The next year, a falling tree struck a man in the park, resulting in a $15,000 payout from the city. A few months after that, a police tow truck allegedly hit a teenage boy crossing an intersection near the north end of the park, prompting another filing.
Claims and lawsuits are an everyday occurrence in the Big Apple, where about 9,500 cases were filed against the city last fiscal year. In all, New York paid out $720 million in judgments and claims in fiscal 2016, which amounts to about $84 per resident. That’s only about 1 percent of the city’s total expenditures, but it represents much-needed funding that could be directed elsewhere. For instance, it’s more than the combined budgets of the Parks and Recreation Department and the Department of Buildings.
Steep legal bills aren’t just an issue in New York. In large cities across the country, court challenges can be a drain on municipal coffers. To gauge the fiscal impact of claims and lawsuits, Governing requested financial data from the two dozen largest cities in the U.S., the first such national review of comprehensive legal costs. Twenty cities responded, and their combined financial information paints a picture of just how significant these claims costs can be. All totaled, the cities paid out more than $1.2 billion in their last fiscal year.
It’s a big problem, and it’s not getting any better. These days, local governments face a whole host of potential liabilities. Heightened tensions around accusations of police misconduct have led to multimillion-dollar settlements. Outdated infrastructure, from crumbling sidewalks to antiquated water and sewer systems, may result in injuries or property damage. Some cities have taken on new responsibilities in recent years or expanded existing efforts, such as offering additional health services. Those added public services inevitably bring extra risks. Moreover, cities say, plaintiffs’ attorneys are constantly coming up with new theories of litigation and new ways to sue. On top of all that is a culture that many people say has shifted away from taking personal responsibility, leading to a litigious -- and costly -- reality for cities. “The acceptance of personal responsibility seems to be dying out somewhat,” says Terri Evans, president of the Public Risk Management Association. “Somebody has to pay for [lawsuits], and that somebody is everyone.”
While lawsuits and their associated expenses can be costly, they also represent a vital opportunity for cities to fix problems and improve public services. A few jurisdictions are starting to analyze their claims data or strengthen risk management practices aimed at reducing the types of incidents likely to cost cities money down the road. But in cities that do nothing, the costs associated with lawsuits could eat up a bigger and bigger share of the budgetary pie in the years to come.
(SOURCE: FY 2015 data from the Office of the New York City Comptroller)
Much of the recent attention on lawsuits against cities has centered on high-profile cases alleging police misconduct. This summer, for example, Chicago’s inspector general found that the city paid $146.3 million for police misconduct and other public safety claims in 2013 and 2014. Even some cities unscathed by police controversies report they’re paying more for reinsurance premiums as a result of payouts elsewhere. Police department cases are costly: In New York, they account for about one-third of the total tort claim payouts and judgments in recent years. But they’re only one part of a much larger cost calculation for cities.
Another area of growing concern is aging infrastructure. Injuries sustained on New York City sidewalks or roadways, for example, two of the more frequent claims filed against the city, amounted to $55 million in judgments and settlements in fiscal 2015. Water infrastructure can be a problem too. Some cities are frequently hit with claims from sewer overflows. A few, like Chicago and Philadelphia, have been the subject of class action lawsuits alleging lead contamination in drinking water.
As Governing’s analysis shows, cities’ legal bills vary widely. While average annual payouts over the past three years exceeded $35 million in seven cities, nine others averaged less than $5 million. The lowest total spenders were Fort Worth and Columbus, Ohio, whose total yearly costs were less than $3 million.
A number of factors can drive up cities’ costs, some of which are out of their control.
Local governments that operate public hospitals, housing authorities, airports, utilities and other higher-risk entities can expect to face bigger payouts. Cities vulnerable to natural disasters also incur greater risks. Hosting large-scale events -- festivals, concerts, conventions -- can add to the bottom line. Densely populated urban centers tend to face much higher liability costs simply because they maintain services or infrastructure that are more fraught with risks: Things like subway accidents are not an issue for smaller towns. When smaller jurisdictions do get hit with a big lawsuit, however, it can be devastating. The town of Hillview, Ky., filed for bankruptcy last year after it was slammed with a judgment over a property deal that amounted to $15 million with interest.
Costs can fluctuate a lot from one year to the next, as even a single major settlement can spike expenses significantly. San Jose, Calif., is currently appealing an $11 million police excessive force verdict that, if upheld, would roughly equal the city’s payouts for the three most recent years combined.
Payout amounts depend a great deal on state law. States maintain different tort laws around what’s known as sovereign immunity, prohibiting all or certain types of lawsuits from being levied against governments. The type of trial venue also matters: Citizen juries tend to award higher damages than judges do. States also may set a cap on damages. In one Philadelphia suburb, for instance, a jury in 2011 awarded $14 million to a high school student who had lost her leg after being run over by a school bus. But the award was later reduced to $500,000, the maximum permitted under a Pennsylvania law that hadn’t been revised in over three decades. As of 2015, according to the National Conference of State Legislatures, 34 states limit the total damages recoverable from judgments against states, with many of those laws also applying to local governments.
Paying out claims is expensive, but so is fighting them in court. Los Angeles, for instance, spent $40 million on litigation costs last fiscal year, while much smaller San Jose spent $7.5 million. New York’s current budget includes $7 million for hiring expert consultants for major cases set to go to trial.
Then there are insurance costs. Large cities typically don’t purchase liability insurance, with the exception of excess insurance or limited policies for select public authorities. Most cities reviewed reported no more than a few million dollars in annual insurance costs. Of course, those that do purchase more comprehensive policies won’t pay as much in payouts. San Diego spends the most of any city reviewed, averaging $8.4 million a year.
The vast majority of localities nationwide participate in government risk pools, viewed as a more cost-effective alternative to private insurance companies. Costs per individual risk generally haven’t increased, but total costs of insuring localities have climbed over the longer term, says Ann Gergen, executive director of the Association of Governmental Risk Pools. That might be, in some cases, because governments expanded services, or tort caps were increased or lifted.
(SOURCE: Office of the New York City Comptroller)
Pricey payouts are an issue for many cities across the country, but New York is the epicenter. Its payouts topped $720 million in fiscal 2015, more than all the other 19 cities combined. Its law department employs an army of more than 700 attorneys, and the city currently faces more than 21,000 pending cases. There are several reasons why New York attracts so many lawsuits. Obviously, it’s a dense urban environment with a population that dwarfs other cities. But the city also happens to be in a state with several laws that can drive up cities’ legal costs. For one thing, there’s the issue of trial venue: Injury and property damage cases brought against the state are held in claims courts where judges render verdicts, but cases brought against New York’s cities are typically held before citizen juries, generally a less favorable venue for government. Then there are things like the “scaffold law,” which holds contractors and property owners 100 percent liable when workers fall from ladders or scaffolds at construction sites. New York is the lone remaining state with such a law on the books, and it can significantly raise costs. Consider bridge projects that span from New York to New Jersey: According to the Port Authority of New York and New Jersey, total claim amounts between 2002 and 2012 were more than twice as high on the New York side.
“We have the most permissive courts in the nation, and it’s not even close,” says Tom Stebbins, executive director of the Lawsuit Reform Alliance of New York. The state, home to the most lawyers per capita, has resisted legislative proposals to modify its tort laws. Many people attribute that to the influence of the New York State Trial Lawyers Association, a group that Gov. Andrew Cuomo once called the “single most powerful political force in Albany.” (The association did not comment for this story.)
Being the nation’s payout capital isn’t a distinction that New York City relishes. That’s why, over the past few years, it has launched an aggressive approach to cut those costs.
Part of that means pushing back against what the city sees as meritless lawsuits. In past years, New York often agreed to pay out small settlements just to make cases go away. Elizabeth Daitz, who heads the police department’s legal unit, says it got to the point to where protesters would taunt police officers at rallies, telling them about settlements they’d received and threatening to sue again. One settlement in early 2015 drew particular ire from officials. A man wielding a machete had threatened police officers and was shot in the leg during an altercation; the man then accused the police of wrongdoing. The city agreed to a $5,000 settlement, even though the man had plead guilty to menacing an officer. Mayor Bill de Blasio vowed to make changes. “Unfortunately, the reality is, if we stand and fight, we will be spending a lot of time in court, using up a lot of lawyers, and it will cost a lot of money,” he told reporters after the settlement was announced. “But it’s worth it to end the madness of these frivolous lawsuits, which are not fair to the city, and not fair to the officers involved.”
Indeed, New York has devoted new resources to fighting these types of suits. The tort division of the city’s law department budgeted for nearly 200 additional positions this year. The police department similarly created a new unit in early 2015 of roughly 40 attorneys and investigators to respond to claims.
But it’s not just about fighting penny-ante payouts. New York has engaged in a major effort to get smarter about the kinds of risks that lead to lawsuits in the first place. In 2014, City Comptroller Scott Stringer launched ClaimStat, a data-driven initiative intended to serve as an early warning system for city agencies by detecting patterns in claim filings. By mapping sewer overflow claims, for example, Stringer’s team found several blocks in Queens prone to flooding. The office has now issued a series of alerts drawing attention to problems such as potholes, playground injuries and traffic accidents involving pedestrians.
ClaimStat staff are also working with the police department to better respond to and address claims. Now, when a new claim is filed, police investigators immediately start working to assess its merits, searching for witnesses and surveillance video. They analyze claims data in real time, attempting to pinpoint recurring issues in precincts throughout the city. Early results of the new initiative are encouraging: Police misconduct filings dipped 13 percent in fiscal 2015, the first year-over-year decline in at least a decade. Local advocacy groups are supportive, but say the city could still do more to address underlying concerns. “The city should be focused less on lawyering,” says the New York Civil Liberties Union’s Christopher Dunn, “and more on trying to focus on the [police] misconduct that produces lawsuits.”
It will take years for New York to realize the full effects of the changes. Cases may linger for decades; three of the city’s top settlements in fiscal 2015 were from cases dating back to the 1980s. But the initiatives are expected to cut costs. Accordingly, the city’s latest budget cut the law department’s allotment for claims and judgments by 11 percent over the next five years. On the whole, says Daitz, New York will no longer be known as a place to file a claim and make a quick buck. “The attorneys on the plaintiffs’ side are getting the message that this is not a lottery ticket. The days of an easy payday are long gone.”
While New York’s initiatives may prove effective, not every city is in a position to hire a phalanx of new attorneys and build a whole new data-analysis system. But there are a number of other things a city can do to bring down its claims costs. For one, it’s important to establish a hardline reputation for taking on frivolous lawsuits, says Darren McKinney, communications director for the American Tort Reform Association. “The plaintiffs’ lawyers will file meritless lawsuits in cities where there will be little resistance,” he says. “The impulse is to settle early on.” Chicago and Los Angeles, he says, are viewed as easier targets relative to other cities.
Cities could also incentivize individual departments to help cut down on risks. Comptroller Stringer has suggested New York consider holding individual departments more responsible for the claims filed against them. Departmental budgets would have to share in paying for settlements, but they’d also get a share of any savings attained from implementing better risk management practices. One of the few jurisdictions where claim and judgment payouts come directly out of individual departments’ budgets is Los Angeles County. “It certainly makes them pay attention to it,” says Steven Robles, the county’s risk manager. In most cities, settlements and judgments come out of the general fund. The lone exception in New York is NYC Health and Hospitals, the agency that operates the city’s public hospitals. It saw a noticeable decline in medical malpractice filings when it began shouldering some of the costs of medical malpractice liabilities in 2001, followed by another drop once it took over management of its cases in 2006.
(SOURCE: Office of the New York City Comptroller)
Still, cities will never be able to tame costs if they don’t address the underlying problems that prompt lawsuits, says Joanne Doroshow, who heads the New York-based Center for Justice and Democracy. “Cities will pay out money but will ignore the root cause in some cases.”
Even well-meaning actions can have unintended consequences down the road. Evans of the Public Risk Management Association cites how, years ago, cities started planting more trees as part of Tree City USA campaigns. Now that those trees have matured, their roots have in some cases damaged sewer lines or destroyed sidewalks. Shifts in budget allocations may also produce dramatic effects: With limited funding for tree pruning, New York saw a steady rise in the number of tree-related claims starting around 2006. The city then roughly doubled its tree pruning budget starting in 2013; claims since then have dropped to near historic lows.
In general, says Evans, cities must focus more on considering risk when launching new initiatives, and they should involve risk management personnel early in the planning stages of any new projects. “We’re trying to communicate more to upper-level management how important it is to involve risk management on the front end rather than the back end,” Evans says. “It’s much more difficult to know something is happening until after there’s been a tragedy.”
That’s a direction cities seem to be moving toward. In Chicago, the inspector general this year called for the city to adopt a comprehensive risk management program to mitigate its claim costs. And in one 2013 study by the Rockefeller College of Public Affairs and Policy at the State University of New York at Albany, municipal officials said they were devoting more resources to risk management activities and protections than they had in the past.
If cities really want to get serious about chipping away at that $1.2 billion number, it likely will require an all-of-the-above approach. They’ll need to fight lawsuits rather than just settle out of court -- and they must telegraph that to would-be claimants. Cities will need to focus on the underlying causes of lawsuits, not just the suits themselves. And experts also say they may need to think about better incorporating risk management practices across their departments. If they don’t take steps like those, cities will almost certainly face an ever-rising tide of claims.
