Sept. 4 (Bloomberg) -- New York City plans to spend $735 million this year on settlements or awards in lawsuits claiming negligence, police abuse and property damage, the most in its history and almost six times what Los Angeles pays per capita.
The cost of claims is forecast to rise to $815 million by 2016, more than the city pays to run the Parks and Recreation Department, according to budget documents. Among the incidents triggering payments are malpractice in public hospitals, police beatings, improper arrests, collisions with fire trucks and potholes causing accidents.
The increase in litigation payouts may put pressure on Mayor Michael Bloomberg as he weighs job and service cuts to close a $3.5 billion deficit in a $72 billion budget next year. The gap widened by $1 billion last month when a court struck down a plan to sell 2,000 new taxi medallions.
“It’s a huge problem for the city and trial lawyers will say it’s only justice, but it’s also a matter of some people considering a case before a New York jury the same as winning the lottery,” said E.J. McMahon, a research fellow for the Manhattan Institute’s Empire Center for New York State Policy. The institute calls for changes to contingency fees for plaintiffs’ lawyers and advocates a so-called loser pays system for legal costs.
One reason New York’s legal payouts are rising, according to the Law Department, is that unlike California, Illinois and Pennsylvania, the state has no laws that cap damages or limit liability in suits against municipal governments.
The city’s claims forecast for this year includes litigation arising from personal injury, property damage and contract disputes. Raymond Orlando, a spokesman for the budget office, said the estimate is based on experience that takes into account the potential for large payouts from lawsuits originating years ago.
“These expenses are quite volatile from year to year,” Orlando said.
New York spent $664 million on claims in the fiscal year that ended June 30, 2011, the most recent year for which data are available, according to the Law Department. Claims alleging personal injury accounted for $565 million, including $119 million for police misconduct and civil-rights violations.
Bloomberg, 70, called on state and federal lawmakers to “reform tort law” at a news briefing today in Queens.
Settlements will remain expensive as long as courts and juries believe the city has ample money, said the mayor, who is founder and majority owner of Bloomberg News parent Bloomberg LP.
“A lot of times we just make a business decision to settle, rather than run the risk of a much greater tort judgment against us,” he said.
Law Department officials say the office has been able to contain costs, partly through early identification of cases the city should settle. New York’s ability to persuade the state Legislature to enact a 2003 law making adjacent property owners responsible for maintaining public sidewalks saved about $40 million a year in slip-and-fall cases, said Kate Ahlers, the department’s spokeswoman.
New York’s payouts dwarf those of other large U.S. cities. Los Angeles, with a population of 3.9 million, paid $54 million for claims in 2011, or about $14 per capita. New York’s per capita cost, based upon a population of 8.2 million, is $81.
Comparing New York’s settlement payments to other cities “is an apples-to-oranges undertaking because of the breadth of agencies and functions covered in New York City’s tort payouts and the differences in other states’ tort laws,” Ahlers said.
The city of Los Angeles, for example, isn’t legally responsible for operations under the control of Los Angeles County, which runs local jails and maintains roads, she said in an e-mail.
“New York City is a self-insured mega-metropolis with a population of more than 8 million people under a single umbrella for the purposes of tort liability,” she said.
Unlike most cities, New York has its own system of 11 public hospitals, which generate malpractice claims of more than $130 million a year. Schools in other cities are controlled by independent districts; not so in New York City, where the mayor runs the schools, she said.
The city reduced its annual claim costs among its hospitals 17 percent to $134.4 million from 2006 to 2010, in part by creating a specialized legal team within the Health and Hospitals Corp., said Ana Marengo, an HHC spokeswoman.
By contrast, claim payouts alleging abusive police conduct increased 46 percent during the same period, to $136 million in 2010, according to the city comptroller’s office. There were 8,104 claims filed against the police that year, a historical high, Comptroller John Liu said in a June 2011 report.
“A growing area of concern is the increase of claims filed against the NYPD,” Liu said.
Deputy Police Commissioner Paul Browne, the department’s chief spokesman, says the Law Department is too quick to settle cases and that some lawyers manipulate the system.
“It’s a cottage industry, suing the department,” Browne said. Attorneys in the Law Department make an “economic calculation to settle these cases without taking into account the damage done to the reputation of the police from false or exaggerated claims.”
Fay Leoussis, the Law Department’s torts division chief, said the city has several issues to consider before agreeing to a settlement.
“In the vast number of cases, our police officers did the right thing, but from a risk-management point of view we want to settle meritorious claims, reviewing the venue, the sympathy factor, the injury,” Leoussis said. “We’re very concerned about our police officers’ morale and we believe that what they do is on the right side of the law for the most part.”
The Law Department has asked the state Legislature to enact laws that would reduce the interest rate on unpaid settlements held in escrow; limit the city’s liability in cases when the plaintiff is partially at fault; and expand the ability to bypass juries with cases adjudicated by judges, Leoussis said.
Plumbing the Numbers
The volume and cost of claims should spur city officials to analyze whether repeat wrongdoers or faulty practices may be to blame, said Carol Kellermann, president of the New York Citizens Budget Commission, a business-funded watchdog of city and state fiscal policy.
Leoussis says city lawyers meet with and train police. Kellermann and others say New York could do more.
“The problem is, city officials pretend that there’s nothing to be learned from the information contained in these claims,” said Paul Chevigny, a New York University criminal-law professor and author of the 1995 book “Edge of the Knife: Police Violence in the Americas.”
Civil-rights claims against the police and other city departments totaled 2,657 in fiscal 2010, a 35 percent increase over the previous year.
The largest payout that year, according to the comptroller’s office, was a $33 million settlement in a class-action accusing the Department of Corrections of illegally strip-searching 100,000 inmates upon admission to jail after arraignment on misdemeanor or lesser charges.
In February, the city paid $15 million to settle a class-action suit filed in 2005 against the police on behalf of 22,000 New Yorkers charged with loitering from 1983 to 2011 -- in violation of a law declared unconstitutional in 1992.
Lawsuits claiming police abuse “are very serious cases where people die or people have their rights violated,” said Katherine Rosenfeld, an attorney with Emery Celli Brinckerhoff & Abady LLP, a firm involved in the strip-search and loitering suits. In the loitering case, the settlement reached $15 million because “they were compensating people for things that had happened over a very long period of time,” she said.
The city litigated the case for almost seven years and was held in contempt in 2010 for continuing to make such arrests after the law had been ruled unconstitutional, Rosenfeld said.
Christopher Dunn, associate legal director for the New York Civil Liberties Union, said that while his organization opposes the police department’s stop-and-frisk policy, which affects mostly black and Hispanic males, those momentary encounters rarely result in injuries for which it’s appropriate to seek monetary damages. The organization usually seeks court-ordered changes in police training and procedures rather than money awards in civil-rights cases, he said.
“Most people would be disappointed when they see how little reform takes place, even when large amounts get paid out,” said Dunn. “Police officers who get sued usually don’t even know the city has paid tens of thousands of dollars for their illegal act. So, how can there be deterrence?”
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