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HomeMy WebLinkAboutMINUTES - 12062005 - C130 ►o: ° BOARD OF SUPER ORSev FROM: John Sweeten, County Administrator DATE: December 6, 2005Contra Y SUBJECT: t . AUTHORIZE the Chair to Execute:the .. Uos proposed amendment to the CSAC Excess Insurance Authority Joint Exercise of Powers Agreement Uounty Swim REGiuEST{S)0R REGOMW" ATM(S)&0CR('Nq0WD AND JUSTIMATM RECQ _ME DATIONN: Based on the information provided'below, it is recommended that the Board of Supervisors authorize the Chair to execute the amendment to the Joint Powers Agreement of the CSAC' Excess Insurance Authority and the California Public Entities Insurance Authority'under one administrative and organizational structure. FISCAL IMPACT. This action would create a unified insurance pool to negotiate the purchase of insurance at lower prices than are normally available in the insurance market. It would also create a greater opportunity to pool self insured funds to offset costs in the commercial market. GK U IDCREA N F R REC MMENDATI The EIA was formed by and for the California counties in 1979 by the California State Association of Counties (CSAC). Although independently operated, counties must maintain membership in CSAC in order to participate in the ELKs programs. Today, 54 out of the 58 counties in California participate in one or more of the EIA programs.' The EIA is recognized as the largest public entity property and casualty pool in the United States. On July 1, 2001, the EIA sponsored the formation of the CPEIA to provide access to the EWs programs and services to all public entities in California. This was done to provide greater flexibility to member counties in a changing and uncertain environment. Indeed many of the members of the CPEIA are county affiliated entities such as In-Home Support Services, county contracts with cities, and even individual county departments. CONTINUED ON ATTACHMENT: X YES SIGNATURE: ',,,. RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD CO ITTEE a-✓11F'RO OTHER SIGNATURE(S): ACTION OF B AR ON ,; APPROVED AS RCOMMENDED k7 OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN ` AND ENTERED ON THE MINUTESS OF THE BOARD UNANIMOUS (ABSENT " OF SUPERVISORS ON THE DATE SHOWN. AYES: NOES; ABSENT: ABSTAIN: ATTESTED \tfi rlskm2k3\users$\jgrldusWV Documents\Board Orders\B02C3mso- JOHN SWEETEN,CLERK OF THE BOARD OF CSACJPA.doe SUP VISORS AND COUNTY ADMINISTRATOR Contact: Ron Hamy(336-1443) Cc: Risk Manu Auditor-Controller BY ,DEPUTY SUBJECT: AUTHORIZE the Chair to Execute the proposed amendment to the CSAC Excess Insurance Authority Joint Exerciseof Powers Agreement PAGE 2 DATE December 6, 2045 BACKGROUND/REASONS FOR RECOMMENDATION (Continued) In forming the CPEIA, it was anticipated that this would be a mutually beneficial relationship for both the EIA and CPEIA. All members would benefit from a larger volume that should produce lower costs and greater stability, lower costs of administration by spreading the cost of services to a'larger membership base, provide a risk management solution for local public entities affiliated with member counties, and provide an overall benefit to taxpayers by creating the most efficient delivery of insurance protection possible. The bottom line is that by increasing the membership, the EIA is<better able to retain more risk and transfer less risk to the commercial insurance market. The EIA has also been able to attract new reinsurers based upon our larger size and the reinsurance has been dramatically cheaper on a per member basis. Prior to formation of the CPEIA, counties were already combining their pooling and purchasing power,'but still received an additional $41 million benefit during the past four years (through 6/30105). CPEIA members gained even more ($115 million) during the same period because they were not receiving the volume discounts prior to joining that the counties were already receiving. The EIA/CPEIA relationship was structured as described above primarily because of the clear lines that were drawn between counties and non-counties by creating a completely separate organization. Goals of retaining county control, and not disturbing the relationship with our founding organization, CSAC, were accomplished. Now that there is a;proven track record with the CPEIA, the EIA Board of Directors has determined that there is a better way. The intention is to restructure the relationship to-.ensure, and enhance county control and provide meaningful participation opportunities for our non-county members. It is proposed that the CPEIA members be perrrOtted to join the CSAC EIA directly thereby eliminating the need to maintain the CPEIA as a separate legal entity. In order to accomplish this restructure, the EIA JPA Agreement needs to be amended to alter the membership requirements_ and voting rights. The proposed JPA amendment will create two classes of membership Member Counties (those counties that maintain their membership in CSAC) and Public Entities (those public entities in the Mate of California that do not maintain membership in CSAC). All Member Counties will continue to be represented on the Board of Directors. Public Entity members will receive seven voting seats on the Board of Directors and will have three alternate directors that are permitted to vote in the absence of one of the seven. These 10 Public Entity Directors will be elected by the Public Entity membership::and will include three designated seats in the categories of cities, schools, and special districts. Currently there are 54 member county directors to which we would add seven Public Entity directors for a total of 61 eligible voting;directors. Therefore, the Public Entity membership would control approximately 11.5% of the votes. There is a provision that the Public Entity representation on the board can never exceed 20%. In addition, the existing Executive Committee will be expanded from 9 voting seats to 11 voting seats. The two new Executive Committee seats will be designated for representatives from the Public Entity membership. The Public Entity members on the Executive Committee will be elected by the'61-merrier'board of directors and must come from the seven representatives that are elected to the board by the Public Entity membership. The EIA Board of Directors believes that the elimination of the CPEIA is in the best interest of both the EIA and CPEIA. The proposed restructure'will simplify the organizational relationship and actually provide a higher level of control for the member counties. Adoption'of the proposal will result in the sharing of the decision-making responsibilities under a new structure guaranteeing a overwhelming majority representation by the counties. Future changes to this new structure could only be implemented via an additional JPA amendment controlled by the counties. At the same time, this is an opportunity to provide a real and meaningful voice and level of participation to our CPEIA membership. The principles that the EIA was built upon and that have made the EIA so SUBJECT. AUTHORIZE the Chair to Execute the proposed amendment to the CSAC Excess Insurance AuthorityJoint Exercise of Powers Agreement PAGE: 2 ELATE: December 6, 2005 successful —primarily member involvement and member loyalty--apply to CPEIA members as well,. Many CPEIA members recognize the benefits of pooling and want to be `participants,,,as opposed to"purchasers" of insurance. This structure will make it more likely that CPEIA members will remain in the EIA programs even as the insurance market softens. It is believed the proposed restructure has found the appropriate balance between county control and meaningful public entity participation. As required by the JPA, the proposed amendment was circulated for a 90-day review and comment period to the County Counsels of all member counties,with no legal issues being raised. CONSEQUENCES OF NEGAT VE ACTION Failure of two-thirds of the CSAC EIA member counties to approve the amended Joint Exercise of Powers Agreement will mean that the CSAC EIA and CPEIA and governance will remain the same, which will not accomplish the intended result to simplify the organizational relationship and provide a higher level of control for the member counties, f✓,,f CSAG EIA f CPEIA Restructure An Executive Summar I. INTRODUCTION This Executive Summary is intended to explain the relationship betweenthe CSAG Excess' Insurance Authority {EIA} and the California Public Entities ;Insurance Authority (CPEIA), and the proposed restructuring of the relationship between the two public entities.' Supporting materials include redline versions of an amendment to the joint powers agreement and bylaws, and summaries of the changes to the JPA and Bylaws. ' In addition, a detailed analysis providing in-depth information about the proposed .restructure has been prepared along with a Frequently Asked Questions document and a list of pros and Cons. The EIA was formed by and for the Callfomia counties in 1979 by the California State Association of Counties (CSAG). Although independently operated, counties must maintain membership in CSAG in order to participate in the EIA's programs. Today, 54 out of the 58 counties in California participate in one or more of the ccEIA programs. The EIA is recognized as the largest public entity property and casualty pool in the United States. On July 1 2001 the EIA sponsored the formation of the CPEIA to provide access to the EIA's programs and services to all public entities in California. This was done to provide greater flexibility to member counties in a changing ;and uncertain environment. Indeed, many of the members of the CPEIA are county affiliated entities such as In-Home Support Services, county contracts with cities and even individual county departments. The success of the CPEIA in four'short years has far exceeded our expectations. CPEIA members' premium volume (approaching $100 million) represents more than one-third of the EIA's total premium volume. CPEIA membership stands at 206 member 'units. This number includes many other JPAs, who themselves have many underlying public entity members, so the total number of California. public entities being served by the CPEIA exceeds 1,400. In fact, Over 78% of all California cities are now participating in one or more of the EIA programs through the CPElk Attached is an exhibit showing the CPEIA member units and premium volume by program. It. MUTUAL BENEFIT OF EIA AND CPEIA In forming the CPEIA it was anticipated that this would be a mutually beneficial relationship for both the EIA and CPEIA. < All members would benefit from a larger volume that should produce lower costs and greater stability, loner costs of administration by spreading the dost of services to a larger membership base, provide a CSAG EIA/CPEIA Restructure Page 1 of 5 Executive Summary risk management solutionfor local public entities affiliated with member counties, and provide an overall benefit to taxpayers by creating the most efficient delivery of insurance protection' possible. we are pleased to report that these benefits have been realized in the following ways over the past four years; • It is estimated that counties have realized at least $41.5 million in economic benefit due to the CPEIA. • In addition, counties are receiving the benefit of lower costs of services in excess:of $1.6 million annually from administrative contributions made by the CPEIA members. • It is estimated that CPEIA members have saved more than $116 million through the hard market over the last four years by joining tate EIA pool. • The EIA's Primary W.C. {PWC} Program twice would have terminated or would have had to be significantly restructured to continue to exist had it not been for the CPEIA premium volume. • The EIA's Primary General Liability {PGL} program has attracted a reinsurance partner that it would not otherwise have attracted because of the combined volume of the EIA and CPEIA. • County affiliated entities have been well served by the CPEIA. Of the 206 member units in CPEIA, 62 are county related or affiliated entities including IHSS entities, and county operations where county risk management has some involvement in the risk management of the entity. The bottom line is that by increasing the membership, we are better able to retain more risk and transfer less risk to the commercial insurance market. We have also been able to attract new reinsurers based upon our larger size and the reinsurance has been dramatically cheaper on a per member basis. Counties were already combining their pooling and.purchasing power, but still received an additional $41'million benefit. CPEIA members gained even more ($116 million) because they,were not receiving the volume discounts prior to joining that the counties were already receiving. Ill., CURRENT EIA f CPEIA STRUCTURE The CPEIA was organized as a separate joint powers authority pursuant to Government Code 6500 et seq.'' The CPEIA and the EIA are two separate legal entities that have entered into a contractual agreement that allows 'members of the CPEIA to participate in the EIA's insurance programs and related services. The CPEIA is governed by a Beard of Directors consisting of 11 members including 2 members appointed by the EIA Executive Committee. The president of the CPEIA is provided an ex-officio {non-voting} seat on the EIA's Executive Committee. CPEIA members are eligible to sit in a voting capacity on all committees of the EIA except the Executive Committee and have been guaranteed at least one seat on all key committees: The CPEIA Board has full authority to act on behalf of the CPEIA membership; however, they have been given no authority in matters relating to the operation and administration of EIA Programs: The EIA, working through its various committees and Page 2 of 5 CSAC EIA!CPEIA Restructure Executive Summary Board, retains the sole authority to decide all matters relating to its programs including underwriting and rating decisions affecting county and CPBIA members. When CPEIA members join an EIA Program they are:treated as full participants in that program with' the same rights; and obligations as county members (ether than voting rights). Contributions of CPEIA members are fully pooled and co-mingled with contributions of EIA members. CPEIA members have the same dividend potential and assessment risks as county members and are governed by the same allocation formulae when determining premium. The only difference in premium development is that CPEIA members pay an additional orae-half percent participati6n fee that county members do not pay and CPEIA members pay a special broker fee to Driver Alliantthat counties do not pay. The broker fee is required because Driver staff have been tasked with the responsibility of servicing CPEIA members in a more direct way to be certain that the level of service provided to county members by EIA staff is not reduced due to CPEIA involvement.' The EIA/CPEIA relationship was structured this way primarily because of the char lines that were drawn between counties and non-counties by creating a completely separate organization. Coals of retaining county control, and not disturbing' the relationship with our founding organization, CSAC, were accomplished. Now that we have a proven track record with the CPEIA, we have determined that there is a better way. Our intention is to restructure'the relationship to ensure, and enhance county control and provide meaningful participation opportunities for our non-county members. IV. PROPOSED RESTRUCTURE It is proposed that the CPEIA members be permitted to join the CSAC" EIA directly thereby eliminating the need to maintain the CPEIA as a separate legal entity. In order to accomplish this restructure, the EIA JPA Agreement needs to be amended to alter the membership requirements and voting rights. The proposed JPA amendment will create two classes of membership, Member Counties (those counties that maintain their membership in CSAC) and Public Entities (those public entities in the State of California that do not maintain :membership in CSAC). All Member Counties 'continue to be represented on the Board of Directors. Public Entity members will receive seven voting seats on the Board of Directors and will have three alternate directors that are permitted to vote in the absence of one of the seven. These 10 Public Entity [directors will be elected by the Public Entity membership and will include three designated seats in the categories of cities, schools, and special districts. Currently there are 54 member county directors to which we would add seven Public Entity directors for a total of 61 eligible voting directors. Therefore, the public Entity membership would control approximately 11.5% of the votes. There is a provision that the Public Entity representation on the board can never exceed 20% Page 3 of 5 CSAC EIA 1 CPEIA Restructure Executive'Summary In addition, the existing Executive Committee will be expanded from 9 voting seats to 11 voting seats. The two new Executive Committee seats will be designated for representatives from our Public Entity membership. The Public Entity members .on the Executive Committee will be elected by the 61 member board of directors and roust come from the seven representatives that are elected to the board by the .Public Entity membership. There is a provision for the Public Entity membership to conduct an annual membership meeting that will be primarily for the purpose of information exchange;and to foster communication among the many entities that do not have voting representation. Once the new structure is put in place, there will be no need to continue with the CPEIA, which will be terminated in due course. What Does Not Change. The new structure provides limited voting rights on the Board of Directors and Executive Committee to public entity members. Beyond this governance change, all other operational aspects will amain the same. There is still a one county, one vote provision and our relationship with CSAC is still preserved. We Will continue to co-mingle and fully pool risks between all participating entities. The rating formulae and dividend and assessment provisions will be the same. We will continue to levy the 'one-half percent participation fee to public entity members for the benefit of the county members. We will continue to provide one designated seat on key committees for public entity representation. Public Entity members will continue to be required to pay an additional broker fee to ensure that the service provided by EIA staff to member counties does not deteriorate. Impact of the Restructure. We believe that the elimination of the CPEIA is in the best interest of both the EIA and CPEIA. The proposed restructure will simplify the organizational'relationship and actually provide a higher level of control for the member counties. Adaption of the proposal will result in the sharing of the decision-making responsibilities under a new structure guaranteeing an overwhelming majority representation: by the counties. Future changes to this new structure could only be implemented via an additional JPA amendment controlled by the counties. At the same time, this is an opportunity to provide a real and meaningful voice and level of participation to our CPEIA membership. The principles that the EIA was built upon and that have made the EIA so successful — primarily member involvement and member loyalty _ apply to CPEIA membersas well. Many CPEIA members recognize the benefits of pooling and want` to be "participants", as opposed to "purchasers" of insurance. This structure will make it more likely that CPEIA members will remain in the EIA programs even as the insurance market softens. We believe the proposed restructure has found the`appropriate balance between county control and meaningful public entity participation. Page 4 of 5 cSAC EIA t CPEIA Restructure Executive Summary V. KEY DATE$ IN THE AMENDMENTPROCESS The restructuring and amendment of the EIA JPA Agreement is a lengthy process. The following is a recap of prior activities that have led us to this point as well as a tentative timeline of thekey dates that will result''in the completion of the restructure by the March 2006 EIA Board of Directors meeting. Prior Acttivity • April 2004 — Spring retreat discussions 'initiated the concept of merging the CPEIA Board with the EIA Beard so that the CPEIA Board would not be an independent body. • June 2004 to February 2005 — Discussions with the Board of Directors regarding the merger concept. Executive Committee held detailed discussions and ultimately .requested a draft of legal documents that would accomplish the restructure. + Thursday, March 3rd, 2005 — Workshop with the EIA Board to discuss the restructure concept.; • Friday, March.,0, 2005 - Direction'by the EIA Board of Directors to continue discussion on the topic and to schedule another board workshop in advance of the June'Board muting. • Thursday April 7 -- Friday April 8, 2005 —"'Executive Committee and Committee Chairs retreat. Agenda included development of Pros/Cons of restructure and determination of the format of tyre May 6, 2005 beard workshop. Friday, May 6, 2005 — Second 'board workshop on restructure at the Sacramento Hilton. Friday, June 3rd, 2006 — Approval by the EIA Board of Directors to circulate the proposed JPA amendment to all member counties and county counsels` for review and comment. Friday, October 7t", 2005'— End of review and comment period and approval by the EIA Board of Directors to send the JPA amendment to the boards of supervisors for approval (two-thirds vote required or 36 member counties). Future timeline • Friday, March '3rd, 2006 - End of boards of supervisor voting and determination of the outcome of the vote. ,Action` by the Board of Directors to approve the corresponding Bylaws amendment, if the JPA amendment is successful. • March 31, 2006 or July 1, 2006 -- Deadline for CPEIA members to execute;,the amended EIA' JPA Agreement to remain in the Property'Program (March 31 renewal) or all other programs (July .lst renewals)'. Page 5 of 5 CSAC EIA 1 CPEIA Restructure Executive Summery +tr CPEIA . TOTAL GRINS 99MIUMS MIlliorts Progranm EtA CPEIA Total PGL 2.35'' 1.247 3.598 GO 14.94 5.718 20.658 GI 2 5.412 2.596 8.008 Mod(vial 12.232 0:000 12.232 Property 30.011: 2.880 32.891 PWC 30.147; 43.990 74.137 EWC 28.621 31.309 59.93 EIA Health 29.454 3.208 32.662 Misc, 3.758 1.426 5.184 Total 196"V26 92.374 249.3 Gross Premium=Pool contributions plus Reinsurance Mern§a r Units. By Pir ram Gross No. of Premium Program Members' (Millions) PGL 26 $1.247 GL1 48' 5.718 GI 2< 2' 2.596 Mad Mal 0> 0.000 Property 17 2.880 PWC 22 43.990 EWC 90 31.309 EIA Health 1 3»20B Total 206 S90.948 CPEIA Units;y Type of Entity Stand Type of Entity Alone JPATotal City 60 7 67 County Operabons 18` 4 22 IHSS Public Authority 33, 0 33 Schools 17 9 26 Fire 0' 5 5 Parrs 0', 2 2 S ecial District 48 3 51 Total 176 30 206 CSAC Excess insurance Authority Proposed Restructure of CPEIA EIA Pro's and Con's The following is a list of Pro's and Con's of the proposed restructure that was developed at the Executive Committee and Committee Chairs retreat on April 7-8, 2005. In publishing this list, we felt it would"be helpful to organize the Pro's and Con's into two categories; Pro's and Can's of the Restructure, and Pro's and Con's of the Relationship. The Pro's/Con's of the Relationship speak to the advantages/disadvantages of pooling risk between counties and CPEIA members and are already present under the current structure and are not materially.different under the terms of the restructure. PRO ' s Pro's of Restructure • Business Reason. By keeping CPEIA members It increases the likelihood of financial and premium stability. • Increased stability-- not having to deal with 2 different governing structures and less likely the CPEIA members will leave; being a part of an organization can encourage loyalty. • Higher level of county control -right now with 'I vote all CPEIA members can leave. • Governing structure easier to understand and explain,' • Administrative simplification with cast savings. • To attain diversity at Board and Execut€ve Committee levels is good -- corporate America has "outsiders"on their Boards. • Strengthen organization -committees become stronger by adding members with risk management expertise. • Strong message to JPA world that EIA responds to its members needs and meets the market needs. • Increase collective intelligence bring€ng the brain power, knowledge, and experience of CPEIA into EIA. • Definedpath forward. • Culmination of the original 2000 retreat idea of serving members = it's the natural evolution of the idea. • Re-enforce EIA culture of trust, participation, connection, support we are more than a market for insurance. • Counties and non-counties have the same needs and both are looking for ways to meet all these needs. The re-structure can do this and benefit the counties. • if we don't take this action someone else will. It is beneficial for us to take the lead. • good partners are requesting it. • Compatibility.with EIA mission'statement: • It's a fair thing to-do. Page 1 of 2, Pro's of the ftlatidnshlp * Increased risk taking ability (Greater ability to pool risk). • Supports future growth. * Market leverage. * With a more stable membership there's an increase in confidence in the actuarial assumptions. • 1N'th a bigger membership base EIA can increase and improve services. • Can keep more dollars because there is less of a need to buy insurance. • Unity create a feeling of one program; shared coverage and programs. CON ' s Can's of the Res#rupture; * Core Issue: The re-structure will dune the dependency on non-county volume thereby causing a priority shift within EIA from counties to non-counties. * May net prevent individual CPEIA members from leaving; this is one of the significant reasons to take action. * Perception of loss of control * Potential change in culture; unknown factors when bringing in non-counties. * Fear of the unknown; if we give up something now, what might we have to give p in the future? * Diluting the"county voice" in the EIA Board room. • Fear of EIA take over by non-counties. * Has to go to the Boards of Supervisors. Con's Af the Relationship * Bigger is not necessarily better; is there limitations if pooled premiums grow too big_can the pool be placed in the market? * With more members there's an increased' exposure to risk. Page 2 Gf 2 EIA/Cl' MA Restructure Proposal FrequentlyAsked Questions April 260 2005 1. is the CPEIA I EIA relationship working? Yes. The EIA established the CPEIA and provided access to EIA`,programs and services to provide greater stability and to reduce costs to member counties. While it was also the desire of the EIA to be able to provide a benefit to other public entities, the sole reason for establishing the CPEIA was for the benefit of our member counties. The benefit to member counties of the CPEIA participation has been substantial. As outlined in the Detailed Analysis and Executive Summary on the restructure topic, member counties have realized $41.6 million in economic benefit since the inception of the CPEIA in 2001. In addition, CPEIA members contribute $1.6 million annually to the ElKs general administration budget. in the midst of the hard market, the CPEIA relationship allowed the EIA's PWC and PGL. programs to continue with reinsurance support because of the additional buying power. The CPEIA members have arguably benefited to an even greater degree by riding on the coat tails of the counties' purchasing power. However,; the relationship was established for the benefit of the counties and will only survive and evolve so lona as it is in the best interest of the counties. 2. So, the CPEIA /EIA relationship has been beneficial to the counties, why do e need to change it? The benefit to the counties is based upon the increased purchasing and pooling power that the CPEIA members bring. ' If we lose some or all of this volume, the benefit to counties dwindles or disappears. The CPEIA membership is connected to the CSAC-EIA through a contractual arrangement that may be terminated' by either party at any time. If the CPEIA were to split off on its own, it is not only of sufficient size to operate independently, it would be considered the fifth largest public entity pool in the station'. The CPEIA Board has'a firm'understanding that this is, and will remain, a county'-run organization. At the same time they have expressed a strong desire to contribute to the success of the organization and feel like participants. The EIAs success has been built on the loyalty and stability of our membership which allows us to provide long-term risk management solutions. Providing participation opportunities is a key ingredient that:is necessary to =foster a similar Page 1 of sense of loyalty among the CPEIA membership. Without this participation opportunity, we are in danger of losing key CPEIA members or perhaps even losing the entire CPEIA membership and therefore the corresponding benefit to counties: 3. What will be different after the restructure? Essentially, the only thing that changes is the governance structure of the EIA. We have already determined that it is in the best interest of the counties to share risk on a broader basis. This strategy was implemented four years ago with the development of the CPEIA. It was re-evaluated last year and confirmed that there is compatibility from a risk management standpoint and the mutual benefits are significant. Therefore, the alignment of interests Between counties and CPEIA members has already taken place that is, there is complete risk-sharing, pooling of risk, and co-mingling of funds.` The restructure would add seven (7) Public Entity positions :to the current 54- member EIA''Board of Directors (61' total votes). The current one county, one vote system' would continue. There M11' be a,'guaranty that the counties will control no less then 80% of the total votes no Mtter.how large the Public Entity membership grows. Two voting positions for Public Entity members will be ':added to the current 9- member Executive Committee (11 total votes). The County-dominated Executive Committee will continue to control the appointment of members to the various committees. Public Entity members would continue to be guaranteed one voting: seat on most committees as specified by the various Program MOUS oras otherwise specified by the Beard of Directors. The CPEIA would cease to exist as a.separate legal entity. This will eliminate the possibility of the CPEIA withdrawing from all programs all at once. It also eliminates considerable duplication and administrative expense in maintaining' CPEIA as a separate legal entity. 4. What is the urgency to make the change at this time? When it comes to strategic business decisions, the EIA prides itself on being proactive, not reactive. We foresaw the hardening insurance market when we decided to develop the CPEIA alternative. When the market turned shortly after September 11, 2001, the CPEIA mechanism was fully developed and was entertaining new member applications. We were clearly the best option for most applicants and the only option' for many. To a large extent, we were fortunate to be in the right place at the right time, but we were only able to be in that position due to our planning and foresight. Page 2 of 6 r Today,', we are preparing for a softening in the market, in port due to workers' compensation reform and partly due to the normal market cycles. Alternatives to the CPEIA will soon become available and when they are, it is very important that our membership find a sense of loyalty and belonging to the organization. This restructure will help create that ownership feeling among key C'PEIA 'members that we clearly want to retain. We have a short window of opportunity to complete this process. We know of at least one large member that Will be testing the market at the July 1, 2005 renewal. Generally, however, we feel like we will be well positioned if the process is completed by the July 1, 2006 renewals. S. Is this the next step in a series of actions that will result in a diluted county power'base? if this is Mone, what's to stop the Public Entity members from seeking even more power in the future? This restructure is viewed as the final major step in the evolution of the EIAICPEIA relationship. The EIA has always been a leader and pioneer in the pooling'industry and we can expect that the EIA will continue its proactive approach to leadership.. It is almost certain that minor changes will be c=r Jdered in the future to enhance and improve the governance of the organization. However, because the changes being proposed today will be incorporated in the form of a JPA amendment and approved by two'-thirds (currently 36) of the member Boards of Supervisors, major changes can not take place without an additional JPA amendment. Following the restructure, it will still take at least 34' county Boards >>of Supervisors to approve a JPA amendment (based upon current membership of 54 counties). Therefore, if the public entity members do seek more power in the future, it will be up to the counties to determine if it is in the best interest of the organization and If such a change should be approved. 6. Due to our size advantage, won't the existing EIAICPE/A programs always be the lowest cast alternative? /f so, won't the CPEtA members be motivated to remain In the program based solely on price even though there would not be a sense of loyalty' The EIA programs have proven to be the lowest cost, broadest 'coverage programs for our members on a long-term basis. in the short-term, it is possible to be undercut on a case-by-case basis by a market trying to gain market share. This pricing advantage is not sustainable on a long-term basis. We are much more susceptible to this "buying the..markef strategy in a soft market environment. Price is generally the most important factor influencing the;purchase decisions, but it is not the only factor. Other factors include program services, customer service, breadth of coverage, stability,'and for many of our larger entity or pool members, a Page 3 of 6 g. sense of partnership with an organizationthat will be responsive to their needs. The closer the price of an alternative is, the more important these other factors become. 7. Why is the proposed governance structure superfor to the existing structure and why wasn't it done this way from the beginning? The proposed structure is expected to be better than the current two-entity relationship because of its simplicity. It is very difficult for members and stakeholders to understand the current relationship including what level of authority each party has. The one-entity, two-class system is neat and clean and very obviously defines the county members as the controlling party. The CPEIA membership will be comfortable with having a limited voting role since this model is closely aligned with the industry standard for pools with large membership —that.is, electing a representative board, as opposed to allowing each member a vote. This new structure will promote unity as we will have one organization, one vision, and one voice. When the CPEIA was created in:: 2001, we were uncertain as to the > level; of participation by public entities and whether or not it wouldbe-appropriate to provide governance participation on a permanent basis'. At the time, we wanted to be sure that we could reverse course if the projected benefits to counties'did not materialize, or if unforeseen negative factors outweighed the positive benefits. It was necessary in, the early stages of development to create this arms-length relationship with CPEIA to protect the counties' interests while the success of the relationship was being evaluated. Four years later' we can say with certainty ;that .the pooling of resources with other public entities is providing tremendous benefits for our counties, and it is our desire to strengthen and continue this relationship. This new structure represents the natural evolution and progression of the EIA. `8. 1 thought this was a county organization. Counties, cities, schools and special districts have very different interests. Why shouldn't the counties be concerned about this?' The CSAC-ETA's mission is to provide the best possible risk coverage programs and risk management services to our. members. In terns of our mission, the interests of counties, cities, schools, JPAs and other special districts are in perfect alignment. Special underwriting and rating considerations have been developed' to recognize the differences between the various types of entitles. These considerations ensure that all members are treated fairly. It is true that the various types of public entities do have varying' political and social interests, however, when it comes to the business of risk management, we all share a common interest. At the same time, there are bound to be issues of disagreement that will''allse in the years to come. If these issues divide themselves along'political Page 4 of 6 lines, the governance is structured such that the counties will have the ability to control the outcome of,any vote. 9. Isn't If a disadvantage to bring In outsiders (outside the county family) to sit on the aboard? Providing voting positions for public entity members on the Boardand Executive Committee is actually viewed as a positive development that can only strengthen the organization. Corporate America has long recognized the value that diversity of views and experience brings from outsiders sitting on their corporate'boards. In our situation, we have the added advantage that these are not impartial outsiders, but committed members with as much at stake in the success of the organization as any county member. There is a wealth of knowledge and experience' in the pool of candidates that may be selected for the EIA Board. These>> candidates will only serve to supplement and enhance the existing`Board of Directors. 10.Clow will the counties still retain control of the EIA? The CSAC-EIA has always been, and will continue to be a county-run organization.;, The counties will',continue to control. the organization by retaining an overwhelming majority of,voting rights. The county members are guaranteed no less than 80% of the eligible''votes on the Board. This is a minimum guaranty and is in no way' influenced by the number of Public Entity members or the amount of premium volume they generate. It is simply a function of the number of county members. if the number of county members reduces, so will the number of Public Entity voting seats so that'the minimum 80% county majority is maintained. Initially, the county majority will be over 88.5% (54-out of 61 votes). On the Executive Committee, county control is at 81.8% (9 out of 11 seats). The Executive Committee appoints members to all other committees.' Public Entity members are guaranteed one seat on all program committees; however, the Executive Committee could choose to appoint additional Public Entity representatives; If there is a future amendment to the Joint Powers Agreement, only the seven voting Public Entity members of the Board along with every member county'' Board of Supervisors are eligible to vote, >thereby ensuring the counties at least an 80% majority eligibility. A vete on termination;of the EIA operates the same way. If there is a Board vote that affects only one program, only the members of°that program vote. In this event, Public Entity Board members are eligible to vote to the extent'there are Public Entity participants, however,'they are limited to no more than the number of votes representing 20% of the program membership. Please note this could result in Public Entity members' control of a program vote in a situation where Page 5 of 6 Public Entity members have the vast majority of the members. This is rare since most program votes are controlled by program committees and/or the programs are dominated by county members. 11.At some point, doesn't the CSAC EIA become torr large to attract some insurers/reinsurers which may limit competition and ultimately be detrimental to the counties? In teras of pooling of risk, bigger is .always better.: In terms of attracting insurance/reinsurance partners, bigger is usually better. Because of our size, some insurers will not be interested in partnering with us These insurers tend to be the smaller companies that we might not have found acceptable anyway. It is believed that the county-only volume is large enough to limit these markets and we have not lost any additional markets as a result of CPEIA growth. On the contrary, there is much more of on upside to volume growth. We are better able to assume more risk internally which is more efficient for our members. We can then purchase reinsurance at higher levels making:,our risk more attractive to many markets. in addition, there are certain markets that we will look attractive to,,simply because of our size. Finally, there is nothing in the restructure that will prevent us from packaging sub- groups of members if there is an advantage: This might be similar to the "tower" concept that we currently utilize in our Property Program to obtain multiple limits. Page 6 of 6 Adopted:October 5, 1979 Amended:May 12, 19817 Amended:January 23, 1987 Amended: October 7, 1988 Amended: March 1993 Amended: November 18, 1996' Amended: ;October 4, 2005 Amended: ,2006 JOINT POWERS AGREEMENT CREATING THE CSAC EXCESS INSURANCE AUTHORITY This Agreement is executed in the State of California by and among those counties''and public entities organized and existing under the Constitution of the State of California which are parties signatory to this Agreement. The CSAC Excess Insurance Authority was formed under the sponsorshipof CSAC. All such counties,'hereinafter called member counties, and public entities, hereinafter called member public entities, [collectively"members"] shall be listed in Appendix A, which shall be attached hereto and made a part hereof. RECITALS WHEREAS, Article 1, Chapter 5, Division 7, Titie 1 of the California Government Cade (Section 6500 et seq.) permits two or more public agencies by agreement to exercise jointly powers common to the contracting parties, and WHEREAS, Article 16, 'Section 6 of the California Constitution provides that insurance pooling arrangements under joint',exercise of power agreements shall not be considered the giving or lending of credit as prohibited therein;and. WHEREAS, California Government Code Section 990.4 provides that a local public entity may self-insure, purchase Insurance"through an authorized carrier, or purchase insurance through a surplus line broker,or any combination of these; and WHEREAS, pursuant to California Government Code Section' 990.6, the cost of insurance provided by a local public entity is a proper charge against the local public entity;and WHEREAS, California Government Code Section 990.8 provides that two or more local entities may, by a joint powers agreement, provide insurance for any purpose by any one or more of the methods specked in Government' Code 'Section 990.4 and such pooling of self-insured claims or losses is not consdered.:insurance nor subject to regulation under the Insurance'Code; and WHEREAS, the counties and public entities'executing this Agreement desire to join together for the purpose of jointly funding and/or establishing excess and other'insurance programs as determined; NOW THEREFORE,the parties agree as follows: Page 1 of 22 JPA,CSAC-EIA Amended: , 2006 ARTICLE 1 DEFINITIONS "CSAC" shall mean the County Supervisors Association of .Callfornla, dba California State Association of Counties. "Authority"shall mean the CSAC Excess Insurance Authority created by this Agreement. "Board of Directors"or"Board"shall mean the governing body of the Authority. "'Claim" small mean a claim made against a member arising out of an occurrence which is . covered by an excess or primary insurance program of the Authority in which the member is a participant. "Executive Committee" 'shall mean the Executive Committee of the Beard of Directors of the Authority. "Fiscal year" shall mean that period of twelve months which is established by the Board' of Directors as the fiscal year of the Authority. "Government Code"shall mean the California Government'Code. "Insurance program" or "program shall 'mean a program of the Authority. under which participating members are protected against designated losses, either through joint purchase of primary or excess insurance, pooling of self-insured claims or losses, purchased insurance or any other combination as determined by the Board. The Board of Directors or the Executive Committee may determine applicable criteria for determining eligibility'n any insurance program, as well as establishing program policies and procedures. "Joint powers lave"shall mean Article 1, Chapter 5, Division 7,Title 1 (commencing with Section 6500) of the Government Code. "Lose" shall mean a liability or potential liability of a member, 'including litigation expenses, attorneys'fees and other costs, which is covered by an insurance program of the Authority in which the member is a participant.`' "Member county" shall mean any county which, through the membership of its supervisors-in CSAC; has executed this Agreement and become a member of the Authority. "Member county" shall also include those entities or other bodies set forth in Article 3(c). "Member Public Entity" shall mean any California public entity which does not maintain,a membership in CSAC, has executed this Agreement and become a'member of the Authority, "Member Public Entity"shall also include those entities or other bodies set forth'in Article 3(c). "Occurrence"shall mean an event which is more fully defined in the memorandums of coverage and/or policies of an insurance program in which the participating county or participating public entity is a member. "Participating county" shall mean any member county which has entered into a program offered'by the Authority pursuant to Article 14 of this Agreement and has not withdrawn or been canceled therefrom pursuant to Articles 20 or 21. Page 2 of 22 JPA,CSAC-SIA Amended: —12006 "Participating public entity" shell mean any member public entity which has entered into a program offered by the Authority pursuant to Article 14 of this Agreement and has not withdrawn or been canceled therefrom pursuant to Articles:20 or 21. "Seif-insured retention" shall mean that portion of aloss resulting from an occurrence experienced by a member which is retained as a liability or potential liability of:the member and is not subject to payment by the Authority. "Reinsurance" shall mean insurance purchased by the Authority as part' of an insurance program to cover that portion of any loss which exceeds the joint funding capacity of that program. ARTICLE 2 PURPOSES` This Agreement is entered into by the member counties and member public entities in order to jointly develop and fund insurance programs as detennined. Such programs may Include, but are not limited to,the creation of joint insurance funds,including primary and excess insurance funds, the pooling of self-insured claims and losses, purchased insurance, including reinsurance, and the provision of necessary administrative services. Such administrative services may include, but shall not be limited to, risk management consulting, loss prevention.and control, centralized loss reporting, actuarial consulting, claims adjusting,and legal defense services. ARTICLE 3, PARTIES TO AGREEMENT (a) There shall be two classes of membership of the parties pursuant to this Agreement consisting of one class designated as Member Counties and another class designated as Member Public Entities. (b) Each member county and member public entity, as a party to this Agreement, certifies that It intends to and does contract with all other members as parties to this Agreement and, with such other members as may later be added as parties"to this Agreement pursuant to Article 19 as to all programs of which It is a participating member. Each member also certifies that the removal of any party from this Agreement, pursuant to Articles 20 or 21, shall not affect this Agreement or the member's obligations hereunder. (c) ` A'-member for purposes ofproviding insurance' coverage under any program of the Authority, may contract on behalf of,and shall'be deemed to include: Any public entity as defined in Government Code § 811.2 which the member requests to be added and from the time that such request Is approved by the Executive Committee of the Authority. Page',3 of 22 "JPA, CSAC-EIA Amended: ,2006 Any nonprofit entity, including a nonprofit public benefit corporation formed pursuant to Corporations Code §§ 5111, 5120 and, 5065, which the member requests to be added and from the time that such request is approved by the Executive Committee. (d) Any publicentity or nonprofit'so added shall be"subject to and included under the member's SIR or deductible, and when so added, may be subject to such other terms and conditions as determined bythe Executive Committee. (e) Such public entity or nonprofit shall not be considered a separate party to this Agreement. Any public entity or nonprofit so added, shall not affect the member's representation on the Board of Directors and shalt be considered part of and"represented by the member for all purposes under this Agreement. (f) The Executive Committee shall establish guidelines for approval of any public'entity or nonprofit so added in accordance with Article 3(c)and (d). (g) Should any conflict arise between the provisions of this Article and any applicable Memorandum of Coverage`or other document evidencing coverage, such Memorandum of Coverage,or other document evidencing coverage shall prevail. ARTICLE 4 TERM This Agreement shall continue in effect until terminated as provided;,herein. ARTICLE 5 CREATION OF THE AUTHORITY Pursuant to the joint powers law, there is hereby created a public entity separate and apart from the parties hereto, to be known as the CSAC Excess Insurance Authority, with such powers as are hereinafter set forth: ARTICLE 6 POWERS OF THE AUTHORITY' The Authority shall have all of the powers common to General Law counties in California,such as Alpine'County and all additional powers set forth in the joint Powers law, and is hereby authorized to do all acts necessary for the exercise of said powers. Such powers'include, but are not limited to, the following: (a) To make and enter into contracts. Page 4 of 22 JPA,CSAC-EIA Amended: , 2008 (b) To incur debts, liabilities,and obligations. (c) To acquire, held, or dispose of property, contributions and donations of property, funds, services, and other forms of assistance from persons,firms,corporations,and government entities. (d) To sue and be sued in its own:name,.:and to settle any claim against it (e) To receive and use contributions and advances from members ''as provided in Government Code Section 5504, including ',contributions' or advances` of personnel, equipment, or property. (f) To invest any money in its treasury that is not required for Its immediate necessities, pursuant to Government Code Section 6509.5. (g) To carry out all provisions of this Agreement: Said powers shall be exercised pursuant to the terms hereof and in the manner provided by law. ARTICLE 7 BOARD OF DIRECTORS The Authority shall be governed by the Board of Directors, which shall be composed as follows: a). One director from each member county, appointed by the member county board of supervisors and°serving at the pleasure of that body. Each member county board of supervisors shall also appoint an alternate'director who shall have the authority to attend, participate in and vote at any meeting of the Board when the director is absent. A director or alternate director shall be a county supervisor, other county official, or staff person of the member county, and upon termination of office or employment with the county, shall automatically terminate membership or alternate membership on the Board. b)' Ten directors consisting of seven directors and three alternate'directors chosen in the manner specified in the Bylaws from those participating as public entity members. A director or alternate public entity director shall be an official, or staff person of the public entity member, and upon termination of office or employment with the public entity, shall automatically terminate membership or alternate membership on the Board. C) Member county directors shall consist of a minimum of 80% of the eligible voting, members on the Beard. The public entity member directors shall be reduced accordingly to ensure at least 80% of the Board consists of county director members (By way of example,;If the number of county members is 'reduced from the current 54 by member withdrawals to a level of 28, then county members would'be at the 80% level', 28/35. If the county members go to 27, then the public entity members would lose one seat and would only have 5 votes). Any vacancy in a county director or alternate director position shall be filled by the appointing county's board of supervisors, subject to the ;Provisions of this Article. Any vacancy in a public entity director position shall be filled by vote of the public entity members.` Page 5;of 22 JPA,CBAC-EIA Amended. , 2006 A majority of the membershipof the Board shall'constitute a quorum for the transaction of business. Each member of the Board shall have one vote. Except as otherwise' provided in this Agreement or any ether duty executed agreement of the members, all actions of the Board shell require the affirmative vote of a majority of the members; provided, that any action which is restricted in effect to one of the Authority's insurance programs, shall require the;affirmative vote of a majority of those Board members who represent counties and public entities participating in that program. For purposes of an Insurance program vote, to the extent there are public entity members participating in a program, the public entity Board' members as a whole shall have a minimum of one vote. The public entity Board members may In no event cast more votes than would constitute 20% of the number of total county members In that program (subject to the one Grote minimum. Should the number of public entity Board votes authorized herein be less' than the number of public entity Board members at a duly noticed meeting, the public entity Board members shall decide among themselves which Board member shall vote.' Should they be unable to decide, the President of the Authority shall determine which';director(s) shall vote. ARTICLE 8 , POWERS OF THE BOARD OF DIRECTORS The Board of Directors shall have the following powers and functions: (a) The Board shall' exercise all"powers and conduct all business:, of the Authority, either directly or by delegation to other bodies or persons unless otherwise prohibited by this Agreement, or any other duly executed agreement of the members or by law. (b) The Board of Directors may adopt such resolutions as deemed necessary in the exercise of those powers and duties set forth herein. (c) The Board shall form an Executive Committee, as provided in Article 11. The Board may delegate to the Executive Committee and the Executive Committee may discharge any powers or duties of the Board except adoption of the AuthodWs annual budget. The powers and duties so delegated shall be specified in resolutions adopted by the Board. (d) '' The Board may form,' as provided in Article 12, such other committees as It deems appropriate to conduct the business of the Authority.' The membership of any such other committee may consist in whole or in part of persons who are not members of the Board; provided that the Board may delegate Its powers and duties only to a committee of the Board composed' of a majority of Board members and/or alternate members. Any committee which is not composed' of a majority of Board mernbers and/or alternate members may function only in an advisory capacity. (e) The Board shall elect the officers of the Authority and shall appoint or employ necessary staff in accordance with Article 13. (f) The Board shall cause to be-prepared, and shall review, modify as necessary;and adopt the annual operating budget of the Authority. Adoption of the budget may not be delegated. Page 6 of 22 JPA, CSAC-ElA Amended. 2006 (g) The Board shall develop, or cause to be developed, and shall review, modify as necessary, and adopt each insurance program of the Authority, including all provisions for reinsurance and administrative services necessary to carry out such program (h) The Board, directly or through the Executive Committee, shall provide for necessary services to the Authority and to members, by contract or otherwise, which may include, but shall=not be limited to, risk management consulting, loss prevention and control, centralized loss reporting, actuarial'` consulting, claims adjusting, and legal services. (1) The Board small provide general supervision and policy direction to the Chief Executive Officer. 0) The Board shall receive and act upon reports of the committees and the Chief Executive Officer.' (k) The Board shall act upon each claim involving liability of the Authority, directly or by delegation of:authority to the Executive Committee or other committee, body or person,provided, that the Board small establish monetary limits upon any delegation of claims settlement authority, beyond which a proposed settlement must be referred to the Board for approval. (1) The Board may require that the Authority review, audit, report upon, and make rboommendations with regard to the safety or claims administration functions of any member, insofar as those functions'affect the liability or potential liability of the Authority. The Board may forward any or all such recommendations to the member with a request for compliance and a statement of potential consequences for noncompliance. (m) The Beard shall receive, review and act upon periodic reports and<audits of the funds of the Authority, as required under Articles 15 and 16 of this Agreement, (n) The Board' may, upon consultation with a casualty actuary, declare that any funds established for any program has a surplus of funds and determine a formula to return such surplus to the participating counties and participating public entities which have contributed to such fund. (o) The Board shall have suchother powers and duties as are reasonably necessary to carry out the purposes of the Authority. ARTICLE 9 MEETINGS OF THE BOARD OF DIRECTORS: ( ) The Board shall hold at least one regular meeting each year and small provide for such other regular meetings and for such special meetings as it deems necessary. (b) The Chief Executive:.: Officer of the Authority shall provide for the keeping of minutes of regular and special meetings of the Board,and shall provide a copy of the minutes to each member of the Board at the next scheduled meeting. Page 7 of 22 JPA, CSAC-EIA Amended: , 2006 {c} All meetings of the Board,the Executive Committee and such committees as established by the Boardpursuant to Article 12 herein, shall be called, noticed, held:and conducted in accordance with the provisions of Government Code Section 54950 at seq. ARTICLE 10 OFFICERS The Board of Directors shall elect from its membership a President and Vice President of the Board,to serve for rine-year terms. The President, or in his or her,:absence, the Vice President, shell preside at and conduct..all meetings of the Board and shall chair the Executive Committee. ARTICLE 11 EXECUTIVE COMMITTEE The Board of Directors shall establish an Executive Committee of the Board which shell consist of eleven members: the President and Vice President of the Board, and nine members elected by the Board from its membership. The terms of office of the nine non-officer members: shall be as provided in the Bylaws of the Authority. The Executive Committee shall conduct the business of the Authority between meetings of the Board,' exercising all those powers as provided for in Article 8, or as otherwise delegated to It by the Board ARTICLE 12 COMMITTEES The Board of Directors may establish committees, as It 'deems appropriate to conduct the business of the Authority. Members of the committees shall be appointed by the Board,to serve two year terms,subject to reappointment by the Board. The members of each committee shall annually select one of their members to chair the Committee. Each committee shall be composed of at least five: members and shall have those duties as determined by the Board, or as otherwise set forth in the Bylaws. Each committee shall meet on the call of its chair, and shall report to the Executive Committee and the Board as directed by the Board. Page 8 of 22 JPA, CSAC-IIIA Amended: , 2006 ARTICLE 13 STAFF (a) Principal Staff. The following staff members shall be appointed by and serve at the pleasure of the Board of directors: (1) Chief Executive Officer. The Chief Executive'.Officer shall administer the business and activities of the Authority, subject to the general supervision and policy direction of the Board of Directors and Executive'Committee; shall be responsible for all minutes,notices and records of the Authority and shall perform such other duties« as are assigned by the Board' and ;Executive Committee. (2) Treasurer. The duties of the Treasurer are set forth in Article 16 of this Agreement. Pursuant to Government Code Section 6505.5, the Treasurer shall be the county;treasurer of a member county of the Authority, or, pursuant to Government Code Section 6505.6, the Board may appoint one of its officers or employees to the position of Treasurer,who shall comply with the provisions of Government Code Section 6505.5 (a-d). (3) Auditor. The Auditor shall draw warrants to pay demands against the Authority when approved by the-Treasurer. Pursuant to Government Code Section 6505.5,the Auditor shall be the Auditor of the county from which the Treasurer is appointed by the Board under(2)above, or, pursuant to Government'Code Section 6505.6,the Board may appoint one of its officers or employees to the position of Auditor, who shall comply with the provisions of Government Code Section 6505.5 (a-d). (b) Charges for Treasurer and Auditor'Services. Pursuant to Government Code Section 6505, .the charges to the Authority for the services of Treasurer and Auditor shall be determined by the board of supervisors of the member county from which such staff members are appointed. (c) Other Staff. The Board, Executive Committee or'Chief Executive Officer shall provide for the appointment of such other staff as may be necessary for the administration of the Authority. ARTICLE 14 DEVELOPMENT,FUNDING AND IMPLEMENTATION OF INSURANCE PROGRAMS (a) Program' Coverage. Insurance programs of the Authority may provide coverage, including excess insurance coverage for; (1) Workers`compensation; (2)'' Comprehensive liability, including but not limited to general, personal injury, contractual,'public officials errors and omissions, and incidental malpractice liability; (3) Comprehensive automobile liability;` (4) Hospital malpractice liability; (5) Property and related programs; Page 9 of 22 JPA, CSAC-EIA Amended: , 2006 and may provide any other coverages authorized by the Board of directors. The Board'shall determine, for each such program, a minimum number of participants required for program implementation and may develop specific program coverages requiring detailed agreements for implementation of the above programs. (b) Program and Authority Funding. The members developing or participating inan insurance program shall fund all',costs'of that program, including'administrative costs, as hereinafter provided. Costs of staffing and supporting the Authority, hereinafter called Authority general expenses, shall be equitably allocated among the various programs by the `,,Board, and shall be funded by the members developing or participating in such programs In accordance with such allocations, as hereinafter provided. In addition,the Board may, in its discretion, allocate a share of such Authority general expense to those members which are not developing or participating in any program, and require those counties and public entities to fund such share through a prescribed charge. (1) Development Charge. Development costs of an insurance program shall be funded by a development charge, as established by the Board of Directors. The development charge shall be paid by each participant in the program following the program's adoption` by the Board. Development'costs are those costs actually incurred by the Authority in developing a program for review and adoption by the Board of,,01rectors, Including but not limited to: research, feasibility studies, information and liaison work among participants;, preparation and review of documents, and actuarial and risk management consulting services. The development charge may also include a share of Authority general expenses, as allocated to the program development function: The development charge shall be billed by the Authority to all participants in the program upon establishment of the program and shall be payable in accordance with the Authority's invoice and payment policy. Upon the conclusion of program development: any deficiency in development funds shall be billed'to all participants which have paid the development charge,'on a pro-rata or other equitable basis, as determined by the Board; any surplus in such funds shall be transferred into the Authority's general expense funds: (2) Annual Premium. Except as provided in (3) below, all post-development costs of an insurance program shall be funded by annual premiums'charged to the members participating in the program each policy year,;and by interest earnings on the funds so'accumulated.. Such premiums shall be determined by the Board of Directors upon the basis of a cost allocation plan and rating formula developed by the Authority with the assistance of a casualty actuary, risk management consultant,;or other qualified person. The premium for each participating member shall include that participant's share of expected program losses including a margin'for contingencies as determined by the Board, program reinsurance casts, and program administrative costs for the year, plus that participant's share of Authority general expense allocated to the program by the Board (3) Premium Surcharge (I) If the Authority experiences an unusually large number of losses under a program during a policy year, such that notwithstanding reinsurance'coverage for large individual losses, Page 10 of 22 JPA,'CSAC=EIA Amended: ,2C1C}6 the joint insurance;.funds for the program may be exhausted before the next annual premiums are due, the Board of Directors may, upon consultation with a casualty actuary, impose premium surcharges on all participating members;or (Ii) If it is 'determined by the Board of Directors, upon consultation with a casualty actuary, that the joint insurance funds for a'program are insufficient to pay losses, fund known estimated lasses, and fund estimated 'losses which have been incurred but not reported, the Board of Directors may impose a surcharge on all participating members. (Iii) Premium surchargesimposed pursuant to(i) and/or (if)';above:,shall be in an amount which will assure adequate funds for the program;,to be actuarially sound; provided that the surcharge to any participating member shall not exceed an amount`'equal to three (3)times the member's annual premium for that year, unless otherwise determined by the Board of Directors. Provided, however, that no,premium surcharge in excess of three times the member's annual premium for that year may be-.assessed unless, ninety days prior to the Board of Directors taking action to determine the amount of the surcharge, the Authority notifies the".governing body of each participating member in writing of its recommendations regarding its intent to assess a premium surcharge and the amount recommended to be assessed each member. The Authority shall, concurrently with the written notification, provide`each participating member with a copy of the actuarial study upon which the recommended premium surcharge is based. (Iv) A member which is no longer a participating member at the time the premium surcharge is assessed, but which was a participating member during the policyyear(s)for which the premium surcharge was assessed, shall pay such premium surcharges as It would have otherwise been assessed in accordance with the provisions of(1), (ii), and (III) above. (c) program >Implementation and Effective Date. Upon establishment of an insurance program by the Board of Directors, the Authority shall determine the manner of program implementation and shall give written notice to all members of such program, which shall include, but not be limited to: program participation levels, coverages and terms of coverage of the program, estimates of first year premium charges, program development costs, effective date of the program (or estimated effective date) and such other program provisions as deemed appropriate. (d) Late Entry Into Program. A member which does not elect to enter an 'insurance program upon its implementation, pursuant to (c) above, or a county or public entity which becomes a party to this;Agreement following implementation of the program, may petition the Board of Directors for late entry into the program. Such request may be granted upon a majority vote of the Board 'members, plus a majority vote of those board members who represent participants in the program. Alternatively, a county or public entity may petition the Executive Committee for late entry into the program,or a program committee,when authorized by an MOU governing that specific program, may approve late entry Into that program. Such request may be granted upon a majority vote of the Executive' Committee or program committee. As 'a condition of late' entry, the member`shall pay the development charge for the program, as adjusted at the conclusion of the development period, but not subject to further adjustment, Paae 11 of 22, JPA,CSAC'-EIA Amended: ,2006 and also any casts Incurred by the Authority in analyzing the member's loss data and determining its annul premium as of the time of entry. (e) Reentry Into A Program. Any county or public entity that is a member of an insurance program of the Authority who withdraws or Is cancelled from an insurance program under Articles 21and 22, may not reenter such Insurance program for a period of three years from the effective date of withdrawal or cancellation. ARTICLE 1 ACCOUNTS AND RECORDS (a)> Annuat Budget. The Authority shall annually adopt an operating budget pursuant to Article 8 of this ,Agreement, which shall include a 'separate budget for each Insurance program under development or adopted and implemented by the Authority. (b)' Funds and Accounts. The Auditor of the Authority shall establish and maintain such funds and accounts as may be required by gaud accounting practices and by the Board of Directors. Separate accounts shall be established and maintained for each insurance program under development or adopted'and implemented by the Authority. Books and records of the Authority in the hands of the Auditor shall be-open to inspection at all reasonable times by authorized representatives of members. The Authority shall adhere to the standard of strict accountability for:funds set forth in Government Code Section 6505. (c) Auditor's Report. The Auditor, within one hundred and twenty (120) days after the ' close of each fiscal year, shall give a complete written report of all financial activities for such fiscal year to the Board and to each member. (d), Annual Audit.' Pursuant to Government Code Section 6605, the Authority'shall either mare or contract with a certified public accountant to make an annual fiscal year audit of all accounts and records of the Authority, conforming In all respects with the requirements of that section. A report of the audit-shall'be filed as a public record with each of the members and also with the county auditor of the county where the`'home office of the Authority is located and shall be sent to any public agency or person In California that submits a written request to the Authority. The report shall be filed within six months of the end of the fiscal year or years under examination. Casts of the audit shall be considered a general expense of the Authority. ARTICLE 16 RESPONSIBILITIES FOR FUNDS AND PROPERTY (a) The Treasurer shall have the custody of and disburse the Authority's funds'. He or she may delegate disbursing authority to such persons as may be authorized by the Board of directors to perform that function, s biact to the requirements of:(b}below, (b) Pursuant to Government Code Section 6505.5, the Treasurer shall: Page 12 of 22 JPA,CSAC-EIA Amended: , 2006 (1) Receive and acknowledge receipt for all funds of the Authority and place there in the treasury of the Treasurer to the credit of the Authority. (2) Be responsible upon his or her official bond for the safekeeping and disbursements of all Authority funds so held by him or her. { ) Pay any sums due from the Authority, as approved for payment by the Board of Directors or by any body or person to whore the Board has delegated approval authority, making such payments from Authority funds upon warrants drawn by the Auditor'. (4) Verify and report In writing to the Authority and to members, as of the first day of each quarter of the fiscal year, the amount of money then Meld for the Authority, the amount,of receipts' since the last report,and the amount paid out since the last report (c) Pursuant to government Code Section 6505.1, the Chief Executive Officer, the Treasurer, and such other persons as the Board of Directors may designate shallhave charge of, handle, and have access to the property of the Authority. (d) The Authority shall secure and pay for a fidelity bond or bands, in an amount or amounts and in the form specified by the Board of Directors, covering all officers and staff of the Authority, and all officers and staff who are authorized to have charge of, handle,'and have access to property of the Authority. ARTICLE 17 RESPONSIBILITIES OF MEMBERS; Members shall have the following responsibilities under this Agreement. (a) The board of supervisors of each member county shall appoint a representative and one alternate representative to the Board of Directors, pursuant to Article 7. (b) Each member shall appoint an officer or employee of the member to be responsible for the risk management function for that member and to serve as a liaison between the member and the Authority for all matters relating to risk management: (c) Each member shall maintain an active safety program, and shall consider and act upon all recommendations of the Authority concerning the reduction of unsafe practices. (d) Each member shall maintain its own claims and loss records in each category of liability covered by an insurance program of the Authority in'which the member is a participant,''and shall provide copies of such records to the Authority as directed by the Board of Directors or Executive Committee, or to such other committee as directed by the Board or Executive Committee, (e) Each member shall pay development charges, premiums, and premium surcharges due to the Authority as required under Article 14. Penalties for late payment of such charges, premiums and/or premium surcharges shall be as determined and assessed by the Board of Directors. After withdrawal, cancellation, or termination action under Articles 20 21, or 23, each member shall', pay promptly to the Authority any additional premiums due, as determined and assessed by the Board of Page 13 of 22 JPA, CSAC-EIA Amended. __. '2006 Directors under Articles 22 or 23. Any costs Incurred by the Authority associated with the collection of such premiums or other charges, shall be recoverable by the Authority. (f) Each member shall provide the Authority such other information or assistance as may be necessary for the Authority to develop and implement Insurance programs under this Agreement. (g) Each member shall cooperate with and assist the Authority, and any insurer of the Authority, in all matters relating to this Agreement, and shall comply with all Bylaws, and other rules by the Board of directors. (h) Each member county shall maintain membership in CSAC. (1) Each member shall have such other responsibilities as are provided elsewhere in this Agreement, and as are established by the Board of Directors in order to carry out the purposes of this Agreement.; ARTICLE 18' ADMINISTRATION OF CLAIMS (a) Subject to subparagraph (e), each'member shall' be responsible for-:the investigation, settlement or defense, and appeal of any claim made, suit brought, or proceeding instituted against the member arising out of a loss. (b) The Authority may develop standards for the administration of claims for each Insurance program of the Authority so as to permit oversight of the administration of claims by the members. (c) Each participating member shall give the Authority timely written notice of claims in accordance'with the provisions of the Bylaws.'' (d) A member shall not enter into any settlement involving liability of the Authority;without the advance written consent of the Authority. (e) The Authority, at Its own election and expense, shall have the right to participate with a member in the settlement, defense, or appeal of any claim,;,suit or proceeding which, in the judgment of the Authority, may Involve'liability of the Authority. ARTICLE 19 NEW MEMBERS Any California public entity may become a party to this Agreement'and participate in any Insurance program'in which It isnot presently participating upon approval of the Board of Directors, by a majority vote of the members,or by majority vote of the Executive Committee. Page 14 of 22 JPA, CSACMEIA Amended: 2006' ARTICLE 20; WITHDRAWAL (a) Amember may withdraw as a party to this Agreement upon thirty (30) days advance written notice to the Authority if it has never become a participant in any insurance program pursuant to Article 14,or if it has previously`withdrawn from all insurance programs in which it was;a participant. (b) After becoming'a participant in an insurance program, a member may withdraw from that program only at the end of a policy Year for the program, and only if it gives the Authority at least sixty (60)days advance written notice of such action. ARTICLE 21 CANCELLATION (a) Notwithstanding the provisions of Article 20,the Board of Directors may: (1) Cancel any member from this Agreement and membership in the Authority, on a majority vote of the Board members. Such action shall have the effect of canceling the., member's participation in all insurance programs of the Authority as of the date that all membership is canceled: (2) Cancel any member's participation in an insurance program of the Authority, without canceling the member's membership in the Authority or participation in other programs, on a vote of two-thirds of the Board members present and voting who represent participants in the program. The Board shall give sixty (60) days advance written notice of the effective date of any cancellation under the foregoing provisions. Upon such effective date, the member shall be: treated the same as if It had voluntarily withdrawn from this Agreement, or from the insurance program, as the case may be. (b) A member that does not enter one or more of the insurance programs developed and implemented by the Authoritywithin-the member's first'year as a member'of the Authority shall be considered to have withdrawn as a party to this Agreement at the end of such period,and its membership in the Authority shall be automatically canceled as of that time,without action of the Board of directors. (c) A member which withdraws from all Insurance programs of the Authority in which it was a> participant'and does not enter any program for a period of six (6) months thereafter shall be considered to have withdrawn as a party to the Agreement at the and of such period, and its membership in the Authority shall be automatically canceled as of that time,without action of the Board of Directors (d) A member county that terminates its membership in CAC shall be considered to have thereby withdrawn as a party to this Agreement, and its membership in the Authority and. participation in any insurance program of the Authority shall be automatically canceled as of that time, without the action of the Board of Directors Page 15 of 22 JPA,'CSAC-EIA Amended: ., 2006 ARTICLE 22 EFFECT OF WITHDRAWAL OR CANCELLATION (a)_ If a member's participation in an Insurance program of the Authority is canceled under Article 21, with or without'cancellation of membership in the Authority, and such cancellation is effective before the end of the policy year for that program, the Authority shall promptly determine and return to that member the amount of any unearned premium payment from the member for the policy year, such amount to be computed on a pro-rata basis from the effective date of cancellation, (b) Except as provided in (a) above, a member which withdraws or is canceled from this Agreement and membership in the Authority,or from any program of the Authority,shall not be entitled to the return of any premium or other payment to the Authority, or of any property contributed to the Authority. However, in the event of termination of this Agreement, such member may share in the distribution of assets of the Authority to the'extent provided In Article 23 provided; however, that any withdrawn or canceled member which has been assessed a'premium surcharge pursuant to Article 14(b) (3) (ii) shall be entitled to return of said member's unused surcharge, plus interest accrued thereon, at such time as the Board of Directors declares that a surplus exists in any insurance fund for which a premium surcharge was assessed. (c) Except as provided in (d) below, a member shall pay any premium charges'which the Board of directors determines are due from the member for losses and costs incurred during;,the entire coverage year in which the member was a participant in such program regardless of the date of entry into such program. Such charges may include any deficiency in a premium previously paid by the member, as determined by audit under Article 14 (b) (2); any premium surcharge assessed to the member under Article 14 (b) (3); and any additional amount of premium which the Board determines to be due from the member upon final disposition of all claims arising from losses`under the program'during the entire coverage year in which the member was a participant regardless of date of entry into such program. Any such premium charges shall be payable by the member in accordance with the Authority's Invoice and payment policy. (d) Those members which who have withdrawn or been canceled pursuant to Articles 20 and 21 from any program'of the Authority during a coverage year shall pay any premium charges which the Board of Directors determines are due from the members for losses and costs which were incurred during the county's'participation in any program. ARTICLE 23 TERMINATION AND DISTRIBUTION OF ASSETS (a) A three-fourths vote of the total voting membership of the Authority,consisting of member 11 counties, acting through their boards of supervisors, and the voting Beard members from the member public entities, is required to terminate this Agreement;provided, however,that this Agreement and the _ Page 16 of 22 JPA,CSAC-EIA Amended. , 2006 Authority shall continue to,exist after such election for the purpose of disposing of all claims, distributing all assets,and performing all other functions necessary to conclude the affairs of the Authority. (b) Upon termination of this Agreement, all assets of the Authority in each insurance program shall be distributed among those members which participated in that program in proportion to their 'cash contributions,''including premiums paid and property contributed (at market value when contributed);. The Board of Directors shall determine such distribution within six(6) months after disposal of the last pending claim or other liability covered by the program. (c) Fallowing termination of this 'Agreement, any member which was a participant in an Insurance programof the Authority shall pay any additional amount of premium,'determined by the Board of Directors' in accordance with a lass allocation formula, which may be necessary to enable final disposition of all claims arising from losses under that program during the entire'coverage year in which the member was a'participant regardless of the date of entry into such program. ARTICLE 24_ LIABILITY of BOARD OF,,DIRECTORS,OFFICERS, COMMITTEE MEMBERS' AND LEGAL ADVISORS The members of the Board of Directors, Officers, committee members and legal advisors to any Board or committees of the Authority shall use ordinary care and reasonable diligence in the exercise of: their powers and In the performance of their duties pursuant to this Agreement. They shall not be liable for any mistake of judgment or any other action made, taken or omitted by themingood'faith, nor for any action taken or omitted by any agent, employee or independent contractor selected with reasonable care, nor for loss incurred through investment of Authority'funds, or failure to Invest. No Director, tOfficer, 'commiftee member, or legal advisor to any Board or committee shall be responsible for any action taken or omitted by any other Director, Officer, committee`member, or legal advisor to any committee. No Director, Officer, committee member or 'legal advisor to any committee, shall be required to give'a bond or other security to guarantee the faithful performance of their duties pursuant to this Agreement. The funds of the Authority shall be used to defend, indemnify and hold harmless the Authority and any Director, Officer, committee member or legal advisor to any committee for their actions taken within the scope of the authority of the Authority. Nothing=herein shall limit the right of the Authority to purchase insurance to provide such coverage as is hereinabove set forth. Page 1'7 of 22 JPA,CSAC-EIA Amended: , 2DO6 ARTICLE 25 BYLAWS The =.Board may adopt Bylaws consistent with this Agreement which; shall provide for the administration and management of the Authority. ARTICLE 26 NOTICES The Authority shall address notices, billings and other communications to a member as directed by the member. Each member sha11 provide the Authority with the address to which communications are :«to be sent, Members shall address notices and other communications to the Authority to the Chief Executive Officer of the Authority,at the office address'of the Authority as set forth in the Bylaws. ARTICLE 27 AMENDMENT A two-thirds vote of the total voting membership of the Authority,consisting of member counties, acting through their boards of supervisors, and the voting Board members from member public entities,is required to amend this Agreement: ARTICLE 28 PROHIBITION AGAINST ASSIGNMENT No member'may assign any right, claim or interest it may have under this Agreement, and no creditor, assignee or third party beneficiary of any member shall have any right, claim or title to any part, share, interest,fund, premium or asset of the Authority. ARTICLE 29 AGREEMENT COMPLETE This Agreement constitutes the full and complete Agreement of the parties: Page 18:of 22 JPA,CSACEIA Amended: ,2006 ARTICLE 30 EFFECTIVE DATE OF AMENDMENTS Any amendment of this Agreement shall become effective upon the date specified by the Board and upon approval of any Amended Agreement as required in Article 27. Approval of any amendment by the voting boards of supervisors and,public entity board member's must take place no later than 30 days from the effective date specified by the Board. ARTICLE 31 DISPUTE RESOLUTION When a dispute arises between the Authority and a member, the following procedures are to be followed: (a) Request for Reconsideration. The member will make a written request to the Authority for the appropriate Committee to reconsider their position, citing the arguments in favor of the member and any applicable case law that applies. The member can also, request a personal presentation to that Committee, If it so desires., (b) CommitteeAppeal. The committee responsible for the program or having jurisdiction over the decision in question will review the matter and reconsider the Authority's? position. This committee appeal process' is an'opportunity for both sides to discuss and substantiate their'positions based upon legal arguments and the most complete information available. If the member requesting reconsideration is represented on the committee having jurisdiction, that committee member shall be deemed to have a conflict and shall be excluded from any.vote. (c) Executive Committee Appeal. If the member is not satisfied with the'outcome of the committee appeal, the matter will be brought to the Executive 'Committee for reconsideration upon request of the member. If the 'member requesting reconsideration Is represented on the 'Executive Committee,that Executive Committee member shall be deemed to have a'confiict and shall be excluded from any vote (d) Arbitration.' If the member is not satisfied with the outcome of the Executive Committee appeal, the next step in the appeal process is arbitration. The arbitration,whether'binding or non-binding, is to be mutually agreed upon by the parties. The matter will.be submitted to a mutually agreed arbitrator or panel of arbitrators for a determination. If Binding Arbitration is selected, then of course the decision of the arbitrator is final. Both sides agree to abide by the decision of the arbitrator. The cost of arbitration will be shared equally by the involved member and the Authority. (e) litigation. If, after following the dispute resolution procedure paragraphs,a-d, either party is not satisfied with the outcome of the non-binding arbitration process,either party may consider litigation as a possible remedy to the dispute. Page 19 of 22 JPA, CSAC-EIA Amended: , 2006 ARTICLE 32 FILING WITH SECRETARY of STATE The Chief Executive Officer of the Authority shall file'a notice of this Agreement with the office of California Secretary of State within 30 days of its effective date,as required',by Government Code Section 6503.5 and within 70 days of its effective date as required by Government Code Section 53051. Page 20 of 22 JPA, CSAC-EIA Amended. , 2006 APPEiIX A JOINT POWERS AGREEMENT CREATING THE CSAC EXCESS INSURANCE AUTHORITY MEMBER COUNTIES'{AS OF MARCH 2EE}05) ALAMEDA ALPINE AMADOR BUTTE CALAVERAS COLUSA CONTRA COSTA DEL NORTE ELDORADO FRESNO GLENN HUMBOLDT IMPERIAL INYO KERN KINGS LAKE LASSEN MADERA MARIN MARIPOSA MENDOCINO MERCER MODOC MONO MONTEREY NAPA NEVADA PLACER PLUMAS RIVERSIDE SACRAMENTO SAN BENITO SAN BERNARDINO SAN DIEGO SAN JOAQUIN' SAN LUIS OBISPO SANTA BARBARA SANTA CLARA,, SANTA CRUZ SHASTA SIERRA SISKIYOU SOLANO SONOMA STANIBIAUS SUTTER TEHAMA TRINITY TULARE TUOLUMNE VENTURA YOLC3 YUBA Page 22 of 22 JPA,CSAC-EJA Amended: x:74-0.,�',2006 IN WITNESS WHEREOF,the;undersigned party hereto has executed this Agreement on the date indicated below. CRATE: ', -- rfJMEMBER. " ze1 ! (Print Marne of Member) (Authorized Itgnature Of Member) salt Page 21 of 22