THE CITY OF NEW YORK AS A MAJOR

INSTITUTIONAL LITIGANT:

A FOLLOW-UP ON THE PRICE WATERHOUSE STUDY

AN OVERVIEW OF THE PROBLEM

THE PRICE WATERHOUSE REPORT

1. Increase staffing to reduce workloads. 21

2. Claims examiners and attorneys should be organized

3. Reduce costs through better work-up of claims

and early settlement at lower average values.33

4. Increase agency involvement

THE CITY'S RESPONSE TO PRICE WATERHOUSE'S RECOMMENDATIONS

A. BLA

B. The Tort Division

CONCLUSION

Dated: May 6, 1999

Council on Judicial Administration

Paul H. Aloe
John L. Amabile**
Richard T. Andrias
Steven J. Antonoff
Jacob Aschkenasy
Robert E. Bailey
Paris R. Baldacci
Celia Goldwag Barenholtz
Helaine M. Barnett
Gary S. Brown
Nancy A. Brown
Dierdre A. Burgman
Austin V. Campriello
Roy H. Carlin
P. Kevin Castel
Ellen M. Coin
Brendan M. Connell, Jr.
Melanie L. Cyganowski
William M. Dallas, Jr.
George B. Daniels
Julia R. Davis
Charles E. Dorkey III
Joan L. Ellenbogen
Linda A. Fairstein
Gerald J. Fields
John E. Finnegan*
Steven G. Foresta
Amanda J. Gallagher
Paula Galowitz
John L. Gardiner
David R. Gelfand
Lenore Gittis
Thomas H. Golden
Erika D. Gorrin
Salvatore J. Graziano
James W. Harbison, Jr.
Alexander W. Hunter, Jr.
Debra A. James
Robert Jossen
Barry M. Kamins
Beth L. Kaufman
Norman C. Kleinberg
Marilyn C. Kunstler
Deborah E. Lans
Craig Leen
Robert J. Levinsohn
Robert P. LoBue
Mitchell A. Lowenthal
Jerianne E. Mancini
Frank Maas
Maria Milin
Jonathan W. Miller
Charles G. Moerdler
David M. Morris
Brian J. Noonan
Marilyn G. Ordover
Steven R. Paradise
Sheryl L. Parker
Jane W. Parker
Gerald G. Paul*
Ann T. Pfau
Richard Lee Price
Porfirio F. Ramirez, Jr.
Willian C. Rand
Claudia E. Ray
Roy L. Reardon
Anne Reiniger
Steven A. Reiss
Rosalyn Heather Richter
Eric Reider
Stephen G. Rinehart
David Rosenberg
David E. Ross
Jay G. Safer
Shira A. Scheindlin
Stella Schindler
Edward T. Schorr
Marcia Lynn Sells
Steven B. Shapiro
Jacqueline W. Silbermann
George Bundy Smith
Debra B. Steinberg*
Andrew W. Stern
Guy Miller Struve
Eric A. Tirschwell
Paul A. Tumbleson
Mark Walfish
Eric D. Welsh
Aviva O. Wertheimer
John S. Willems
Ronald P. Younkins

* Members of Subcommittee on Institutional Litigants
** Principal author of this report

1 In April, 1998, the Council issued two reports on the subject, The City of New York As A Major Institutional Litigant: The Need for Greater Cooperation Between City Agencies and Their Attorneys (in which we recommended that the Mayor issue "forthwith" an Executive Order or other appropriate directive assigning personal responsibility to a senior legal officer of every City agency for that agency's prompt compliance with discovery requests in pending litigations); and The City of New York As A Major Institutional Litigant: The Price Waterhouse Study (in which we urged that the City release Price Waterhouse's evaluation and report on the City's claims processing and litigation functions). As will be discussed in this report, the recommended agency directive has not been issued, and there is still no accountability at the agencies. The Price Waterhouse Report, "The City of New York Claims Processing and Claims Litigation Study", was finally made public in September, 1998.

2 Unless otherwise noted, all statistical information contained in this report was provided by the City's Tort Division or the Comptroller's office, either in interviews or through documentation.

3 Price Waterhouse Report, pp. 3-4.

4 New York State Unified Court System's Comprehensive Civil Justice Program (1999). The Standards and Goals guidelines generally require that disclosure be completed and a Note of Issue filed within 12 months of the filing of a request for judicial intervention on a "standard" civil case and within 15 months of such filing in a "complex" case. Once a Note of Issue is filed, the guidelines provide for disposition of the case within 15 months.

5 Id.

6 Id. The proposal does not exclude the possibility of these cases being returned to their county of origin for trial by any available justice. Indeed, this may be required by statute. See CPLR 504(3) which provides, in relevant part, that all causes of action against the City are to be tried in the county within the city in which they arose.

7 Chapter 5, section 93(i), of the City Charter empowers the Office of the Comptroller to investigate, adjust and settle all claims in favor of or against the City.

8 Joint Press Release of Comptroller and Corporation Counsel, dated September 23, 1998 (the "September 23, 1998 Joint Press Release").

9 Price Waterhouse Report, p. 4.

10 New York City Office of the Comptroller's Bureau of Management and Accounting Systems, "Request for Proposals to Provide a Study, Evaluation and Report on Claims Processing and Litigation In The City of New York," (undated), p. 4.

11 Id.

12 Most businesses consider litigation expenses to be an operating cost which is passed on to the consumer, just as insurance premiums reflect all of a carrier's costs in conducting its business.

13 Corporation Counsel of the City of New York, "Summary of City's Proposal for Efficient Litigation of Pre-Note Cases" (undated); conversations with Office of Corporation Counsel.

14 Most of the approximately 16,000 motions handled annually by the Tort Division are discovery motions resulting from the City's failure to comply with discovery requests.

15 To compel compliance with Standards and Goals alone will not affect the total volume of pending City tort cases; it will merely transfer cases from the pre-note-of-issue stage to the post-note stage. However, a related result would be to force the City to investigate cases earlier -- both as to liability and damages -- and, as will be discussed below, this is a necessary prerequisite to knowledgeable settlement discussions.

16 Price Waterhouse Report, p. 2. Given the historical reluctance of governmental bodies to concede that their performance is lacking in any respect, the mere fact that Price Waterhouse was retained for this purpose invites two reactions: first, the retaining agencies deserve kudos merely for acknowledging that they need outside help; and, second, the problem must indeed be severe for the City to spend nearly $1 million in order to obtain outside expert advice.

17 Price Waterhouse Report, p. 51.

18 Id. Price Waterhouse's cost benefit analysis is premised on three key assumptions: (1) by settling claims early, the overall cost over the life of a category of claims will be reduced; (2) based on the many initiatives the City will employ, more cases will close administratively; and (3) due to investments in staffing and outsourcing arrangements, among other things, the City will realize savings from process efficiencies and claim/case inventory reduction. Id.

19 The final Price Waterhouse Report which has been released by the City only contains a Summary of Recommendations. Presumably, Price Waterhouse also delivered to the City a detailed discussion of those recommendations, but any such documents have not been provided.

20 Price Waterhouse Report, p. 98.

21 Id. at p. 7.

22 Id. at p. 3.

23 Id. at p. 7

24 Id. As part of its work, Price Waterhouse undertook a benchmarking study to gather data from private sector insurance organizations and from other municipalities with similar types of tort claims and cases. Id. at pp. 73-97.

25 Fort Worth, Texas; Long Beach, California; Pittsburgh, Pennsylvania; San Antonio, Texas; San Diego, California; and San Francisco, California were the six cities that responded to a Price Waterhouse questionnaire. Price Waterhouse Report, p. 94.

26 Id. at p. 96.

27 The City had 1.33 tort attorneys per 100,000 citizens, while the group median was .57 attorneys for all claims. Nonetheless, Price Waterhouse concluded that, based on workload, it was clear that the City had an insufficient number of attorneys. Price Waterhouse Report, p. 97.

28 Price Waterhouse Report, p. 95. The City had 1.11 claims examiners per 100,000 citizens for personal injury and property damage claims, while the group median for all claims was .41 examiners. However, the City and the group median were fairly comparable in the ratio between the number of claims examiners per attorney: .83 examiners per attorney for the City, .70 for the group. Id. at p. 97.

29 Id. at p. 8.

30 Id.

31 Id. at p. 6.

32 Id. As will be discussed below, lack of oversight responsibility was not caused solely by the absence of vertical assignments. A primary cause for the failure of City agencies tocomply with discovery requests and court directives is the inexplicable (unless explained by political expediency) unwillingness of the City's managers to assign oversight responsibility to anyone -- much less an appropriate individual -- in those agencies.

33 Price Waterhouse Report, p. 8.

34 Id. at p. 5.

35 Id.

36 Id. at p. 54, Explanatory Note to Line 13. More importantly, by not pursuing fraudulent claims, the City implicitly encourages the continuation of this illegal practice.

37 Price Waterhouse Report, p. 5.

38 Id. at p. 8.

39 Id. p. 5.

40 See id. There has also been a cultural reluctance, particularly at BLA, to pay substantial sums, in advance of a "drop dead" date, to what has been perceived as the "enemy", i.e., to people claiming that they were wronged by City acts or omissions, irrespective of the merits of these claims. There have been some indications that this cultural antipathy to making substantial settlement offers at early stages of cases and claims is disappearing.

41 The participating insurers were CNA Insurance, Crum & Forster Insurance Group, Fireman's Fund Insurance Company, Nationwide Mutual Insurance Company, Reliance Insurance Company, St. Paul Insurance Company, The Travelers Indemnity Company and United States Fidelity and Guaranty Company. Price Waterhouse considered the types of claims handled by these carriers to be relatively comparable to those handled by BLA and the Tort Division. Price Waterhouse Report, pp. 74-75.

42 Id. at p. 91. Pre-suit settlements tend to be lower since claimants gain the benefit of early payment. Disposition of cases in the claim stage also saves the legal and related costs involved in defending a lawsuit.

43 Id. at p. 5.

44 Id.

45 Id.

46 Id. at p. 73.

47 Id. at p. 8. $18.2 million of this sum was to be allocated to staffing; $3.45 million to outsourced investigations and medical exams, and $3 million to systems. Id. at p. 59. However, by year five, total staffing expenditures were projected to decrease by $2 million to reflect the decreased caseload. Price Waterhouse believed that this reduction in personnel could be achieved through natural attrition. Id. at p. 55.

48 Id. at p. 8. The City's annual budget is in the range of $30 billion.

49 Price Waterhouse Report at p. 8.

50 Id.

51 Id. at p. 6. Price Waterhouse reported that nearly every insurance company participant in its survey reported a formal structured approach to providing feedback, both to policyholders and carrier representatives, on significant avoidable claims. In Price Waterhouse's view, it is imperative that the City do likewise. BLA and the Tort Division should work closely with agency personnel on risk management efforts. Id. at p. 87.

52 Id. at p. 6.

53 See id. at p. 3.

54 The City's annual budget provides for funds to settle these cases. Representatives of the Tort Division have told us that this limitation on available settlement monies does not, as a practical matter, affect case dispositions.

55 See Price Waterhouse Report, p. 89.

56 See id. at p. 41, Recommendation 7.1.

57 At the time of the Price Waterhouse Report, of the more than $40 million spent annually on BLA and the Tort Division, only about 15% was devoted to BLA activities during the claim stage. Id. at p. 7.

58 We recognize that many of these claims may be insignificant. We do not have enough information to determine whether a policy of insisting on hearings even for minor claims would ultimately result in a decrease in the number of such claims over time or a reduction in their settlement value.

59 Price Waterhouse Report, p. 54, Lines 2 and 3.

60 Id. at p. 13, Recommendation 1.10.

61 It is unclear whether these settled cases are included in the above EIU statistics.

62 September 23, 1998 Joint Press Release. Price Waterhouse would apparently further expand this fraud investigation program. Price Waterhouse Report, p. 22, Recommendation 8.1. It also would have the Tort Division staffed with personnel who would be dedicated to a specific pro-active defense strategy with regard to possible fraud. Id., p. 13, Recommendation 1.9. To the best of our information, the Tort Division has not yet adopted this recommendation.

63 A side effect of BLA's optical imaging system its that it enables BLA to determine which successful claimants owe the City money. This permitted BLA to collect $3.4 million in fiscal 1998 which, presumably, it was not even equipped to identify readily in prior years. See September 23, 1998 Joint Press Release.

64 See, e.g., Price Waterhouse Report, p. 16, Recommendation 2.8; p. 17, Recommendation 3.7.

65 See id. at p. 6.

66 New York Law Journal, February 9, 1999, p. 1. The source of funding to pay the ensuing increased compensation and benefits is unclear.

67 Since there are over 60,000 pending cases, there are about 12,000 that involve over $50,000.

68 See also, Price Waterhouse Report, p. 30.

69 The Tort Division reports that, with greater staffing, it could dispose of even more cases through dispositive motion practice.

70 September 23, 1998 Joint Press Release.

71 The City has a ratio of .25 paraprofessionals per attorney, which is also the approximate group median for those insurance companies participating in the Price Waterhouse Study. See Price Waterhouse Report, p. 93.

72 In September, 1998, in James v. City of New York, 97 Civ. 9159 (S.D.N.Y.), District Court Judge John S. Martin ordered the City to pay $19,811.90 in sanctions for what he termed the "utter disdain" displayed by the Police and Corrections Departments for their discovery obligations in a police brutality case. According to the New York Law Journal of September 30, 1998, Judge Martin denounced the failure of Police and Corrections officials to remedy or explain their delays. The Judge noted that their "cavalier attitude" toward discovery demands was systemic and rooted in a belief that "obtaining information responsive to civil discovery demands is of the lowest priority, and court orders relating to such matters may be treated with contempt." Id.