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LIABILITY POOL

LIABILITY POOL

GENERAL ASSESSMENT FORMULA

FOR THE

PURMS JOINT SELF-INSURANCE AGREEMENT

Amended and Restated as of March 30, 1995

TABLE OF CONTENTS

                                                                                                                                                    

1.     Definitions for Liability General Assessment Formula. 2

1.1.      Added Exposure Contracts. 2

1.2.      Annual Assessment Limit 2

1.3.      Assessment Limit Overage. 2

1.4.      Assessment Share. 2

1.5.      Basic Per Capita. 2

1.6.      Contract Conversion Hours. 2

1.7.      Defense Costs. 2

1.8.      Employee Hours Worked. 2

1.9.      Gross Revenues. 3

1.10.        Historical Claims Experience. 3

1.11.        Incurred Liability. 3

1.12.        Special Defense Services. 3

2.     Statement of General Assessment Formula. 3

2.2.      Historical Claims Experience at 20%.. 3

2.3.      Employee Hours Worked at 70%.. 4

3.     Limitation in Amount of Annual General Assessments per Member 4

3.1.      Application of Annual Assessment Limit 4

3.2.      Reallocation of Assessment Limit Overages to Remaining Members. 5

4.     Allocation of Fund's Expenditures for Covered Claims to Member's Historical Claims Experience. 5

4.1.      General Allocations Rules. 6

4.2.      Allocation of Defense Costs in Multi-Member Claims. 6

4.2.1.       Defense by Common Counsel 6

4.2.2.       Separate Defense Counsel in Conflict of Interest Situation. 6

5.     Determination of Total "Employee Hours Worked". 7

5.1.      General Rules. 7

5.2.      Determination of Contract Conversion Hours for "Added Exposure Contracts". 7

6.     Former Members. 7

7.     New Members. 7

 


LIABILITY POOL

GENERAL ASSESSMENT FORMULA

FOR THE

PURMS JOINT SELF-INSURANCE AGREEMENT

Amended and Restated as of March 30, 1995

Overview of Assessment Formulas for PURMS Risk Pools

The “Assessment Formulas” Sections of the PURMS Joint Self-Insurance Agreement (“SIA”) set forth the formulas for assessing the Members of each Risk Pool for the Operational Costs the Fund incurs in operating their respective Risk Pools, including without limitation, Coverage Payments (all Risk Pools), Defense Costs (Liability Pool), Property Claim Costs (Property Pool), Direct H&W Claims Costs and Shared H&W Costs (H&W Pool), and the Direct and Shared Administrative Expenses of all Risk Pools.

The Liability Pool is governed by two Assessment Formulas, one for General Assessments and one for Premium Assessments.  The two current formulas for the Liability Pool are: 

(a)             The Liability General Assessment Formula (with Annual Assessment Limit) (SIA § VIII); and

(b)            The Liability Premium Assessment Formula (with Added-Risk Pass Through, and without Annual Assessment Limit) (SIA § IX). 

The Liability General Assessment Formula was first adopted by the Members of the Fund on December 20. 1976, has been amended from time to time, and was unanimously re-adopted on March 30, 1995. The Liability Premium Assessment Formula (with Added-Risk Pass Through and without Annual Assessment Limit) was unanimously re-adopted by the Board at its General Meeting on December 9, 1994, effective January 1, 1995. 

The Property Pool is also governed by two Assessment Formulas, one for General Assessments and one for Premium Assessments.  The two current formulas for the Property Pool are: 

(a)             The Property General Assessment Formula (with Annual Assessment Limit) (SIA § XII); and

(b)            The Property Premium Assessment Formula (without Annual Assessment Limit) (SIA § XIII).  The H&W Risk Pool is currently governed by one Assessment Formula entitled the H&W General Assessment Formula (SIA § XV).

The Property General Assessment and the Property Premium Assessment Formulas were unanimously adopted by the Members of the Fund effective February 27, 1997. 

Assessments of Members of the H&W Pool are governed by a single Assessment Formula called the H&W General Assessment Formula. (SIA § XV). This Formula covers both the self-insured portion of the H&W Pool’s Operational Costs as well as the cost of Stop Loss Insurance. The H&W General Assessment Formula was unanimously adopted by the Members of the Fund on March 16, 2000, effective April 1, 2000, and was amended and restated and unanimously re-adopted by the Members as of December 7, 2001.

These Formulas, as amended from time to time pursuant to § I, § 5.2, are specifically incorporated into the Interlocal Agreement and shall be deemed a part of that Agreement as if fully set forth therein.

LIABILITY POOL GENERAL ASSESSMENT FORMULA

1.               Definitions for Liability General Assessment Formula.  Additional relevant definitions are set forth in the "Definitions" section of the SIA and are also applicable to the interpretation of the Fund's Assessment Formulas.  Unless specifically indicated otherwise, use of the term "Employee" in the General Assessment Formula section of the SIA shall include "Insured Agents" and "Insured Volunteers." The following definitions are specifically applicable to this Section:

1.1.          Added Exposure Contracts -- shall mean those contracts Members enter into with Third Parties which the Administrative Committee determines pose additional exposure to the Fund and therefore should be considered in determining a Member's Employee Hours Worked for purposes of applying the General Assessment Formula, as provided in § VIII., ¶¶ 5.1 and 5.2.

1.2.          Annual Assessment Limit -- shall mean the limit on total amount of Assessments the Fund may levy on an individual Member in any calendar year, as provided in § I., ¶ 13.6.

1.3.          Assessment Limit Overage -- shall mean the amount by which a Member's Assessment Share of a General Assessment exceeds the amount of such Assessment the Member is required to pay after application of the Annual Assessment Limit, in accordance with § VIII., ¶ 3.

1.4.          Assessment Share -- shall mean the amount of money a Member becomes obligated to pay to the Fund as a result of an Assessment.

1.5.          Basic Per Capita --  shall mean the 10% portion of a General Assessment amount that is allocated equally among all Members for purposes of calculating a Member's Assessment Share of the General Assessment, as provided in § VIII., ¶ 2.1.

1.6.          Contract Conversion Hours -- shall mean the hours the Administrative Committee determines should be added to a Member's "Employee Hours Worked" because of an Added Exposure Contract such Member has with a Third Party for purposes of applying the General Assessment Formula, as provided in § VIII., ¶ 5.2.

1.7.          Defense Costs -- shall mean all costs and expenses the Fund incurs in connection with resolving a Covered Claim, including without limitation, investigation and expert expenses, witness fees, court costs and attorneys fees, but excluding Damages.

1.8.          Employee Hours Worked --  shall mean the 70% portion of the General Assessment amount that is allocated to a Member based on the ratio of the Member's total Employee Hours Worked divided by the total of such Hours for all Members (as reflected on the reports Members file with Washington Department of Labor & Industries entitled "Employers Quarterly Report of Hours for Industrial Insurance," or similar reports required of Members located outside of Washington) for purposes of calculating a Member's Assessment Share of the General Assessment, as provided in § VIII., ¶ 2.3.  "Employee Hours Worked" shall also include the Contract Conversion Hours approved by the Committee for any Added Exposure Contract pursuant to § VIII., ¶ 5.2.

1.9.          Gross Revenues -- shall mean, for purposes of determining application of the Annual Assessment Limit under the General Assessment Formula in § VIII., ¶ 3, the annual total of revenue dollars received by a Member from sales of electricity, water, gas and/or sewer Services, less the amount of any municipal urban taxes that the Member collects from Customers and remits to the taxing authority.

1.10.       Historical Claims Experience -- shall mean the 20% portion of the General Assessment amount that is allocated to a Member based on the ratio of the Member's Historical Claims Experience divided by the total of such Experience of all Members for purposes of calculating a Member's Assessment Share of the General Assessment, as provided in § VIII., ¶ 2.2.  A Member's Historical Claims Experience shall consist of the total of the amounts the Fund has paid or incurred in connection with resolving Covered Claims asserted against the Member and its Employees, Insured Agents and Insured Volunteers during the preceding five (5) year time period for Incident investigation costs (once the Claim has been asserted), Defense Costs and Coverage Payments.

1.11.       Incurred Liability -- shall mean the amount of a Member's or Employee's legal obligation to a Third Party for Damages, and any liability for payment of costs and attorneys fees, arising from a Covered Claim, as established by legal proceedings or by settlement.

1.12.       Special Defense Services -- shall mean those legal services rendered by Defense Counsel for the unique benefit of one Member or less than all Members involved in a Multi-Member Claim that are in addition to or substantially different from the legal services rendered on behalf of or for the common benefit of all Members involved in the Claim.  (See, § VIII, ¶ 4.2.3).

2.               Statement of General Assessment Formula.  The General Assessment Formula shall have three (3) components which shall be applied to determine a Members Assessment Share of any General Assessment as follows:

2.1.          Basic Per Capita at 10%.  Ten percent (10%) of the amount of the General Assessment to be levied will be allocated equally among all Members of the Fund as a Basic Per Capita charge. 

Example: Assume a General Assessment amount of $778,098.  10% times that amount yields $77,810, which is to be divided in equal shares among all Fund Members.  Assume the Fund is composed of 13 Members.  $77,810 (10% of the General Assessment amount) divided by a hypothetical 13 total Fund Members yields a Basic Per Capita charge of $5,985.

2.2.          Historical Claims Experience at 20%.  Twenty percent (20%) of the amount of the General Assessment will be allocated among Members based on the relative relationship of each Member's Historical Claims Experience for the preceding five (5) years to the Fund's total Claims experience for the same time period. 

Example: Assume a General Assessment amount of $778,098, total payments by the Fund in the preceding five years for Covered Claims (including Defense Costs) for all Members of $509,634, and payments for Claims asserted against Member A for same time period of $171,507.  The ratio of Member A's Claims Experience to the total is 34% ($171,507 ¸ $509,634 = 34%).  The 20% Historical Claims Experience component times the General Assessment amount of $778,098 is $155,620.  Therefore, Member A's 34% share of the General Assessment amount allocable to the 20% Historical Claims Experience component is $52,910 (34% x $155,620).

2.3.          Employee Hours Worked at 70%.  Seventy percent (70%) of the General Assessment amount will be allocated among Members based on the relative relationship of each Member's total Employee Hours Worked for the year preceding the last full calendar year to the total of all Members' Employee Hours Worked for the same time period. 

Example:  Assume a General Assessment amount of $778,098, a total of Employee Hours Worked for all Members' in the year preceding the last calendar year of 2,660,571, and Employee Hours Worked for Member A of 186,240.  The ratio of Member A's Hours to the total is 7% (186,240 ¸ 2,660,571 = 7%).  The 70% Employee Hours Worked component times the General Assessment amount of $778,098 is $544,668.  Therefore, Member A's 7% share of the General Assessment amount allocable to the 70% Employee Hours Worked component is $38,127 (7% x $544,668).

Under the above example calculations, Member A's Assessment Share of the $778,098 General Assessment amount is the total of Member A's Assessment Share under each of the three components, or $97,022 ($5,985 + $52,910 + $38,127 = $97,022), unless the Annual Assessment Limit applied in accordance with ¶ 3 below yields a lesser amount.

3.               Limitation in Amount of Annual General Assessments per Member.

3.1.          Application of Annual Assessment Limit.  Except as otherwise provided in the SIA, including but not limited to § I., ¶ 13.6.2, the maximum amount a Member may be required to pay in General Assessments in any one calendar year shall equal the greater of: (a) 2% of such Member's Gross Revenues in the calendar year prior to the last full calendar year, or (b) 10% of the total General Assessments levied by the Fund in the current year divided by the total number of Members in the Fund.

Example:  Assume the Gross Revenues of Member A in the example above was $7,146,321, and that the $778,098 General Assessment is the second General Assessment for the calendar year, following an earlier Annual Automatic General Assessment of $520,019, for a total of General Assessments in the amount of $1,298,117.  2% of Member A's Gross Revenues (2% x $7,146,321) is $142,942.  Alternatively, 10% of all General Assessments ($1,298,117 x 10%) is $129,812, divided by a hypothetical 13 Members is $9,985.  Therefore, the Annual Assessment Limit applicable to Member A is the greater of these two numbers, or, in this case, $142,926.  Now, assume Member A paid $64,841 as its Assessment Share of the initial $520,019 Annual Automatic General Assessment for that year.  Thus, applying the Annual Assessment Limit to this second General Assessment limits Member A's Assessment Share thereof to $78,085 ($142,926 maximum under Annual Assessment Limit, minus the $64,841 Member A paid on the first General Assessment).  As a result, there is an additional $18,937 left unpaid from Member A's Assessment Share of the second General Assessment ($97,022 Assessment Share, minus $78,085, which is the amount Member A must pay on the second General Assessment to reach its Annual Assessment Limit). This $18,937 Assessment Limit Overage then must be distributed among the remaining Fund Members who have not exceeded their Annual Assessment Limits.

3.2.          Reallocation of Assessment Limit Overages to Remaining Members.  The Assessment Limit Overage resulting from application of the Annual Assessment Limit to Member A is $18,937.  All such Overages for all Members shall be reallocated proportionately among the remaining Members whose Assessment Shares have not exceeded their respective Annual Assessment Limits by determining the factor by which each remaining Member's Assessment Share needs to be increased to generate an amount sufficient to cover the total of unpaid Overages of all Members. 

Example:  Assume that Member A's Overage of $18,937 is the only Overage among all Members, and that the total of the first-round Assessment Shares of all other Members who have not exceeded the Annual Assessment Limit is $681,076 ($778,098 General Assessment amount minus $97,022, Member A's Assessment Share before application of the Annual Assessment Limit).  The total of the Assessment Shares the remaining Members must pay to cover Member A's Overage is $700,013 ($681,076 in first-round Assessment Shares of the remaining Members + $18,937, the amount of Member A's unpaid Overage, = $700,013).  The factor by which the remaining Member first-round Assessment Shares must be increased is determined by dividing the total amount needed from the remaining Members to cover their first-round Assessment Shares and Member A's Overage ($700,013) by the total amount of the remaining Member's first-round Assessment Shares ($681,076).  Thus, each remaining Member's Assessment Share amount will be increased by a factor of 1.03 ($700,013 ¸ $681,076 = 1.03).  As a cross-check, multiplying the factor of 1.03 x $681,076 (the total of the Assessment Shares of the remaining Members) equals $700,013, which is the total amount the remaining Members must pay to cover Member A's Overage.  Similarly, if the reallocation of Member A's Overage results in two additional Members exceeding their applicable Annual Assessment Limits, any Overages from their Assessment Shares shall be reallocated to those remaining Members whose Assessment Shares have not yet exceeded their respective Annual Assessment Limits, and so on until the total of all Members' Overages is reallocated.

4.               Allocation of Fund's Expenditures for Covered Claims to Member's Historical Claims Experience.

4.1.          General Allocations Rules.  All Defense Costs the Fund incurs in connection with resolving a Covered Claim against a Member or its Employees (including Insured Agents/Volunteers), and the amount of the Fund's payments for the Incurred Liability of such Member or Employees arising out of the Covered Claim, shall be allocated to such Member's Historical Claims Experience for purposes of applying the Assessment Formulas; provided, however, that Incident investigation and other Defense Costs the Fund chooses to incur prior to the assertion of a Claim relating to the Incident shall not be allocated to the Member involved, but shall be borne by the Fund as an Administrative Expense, unless and until the Claim is asserted.

4.2.          Allocation of Defense Costs in Multi-Member Claims.

4.2.1.     Defense by Common Counsel.  Except as otherwise provided in ¶ 4.2.3 regarding "Special Defense Services", a Member represented in a Multi-Member Claim by common Defense Counsel shall be allocated its share of the common Defense Costs based on the ratio of its Incurred Liability (and the Incurred Liability of its Employees) to the total of the Incurred Liabilities of all Members and their Employees involved in the Claim; provided, however, that if one or more Members' or Employees' Incurred Liabilities have not been established (by legal proceedings, or agreement among the Fund Members involved, or otherwise), the Administrative Committee shall allocate the common Defense Costs based upon its determination of each Member's or Employee's relative Liability Exposure.

4.2.2.     Separate Defense Counsel in Conflict of Interest Situation.  Where more than one Defense Counsel has been retained by the Fund to represent the Members or Employees involved in a Multi-Member Claim because of one or more conflicts of interest among them, each Member or group of Members separately represented shall be allocated the Defense Costs of their respective Defense Counsel in accordance with ¶ 4.2.1 above; provided, however, in its discretion, the Administrative Committee may allocate the total Defense Costs among all Members on the basis of each's Liability Exposure if no Member is particularly responsible for creating the conflict of interest.

4.2.3.     Allocation of Defense Costs Constituting "Special Defense Services."  Where Members or Employees are represented by Common Defense Counsel, Defense Counsel and the Fund have an obligation to each Member involved in the Multi-Member Claim to do what is reasonable, as ultimately determined by the Administrative Committee, to defend the Member/Employee and to reduce the Member's/Employee's Liability Exposure if it appears that the Member/Employee is not legally liable for the amount Claimed, even if such action results in an increase in the Liability Exposures of the other Members involved in the Claim; provided, however, that when Defense Counsel renders "Special Defense Services" to less than all Members involved in the Claim, the Historical Claims Experience of the Members on whose behalf such Services were rendered shall be allocated the costs of such Services, apportioned among them in accordance with ¶ 4.2.1 above, unless the Administrative Committee determines that the benefit of such Special Defense Services to the Fund outweighs the unique benefit of such Services to the particular Member, in which event, such Special Defense Services shall not be allocated according to ¶ 4.2.1; and provided further, that if such Special Defense Services result in the reduction of a Member's Liability Exposure from the Claim relative to the Liability Exposures of the other Members involved in the Claim, such Member's allocable share of the Historical Claims Experience for the Defense Costs thereafter shall be commensurately reduced.

5.               Determination of Total "Employee Hours Worked".

5.1.          General Rules.  The total of a Member's "Employee Hours Worked" for purposes of applying the Assessment Formulas shall include the hours worked by all Employees (including those involved in the operation of dams or the generation of electricity) and the Contract Conversion Hours of any "Added Exposure Contracts" determined in accordance with ¶ 5.2 below.

5.2.          Determination of Contract Conversion Hours for "Added Exposure Contracts".  The Contract Conversion Hours for any agreement between a Member and a Third Party which (a) has been submitted to the Administrative Committee and has been approved for Coverage by the Fund, and (b) in connection with such approval process, has been designated by the Administrative Committee as an Added-Exposure Contract, shall be added to a Member's "Employee Hours Worked" for purposes of applying the Assessment Formulas.  For any such agreement designated by the Administrative Committee as an Added Exposure Contract, the Contract Conversion Hours shall be determined as follows:

[RESERVED.  The methodology for making such a conversion will be formulated by the Administrative Committee and presented to the Board at a later date.]

6.               Former Members.  The General Assessment Formula shall be applied so that a Former Member continues to be assessed its Assessment Share of only the Defense Costs, Coverage Payments and Administrative Expenses the Fund incurs in resolving Pre-Withdrawal Occurrences during each assessment period after the effective date of the Former Member's withdrawal, as provided in § I., ¶ 20.2.

7.               New Members.  The General Assessment Formula shall be applied so that, for a period of six (6) years from the date of a New Member's admission to the Fund, the New Member's Assessment Share of any General Assessment levied by the Fund during that time period does not exceed what the New Member's Assessment Share would be for the portion of each General Assessment attributable to replenishing the Fund for its expenditures during the assessment period to resolve Post-Admission Occurrences and Administrative Expenses, as provided in § I., ¶ 18.3.