KAREN DUFFIN, HOST:

Tony Miranda is the kind of police officer who makes you want to follow the rules - more because you just don't want to disappoint him, not so much because you're scared of him.

TONY MIRANDA: Physically, I'm only, like, 5'6 1/2" - 5'7". Out of the academy, I was 140 pounds wet, so I was challenged on almost every stop, every arrest. And they're like, OK, Officer, take me to jail. I'd like to see you do it.

SARAH GONZALEZ, HOST:

So Tony says he really had to learn how to use his wits. And he pretty quickly made a name for himself.

DUFFIN: About 20 years into his career, Tony caught the attention of a nearby police department. They wanted him to be the new police chief in Irwindale, Calif., just east of LA.

MIRANDA: It's like a well-kept secret. There's only 1,400 residents, and a lot of them are second- and third-generation Irwindalian (ph). They've just been there forever.

DUFFIN: Apparently, people who move to Irwindale rarely leave. It's this town where everyone seems to know each other. And it has lots of perks for a town that size - a modern rec center, really nice parks, their own little library.

MIRANDA: And they are able to provide medical and benefits for the residents.

GONZALEZ: Meaning, like, if you're a resident of Irwindale, the city gives you health insurance. It's not comprehensive, but it's something.

MIRANDA: It's like a premier little city, so there's a lot of civic pride in that little community.

DUFFIN: So lots of pros to becoming the police chief in Irwindale, with one big caveat.

MIRANDA: The city was known for the police department because it garnered the most news. I'm talking front-page news - news at 6, news at 5, news at 11, and all negative. We're talking about some serious, ugly, heinous crimes.

DUFFIN: Like, one officer had been accused of sexually assaulting a woman during an early morning traffic stop. Another accused of embezzlement.

MIRANDA: And there was a third officer who was under investigation for having sex with minors. So I'm not even talking dark cloud. It cast a black cloud over the whole community.

(SOUNDBITE OF BENEDIC JUDE LAMDIN AND RIAAN VOSLOO'S "THE DUCHESS")

GONZALEZ: All of these scandals weren't just taking an emotional toll on this tight-knit little town; they were taking a financial toll.

(SOUNDBITE OF BENEDIC JUDE LAMDIN AND RIAAN VOSLOO'S "THE DUCHESS")

GONZALEZ: These scandals cost Irwindale millions of dollars in legal fees, and it wasn't just the city footing the bill.

DUFFIN: That is what turned this from the police reform story that you usually hear - one about protests and activists - into an entirely different one - a version we had never heard before.

Hello, and welcome to PLANET MONEY. I'm Karen Duffin.

GONZALEZ: And I'm Sarah Gonzalez. Today on the show, Tony Miranda goes to Irwindale. He tries to fix the police department. And he has a powerful ally at his back - this entire industry that puts a price tag on police behavior.

DUFFIN: A sort of shadow regulator with the power to change police departments - insurance.

GONZALEZ: This is the story of what happens when a police department can no longer afford its bad behavior.

(SOUNDBITE OF BENEDIC JUDE LAMDIN AND RIAAN VOSLOO'S "THE DUCHESS")

DUFFIN: Tony Miranda never thought that it would be easy to clean up the Irwindale Police Department. But as he walks into the building on his first day, he starts to really understand what he's in for.

MIRANDA: Picture low lights, a building that was built in about 1985. A lot of the walls are cinder block. They're all dark gray, and there's no art, posters or anything on the walls. I'm like, this is really sad. It's depressing in here.

GONZALEZ: There are a lot of basic things that most police departments should have. Like, there are these things called MDTs. They're these fancy computer screen-type things that police have in their cars to track 911 calls - tells them where to go, what they're responding to. And Tony's asking his guys, why are there only a few of these, and a bunch of them broken?

MIRANDA: And I said, well, if you're not using an MDT, how do you get to calls? And one of the patrolmen holds up his palm, and he says, like this chief. And I look at his palm, and I'm going, that's unacceptable. And so I could see where he had gone to a call, scratched it out, gone to a call and scratched it out. He's writing the calls on his palm of his hand with his ink pen.

DUFFIN: (Laughter) He's like, OK, we are really starting from the bottom here. And if we have any hope of fixing this, this team will have to band together. And those really bad officers - the ones wrapped up in the expensive lawsuits - they had either been fired or were on leave while they were being investigated. But if Tony wants to prevent any new problems, he needs to fix the culture.

MIRANDA: The administration and the officers just could not get along, so there was a lot of internal affairs investigations.

GONZALEZ: There were 30 employees and 14 internal affairs investigations. And these are not just people in the community complaining about bad cops. These were cops complaining against other cops and administrators complaining against cops.

MIRANDA: It was just unreal. I've never experienced anything like it.

DUFFIN: Tony quickly realizes that the same thing that makes this small town great is also what has made it such a hard place to change. Everyone knows each other, so when there's a fight in the police department, the cop might just, like, call his uncle on the city council. The fights there are entrenched, and they're personal, almost tribal.

GONZALEZ: So Tony thinks, we need some new blood. He calls his leadership team together and tells them, I'm hiring a new No. 2, and it's not going to be any of you.

MIRANDA: It was really quiet. And one sergeant stands up and says, you know what, Chief? The Police Officers Association is not going to stand for that. They're going to call for a vote of no confidence.

DUFFIN: On you?

MIRANDA: On me, yeah - the new guy.

GONZALEZ: Right off the bat, basically, hey, city council, fire this guy.

DUFFIN: So Tony is standing there at home with his 5-foot-6 self looking straight at a mutiny. And this may have been where the story ended. But Tony had more than his wits this time. He knows change is coming whether they like it or not because of their insurance authority. In some situations, insurers have a lot of power over a police department.

GONZALEZ: Right. Most small or mid-sized police departments have some kind of insurance, in part because police departments get sued all the time for all kinds of things, justified or not. And insurance helps cover the risk.

DUFFIN: Big cities like Los Angeles - they get enough taxpayer money that they can basically self-insure - like, set aside some money for a rainy day or a lawsuit. But smaller cities like Irwindale - they actually buy insurance through either a private insurer or something called a municipal risk pool.

GONZALEZ: A municipal risk pool is kind of like a family car insurance plan. Irwindale is on the same insurance plan as a bunch of other police departments in California. And if one of those police departments gets in a wreck, everyone's premium can go up. They call them contributions. And the worst part about this plan is that everyone knows it's your fault, Irwindale. You're the bad teenage driver in this family.

MIRANDA: So they needed to either get a handle on things or cancel their policy. And that was it.

DUFFIN: Wow. Those are the two options?

MIRANDA: Yes, or you can - you need to shop for another one, and you'll be paying some premium rate.

DUFFIN: That's if you can even find another insurer willing to take you on. If you can't, you might lose your police department altogether because one incident could raise taxes or even bankrupt a small town - one wrongful conviction, one use of excess force. And Tony wanted to make sure his rank and file understood the stakes were that high.

GONZALEZ: So he brings them all together and says, let me tell you guys a little story about Maywood, Calif. You know Maywood, about 20 miles west of us. Their police department also had a lot of problems. And our risk pool - our family insurance plan - got tired of footing the bill. First, Maywood got a warning.

MIRANDA: They were told they needed to fix it. They didn't, and they lost their insurance. They can no longer be police officers because of the amount of exposure they have.

DUFFIN: The whole police department shut down. The city of Maywood couldn't bear the risk of having police without the insurance authority.

GONZALEZ: And Tony tells his officers, I was there at the end - the day they shut down. I remember it. Just before midnight, all of the Maywood police officers line up in the parking lot dressed in their finest.

MIRANDA: So they're standing there. Some are, you know, already 28, 25 years on, and they're about to lose their career and their jobs. And they know this. And it's like being at a funeral. Everybody's crying in the audience, and these grown men are standing there weeping.

DUFFIN: One by one, each officer steps forward, picks up the police radio.

MIRANDA: And what the chief does is have them do one last radio transmission saying that they're going out of service.

(SOUNDBITE OF ARCHIVED RECORDING)

CHARLIE: Unit One, Charlie (ph).

UNIDENTIFIED PERSON: One, Charlie, go ahead.

DUFFIN: These are recordings of those final transmissions.

(SOUNDBITE OF ARCHIVED RECORDING)

CHARLIE: Charlie advising 10-7, end of watch. It's been an honor. And it's been a privilege - 10-7.

UNIDENTIFIED PERSON: One, Charlie - 10-7.

MIRANDA: And they had to do a final salute. And then they take their badge and take their - they put their portable radio in a box.

DUFFIN: The last one to go is the police chief. He salutes, and then he signs off for the last time.

(SOUNDBITE OF ARCHIVED RECORDING)

FRANK HAUPTMANN: This is Chief Frank Hauptmann of the Maywood-Cudahy Police Department. This will be our last transmission. Maywood police will now be 10-7, end of watch. God bless all of you.

MIRANDA: So I shared that story with them. And I said, I've seen bigger, stronger men than you all in this room broken down in tears. Don't think for a minute that it will not happen. I've seen it happen.

GONZALEZ: Tony says this is the moment - after he told that story - that he started to notice a shift at the Irwindale Police Department.

MIRANDA: This was real. This is an exterior threat that could close the Irwindale Police Department down. This was real.

GONZALEZ: Irwindale's insurer had made it very clear. Irwindale PD had to follow a performance improvement plan. They had eight things to fix and 18 months to fix them. The clock was ticking.

(SOUNDBITE OF ANDREW PETER KINGSLOW'S "LOCK IT DOWN")

DUFFIN: Quick note. I did reach out to Irwindale's insurer and other people in town, and many of them were willing to talk but said that a city official had told them not to speak with us. However, we verified the story with some folks who just didn't want to be recorded and with public documents. OK, back to the story.

GONZALEZ: For a long time, a lot of police departments weren't allowed to buy insurance. People thought it would create moral hazard. Basically, if your risky behavior is covered by someone else, you might do more of it. But then, in the 1960s, there were a few Supreme Court rulings that gave police more rules.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR: (As character) You have the right to remain silent. Anything you do say can and will be used against you in a court of law. You have the right to...

DUFFIN: That's right - Miranda rights. Shout out "Law & Order" there. And all of this made it much easier to sue the police. So moral hazard be damned, smaller police departments felt like they had to get insurance.

JOHN RAPPAPORT: There's a whole big, powerful, well-financed industry that is trying to influence police behavior.

GONZALEZ: This is John Rappaport. He's a law professor at the University of Chicago, and he wrote one of the first papers looking at the influence of insurance on police.

DUFFIN: In the mix of a discussion that is often understandably heated and emotional, insurers look at police departments through the cold, hard lens of an actuary. Does this police behavior create risk? If, yes, let's reduce it. It's a business relationship.

RAPPAPORT: They're able to say, hey, we're actually not protesters or activists. We're not telling you you're bad. We're just telling you that your numbers are worse than they were last year, and we want to bring them back down to where they were.

GONZALEZ: The goal of these insurers is not just to win lawsuits; it's to be so aboveboard that nobody even brings a lawsuit. So often, insurers issue guidelines that are more strict than the law.

DUFFIN: Take strip searches. After the Supreme Court said police can strip search pretty much anyone for any arrest, this one insurance was like, yeah, we're going to give our police some restrictions.

RAPPAPORT: And they added things like, you should have someone of the same gender conduct the strip search, and you should do it in a sanitary setting. And those are things that actually aren't in the Supreme Court's opinion. But at the same time, I think the insurer was, you know, using common sense to think, how would this look to a jury?

GONZALEZ: And if you really want to make sure people are behaving the way they should, sometimes, you got to be proactive.

RAPPAPORT: One insurer said that they send an insurance representative to hang out at cop bars and just listen to gossip. I mean, if they do hear anything alarming, they report it back to the insurer.

DUFFIN: Everyone's, like, vying for that job. I'll go, you know, if you really need me to go drink in whatever town.

RAPPAPORT: I know.

DUFFIN: And John says, look; they don't just leave cops out there hoping they don't mess up. They also try to help them out in the most insurance way possible, doing things like updating police manuals or giving them training. And if the department does get better, there are rewards, like lower premiums.

GONZALEZ: So back in Irwindale, Tony has his to-do list - the eight things that his family insurance plan has said he has to change in 18 months. And Tony added a few things himself to help fix the culture.

DUFFIN: He calls all his people together, and he steps up to the whiteboard and says, all right, this is how we're going to fix this.

MIRANDA: I said we are going to treat this like a plane crash. A plane just crashed in Irwindale. You're all paramedics. Let's triage this. Let's start with the most essential equipment.

DUFFIN: Remember those monitors - the ones that tell cops where to go when they're responding to a 911 call? Irwindale fixed them up and bought some more.

MIRANDA: The stuff that would help reduce risk, you know? Going on a 911 call, it's pretty important that your sweaty palm doesn't turn the nine into a three or a six.

GONZALEZ: They fixed up their patrol cars, fixed the cameras in their cars, got workplace harassment training and more training.

MIRANDA: I started sending them to community-based policing courses, officer safety.

DUFFIN: But the main change was that Tony had to run almost everything he did by the insurance authority. Like, if he wanted to discipline someone or fire someone, he needed their permission.

MIRANDA: We met every - I think it was every Wednesday at 10 a.m. Without - I mean, you cleared your calendar. You're going to be there.

DUFFIN: How did that feel to have to run your things by an insurance company?

MIRANDA: Well, it was not common practice. That's for sure. And to a certain degree, I felt second-guessed. But at the end of the day, it just adds more credibility because it wasn't just this outside chief saying, this is what we're going to do; it's also our insurance company, who could make us or break us.

GONZALEZ: Tony says they didn't really overrule his decisions. They just made him explain why he wanted something. And as long as it made sense, they were cool with it.

DUFFIN: Was there a point at which you thought this might work?

MIRANDA: I think it was in Year 2 actually - in my second year, on the Fourth of July.

DUFFIN: It was Irwindale's Independence Day party, and all the cops had to work. So Tony brought a grill, made everyone tacos. And somewhere in the middle of it, Tony took a picture.

MIRANDA: And the day was over, and I went home. And I looked at that picture on my cellphone. And I looked at their faces, and they were all smiling. And that - I hadn't seen that anywhere.

DUFFIN: Now, Irwindale is just one police department in one small town with a specific set of issues.

GONZALEZ: If you step back, though, and ask whether insurance is an effective way to improve police departments overall, John Rappaport, that law professor, says, sometimes. The issues they care about most are the expensive ones - things that might generate large payouts, like excessive force. But the less legally expensive the issue, the less likely insurance is to address it because insurers aren't making moral judgments. For them, police reform is a business.

DUFFIN: For Irwindale, pressure from an insurance authority seems to have helped. Eighteen months after Tony showed up under that black cloud, the insurance authority declared Irwindale new and improved. They could keep their coverage. They could stay a police department. And Tony says he doesn't think they could've done it without that performance improvement plan, that PIP.

MIRANDA: I have to say, without that PIP, the officers would continue to be aggressive, they would continue to fight. Absent of the PIP, I'm not sure if Irwindale would be here today. I'm really not sure. I'm not sure.

GONZALEZ: Tony decided his work was done, and he handed off the department to a new chief.

MIRANDA: I'm handing you the keys to a Cadillac. Please take care. These guys are good guys, and you're very lucky. You're lucky.

DUFFIN: What were you driving when you got there - like, a 1972 Gremlin?

MIRANDA: It was like a Pinto on two cylinders. It was bad.

(SOUNDBITE OF FREDERIC AUGER SONG, "SUNBURN")

GONZALEZ: If you have a story idea, email us. We're at planetmoney@npr.org. Today's show was produced by Nick Fountain. Bryant Urstadt edits our show, and Alex Goldmark is our supervising producer. He edited today's show.

DUFFIN: Special thanks to KPCC and KCRW, also Rachel Doyle, who wrote a great story about this issue for The Atlantic, Joanna Schwartz, who's also done some great research on this. And thanks to all the people who spoke with me on background. I'm Karen Duffin.

GONZALEZ: And I'm Sarah Gonzalez. Thanks for listening.

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