Christina Jedra

The News Journal

The city of Wilmington does not have insurance for worker's compensation claims.

The city could pay $9 million or more in medical bills for firefighters injured on Sept. 24.

The situation could put Wilmington in a budge deficit.

The Sept. 24 fire in a Canby Park rowhome will go down in Wilmington as one of the most traumatic events in city history. The tragedy ultimately took the lives of three firefighters and injured four more, leaving the department and community reeling.

In the days that followed, city officials realized they had another "very serious" problem, said Mayor Mike Purzycki.

Because of a decision made in the 1980s, Wilmington had no insurance to cover worker's compensation costs. Now, the city has to pay an estimated $9 million or more out of pocket to cover health care costs for firefighters injured in the blaze, Purzycki told The News Journal.

Officials have no idea how high costs could go. The city is still receiving hospital bills old and new, Purzycki said. Firefighter Brad Speakman, who spent 41 days in the burn unit at Chester-Crozer Medical Center in Delaware County, requires continued care and may need skin grafts and plastic surgery.

"It's a horrific disaster and tragedy for these families," Purzycki said. "We'll work through the finances."

The worker’s compensation coverage the city owes is different from the life insurance policies covering the firefighters who died. The firefighters who lost their lives are covered. The cost for treating the injured could equal about 7 percent of the city's entire $154 million budget.

"It's hard to imagine we won't have a deficit," Purzycki said.

The city has insurance policies that cover lawsuits brought by employees and residents, damage to city-owned properties and even for fire department boats. Yet it has no outside policy to guard against the possible costs of health care for public safety personnel injured on the job.

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This has apparently been the case for decades. The city has been self-insured since the late 1980s, according to the mayor's office.

"There’s the risk manager, the finance department, the auditor, the human resources director. Who's supposed to be in charge of this?" asked City Councilwoman Loretta Walsh, chair of the public safety committee. "How did it slip through so many fingers?"

There are caps on liability for certain circumstances. In the case of the recent $1.5 million settlement with the family of Jeremy McDole, a man in a wheelchair shot and killed by police, the city had to pay $750,000. A “catastrophic loss policy” covers costs higher than that for lawsuits, Human Resources Director Charlotte Barnes told The News Journal last month.

Now the new mayor is faced with a challenge.

"When you’re trying to put together a financial plan for the city and all a sudden you find yourself with a $7 to $9 million liability, it's unsettling," Purzycki said. "It certainly wasn’t something we anticipated."

Firefighters Ardythe Hope and Speakman were both critically injured the blaze. The fire –– which police allege was intentionally set by Beatriz Fana-Ruiz, an intoxicated and unstable resident, according to police –– burned over 70 percent of Hope's body and over 30 percent of Speakman's body. Hope succumbed to her injuries weeks later.

Three other injured firefighters, John Crawthray, Terrance Tate and Peter Cramer, were treated at Christiana Care Medical Center. The city is absorbing the cost of each individual's fire-related health care. Capt. Christopher Leach and Lt. Jerry Fickes died fighting the rowhome fire.

Under the 2008 Workers Compensation Reform Law, Delaware and participating out-of-state hospitals treating workers compensation injuries may only charge up to 80 percent of their usual charges, said John Rago, Purzycki's deputy chief of staff for policy and communications.

But Delaware has no facilities to treat serious burn victims, and Crozer-Chester Medical Center, where Hope and Speakman were treated, does not participate in the discount program.

The city hired a third-party consultant, PMA Management Corp., to negotiate the price down with Crozer-Chester, Rago said. The consultant secured a 15 percent discount on the initial hospital bill for a total of $3,470,867.22 on Nov. 14 and a 22.5 percent discount on the second payment of $2,671,951.99 on Dec. 18, Rago said. Recent specialist bills, due at the end of this month, will be discounted 32 percent, Rago said.

PMA is entitled to 35 percent of any cost savings they negotiate, Rago said, but "due to this extraordinary situation and the exorbitant bills," they have limited their charges to $10,000 per invoice.

The mayor said his office is trying to find out who established the worker's comp plan and when.

"What we have to understand is the thinking that went into not having any protection at all for potential liability like this," Purzycki said. "We may find this was a decision made 30 years ago and no one ever changed it. We still have a lot of questions."

Purzycki has been advised that catastrophic loss coverage, a "worker's comp umbrella policy," would cost about $350,000 to $400,000 a year. The Canby Park fire was the first fatal fire in the city in almost two decades. Because of the rarity of such severe fires in Wilmington, Purzycki said, it's possible that the city took a chance by forgoing coverage for the injured.

"We’d never had anything like that happen before so even though we might have a large expense this year, on an ongoing basis, we would’ve come out ahead," he said.

Without conducting an analysis of its claims history and insurance rates in the past, city officials couldn’t say this week whether they would have saved more money with or without insurance.

City Auditor Earl Jeter said his office conducted an audit of risk management for the first time in 2016 but did not review worker's compensation. He said the "huge amount" of money the city is paying could inspire another review.

"That’s something that we might be thinking about in the near future," he said.

Al Greto, founder of the Delaware and Pennsylvania law firm GretoLaw, said it's not necessarily a bad idea to forgo insurance. He said he would expect an actuary to investigate the city's claims history and the costs of insurance before making that decision.

"Insurance companies are in the business of collecting more premiums than paying out claims,' he said. "Maybe the city is cutting out the middleman and this time the numbers didn’t work out, but over time, they could."

Douglas S. Kerr, the risk manager for Baltimore, Maryland, said Wilmington's choice not to insure is one made by many municipalities. Baltimore is "100 percent self-insured," he said.

"We looked at the marketplace to determine if insurance was the right way to go," he said. "We felt it better off being self-insured."

Philadelphia's Risk Manager, Barry Scott, said the same. Philly is self-insured, he said, and the city is prepared to absorb worker's compensation costs if claims arise.

"It's a matter of weighing the risks and the costs," he said.

The city's risk management committee is comprised of the administrative assistant to the mayor, the city solicitor, the finance director, the city treasurer and two City Council members, according to the city code. The group is supposed to review the risk management program at least annually, the code states.

Purzycki said he is looking forward. He is considering obtaining high-deductible insurance coverage for worker's compensation expenses and other cost-containment measures.

"We’re not trying to blame anybody," he said. "We're going department by department and reviewing every policy, every procedure, every expectation. We're reimagining the way the city works."

The city has already paid about $6 million of the bills from "cash on hand," Purzycki said, but when the fiscal year ends in June, officials will have to reconcile the costs.

The mayor said he isn't prepared to comment on whether he will raise taxes until he establishes a comprehensive spending and funding plan.

"It doesn’t help my 2018 budget," Purzycki said. "It's very likely we'll have a liability to carry forward."

Contact Christina Jedra at (302) 324-2837 or cjedra@delawareonline.com.