Nevadans, like all Americans, are some of the most insured people in the world. We’re required to have auto insurance if we drive or own a car, we have homeowners insurance and renters insurance and many of us have life and accident insurance, some of it sold through our credit cards. Even our cities, counties and special districts have insurance.

Most of our insurance is purchased through local agents. But what if your personal agent came to you and offered you a policy that said you can’t drop or change the insurer unless you gave 120 day notice, or that you can’t sue the insurer for damages, or that the insurer was not subject to the rules of the state insurance commissioner?

Most of us would look elsewhere, but that’s the policy that most cities, counties and special districts in Nevada have purchased, with millions of dollars of taxpayer money. In the case of the City of Mesquite and the Virgin Valley Water District, the premiums for one year total about $500,000.

Why then do local governments purchase such policies and who is the insurance company? The insurer is the Nevada Public Agency Insurance Pool (NPAIP), which is located in Carson City, and was created under a statute passed by the Nevada Legislature in 1985. Commonly known as “Pool Pact,” the organization is open to all cities, counties, school districts and special districts in Nevada.

The organization is actually two parts:  the “Pool” refers to the property casualty and liability insurance side and the “Pact” refers to the worker’s compensation insurance side.

According to Wayne Carlson, executive director of Pool Pact, he along with support of the Nevada League of Cities and the Nevada Association of Counties, lobbied the legislature for authority to create the pool in response to the insurance crisis for local governments that occurred in the 1980s. During that time of financial crisis in the country, insurance companies suffering financial losses dropped local governments as high risk and because they didn’t fully understand the risks of the local governments market.

The idea of Pool Pact was to combine the premiums of smaller local governments in order to enable them to have the same advantages as larger agencies and to not be dependent upon the private market for insurance. This is not unique, as most states have laws that allow local governments to pool insurance premiums and have policies designed just for government entities, and most of the pools were created in the 1980s.

Each entity within NPAIP is run by a 45-member board of directors, composed of both elected and appointed officials.  The large boards, however, only meet once a year at an annual meeting. The organization is actually run on a daily basis by staff and two executive committees, one for the Pool and one for the Pact. The two executive committees, totaling about a dozen members meet monthly, and also in joint session when issues affecting both insurance programs arise.

The members of both executive committees are made up almost exclusively of appointed officials, such as city, school district and county finance officers, local government comptrollers and city and town managers.

Actual claims, however, are handled by private company, Alternative Service Concepts LLC. The company is headquartered in Nashville, Tennessee, and maintains an office in Carson City. It’s the claims process where most of the criticism arises.

To understand why so many rural Nevada local governments purchase policies through Pool Pact, you first have to look at which local governments are not part of the insurance program. Missing from its membership list are the major cities and counties of Nevada. Non-members include Clark County, Washoe County, Las Vegas, Carson City and Reno. The reason they don’t belong is that their size allows them to have professional risk managers on staff, and they have the resources to self-insure with backup from re-insurance companies for unusually large losses.

According to Carlson, the largest city entity in the pool is “probably Boulder City,” which is about the same population as Mesquite, and “the smallest member doesn’t have any staff and contracts services.”

Belonging to Pool Pact gives local governments the confidence that they are members of the pool and covered by “their own” and that their interests will be protected better than with a private insurer. But is this true, and do local governments, particularly the smaller ones, understand what is in the policies?

Mesquite City Attorney Bob Sweeten is one local official who believes Pool Pact doesn’t operate in an open manner.  Sweeten says there are major problems with the insurance pool, “Pool Pact wants to handle all the claims directly even if there is no merit in the claim, and there are no checks and balances in the process.” Sometimes claims without merit are paid while legitimate claims are denied according to Sweeten.

“No one from Pool Pact has ever explained to me why their process is a good one,” Sweeten said. The result “is a process that nickels and dimes the taxpayers of Mesquite,” according to Sweeten.

The appeals process also is a subject of frustration for the Virgin Valley Water District, which filed an appeal of a Pool Pact denial of coverage. Disputed claims are referred to a committee that’s appointed by the board president for the specific purpose of hearing the appeal. The process in the case of VVWD consisted of a presentation by Bo Bingham, the VVWD attorney, followed by a rebuttal by an attorney that is retained by the claims agency. The committee then adjourns into executive session with the claims attorney.

“This is like having the prosecuting attorney go with the jury after a trial so he can rebut everything without any response from the appellant attorney,” Sweeten said.

Carlson defends the process saying, “This is no different than a city attorney adjourning with the city counsel after an appeal.” Carlson asserts the attorney is needed to ensure that the appeals committee frames their motions properly and doesn’t violate any procedures.

Carlson also notes that if a local government is unhappy with a liability or property claim decision they can seek declaratory relief from a judge, who can decide if Pool Pact is correctly interpreting the terms of the policy.  However, unlike a private insurance company, Pool Pact cannot be sued for damages or other charges.  “Suing Pool Pact is like suing yourself,” said Carlson.

The transparency of Pool Pact actions is also an issue of concern to VVWD and the City of Mesquite. VVWD filed a freedom of information request with Pool Pact in an attempt to get information on a disputed claim. The claims agency attorney, Jack G. Angaran, replied to the request writing “While you have entitled this as a public records request, the Pool does not qualify as a defined ‘governmental agency’ subject to the Nevada Public Records Act…” The letter further asserts that Pool Pact is not a unit of government and “In context of its membership in the Pool, VVWD is not a member of the public as contemplated by the Public Records Act.”

This statement by the Pool Pact claims attorney was sharply refuted by Carlson. “We are subject to the open meetings law,” he said. Carlson also said Pool Pact has always conformed with the open meetings law since our first meeting in 1987. He noted the agenda’s of Pool Pact always begin with public comment, and minutes and financial information is published on the organization’s website.

On March 26, VVWD filed a complaint with the Nevada Division of Insurance, requesting an order that would compel Pool Pact to pay the districts claims. To date, there has been no resolution of the complaint. Pool Pact has consistently asserted they’re not an insurance company, and therefore, not subject to the authority of the Insurance Commissioner.

Carlson noted that when Pool Pact was created by the Legislature, the then insurance commissioner testified that the pool, with the exception of the worker’s compensation program, should not be regulated by the state.

The VVWD complaint states their belief that Pool Pact is a governmental agency and that they own a nonprofit subsidiary called Risk Mutual Inc. that’s registered with the insurance commissioner.

There has been no ruling on the request to date. The VVWD board has voted to send two directors to Carson City to meet directly with the insurance commissioner. They will also meet with the state Attorney General and have requested time on the agenda of the Pool Pact board of directors.

Pool Pact has had other critics over the years that are not limited to the Mesquite area.

In 1997, Neil Rombardo began his term as the elected District Attorney for Carson City, and one of the first things he did was review the litigation costs incurred by the city. “I was monitoring litigation and found that our deductible of $100,000 was high and that our worker’s compensation costs were also high,” Rombardo said.  He also saw what he thought was a pattern in how Pool Pact litigated their claims, “It appeared that litigation costs would get right up to our deductible limit and then be closed, right before Pool Pact would have to pay on the policy.” Rombardo also believed the city could have settled some of the cases sooner, and saved the city money.

At Rombardo’s insistence, Carson City created its own insurance program, and hired an internal risk manager. With private worker’s compensation coverage and its own re-insurance, Rombardo estimates that Carson City saved over  $1 million and got better service. But the biggest benefit to Carson City, according to Rombardo, was the control the city gained once they were out of Pool Pact, “When you have Pool Pact their attorney will tell you that they don’t answer to you, they answer to Pool Pact.”

Rombardo didn’t run for re-election in 2014, and since January of 2015 is the Senior Attorney at the State of Nevada Department of Employment, Training and Rehabilitation and Employment Security Division.

The VVWD has already made clear that they will provide the 120-day notice to Pool Pact early next year and that they will no longer continue with the insurance program. At a recent board meeting, the district’s local agent provided a bid from a private insurance company.

Mesquite recently had Carlson attend a council meeting to hear their concerns. No decision has publicaly been made to invoke the 120-day notice clause of the policy, but there is certain to be more discussion, given the concerns of the City.

If Mesquite and VVWD were to leave the pool, the impact could be felt by other governments in Nevada. “When we pulled out of the pool, the rates went up for the remaining members,” Robardo said.  While Mesquite and VVWD premiums are not the size of Washoe County and Carson City, there will still be an impact.