise and knowledge of the claims adjusters at the carriers who, in the public entity space, tend to be specialists because the product is so unique,” he said. “A lot of these adjusters are working on a national portfolio, so they’re able to see federal trends differently than perhaps someone that’s working within one particular state.
“When it comes to these types of emerging issues, the collaboration of all stakeholders - retail brokers, wholesale brokers, underwriters, claims adjusters, and risk managers – is key. It creates benefits in terms of relational capital, but also the intellectual capital that exists and can then be shared and used to everybody’s advantage.”
