WHEREAS, the City Council and the Mayor are committed to high standards of financial management; and

WHEREAS, adopting and periodically updating financial policies are important steps towards assuring consistent and rational financial management; and

WHEREAS, the financial policies for the Judgment/Claims Subfund of the General Fund are essential components of financial policies; and

WHEREAS, the City Council and Mayor have reviewed the financial policies for the Judgment/Claims Subfund of the General Fund and wish to update and modify the policies; NOW THEREFORE,

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE, THE MAYOR

CONCURRING, THAT

Section 1. Judgment/Claims Subfund of the General Fund. In order to improve risk management controls and accountability within the Seattle City Government and to manage claims in a consistent and comprehensive manner, the Council adopts the attached policies (Exhibit A) on the Judgment/Claims Subfund of the General Fund. In so doing, the Council reaffirms certain existing financial policies for this subfund and updates these policies in eight ways:

a) Policy 4 describes the basis upon which the judgment and claims budget will be developed.

b) Policy 5 describes the methodology for recovering the judgment and claims costs from the City departments.

c) Policy 6 sets a new policy regarding subfund balances.

d) Policy 7 relates to Council Bill 113825, which revises City policy regarding payment of judgments.

e) Policy 8 relates to Council Bill 113825, which revises City policy regarding payment of claims.

f) Policy 9 and Policy 10 relate to Council Bill 113825, which revises who may authorize periodic payments to a claimant pending settlement or other disposition of his claim, and who may authorize payments for services provided to the City in support of litigation or claims.

g) Policy 12 relates to Council Bill 113825, which revises City policy for investigation and evaluation of claims for damages.

h) Policies 12 and 13 update reporting requirements and evaluation requirements related to judgments and claims against the City.

Section 2. Review of attached policies. The Council finds that the attached policies should be reviewed and updated on a five-year cycle, with the next update scheduled for 2006.

ADOPTED by the City Council of the City of Seattle the ______ day of ______________, 2001, and signed by me in open session in authentication of its adoption this _____ day of _______________, 2001. ______________________________________ President ______________of the City Council

THE MAYOR CONCURRING: ________________________ Paul Schell, Mayor

Filed by me this __________ day of _________________, 2001. ______________________________________ City Clerk

EXHIBIT A: City of Seattle Judgment/Claims Subfund of the General Fund Sept 5, 2001 version 4 t Exhibit A CITY OF SEATTLE JUDGMENT/CLAIMS SUBFUND OF THE GENERAL FUND

Introduction

The Judgment/Claims (J/C) Subfund of the General Fund was established to provide for the payment of judgments and claims, advance payment of some claims, and certain litigation expenses of the City. Expenses incurred on behalf of the utility funds are reimbursed by the utility funds (Seattle City Light and Seattle Public Utilities), and Judgment/Claims Subfund expenses incurred on behalf of the General Fund-supported departments have been covered by an "operating transfer in" from Finance General. Appropriation authority for the Judgment/Claims Subfund has been established on a "pay as you go" approach based on expected payments in the budgeted year. General Fund litigation expense is estimated at about $1.75 million in 2001 and 2002; with claims expense at $750,000 per year; and judgments/settlements at $11 million in 2001 (as a result of possible judgements, expenses in 2002 might be higher than 2001). Approximately $3.3 million of the total Judgment/Claims Subfund annual budget is expected to be reimbursed by the utility funds.

Several changes to the following Judgment/Claims Subfund policies are being recommended by a Risk Management Oversight Committee in response to the 2001-2002 City Council Budget Statement of Legislative Intent (SLI).

Fund Structure

Policy 1. Creation of fund. The Judgment/Claims Subfund of the General Fund has been established for the assets and liabilities relating to judgments, claims, and related expenses of the City of Seattle per Ordinances 108657 and 117977.

Expenditures

Policy 2. Expenditures from fund. All judgments, claims, advance payments, and litigation expenses as authorized by SMC 5.24 may be paid from the Judgment/Claims Subfund.

Revenues/Fund Balances

Policy 3. Revenues to subfund. ...into which subfund shall be placed such amounts of money as appropriated by the City Council and such funds as are reimbursements from proper source funds for judgments, claims payments, advance claims payments, and litigation expenses... [Ordinance 117977, SMC 5.24.010]

Policy 4. Budget. As part of the budget process, the City will provide funds to cover expected eligible "judgments and claims" costs less reimbursements from the utilities for each biennial budget year. Effective with the 2003 budget, each annual budget will be developed based on expected average costs for judgments, claims, and other authorized expenses over the biennium. Subsequent budgets may be developed based on longer-term averages if sufficient information is available to support such projections with the goal of having a predictable and consistent Judgment/Claims budget from year to year. [New Policy]

Policy 5. Cost recovery. Actual Judgment/Claims Subfund expenses or losses incurred on behalf of the utilities will be reimbursed by the utilities as incurred. Effective January 1, 2003, cost recovery for the Judgment/Claims Subfund expenses incurred on behalf of General Fund-supported departments will be based on premiums charged to individual departments. Premiums will be calculated based on the average percentage of judgments, claims, and other eligible expenses incurred by each department over the previous five years. Only the deductible amounts on catastrophic losses will be included in the calculation of departmental premiums. For those situations for which insurance coverage was not available, an amount equivalent to a comparable deductible will be used. Unanticipated catastrophic losses incurred by General Fund-supported departments that cannot be covered with insurance will be charged to the Emergency Subfund if sufficient balances are not available in the Judgment/Claims Subfund. If the Emergency Subfund does not have sufficient funds to cover these expenses, the City may consider issuing limited general obligation debt. [New Policy]

Policy 6. Subfund balances. Effective in 2003, if actual expenditures in a year are less than the amounts paid into the Subfund from premiums, the surplus will be used to create a fund balance for future costs above budgeted levels. The fund balance will be allowed to accumulate until it reaches fifty percent (50%) of the expected annual expenditures. In order to support premium rate stability, any fund balance above this amount will be rebated to departments in the subsequent biennium. [New Policy]

Payments

Policy 7. Payment of judgments. The City Attorney shall have full supervisory control of all the litigation of the City, or in which the City or any of its departments are interested, and shall perform such duties as are or shall be prescribed by ordinance. [Article XIII, Section 3 of the Seattle City Charter.]

Effective January 1, 2002, the City Attorney may authorize payment of any settlement arising out of litigation against the City or any judgment against the City. Prior to authorizing settlement of any litigation for an amount over Five Hundred Thousand Dollars ($500,000.00), the City Attorney shall brief the City Council regarding the proposed settlement during executive session called pursuant to RCW 42.30.110. Prior to authorizing a settlement involving significant financial or policy issues, the City Attorney shall consult with the Director of Finance and the head of the relevant department. Upon the presentation by the City Attorney to the Director of Finance of either a copy of a Release and Order of Dismissal or a copy of a judgment against the City, entered in an appropriate court, and having attached thereto a statement in writing, signed by the City Attorney, to the effect that the right of appeal from such judgment has been expressly waived, or that the time for an appeal has expired, the Director of Finance shall issue a check upon the Judgment/Claims Subfund for the amount of such judgment, and costs if awarded to the claimant by the court. [Council Bill 113825]

Policy 8. Adjustment and payment of claims. In order to manage claims filed against the City in a consistent and comprehensive manner, all claims filed against the City, as provided in SMC 5.24, shall be investigated and evaluated by the Director of Finance with the assistance of the City Attorney. [New Policy]

Effective January 1, 2002, the Director of Finance may authorize payment of any claim against the City including claims brought in the small claims department of the district court pursuant to RCW Chapter 12.40. Prior to authorizing settlement of any claim for an amount over One Hundred Thousand Dollars ($100,000.00), the Director of Finance shall brief the City Attorney and the City Council regarding the proposed settlement during executive session called pursuant to RCW 42.30.110. Prior to authorizing a settlement involving significant legal or policy issues, the Director of Finance shall consult with the City Attorney and the head of the relevant department. [Council Bill 113825]

Policy 9. Advance payments-Grounds for payment. The City Attorney and the Director of Finance are authorized to make periodic payments to a claimant pending settlement of other disposition of his claim equivalent to not more than the claimant's pre-injury net take-home pay if the City Attorney or the Director of Finance finds the following conditions to exist.... [Council Bill 113825]

Policy 10. Litigation expenses. The City Attorney and the Director of Finance are authorized to make payment to private and/or public agencies, firms, and/or individuals who provide services to the City in support of any litigation and/or claim and/or threatened litigation or claim filed or contemplated against the City or where the City is a plaintiff or potential plaintiff in legal action. [Council Bill 113825]

Reporting/Evaluation Requirements

Policy 11. Claims evaluation and departmental involvement. Effective January 1, 2002, all claims for damages shall be investigated and evaluated by the Department of Finance with the assistance of the City Attorney. In anticipation of litigation regarding such claims, the Director of Finance may request reports from all interested departments concerning any claim and such reports shall be prepared to assist the City Attorney in defense of the City and shall constitute and be treated as privileged communications. [Council Bill 113825]

Policy 12. Annual Briefings of Council. Effective January 1, 2003, the Director of Finance, Director of Risk Management, and the City Attorney will provide annual briefings to Council on individual settlements over One Hundred Thousand Dollars ($100,000.00) in February. The Director of each of the City departments involved with each specific settlement will also participate in these briefings. [New Policy]

Policy 13. Reports to Council and City Departments. The Director of Risk Management will provide semi-annual reports in February and September to Council and City Departments on all claims and lawsuits against the City. [New Policy]

Sept 5, 2001