SB 0046 - Fiscal Note

Fiscal Note - SB 0046 - Increases maximum liability of the state and political subdivisions

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 0492-02

BILL NO. SB 46

SUBJECT: Liability: Sovereign Immunity

TYPE: Original

DATE: January 26, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue*	(Unknown)	(Unknown)	(Unknown)
State Road Fund	(Exceeds $3,000,000)	(Exceeds $3,000,000)	(Exceeds $3,000,000)
Conservation Commission Fund	(Unknown)	(Unknown)	(Unknown)
Insurance Dedicated Fund	(Unknown)	(Unknown)	(Unknown)
DNR Dedicated Fund	(Unknown)	(Unknown)	(Unknown)
Total Estimated Net Effect on All State Funds	(Exceeds $3,000,000)	(Exceeds $3,000,000)	(Exceeds $3,000,000)

* Unknown fiscal impact (cost) -- expected to exceed $300,000 in any given year.

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
DNR Federal Fund	(Unknown)	(Unknown)	(Unknown)
Total Estimated Net Effect on All Federal Funds	(Unknown)	(Unknown)	(Unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 8 pages.

FISCAL SUMMARY (continued)

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	Exceeds ($1,000,000)	Exceeds ($1,000,000)	Exceeds ($1,000,000)

FISCAL ANALYSIS

ASSUMPTION

Officials from the Missouri Department of Transportation (DHT) assume the proposed legislation would have a substantial negative fiscal impact on the State Road Fund. During 1998, DHT sought and obtained from Willis Corroon of Chicago, Illinois an actuarial review of the fiscal impact to the State Road Fund if the proposed legislation were enacted. The review found that DHT would experience a 55% increase in total costs associated with the defense of tort suits against DHT and its employees. This percentage increase is based on Willis Corroon's knowledge of DHT's claims and external costs for contracting defense work, as well as the impact other states have experienced with increased liability caps.

Based on DHT's total tort costs incurred during 1997, a 55% increase in tort costs would amount to $3 million annually. This amount does not include the additional cost which would be incurred from the provision allowing unlimited medical expenses. Because the possible liability would be unlimited, DHT is unable to estimate the fiscal impact of this provision; however, the costs could be very substantial.

Officials from the Office of Administration - Division of Risk Management assume the proposal would likely cause at least one judgment annually against the state to exceed $100,000 and has estimated the additional cost to be in excess of $300,000 annually.

Officials from the Department of Natural Resources (DNR) assume the proposal could result in significant unknown costs to the State Parks Fund and other DNR Dedicated Funds, as well as Federal Funds allocated to DNR. DNR assumes that the Office of Administration, Division of Risk Management, has calculated and reported the risks for these types of cases. In addition, DNR assumes that the Attorney General's Office would continue to litigate these cases for DNR.

ASSUMPTION (continued)

In response to similar legislation last session, officials from the Department of Elementary and Secondary Education (DES) assumed the proposal could have an unknown fiscal impact on their agency. DES officials further assumed the Office of Administration, Division of Risk Management, has calculated and reported the risks associated with this proposal. Additionally, DES assumed there could be a fiscal impact on school districts, as this proposal would cause an increase in insurance costs by raising the liability limits for state agencies and political subdivisions.

Officials from the Office of the Secretary of State (SOS) assume the proposal could result in a judgment or settlement against the state that is currently barred under principles of sovereign immunity. SOS further assumes any judgment could result in an increase in litigation costs from lawsuits in which the state would ultimately prevail, but would have either been summarily dismissed or never filed under existing law. Overall, SOS assumes the costs associated with this proposal would be potentially significant, but unknown.

Furthermore, this proposal would require the SOS to publish the current value of the limitation on awards for non-economic damages once per year in the Missouri Register. SOS stated that the publication of this information would only require one page of space in the Missouri Register. SOS based their assumption on the fact that their office currently publishes the limitation on non-economic damages in tort actions based on improper health care. SOS assumed their agency could absorb the cost for publication of one additional page in the Missouri Register.

Officials from the Department of Insurance (INS) assume the proposal would result in an increase in expenditures which would be paid from the Insurance Dedicated Fund. This fund is financed by license fees established by statute. The fees are not indexed for inflation, therefore, an increase in expenditures would reduce the fund balance. The fiscal impact is undeterminable, as INS could not possibly project what future judgements might be awarded.

Officials from the Missouri Department of Conservation assume the proposal could have an unknown fiscal impact on the Conservation Commission Fund.

Officials from the University of Missouri-Columbia (UM) assume there would be a fiscal impact on their budget, as the amount that could be recovered in suits against UM would be increased from $100,000 to $500,000 plus medical. UM further assumed the fiscal impact would be difficult to estimate but could exceed $100,000 annually.

ASSUMPTION (continued)

Officials from the Department of Corrections (DOC) assume the costs of the proposal are unknown as the number of future claims against the DOC or its employees cannot be predicted.

Officials from the Missouri Municipal League (MML) indicate that Missouri has slightly more than 3,300 political subdivisions. Actuaries calculate that an increase in liability caps as proposed by this legislation would increase premiums paid to insurance companies or to pools by 30% to 40%. The Missouri Public Entities Risk Management Fund (MoPerm) insures almost 600 small and medium-sized political subdivisions with annual premiums of $7 million. MML estimates annual premiums paid by all political subdivisions to be about $32 million. With an increase of 30% to 40%, premiums could increase by $9.6 million to $12.8 million. Also, the largest political subdivisions are self-insured and the increased settlements would be paid directly by the taxpayers.

In response to similar legislation last session, officials from the City of St. Louis - Budget Division assumed there would be an increase in the liability limits of judgments rendered against their city in some instances. The City of St. Louis is self-insured and therefore assumes this proposal would result in increased costs in excess of $1,000,000 annually. The City of St. Louis currently settles approximately four or five cases annually for $100,000 each. This proposal would increase the liability limit to $500,000 each plus unlimited medical expenses, thereby possibly increasing each settlement by $400,000 or more. Additionally, the City of St. Louis assumes the increase of liability limits in accordance with the Implicit Price Deflator for Personal Consumption Expenditures could increase liability limits significantly. For example, the reported figures for medical malpractice cases were increased by 43% in nine years.

In response to a similar proposal last session, officials from the City of Kansas City assumed there would be a significant fiscal impact on their budget. Kansas City is self-insured; therefore, all judgments obtained against the city (including claims and lawsuits) are paid entirely by the city out of its General Revenue Fund. Kansas City averages two to three new wrongful death

lawsuits per year and approximately ten new tort lawsuits not involving a death, but involving damages which may reach the liability cap limitations. Projecting increased liability under the proposal based on current lawsuits, officials from Kansas City previously estimated an increase in liability for Kansas City in the approximate amount of $2,700,000 annually.

ASSUMPTION (continued)

Oversight assumes the proposal would have a significant fiscal impact on many political subdivisions, as it would increase the limits of liability for activities which are afforded protection based on sovereign immunity. Many political subdivisions which currently participate

in insurance pools would likely experience rate increases as a result of this proposal. It is apparent that self-insured political subdivisions would be significantly impacted. Overall, Oversight assumes that the fiscal impact on local governmental funds would likely exceed $1,000,000 annually.

Officials from the Office of the Attorney General, Department of Agriculture, Coordinating Board for Higher Education, Office of State Courts Administrator, Department of Economic Development, Department of Mental Health, Department of Health, Department of Revenue, Department of Social Services, Department of Public Safety, Missouri Gaming Commission, Missouri State Employees Retirement System, Office of Prosecution Services, Office of the State Treasurer, Office of the Governor, Office of the Lieutenant Governor, Department of Labor and Industrial Relations, State Tax Commission, Missouri House of Representatives, Office of the State Public Defender, Central Missouri State University, Harris-Stowe State College, Missouri Western State College, and Truman State University assume the proposal would have no fiscal impact on their agencies.

In response to a similar proposal last session, the following agencies assumed there would be no fiscal impact on their agencies: Office of the State Auditor and Missouri Senate.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
GENERAL REVENUE FUND
Costs - Department of Natural Resources	(Unknown)	(Unknown)	(Unknown)
Costs - Office of Administration *	(Unknown)	(Unknown)	(Unknown)
Costs - Department of Corrections	(Unknown)	(Unknown)	(Unknown)
* Total fiscal impact is unknown, but costs are expected to be at least $300,000 annually.
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(10 Mo.)
STATE ROAD FUND	(Exceeds	(Exceeds	(Exceeds
Costs - Department of Transportation	$3,000,000)	$3,000,000)	$3,000,000)
CONSERVATION COMMISSION FUND
Costs - Department of Conservation	(Unknown)	(Unknown)	(Unknown)
INSURANCE DEDICATED FUND
Costs - Department of Insurance	(Unknown)	(Unknown)	(Unknown)
DNR DEDICATED FUNDS
Costs - Department of Natural Resources	(Unknown)	(Unknown)	(Unknown)
FEDERAL FUNDS
Costs - DNR Federal Fund
Total fiscal impact is unknown, but costs could exceed $100,000 annually.
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
LOCAL GOVERNMENTAL ENTITIES
Total fiscal impact is expected to exceed $1,000,000 annually. This would be entirely
dependent on the number of claims filed, the total medical expenses incurred by the litigants,
and the resulting judgments.
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

The proposal would increase the maximum liability coverage that the state or its subdivisions could purchase for tort claims. The state and its subdivisions would be allowed to purchase insurance to cover $2,000,000, in addition to reasonable and necessary medical expenses, for all claims arising out of a single occurrence. Also, the coverage could not exceed $500,000, in addition to medical expenses, for any one person in a single occurrence. The proposal would also increase the state's liability limit for tort claims to those amounts and provide for the

DESCRIPTION (continued)

amounts to be adjusted on an annual basis according to the federal Implicit Price Deflator for Personal Consumption Expenditures.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Office of the Attorney General

Department of Agriculture

Coordinating Board for Higher Education

Office of State Courts Administrator

Department of Economic Development

Department of Elementary and Secondary Education

Department of Transportation

Department of Mental Health

Department of Natural Resources

Department of Corrections

Department of Health

Department of Revenue

Department of Social Services

Department of Public Safety

Missouri Gaming Commission

Department of Insurance

Department of Conservation

Missouri State Employees Retirement System

Office of Prosecution Services

Office of the State Treasurer

Office of the Governor

Office of the Lieutenant Governor

Office of Administration

Department of Labor and Industrial Relations

Office of the Secretary of State

State Tax Commission

Missouri House of Representatives

Office of the State Public Defender

SOURCES OF INFORMATION (continued)

Central Missouri State University

Harris-Stowe State College

Missouri Western State College

Truman State University

University of Missouri-Columbia

Missouri Municipal League

City of St. Louis - Budget Division

City of Kansas City - Budget Division

NOT RESPONDING: Missouri Lottery Commission, Office of the State Auditor, Missouri Senate, Lincoln University, Missouri Southern State College, Northwest Missouri State University, Southeast Missouri State University, Southwest Missouri State University.

Jeanne Jarrett, CPA

Director

January 26, 1999