ARTICLE 17
RESPONSIBILITIES OF MEMBERS
Members shall have the following responsibilities under this Agreement.
(a) The board of supervisors of each member county shall appoint a represen tative and one alternate representative to the Board of Directors, pursuant to Article 7.
(b) Each member shall appoint an officer or employee of the member to be responsible for the risk management function for that member and to serve as a liaison between t he member and PRISM for all matters relating to risk management.
(c) Each member shall maintain an active risk control program, and shall consider and act upon all recommendations of PRISM concerning the reduction of unsafe practices.
(d) Each member shall maint ain its own claims and loss records in each category of liability covered by an insurance program of PRISM in which the member is a participant, and shall provide copies of such records to PRISM as directed by the Board of Directors or Executive Committee, or to such other committee as directed by the Board of Directors or Executive Committee.
(e) Each member shall pay premiums and premium surcharges due to PRISM as required under Article 14. Penalties for late payment of such premiums and/or premium surcharges shall be as determined and assessed by the Board of Directors. After withdrawal, cancellation, or termination action under Articles 20, 21, or 23, each member shall pay promptly to PRISM any additional premiums due, as determined and assessed by the Bo ard of Directors under Articles 22 or 23. Any costs incurred by PRISM associated with the collection of such premiums or other charges, shall be recoverable by PRISM.
(f) Each member shall provide PRISM such other information or assistance as may be necessary for PRISM to develop and implement insurance programs under this Agreement.
(g) Each member shall cooperate with and assist PRISM, and any insurer of PRISM, in all matters relating to this Agreement, and shall comply with all Bylaws, and other rules by the Board of Directors.
(h) Each member shall have such other responsibilities as are provided elsewhere in this Agreement, and as are established by the Board of Directors in order to carry out the purposes of this Agreement.
ARTICLE 18
ADMINISTRATION OF CLAIMS
(a) Subject to subparagraph (e), each member shall be responsible for the investigation, settlement or defense, and appeal of any claim made, suit brought, or proceeding instituted against the member arising out of a loss.
(b) PRISM may develop standards for th e administration of claims for each insurance program of PRISM so as to permit oversight of the administration of claims by the members.
(c) Each participating member shall give PRISM timely written notice of claims in accordance with the provisions of the By laws and the applicable program Memorandum of Coverage.
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(d) A member shall not enter into any settlement involving liability of PRISM without the advance written consent of PRISM.
(e) PRISM, at its own election and expense, shall have the right to participate wi th a member in the settlement, defense, or appeal of any claim, suit or proceeding, which , in the judgment of PRISM, may involve liability of PRISM.
ARTICLE 19
NEW MEMBERS
Any California public entity may become a party to this Agreement and participate in any insurance program in which it is not presently participating upon approval of the Board of Directors, by a majority vote of the members, or by majority vote of the Executive Committee.
ARTICLE 20
WITHDRAWAL
(a) A member may withdraw as a party to thi s Agreement upon thirty (30) days advance written notice to PRISM if it has never become a participant in any insurance program pursuant to Article 14, or if it has previously withdrawn from all insurance programs in which it was a participant.
(b) After becoming a participant in an insurance program, a member may withdraw from that program only at the end of a policy year for the program, and only if it gives PRISM at least sixty (60) days advance written notice of such action.
ARTICLE 21
CANCELLATION
(a) Notwithstanding the provisions of Article 20, the Board of Directors may:
(1) Cancel any member from this Agreement and membership in PRISM, on a majority vote of the Board of Directors members. Such action shall have the effect of canceling the member’s particip ation in all insurance programs of PRISM as of the date that all membership is canceled.
(2) Cancel any member’s participation in an insurance program of PRISM, without canceling the member’s membership in PRISM or participation in other programs, on a vote of two-thirds of the Board of Directors members present and voting who represent participants in the program.
The Board of Directors shall give sixty (60) days advance written notice of the effective date of any cancellation under the foregoing provisions. Upon such effective date, the member shall be treated the same as if it had voluntarily withdrawn from this Agreement, or from the insurance program, as the case may be.
(b) Except as otherwise provided in a program Memorandum of Understanding, a member that does not enter one or more of the insurance programs developed and implemented by PRISM within the member’s first year as a member of PRISM shall be considered to have withdrawn as a party to this Agreement at the end of such period, and its membership in PRISM shall be automatically canceled as of that time, without action of the Board of Directors.
(c) A member which withdraws from all insurance programs of PRISM in which it was a participant and does not enter any program for a period of six (6) months th ereafter shall be considered to have withdrawn as a party to the Agreement at the end of such period, and its membership in PRISM shall be automatically canceled as of that time, without action of the Board of Directors.
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ARTICLE 22
EFFECT OF WITHDRAWAL OR CANCELLATION
(a) If a member’s participation in an insurance program of PRISM is canceled under Article 21, with or without cancellation of membership in PRISM, and such cancellation is effective before the end of the policy year for that program, PRISM shall promptly determine and return to that member the amount of any unearned premium payment from the member for the policy year, such amount to be computed on a pro -rata basis from the effective date of cancellation.
(b) Except as provided in (a) above or as otherwise provided in a program Memorandum of Understanding, a member which withdraws or is canceled from this Agreement and membership in PRISM, or from any program of PRISM, shall not be entitled to the return of any premium or other payment to PRISM, or of any property contributed to PRISM.
However, in the event of termination of this Agreement, such member may share in the distribution of assets of PRISM to the extent provided in Article 23 provided; however, that any withdrawn or canceled member, which has been assessed a premium surcharge pursuant to Article 14 (b) (3) (ii) shall be entitled to return of said member’s unused surcharge, plus interest accrued thereon, at such time as the Board of Directors declares that a surplus exists in any insurance fund for which a premium surcharge was assessed.
(c) Except as provided in (d) below, a member shall pay any premium charges , which the Board of Directors determines are due from the member for losses and costs incurred during the entire coverage year in whic h the member was a participant in such program regardless of the date of entry into such program. Such charges may include any deficiency in a premium previously paid by the member, as determined by audit under Article 14 (b) (2); any premium surcharge as sessed to the member under Article 14 (b) (3); and any additional amount of premium , which the Board of Directors determines to be due from the member upon final disposition of all claims arising from losses under the program during the entire coverage yea r in which the member was a participant regardless of date of entry into such program. Any such premium charges shall be payable by the member in accordance with PRISM's invoice and payment policy.
(d) Those members that have withdrawn or been canceled pursu ant to Articles 20 and 21 from any program of PRISM during a coverage year shall pay any premium charges which the Board of Directors determines are due from the members for losses and costs which were incurred during the member’s participation in any program.
ARTICLE 23
TERMINATION AND DISTRIBUTION OF ASSETS
(a) A three -fourths vote of the total voting membership of PRISM, consisting of member counties, acting through their boards of supervisors, and the voting Board of Directors members from the member publ ic entities, is required to terminate this Agreement; provided; however, that this Agreement and PRISM shall continue to exist after such election for the purpose of disposing of all claims, distributing all assets, and performing all other functions necessary to conclude the affairs of PRISM.
(b) Upon termination of this Agreement, all assets of PRISM in each insurance program shall be distributed among those members which participated in that program in proportion to their cash contributions, including premi ums paid and property contributed (at market value when contributed). The Board of Directors shall determine such distribution within six (6) months after disposal of the last pending claim or other liability covered by the program.
(c) Following termination of this Agreement, any member which was a participant in an insurance program of PRISM shall pay any additional amount of premium, determined by the Board of Directors in accordance with a loss allocation formula, which may be 155
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necessary to enable final di sposition of all claims arising from losses under that program during the entire coverage year in which the member was a participant regardless of the date of entry into such program.
ARTICLE 24
LIABILITY OF BOARD OF DIRECTORS, OFFICERS, COMMITTEE MEMBERS
AND LEGAL ADVISORS
The members of the Board of Directors, Officers, committee members and legal advisors to any Board of Directors or committees of PRISM shall use ordinary care and reasonable diligence in the exercise of their powers and in the perform ance of their duties pursuant to this Agreement. They shall not be liable for any mistake of judgment or any other action made, taken or omitted by them in good faith, nor for any action taken or omitted by any agent, employee or independent contractor se lected with reasonable care, nor for loss incurred through investment of PRISM funds, or failure to invest.
No Director, Officer, committee member, or legal advisor to any Board of Directors or committee shall be responsible for any action taken or omitt ed by any other Director, Officer, committee member, or legal advisor to any committee. No Director, Officer, committee member or legal advisor to any committee shall be required to give a bond or other security to guarantee the faithful performance of th eir duties pursuant to this Agreement.
The funds of PRISM shall be used to defend, indemnify and hold harmless PRISM and any Director, Officer, committee member or legal advisor to any committee for their actions taken within the scope of the authority o f PRISM. Nothing herein shall limit the right of PRISM to purchase insurance to provide such coverage, as is hereinabove set forth.
ARTICLE 25
BYLAWS
The Board of Directors may adopt Bylaws consistent with this Agreement, which shall provide for the administration and management of PRISM.
ARTICLE 26
NOTICES
PRISM shall address notices, billings and other communications to a member as directed by the member. Each member shall provide PRISM with the address to which communications are to be sent.
Members shall address notices and other communications to PRISM to the Chief Executive Officer of PRISM, at the office address of PRISM as set forth in the Bylaws.
ARTICLE 27
AMENDMENT
A two-thirds vote of the total voting membership of PRISM, consisting of member counties, acting through their boards of supervisors, and the voting Board of Directors members from member public entities, is required to amend this Agreement. However, the Executive Committee is authorized to make non-substantive, clerical amen dments to the Agreement and does not need to obtain approval from the Board of Directors to make such amendments.
ARTICLE 28
EFFECTIVE DATE OF AMENDMENTS
Any amendment of this Agreement shall become effective upon the date specified by the Board of Directors and upon approval of any Amended Agreement as required in Article 27. Approval of any amendment by the voting boards of supervisors and public entity board members must take place no later than 30 days from the effective date specified by the Board of Directors.
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ARTICLE 29
PROHIBITION AGAINST ASSIGNMENT
No member may assign any right, claim or interest it may have under this Agreement, and no creditor, assignee or third party beneficiary of any member shall have any right, claim or title to any part, share, interest, fund, premium or asset of PRISM.
ARTICLE 30
AGREEMENT COMPLETE
This Agreement constitutes the full and complete Agreement of the parties.
ARTICLE 31
DISPUTE RESOLUTION
When a dispute arises between PRISM and a member, the foll owing procedures are to be followed:
(a) Request for Reconsideration. The member will make a written request to PRISM for the appropriate Committee to reconsider their position, citing the arguments in favor of the member and any applicable case law that app lies. The member can also, request a personal presentation to that Committee, if it so desires.
(b) Committee Appeal. The committee responsible for the program or having jurisdiction over the decision in question will review the matter and reconsider PRISM’s position.
This committee appeal process is an opportunity for both sides to discuss and substantiate their positions based upon legal arguments and the most complete information available. If the member requesting reconsideration is represented on the committee having jurisdiction, that committee member shall be deemed to have a conflict and shall be excluded from any vote.
(c) Executive Committee Appeal. If the member is not satisfied with the outcome of the committee appeal, the matter will be brought t o the Executive Committee for reconsideration upon request of the member. If the member requesting reconsideration is represented on the Executive Committee, that Executive Committee member shall be deemed to have a conflict and shall be excluded from any vote.
(d) Arbitration. If the member is not satisfied with the outcome of the Executive Committee appeal, the next step in the appeal process is arbitration. The arbitration, whether binding or non-binding, is to be mutually agreed upon by the parties. Th e matter will be submitted to a mutually agreed arbitrator or panel of arbitrators for a determination. If Binding Arbitration is selected, then the decision of the arbitrator is final. Both sides agree to abide by the decision of the arbitrator. The co st of arbitration will be shared equally by the involved member and PRISM.
(e) Litigation. If, after following the dispute resolution procedure paragraphs a -d, either party is not satisfied with the outcome of the non -binding arbitration process, either part y may consider litigation as a possible remedy to the dispute.
ARTICLE 32
FILING WITH SECRETARY OF STATE
The Chief Executive Officer of PRISM shall file a notice of this Agreement with the office of California Secretary of State within 30 days of its effective date, as required by Government Code Section 6503.5 and within 70 days of its effective date as required by Government Code Section 53051. 157
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IN WITNESS WHEREOF, the undersigned party hereto has executed this Agreement on the date indicated below.
DATE: ____________________ MEMBER: ___________________________________ (Print Name of Member)
BY: ________________________________________
(Authorized signature of Member)
Seal:
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159
160
161
162
163
164
Adopted: March 5, 1993
Amended: October 4, 1996
Amended: October 6, 2006
Amended: March 6, 2009
MEMORANDUM OF UNDERSTANDING
EXCESS WORKERS' COMPENSATION PROGRAM
This Memorandum of Understanding is entered into by and between Public Risk Innovation, Solutions, and Management (hereinafter referred to as " PRISM") and the participating members who are signatories to this Memorandum.
1. Joint Powers Agreement. Except as otherwise provided herein, all terms used herein shall be as defined in Article 1 of the Joint Powers Agreement Creating PRISM (hereinafter referred to as "Agreement"), and all other provisions of the Agreement not in conflict with this Memorandum shall be applicable.
2. Annual Premium. The participating members, in accordance with the provisions of Article 14( b)(2) of the Agreement, shall be assessed an annual premium for the purpose of funding the Excess Workers' Compensation Program (hereinafter referred to as the "Program"). Annual premiums shall include expected losses for the policy period, including Incurred But Not Reported losses (IBNR), as well as a margin for contingencies based upon a confidence level as determined by the Board of Directors of PRISM (hereinafter Board), and adjustments, if any, for a surplus or deficit from all program policy periods. In addition, the premium shall include program reinsurance costs and program administrative costs, plus PRISM 's general expense allocated to the Program by the Board for the next policy period.
3. Cost Allocation. Each participating member’s share of annual premium shall be determined pursuant to a cost allocation plan as described in Article 14(b)(2) of the Agreement. The Board approved cost allocation plan is attached hereto as Exhibit A and may be amended from time to time by an affirmative vote of the majority of the Board representing the members participating in the Program.
4. Dividends and Assessments. The Program shall be funded in accordance with paragraph 2 above. In general, the annual premium, as determined by the Board, will be established at a level which will provide adequate overall funding without the need for adjustments to past policy period(s) in the form of dividends and assessments. However, should the Program for any reason not be adequately funded, except as otherwise provided herein, pro-rata assessments to the participating members may be utilized to ensure the approved funding level for those policy periods individually or for a block of policy periods, in accordance with the provisions of Article 14(b)(3) of the Agreement . 165
PRISM Amended: March 6, 2009
Excess Workers’ Compensation Program MOU
Pro-rata dividends will be declared as provided herein. Dividends may also be declared as deemed appropriate by the Board.
5. Closure of Policy Periods. Notwithstanding any other provision of this Memorandum, the following provisions are applicable:
(a) Upon reaching ten (10) years of maturity after the end of a program period, that period shall be "closed" and there shall be no further dividends declared or assessments made with respect to those program periods except as set forth in paragraph 6(a), below;
(b) Notwithstanding sub-paragraph (a) above, the Board may take action to leave a policy period "open" even though it may otherwise qualify for closure. In addition, the last ten (10) policy periods shall always remain "open" unless the Board takes specific action to declare any of the last ten (10) policy periods closed.
(c) Dividends and assessments (other than as outlined in paragraph 6(a), below) shall be administered to the participating members based upon the proportion of premiums paid to the Program in "open" periods only. For purposes of administering dividends and assessments pursuant to this sub- paragraph, all "open" policy periods shall be considered as one block. New members to the Program shall become eligible for dividends and assessments upon participating in the Program for three (3) consecutive policy periods (not less than 24 months). Participating members who withdraw from the Program prior to the three- year policy period restriction are still eligible for any assessments that arose out of the policy years they participated in the Program.
6. Declaration of Dividends. Dividends shall be payable from the Program to a participating member in accordance with its proportionate funding to the Program during all “open” policy periods except as follows:
(a) A dividend shall be declared at the time a program period is closed on all amounts which represent premium surcharge amounts assessed pursuant to Article 14(b)(3) of the Agreement where the funding exceeds the 80% confidence level. This dividend shall be distributed based upon each member’s proportionate share of assessment paid and accrued to the policy period being closed.
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Excess Workers’ Compensation Program MOU
7. Memorandum of Coverage. A Memorandum of Coverage will be issued by PRISM evidencing membership in the Program and setting forth terms and conditions of coverage.
8. Claims Administration. Each participating m ember is required to comply with PRISM’s Underwriting and Claims Administration Standards (including Addendum A - W.C. Claims Administration Guidelines) as amended from time- to-time, and which are attached hereto as Exhibit B and incorporated herein.
9. Late Payments. Notwithstanding any other provision to the contrary regarding late payment of invoices or cancellation from a Program, at the discretion of the Executive Committee, any member that fails to pay an invoice when due may be given a ten (10) day written notice of cancellation.
10. Disputes. Any question or dispute with respect to the rights and obligations of the parties to this Memorandum regarding coverage shall be determined in accordance with the Joint Powers Agreement Article 31, Dispute Resolution.
11. Amendment. This Memorandum may be amended by two- thirds of PRISM ’s Board of Directors and signature on the Memorandum by the member’s designated representative who shall have authority to execute this Memorandum. Should a member of the Program fail to execute any amendment to this Memorandum within the time provided by the Board, the member will be deemed to have withdrawn as of the end of the policy period.
12. Complete Agreement. Except as otherwise provided herein, this Memorandum constitutes the full and complete agreement of the members.
13. Severability. Should any provision of this Memorandum be judicially determined to be void or unenforceable, such determination shall not affect any remaining provision.
14. Effective Date. This Memorandum shall become effective on the effective date of coverage for the member and upon approval by the Board of any amendment, whichever is later.
15. Execution in Counterparts. This Memorandum may be executed in several counterparts, each of which shall be an original, all of which shall constitute but one and the same instrument.
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Excess Workers’ Compensation Program MOU
IN WITNESS WHEREOF, the undersigned have executed this Memorandum as of the date set forth below.
Dated: ________________ ______________________________________ Public Risk Innovation, Solutions, and Management
Dated: ________________ ______________________________________ Member Entity: _________________________
3/6/2009
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Last Amended: 3/7/2003
EXHIBIT A
EXCESS WORKERS’ COMPENSATION PROGRAM
COST ALLOCATION PLAN
As delegated by the Board of Directors, the Executive Committee will determine the specific allocation of all costs among the members subject to the following parameters:
Actuarial Analysis
An annual actuarial analysis will be performed using loss data and payroll collected from the members. The analysis will determine the necessary funding rates at various confidence levels and using various discount assumptions.
Different rates may be developed for different groups or classes of business as is deemed necessary or appropriate by the Executive Committee. At the March Board meeting, the Board of Directors will select the funding level rates and discount factors to be used based upo n the actuarial analysis and recommendations from the A ctuary, the Underwriting Committee and the Executive Committee.
Pool Contributions
The total needed deposit pool contribution will be determined by multiplying the rates described above by the payroll for all of the members participating in the pool. Estimated payroll for the year being funded will be used. The Executive Committee may break the pool into different layers for allocation purposes, and may apply a different loss experience modification for each layer as is deemed appropriate based on loss frequency. In general, the lower layers will be subject to greater experience modification and the higher layers will be subject to lower experience modification or no experience modification. Withi n the layers, the larger members will be subject to greater experience modification than the smaller members. After the experience modification has been applied for each layer, there will be a pro- rata adjustment back to the total needed deposit pool contribution. This amount will be collected from the members at the beginning of the policy period. The actual payroll for the period will be determined after the completion of the policy period and an adjustment to each member’s pool contribution will be made to account for the difference between the estimated and actual payroll. Additional contributions will be collected or return contributions will be refunded as appropriate.
Reinsurance Premiums
The reinsurance premium will be determined through negot iations with the reinsurer(s) and approved by the Board upon recommendation of the Underwriting and Executive Committees. This premium will then be allocated among the members based upon their estimated payroll. Adjustments will be 169
EWC Program MOU
Exhibit A
made based on the actual pay roll upon completion of t he policy per iod in the same manner as described in the Pool Contribution section above.
PRISM Administration Fees
The total PRISM Administration Fees will be determined through the annual budgeting process with an appropriate amount allocated to the Excess Workers’ Compensation Program. These fees will be allocated among the members as determined by the Executive Committee. In general, the basis for this allocation will be each member’s percentage of the total pool contributions and reinsurance premium.
Deviation From the Standard
The Executive Committee may establish policies to deviate from the standard allocation methodology selected for each year on a case -by-case basis, if necessary. They may also elect to further delegate some or all of the decision- making authority described herein to the Underwriting Committee. 170
Adopted: December 6, 1985
Last Amended: July 1, 2019
PUBLIC RISK INNOVATION, SOLUTIONS, AND MANAGEMENT (PRISM)
UNDERWRITING AND CLAIMS ADMINISTRATION STANDARDS
I. GENERAL
A. Each Member shall appoint an official or employee of the Member to be responsible for the risk management function and to serve as a liaison between the Member and PRISM for all matters relating to risk management.
B. Each Member shall maintain a lo ss prevention program and shall consider and act upon all recommendations of PRISM concerning the reduction of unsafe conditions.
II. EXCESS WORKERS' COMPENSATION PROGRAM
A. Members of the Excess Workers’ Compensation Program, except those members of the Primary Workers’ Compensation Program whose responsibilities are outlined in Section IV below, shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member.
1. The Member shall use only qualified personnel to administer its workers' compensation claims. At least one person in the claims office (whether in -house or outside administrator) shall be certified by the State of California as a qualified administrator of self-insured workers' compensation plans.
2. Qualified defense counsel experienced in workers’
compensation law and practice shall handle litigated claims.
Members are encouraged to utilize attorneys who have the designation “Certified Workers’ Compensation Specialist, the State Bar of California, Board of Legal Specialization”.
3. The Member shall use PRISM's Workers' Compensation Claims Administration Standards (Addendum A) and shall advise its claims administrator that these standards are utilized in PRISM's workers' compensation claims audits.
B. The Member shall provide PRISM written notice of any potential excess workers' compensation claims in accordance with the requirements of PRISM's Bylaws. Updates on such claims shall be provided pursuant to the reporting provisions of PRISM’s Workers’
EXHIBIT B
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Compensation Claims Administration Standards (Addendum A) or as requested by PRISM and/or PRISM's excess carrier.
C. A claims administration audit utilizing PRISM's Workers' Compensation Claims Administration Standards (Addendum A) shall be performed once every two (2) years. In addition, an audit will be performed within twelve (12) months of any of the following events:
1. There is an unusual fluctuation in the Member's claim experience or number of large claims, or
2. There is a change of workers' compensation claims administration firms, or
3. The Member is a new member of the Excess Workers’ Compensation Program.
The claims audit shall be performed by a firm selected by PRISM unless an exception is approved. Recommendations made in the claims audit shall be addressed by the Member and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
D. Each Member shall maintain records of claims in each category of coverage (i.e. indemnity, medical, expense) or as defined by PRISM and shall provide such records to PRISM as directed by the Board of Directors, Claims Review Committee, Underwriting Committee, or Executive Committee. Such records shall include both open and closed claims, allocated expenses, and shall not be capped by the Member’s self-insured retention.
E. The Member shall obtain an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) at least once every three (3) years. Based upon the actuarial recommendations, the Member should maintain reserves and make funding contributions equal to or exceeding the present value of expected losses and a reasonable margin for contingencies.
III. GENERAL LIABILITY PROGRAMS
A. Members of the General Liability 1 or General Liability 2 Programs, except those members of the Deductible Buy-Down Program whose responsibilities are outlined in Section V below, shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member.
1. The Member shall use only qualified personnel to administer its liability claims.
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2. Qualified defense counsel experienced in tort liability law shall handle litigated claims. Members are encouraged to utilize defense counsel experienced in the subject at issue in the litigation.
3. The Member shall use the Liability Claims Administration Standards (Addendum B) and shall advise its claims administrator that these standards are utilized in PRISM's liability claims audits.
B. The Member shall provide PRISM written notice of any potential excess liability claim in accordance with the requirements of PRISM's Bylaws.
Updates on such claims shall be provided pursuant to the reporting provisions of PRISM’s Liability Claims Administration Standards (Addendum B) or as requested by PRISM and/or PRISM's excess carrier.
C. A claims administration audit utilizing PRISM's Liability Claims Administration Standards (Addendum B) shall be performed once every two (2) years. In addition, an audit will be performed within twelve (12) months of any of the following events:
1. There is an unusual fluctuation in the Member's claims experience or number of large claims, or
2. There is a change of liability claims administration firms, or
3. The Member is a new member of the General Liability 1 or General Liability 2 Program.
The claims audit shall be performed by a firm selected by PRISM unless an exception is approved. Recommendations made in the claims audit shall be addressed by the Member and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
D. Each Member shall maintain records of claims in each category of coverage (i.e. bodily injury, property damage, expense) or as defined by PRISM and shall provide such records to PRISM as directed by the Board of Directors or applicable committee. Such records shall include open and closed claims, allocated expenses, and shall not be capped by the Member’s self-insured retention.
E. The Member shall obtain an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) at least once every three (3) years. Based upon the actuarial recommendations, the Member should maintain reserves and make funding contributions equal to or exceeding the present value of expected losses and a reasonable margin for contingencies. 173
IV. PRIMARY WORKERS’ COMPENSATION PROGRAM
A. Members of the Primary Workers’ Compensation Program shall provide the third party administrator written notice of any claim in accordance with the requirements of PRISM. Members must also cooperate with the third party administrator in providing all necessary information in order for claims to be administered appropriately.
B. PRISM shall be responsible for ensuring qualified personnel administer claims in the Primary Workers’ Compensation Program and that claims are administered in accordance with PRISM’s Workers’ Compensation Claims Administration Standards (Addendum A).
C. PRISM shall be responsible for ensuring a claims administration audit utilizing PRISM’s Workers’ Comp ensation Claims Administration Standards (Addendum A) is performed once every two (2) years.
D. PRISM shall be responsible for obtaining an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) annually.
V. DEDUCTIBLE BUY-DOWN PROGRAM
A. Members of the Deductible Buy-Down Program shall provide the third party administrator written notice of any claim or incident in accordance with the requirements of PRISM. Members must also cooperate with the third party administrator in providing all necessary information in order for claims to be administered appropriately.
B. PRISM shall be responsible for ensuring qualified personnel administer claims in the Deductible Buy-Down Program and that claims are administered in accordance with PRISM’s Liability Claims Administration Standards (Addendum B).
C. PRISM shall be responsible for ensuring a claims administration audit utilizing PRISM’s Liability Claims Administration Standards (Addendum B) is performed once every two (2) years.
D. PRISM shall be responsible for obtaining an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) annually.
VI. PROPERTY PROGRAM
A. Members of the Property Program shall maintain appropriate records including a complete list of insured locations and schedule of values pertaining to all real property. Such records shall be provided to PRISM or its brokers as requested by the Executive or Property Committees. 174
B. Each Member shall perform a real property replacement valuation for all locations over $250,000. Valuations shall be equivalent to the Marshall Swift system and shall be performed at least once every five (5) years for all locations over $1,000,000 and at least once every ten (10) years for all locations with a valuation between $250,000 and $1,000,000. New members shall have an appraisal or valuation performed within one year from entry into the Program.
VII. MEDICAL MALPRACTICE PROGRAM
A. Program I
1. Members of Medical Malpractice Program I (hereinafter Program I) shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member.
a. Members of Program I shall use only qualified personnel to administer its health facility claims.
b. Qualified defense counsel experienced in health facility law shall handle litigated claims.
c. Members of Program I shall use the "Claims Reporting and Handling Guidelines" in the PRISM Medical Malpractice
Program Operating and Guidelines Manual (hereinafter
Operating and Guidelines Manual), and shall advise its claims administrator that these claims handling guidelines are utilized in PRISM's medical malpractice claims audits.
2. Members of Program I shall provide PRISM written notice of any potential excess claim or "major incident" in accordance with the requirements of PRISM and of the excess carrier as stated in the Operating and Guidelines Manual. Updates on such claims or major incidents shall be provided as requested by PRISM.
3. A claims administration audit utilizing PRISM's Claims Reporting and Handling Guidelines in the Operating and Guidelines Manual shall be performed once every three (3) years. In addition, an audit will be performed within twelve (12) months of any of the following events:
a. There is an unusual fluctuation in the Member's claims experience or number of large claims, or
b. There is a change of health facility claims administration firms, or
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c. The Member is a new member of the Medical Malpractice Program, or
d. The Medical Malpractice Committee requests an audit. The claims audit shall be performed by a firm(s) selected by PRISM.
Recommendations made in the claims audit shall be addressed by the Member and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
4. Each Member shall maintain records of claims in each category of coverage (i.e. bodily injury, property damage, expense) or as defined by PRISM and shall provide such records to PRISM as directed by the Board of Directors or applicable committee. Such records shall include open and closed claims, allocated expenses, and shall not be capped by the Member’s self-insured retention.
5. Members of Program I shall obtain an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) at least once every three (3) years. Based upon the actuarial recommendations, the Member should maintain reserves and make funding contributions equal to or exceeding the present value of expected losses and a reasonable margin for contingencies.
6. The Member shall have an effective risk management program in accordance with the "Risk Management Guidelines" as stated in the Operating and Guidelines Manual.
B. Program II
1. For Medical Malpractice Program II (hereinafter Program II) Members, PRISM shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member. PRISM may contract with a third p arty administrator for handling of such claims.
2. PRISM shall be responsible for ensuring the third party administrator uses qualified personnel to administer Program II claims.
3. PRISM shall be responsible for ensuring qualified defense counsel experienced in health facility law shall handle litigated claims.
4. PRISM shall be responsible for ensuring a claims administration audit utilizing PRISM's Claims Reporting and Handing Guidelines in the Operating and Guidelines Manual shall be performed once every two (2) years.
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The claims audit shall be performed by a firm(s) selected by PRISM.
Recommendations made in the claims audit shall be addressed by the third party administrator and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
5. PRISM shall be responsible for obtaining an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) annually.
6. The Member shall have an effective risk management program in accordance with the "Risk Management Guidelines" as stated in the Operating and Guidelines Manual.
VIII. SANCTIONS
A. PRISM shall provide the Member written notification of the Member's failure to meet any of the above-mentioned standards or of other concerns, which affect or could affect PRISM.
B. The Member shall provide a written response outlining a program for corrective action within sixty (60) days of receipt PRISM's notification.
C. After approval by the Executive or applicable Program Committee of the Member's corrective program, the Member shall implement the approved program within ninety (90) days. The Member may request an additional sixty (60) days from the Executive or applicable Program Committee. Further requests for extensions shall be referred to the Board of Directors.
D. Failure to comply with subsections B or C may result in cancellation of the Member from the affected PRISM Program in accordance with the provisions in the Joint Powers Agreement.
E. Notwithstanding any other provision herein, any Member may be canceled pursuant to the provision of the Joint Powers Agreement. 177
ADDENDUM TO EXHIBIT B
Adopted: December 6, 1985
Last Amended: July 1, 2019
ADDENDUM A
WORKERS' COMPENSATION
CLAIMS ADMINISTRATION STANDARDS
The following Standards have been adopted by Public Risk Innovation, Solutions, and Management (hereinafter PRISM) in accordance with Article 18(b) of the PRISM Joint Powers Agreement. It is the intent of these Standards to ensure compliance with all applicable Labor Code and California Code of Regulations Sections. In the event that there exists a conflict between the Standards, the Labor Code or the Code of Regulations, the most stringent requirement shall apply.
I. CLAIMS HANDLING - ADMINISTRATIVE
A. Case Load
1. Each claims examiner assigned to the Member should handle a targeted caseload of 150 but not to exceed 165 claims. In situations where caseloads include future medical and medical only claims, these claims shall be counted as 2:1 in the caseload limit.
2. Supervisory personnel should not handle a caseload, although they may handle specific issues or a small number of conflict claims.
B. Case Review and Documentation
1. Documentation shall reflect any significant developments in the file and include a plan of action. Plan of action statements shall be updated at the time of examiner diary review.
2. The examiner shall review indemnity and medical -only files at intervals not to exceed 45 calendar days. Future medical files shall be reviewed at intervals not to exceed 90 calendar days.
3. The supervisor shall review all new claims within 60 calendar days of initial set up and subsequently monitor activity on indemnity files at intervals not to exceed 120 calendar days. Future medical files shall be reviewed by the supervisor at intervals not to exceed 180 calendar days.
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4. File contents shall comply with Code of Regulations Sections 10101, 10101.1 and 15400, and be kept in a neat and orderly fashion. If claims are maintained in a paperless system, documents shall be clearly identified (e.g., medical report, WCAB Orders, legal, etc.).
5. Medical Only Claims
a. If a medical-only claim is still open at 90 calendar days, it shall be transferred to an indemnity examiner.
b. If, at any time, it is anticipated there will be indemnity benefits paid, the claim shall be transferred to an indemnity claim type.
c. If the medical-only claim remains open at 180 days, the claim shall be converted to an indemnity claim type, unless there is documentation showing that medical treatment will be ending and the claimant will be discharged from care within the next 30 days, or the claimant is only seeking treatment for a blood- borne pathogen exposure protocol.
C. Communication
1. Telephone Inquiries
Return calls shall be made within 1 working day of the original telephone inquiry. All documentation shall reflect these efforts.
2. Incoming Correspondence
All correspondence received shall be clearly stamped with the date of receipt.
3. Return Correspondence
All correspondence requiring a written response shall have such response completed and transmitted within 5 working days of receipt.
4. Ongoing Claimant Contact
On cases involving unrepresented injured workers who are off work, telephone contact shall be made at a minimum of once every 30 days and within 3 working days after discharge from the hospital or outpatient facility following a surgical procedure. This is in addition to nurse case management involvement on claims where nurse case managers are assigned.
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D. Fiscal Handling
1. Fiscal handling for indemnity benefits on active cases shall be balanced with appropriate file documentation on a semi-annual basis and prior to sending a benefit termination notice to verify that statutory benefits are paid appropriately. Balancing is defined as , “an accounting of the periods and amounts due in comparison with what was actually paid”.
2. In cases of multiple losses with the same person, payments shall be made on the appropriate claim file.
E. Medicare Reporting
Mandatory reporting to the Center for Medicaid Services (CMS) shall be completed directly or through a reporting agent in compliance with Section 111 of the Medicare Medicaid and SCHIP Extension Act of 2007 (“MMSEA”). Medicare eligibility shall be documented in the claim file at time of settlement evaluation.
II. CLAIM CREATION
A. Three-Point Contact
Three-point contact shall be conducted on all claims with the non - represented injured worker, employer representative and treating physician within 3 working days of receipt of the claim by the third party administrator or self-administered entity. If a nurse case manager i s assigned to the claim, initial physician contact may be conducted by either the claims examiner or the nurse case manager. This initial contact should be substantive and clearly documented in the claim file. In the event a party is non-responsive, ther e shall be evidence of at least three documented attempts to reach the individual.
B. Compensability
1. The initial compensability determination (accept claim, deny claim or delay acceptance pending the results of additional investigation) and the reasons for such a determination shall be made and documented in the file within 14 calendar days of the filing of the claim with the employer. In the event the claim is not received by the t hird party administrator or self-administered entity within 14 calendar days of the filing of the claim with the employer, the third party administrator or self-administered entity shall make the initial compensability determination within 7 calendar days of receipt of the claim. 180
2. Delay of benefit letters shall be mailed in compliance with the Division of Workers’ Compensation (DWC) guidelines. In the event the employer does not provide notice of lost time to the t hird party administrator or self-administered entity timely to comply with DWC guidelines, the third party administrator or self-administered entity shall mail the benefit letters within 7 calendar days of notification.
3. The final compensability determination shall be made by the claims examiner or supervisor within 90 calendar days of employer receipt of the claim form.
C. AOE/COE Investigation
If a decision is made to delay benefits on a claim, an AOE/COE investigation shall be initiated within 3 working days of the decision to delay . This may include, but is not limited to, assigning out for witness/injured worker statements, initiating the QME/AME process, requesting medical records, etc.
D. Reserves
1. Using the information available at claim file set up, an initial reserve shall be established for the most probable case value.
2. The initial reserve shall be electronically posted to the claim within 14 calendar days of receipt of the claim.
E. Indexing
All claims shall be reported to the Index Bureau at time of initial set up and re- indexed on an as needed basis thereafter . Blood borne pathogen exposure claims are an exception to this requirement.
PRISM maintains membership with the Index Bureau that members can access.
III. CLAIM HANDLING – TECHNICAL
A. Payments
1. Initial Temporary and Permanent Disability Indemnity Payment a. The initial indemnity payment shall be issued to the injured worker within 14 calendar days of knowledge of the injury and disability. In the event the t hird party administrator or self- administered entity is not notified of the injury and disability 181
within 14 calendar days of the employer’s knowledge, the third party administrator or self-administered entity shall make payment within 7 calendar days of notification. Initial permanent disability payments shall be issued within 14 calendar days after the date of last payment of temporary disability. Effective 1/1/2013, permanent disability payments shall be issued upon approval of an Award pursuant to Labor Code Section 4650(b)(2). Prior to a PD Award, advances may be due if the employer has not offered the employee a position paying at least 85% of their wages and compensation at time of injury or the employee is not employed in a position paying at least 100% of their wages and compensation at time of injury. This shall not apply with salary continuation. b. The properly completed DWC Benefit Notice shall be mailed to the emp loyee within 14 calendar days of the first day of disability. In the event the third party administrator or self- administered entity is not notified of the first day of disability until after 14 calendar days, the DWC Benefit Notice shall be mailed within 7 calendar days of notification.
c. Self-imposed penalty shall be paid on late payments in accordance with Section III. A.7 of this document.
d. Overpayments shall be identified and reimbursed timely where appropriate. The third party administrator or self- administered entity shall request reimbursement of overpaid funds from the party that received the funds. If necessary, a credit shall be sought as part of any resolution of the claim.
2. Subsequent Temporary and Permanent Disability Payments a. Eligibility for indemnity payments subsequent to the first payment shall be verified, except for established long -term disability.
b. Ongoing indemnity payments shall be paid in accordance with Labor Code Section 4650(c).
c. Subsequent DWC benefit notices shall be issued in
accordance with CCR 9812.
d. Self-imposed penalty shall be paid on late payments in accordance with Section III. A.7 of this document.
3. Final Temporary and Permanent Disability Payments
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a. All final indemnity payments shall be issued timely. b. The appropriate DWC benefit notices shall be issued in accordance with CCR 9812.
c. Self-imposed penalty shall be paid on late payments in accordance with Section III. A.7. of this document.
4. Award Payments
a. The claim file shall reflect demonstrated efforts to initiate/batch payments on undisputed Awards,
Commutations, or Compromise and Release agreements
within 10 working days following receipt of the appropriate document, unless the Award indicates payment is due sooner.
b. For all claims in the P rimary Workers’ Compensation (PWC) Program and/or excess reportable claims, c opies of all Awards shall be provided to PRISM at time of payment.
5. Medical Payments
a. Medical treatment billings (physician, pharmacy, hospital, physiotherapist, etc .) shall be reviewed for correctness, approved for payment and paid within 60 days of receipt. b. The medical provider shall be notified in writing within 30 days of receipt of an itemized bill if a medi cal bill is contested, denied or incomplete.
c. A bill review process should be utilized whenever possible.
There should be participation in a PPO and/or MPN whenever possible.
6. Injured Worker Reimbursement Expense
a. Reimbursements to injured workers shall be issued within 15 working days of the receipt of the claim for reimbursement. b. Advance travel expense payments shall be issued to the injured worker 10 working days prior to the anticipated date of travel.
7. Penalties
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a. Penalties shall be coded so as to be identified as a penalty payment.
b. If the Member utilizes a third party administrator, the Member shall be advised of the assessment of any penalty for delayed payment and the reason thereof, and the administrator’s plans for payment of such penalty, on a monthly basis.
c. If the Member utilizes a third party administrator, the Member, in their contract with the administrator, shall specify who is responsible for specific penalties.
B. Medical Treatment
1. Each Member shall have in place a Utilization Review process as set forth in Labor Code Section 4610.
2. Disputes regarding utilization review determinations shall be resolved using the Independent Medical Review process set forth in Labor Code Section 4610.5.
3. Nurse case managers shall be utilized where appropriate. Rationale for assignment and continued necessity shall be documented in the claim notes at each regular diary review.
4. If enrolled in a Medical Provider Network, the network shall be utilized whenever appropriate.
C. Apportionment
1. Investigation into the existence of apportionment shall be documented.
2. If potential apportionment is identified, all efforts to reduce exposure shall be pursued.
D. Disability Management
1. The third party administrator or self -administered entity shall work proactively to obtain work restrictions and/or a release to full duty on all cases. The TPA or self -administered entity shall notify a designated Member representative immediately upon receipt of temporary work restrictions or a release to full duty, and work closely with the Member to establish a return to work as soon as possible. 184
2. The third party administrator or self-administered entity shall notify a designated Member representative immediately upon receipt of an employee’s permanent work restrictions so that the Member can determine the availability of alternative, modified or regular work.
3. If there is no response within 20 calendar days, the third party administrator or self -administered entity shall follow up with the designated Member representative.
4. Members shall have in place a process for complying with laws preventing disability discrimination, including Government Code Section 12926.1, which requires an interactive process with the injured worker when addressing a return to work particularly with permanent work restrictions.
5. Third party administrators or self -administered claims professional shall cooperate with members to the fullest extent, in providing medical and other information the member deems necessary for the member to meet its obligations under federal and state disability laws.
E. Supplemental Job Displacement Benefits
1. Supplemental Job Displacement Benefits – Dates of injury on or after 1/1/04 and before 1/1/13: Benefits pursuant to Labor Code Section 4658.5 shall be timely provided. Dates of injury on or after 1/1/13:
Benefits pursuant to Labor Code 4658.7 shall be timely provided.
2. The third party administrator or self-administered entity shall secure the prompt conclusion of SJDB.
F. Reserving
1. Reserves shall be reviewed at regular diary and at time of any significant event, e.g. - surgery, P&S/MMI, return to work, etc., and adjusted accordingly. This review shall be documented in the file regardless of whether a reserve change was made. Where the SIP model does not apply, claims shall be reserved for the most probable value.
2. Indemnity reserves shall reflect actual temporary disability indemnity exposure with 4850 differential listed separately.
3. Permanent disability indemnity exposure shall include life pension reserve if appropriate.
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4. Future medical claims shall be reserved in compliance with CCR 15300 (b)(4) allowing adjustment for reductions in the approved medical fee schedule, undisputed utilization review, medically documented non -recurring treatment costs and medically documented reductions in life expectancy.
5. Allocated expense reserves shall include medical cost containment, legal, investigation, copy service and other related fees.
6. A reserve worksheet shall be utilized and/or detailed rationale substantiating reserve levels shall be documented within the claim file.
G. Resolution of Claim
1. Within 10 working days of receiving medical information indicating that a claim can be finalized, the claims examiner shall begin appropriate action to finalize the claim.
2. Follow up finalization efforts shall continue and be documented at regular diary reviews until resolution is complete.
3. Settlement value shall be documented appropriately utilizing all relevant information.
4. Where settlement includes resolution of future medical for a Medicare beneficiary or an expected Medicare beneficiary, the settlement shall document the strategy to protect Medicare’s secondary payer status.
5. Pursuant to CCR15400.2, claim files with awards for future benefits shall be reviewed for administrative clos ure two years after the last provision of benefits.
H. Settlement Authority
1. No agreement shall be authorized involving liability, or potential liability, of PRISM without the advance written consent of PRISM.
The member shall be notified of any settlement request submitted to PRISM.
2. The third party administrator shall obtain the Member’s authorization on all settlements or stipulations in excess of the settlement authority provided in any provision of the individual contract between the Member and the claims administrator.
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3. Proof of settlement authorization(s) shall be maintained in the claim file.
IV. LITIGATED CASES
The third party administrator or self -administered entity shall establish written guidelines for the handling of litigated cases. The guidelines should, at a minimum, include the points below, which may be adopted and incorporated by reference as "the Guidelines".
1. The third party administrator or self-administered entity shall promptly initiate investigation of issues identified as material to potential litigation. The Member shall be alerted to the need for in- house investigation, or the need for a contract investigator who is acceptable to the Member. The Member shall be kept informed on the scope and results of investigations.
2. The third party administrator or self-administered entity shall, in consultation with the Member, assign defense counsel from a list approved by the Member. Initial referral and ongoing liti gation management shall be timely and appropriate. The third party administrator or self-administered entity shall maintain control of the ongoing claim activities.
3. Settlement proposals directed to the Member shall be forwarded by the third party administrator , self-administered entity or defense counsel in a concise and clear written form with a reasoned recommendation. Settlement proposals shall be presented to the Member as directed so as to insure receipt in sufficient time to process the proposal.
4. Knowledgeable Member personnel shall be involved in the preparation for medical examinations and trial, when appropriate or deemed necessary by the Member so that all material evidence and witnesses are utilized to obtain a favorable result for the defense.
5. The third party administrator or self-administered entity shall comply with any reporting requirement of the Member.
V. SUBROGATION
1. In all cases where a third party (other than a Member employee or agent) is responsible for the injury to the employee, attempts to obtain information regarding the identity of the responsible party shall be made within 14 calendar days of recognition of subrogation potential.
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2. Once identified, the third party shall be contacted within 14 calendar days with notifi cation of the Member's right to subrogation and the recovery of certain claim expenses.
3. If the third party is a governmental entity, a claim shall be filed with the governing board (or State Board of Control as to State entities) within 6 months of the injury or notice of the injury. If the third party is a non- governmental entity, a complaint shall be filed in civil court within two years in order to preserve the statute of limitations.
4. Periodic contact shall be made with the responsible party and/or insurer to provide notification of the amount of the estimated recovery to which the Member shall be entitled.
5. If the injured worker brings a civil action against the party responsible for the injury, the claims administrator shall consult with the Member about the value of the subrogation claim and other considerations.
Upon Member authorization, subrogation counsel shall be assigned to file a Lien or a Complaint in Intervention in the civil action.
6. Whenever practical, the claims administrator shall aggressively pursue recovery in any subrogation claim. They should attempt to maximize the recovery for benefits paid, and assert a credit against the injured worker’s net recovery for future benefit payments.
7. Member (and PRISM if applicable ) approval is required to waive pursuit of subrogation or agree to a settlement of a third party recovery. T his approval shall be documented in the claim file. In cases of self -administered entities, a process shall be documented noting the authority levels within the member organization to waive pursuit of subrogation or agree to a settlement of a third party recovery.
VI. EXCESS COVERAGE
A. Claims meeting the definition of reportable excess workers’ compensation claims as defined by the Memorandum of Coverage Conditions Section shall be reported to PRISM within five working days of the day on which it is known the criterion is met. Utilize the Excess Workers’ Compensation First Report Form available through PRISM’s website.
B. Subsequent reports shall be transmitted to PRISM on a quarterly basis on all indemnity claims and on a semi-annual basis on all future medical claims or sooner if claim activity warrants, or at such other intervals as requested by PRISM, in accordance with Underwriting and Claims Administration Standards. Utilize the Excess Workers’ Compensation Status Report Form 188
available through PRISM’s website, or a comparable form to be approved by PRISM.
C. Reimbursement requests shall be submitted in accordance wit h PRISM’s reporting and reimbursement procedures on a quarterly or semi -annual basis depending on claims payment activity. Utilize the Excess Workers’ Compensation Claim Reporting and Reimbursement Procedures available through PRISM’s website.
D. A closing report with a copy of any settlement documents not previously sent shall be sent to PRISM.
Following is the history of amendments to this document:
Amended: March 4, 1988
Amended: October 7, 1988
Amended: October 6, 1995
Amended: October 1, 1999
Amended: June 6, 2003
Amended: March 2, 2007
Amended: July 1, 2009
Amended: July 1, 2011
Amended: March 2, 2012
Amended: October 4, 2013
Amended: July 1, 2019
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Adopted: March 5, 1993
Amended: October 2, 1998
Amended: October 6, 2006
Amended: March 6, 2009
MEMORANDUM OF UNDERSTANDING
EXCESS LIABILITY PROGRAM
This Memorandum of Understanding is entered into by and between Public Risk Innovation, Solutions, and Management (hereinafter referred to as “ PRISM”) and the participating members who are signatories to this Memorandum.
1. JOINT POWERS AGREEMENT . Except as otherwise provided, all terms used herein shall be as defined in Article 1 of Joint Powers Agreement Creating PRISM (hereinafter referred to as “Agreement”), provisions of any applicable coverage agreement and all other provisions of the Agreement not in conflict with this Memorandum shall be applicable.
2. ANNUAL PREMIUM . T he participating members , in accordance with the provisions of Article 14(b)(2) of the Agreement, shall be assessed an annual premium for the purpose of funding the Program. Annual premiums shall include the participating member’s share of expected losses for the policy period, including Incurred But Not Reported (IBNR) losses, as well as margin for contingencies based upon a confidence level as determined by the Board of Dir ectors of PRISM (hereinafter Board), and adjustments, if any, for a surplus or deficit from all program policy periods. In addition, the premium shall include program reinsurance costs and program administrative costs, plus PRISM ’s general expense allocat ed to the Program by the Board for the next policy period.
3. COST ALLOCATION. Each participating member’s share of annual premium shall be determined pursuant to a cost allocation plan as described in Article 14(b)(2) of the Agreement. The Board approved cost allocation plan is attached hereto as Exhibit A and may be amended from time to time by an affirmativ e vote of the majority of the Board representing the members participating in the Program.
4. DIVIDENDS AND ASSESSMENTS . The Program shall be funded in accordance with paragraph 2 above. As a general rule, the annual premium, as determined by the Board, shall be established at a level which shall provide adequate overall funding without the need for adjustments to past policy period(s) in the form of dividends and assessments. Should the Program for any reason not be adequately funded, except as otherwis e provided herein, pro- rata assessments to the participating members may be utilized to ensure the approved funding level for those policy periods individually or for a block of policy periods, in accordance with the provisions of Article 14(b)(3) of the A greement. Pro- rata dividends shall be declared as provided herein.
Dividends may also be declared as deemed appropriate by the Board.
5. CLOSURE OF POLICY PE RIODS. Notwithstanding any other provision of this Memorandum, the following provisions are applicable:
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PRISM Amended: March 6, 2009
General Liability 1 Program MOU
(a) Upon reaching ten (10) years of maturity after the end of a program period, that period shall be “closed” and there shall be no further dividends declared or assessments made with respect to those program periods, except as set forth in paragraph 6(a), below;
(b) Notwithstanding subparagraph (a) above, the Board may take action to leave a policy period “open” even though it may otherwise qualify for closure. In addition, the last ten (10) policy periods shall always remain “open” unless the Board takes specific action to declare any of the last ten (10) policy periods closed.
(c) Dividends and assessments, other than those set forth in paragraph 6(a) below, shall be administered to the participating members based upon the proportion of premiums paid to the Program in “open” periods only. For purposes of administering dividends and assessments pursuant to this subparagraph, all “open” policy periods shall be considered as one block.
New members to the Progra m shall become eligible for dividends and assessments upon participating in the Program for three (3) consecutive policy periods (not less than twenty -four (24) months). Participating members who withdraw from the Program prior to the three (3) year polic y period restriction are still eligible for any assessments that arose out of the policy years they participated in the Program.
6. DECLARATION OF DIVIDENDS. Dividends shall be payable from the Program to a participating member in accordance with its proportionate funding to the Program during all “open” policy periods except as follows:
(a) A dividend shall be declared at the time a program period is closed on all amounts, which represent premium surcharge amounts assessed pursuant to Article 14(b)(3) of the Agreement where the funding exceeds the 80% confidence level. This dividend shall be distributed based upon each member’s proportionate share of assessment paid and accrued to the policy period being closed.
7. MEMORANDUM OF COVERAGE. A Memorandum of Coverage shall be issued by PRISM evidencing membership in the Program and setting forth terms and conditions of coverage.
8. CLAIMS ADMINISTRATION. Each participating m ember shall comply with PRISM’s Underwriting and Claims Administration Standards (including Addendum B - Liability Claims Administration Guidelines) as amended from time- to-time, and which are attached hereto as Exhibit B and incorporated herein.
9. LATE PAYMENTS. Notwithstanding any other provision to the contrary regarding late payment of invoices or cancellation from a Program, at the discretion of the Executive
191
PRISM Amended: March 6, 2009
General Liability 1 Program MOU
Committee, any member that fails to pay an invoice when due may be given a ten (10) day written notice of cancellation.
10. RESOLUTIONS OF DIS PUTES. Any question or dispute with respect to the rights and obligations of the parties to this Memorandum regarding coverage shall be determined in accordance with the Joint Powers Agreement Article 31, Dispute Resolution.
11. AMENDMENT. This Memorandum may be amended by a two- thirds vote of the Board and signature on the Memorandum by the member’s designated representative who shall have authority to execute this Memorandum. Should a member of the Program fail to execute any amendment to this Memorandum within the time provided by the Board, the member shall be deemed to have withdrawn as of the end of the policy period.
12. COMPLETE AGREEMENT . Except as otherwise provided herein, this Memorandum constitutes the full and complete agreement of the members.
13. SEVERABILITY. Should any provision of this Memorandum be judicially determined to be void or unenforceable such determination shall not affect any remaining provision.
14. EFFECTIVE DATE. This Memorandum shall become effective on the effective date of coverage for the member and upon approval by the Board of any amendment, whichever is later.
15. EXECUTION IN COUNTERPARTS . This Memorandum may be executed in several counterparts, each of which shall be an original, all of which shall constitute but one and the same instrument.
In Witness Hereof, the undersigned have executed this Memorandum as of the date set forth below:
Dated: ______________ _____________________________________ Public Risk Innovation, Solutions, and
Management
Dated: ________________ _____________________________________ Name
Member Entity: _________________________
3/6/2009
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EXHIBIT A
EXCESS LIABILITY PROGRAM
COST ALLOCATION PLAN
As delegated by the Board of Directors, the Executive Committee will determine the specific allocation of all costs among the members subject to the following parameters:
Actuarial Analysis
An annual actuarial analysis will be performed using loss and exposure data collected from the members. The analysis will determine the necessary funding rates at various confidence levels and using various discount assumptions.
Different rates may be developed for different groups or classes of business as is deemed necessary or appropriate by the Executive Committee. At the March Board meeting, the Board of Directors will select the funding level rates and discount factors to be used based upon the actuarial analysis and recommendations from the actuary, the Underwriting Committee, and the Executive Committee.
Pool Contributions
The total needed pool contribution will be determined by multiplying the rates described above by the exposure for all of the members participating in the Pool.
For schools, the exposure base will be the reported Average Daily Attendance (ADA). For all other members, the exposure base will be estimated payroll for the year being funded. The Executive Committee may break the Pool into different layers for allocation purposes, and may apply a different loss experience modification for each layer as is deemed appropriate based on loss frequency.
In general, the lower layers will be subject to greater experience modification and the higher layers will be subject to lower experience modification or no experience modification. Within the layers, the larger members will be subject to greater experience modification than the smaller members. After the experience modification has been applied for each layer, there will be a pro- rata adjustment back to the total needed pool contribution.
Reinsurance Premiums
The reinsurance premium will be determined through negotiations with the reinsurer(s) and approved by the Board upon recommend ation of the Underwriting and Executive Committees. This premium will then be allocated among the members based upon their exposure (ADA or estimated payroll).
PRISM Administration Fees
The total PRISM Administration Fees will be determined through the annual budgeting process with an appropriate amount allocated to the Excess Liability Program. These fees will be allocated among the members as determined by 193
GL1 Program MOU
Exhibit A
the Executive Committee. In general, the basis for this allocation will be each member’s percentage of the total Pool contributions and reinsurance premium.
Deviation From the Standard
The Executive Committee may establish policies to deviate from the standard allocation methodology selected for each year on a case- by-case basis, if necessary. They may also elect to further delegate some or all of the decision making herein to the Underwriting Committee.
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Adopted: December 6, 1985
Last Amended: July 1, 2019
PUBLIC RISK INNOVATION, SOLUTIONS, AND MANAGEMENT (PRISM)
UNDERWRITING AND CLAIMS ADMINISTRATION STANDARDS
I. GENERAL
A. Each Member shall appoint an official or employee of the Member to be responsible for the risk management function and to serve as a liaison between the Member and PRISM for all matters relating to risk management.
B. Each Member shall maintain a lo ss prevention program and shall consider and act upon all recommendations of PRISM concerning the reduction of unsafe conditions.
II. EXCESS WORKERS' COMPENSATION PROGRAM
A. Members of the Excess Workers’ Compensation Program, except those members of the Primary Workers’ Compensation Program whose responsibilities are outlined in Section IV below, shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member.
1. The Member shall use only qualified personnel to administer its workers' compensation claims. At least one person in the claims office (whether in -house or outside administrator) shall be certified by the State of California as a qualified administrator of self-insured workers' compensation plans.
2. Qualified defense counsel experienced in workers’
compensation law and practice shall handle litigated claims.
Members are encouraged to utilize attorneys who have the designation “Certified Workers’ Compensation Specialist, the State Bar of California, Board of Legal Specialization”.
3. The Member shall use PRISM's Workers' Compensation Claims Administration Standards (Addendum A) and shall advise its claims administrator that these standards are utilized in PRISM's workers' compensation claims audits.
B. The Member shall provide PRISM written notice of any potential excess workers' compensation claims in accordance with the requirements of PRISM's Bylaws. Updates on such claims shall be provided pursuant to the reporting provisions of PRISM’s Workers’
EXHIBIT A
195
Compensation Claims Administration Standards (Addendum A) or as requested by PRISM and/or PRISM's excess carrier.
C. A claims administration audit utilizing PRISM's Workers' Compensation Claims Administration Standards (Addendum A) shall be performed once every two (2) years. In addition, an audit will be performed within twelve (12) months of any of the following events:
1. There is an unusual fluctuation in the Member's claim experience or number of large claims, or
2. There is a change of workers' compensation claims administration firms, or
3. The Member is a new member of the Excess Workers’ Compensation Program.
The claims audit shall be performed by a firm selected by PRISM unless an exception is approved. Recommendations made in the claims audit shall be addressed by the Member and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
D. Each Member shall maintain records of claims in each category of coverage (i.e. indemnity, medical, expense) or as defined by PRISM and shall provide such records to PRISM as directed by the Board of Directors, Claims Review Committee, Underwriting Committee, or Executive Committee. Such records shall include both open and closed claims, allocated expenses, and shall not be capped by the Member’s self-insured retention.
E. The Member shall obtain an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) at least once every three (3) years. Based upon the actuarial recommendations, the Member should maintain reserves and make funding contributions equal to or exceeding the present value of expected losses and a reasonable margin for contingencies.
III. GENERAL LIABILITY PROGRAMS
A. Members of the General Liability 1 or General Liability 2 Programs, except those members of the Deductible Buy-Down Program whose responsibilities are outlined in Section V below, shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member.
1. The Member shall use only qualified personnel to administer its liability claims.
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2. Qualified defense counsel experienced in tort liability law shall handle litigated claims. Members are encouraged to utilize defense counsel experienced in the subject at issue in the litigation.
3. The Member shall use the Liability Claims Administration Standards (Addendum B) and shall advise its claims administrator that these standards are utilized in PRISM's liability claims audits.
B. The Member shall provide PRISM written notice of any potential excess liability claim in accordance with the requirements of PRISM's Bylaws.
Updates on such claims shall be provided pursuant to the reporting provisions of PRISM’s Liability Claims Administration Standards (Addendum B) or as requested by PRISM and/or PRISM's excess carrier.
C. A claims administration audit utilizing PRISM's Liability Claims Administration Standards (Addendum B) shall be performed once every two (2) years. In addition, an audit will be performed within twelve (12) months of any of the following events:
1. There is an unusual fluctuation in the Member's claims experience or number of large claims, or
2. There is a change of liability claims administration firms, or
3. The Member is a new member of the General Liability 1 or General Liability 2 Program.
The claims audit shall be performed by a firm selected by PRISM unless an exception is approved. Recommendations made in the claims audit shall be addressed by the Member and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
D. Each Member shall maintain records of claims in each category of coverage (i.e. bodily injury, property damage, expense) or as defined by PRISM and shall provide such records to PRISM as directed by the Board of Directors or applicable committee. Such records shall include open and closed claims, allocated expenses, and shall not be capped by the Member’s self-insured retention.
E. The Member shall obtain an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) at least once every three (3) years. Based upon the actuarial recommendations, the Member should maintain reserves and make funding contributions equal to or exceeding the present value of expected losses and a reasonable margin for contingencies. 197
IV. PRIMARY WORKERS’ COMPENSATION PROGRAM
A. Members of the Primary Workers’ Compensation Program shall provide the third party administrator written notice of any claim in accordanc e with the requirements of PRISM. Members must also cooperate with the third party administrator in providing all necessary information in order for claims to be administered appropriately.
B. PRISM shall be r esponsible for ensuring qualified per sonnel administer claims in the Primary Workers’ Compensation Program and that claims are administered in ac cordance with PRISM’s Workers’ Compensation Claims Administration Standards (Addendum A).
C. PRISM shall be responsible for ensuring a claims administration audit utilizing PRISM’s Workers’ Compensation Claims Administration Standards (Addendum A) is performed once every two (2) years.
D. PRISM shall be responsible for obtaining an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) annually.
V. DEDUCTIBLE BUY-DOWN PROGRAM
A. Members of the Deductible Buy-Down Program shall provide the third party administrator written notice of any claim or incident in accordance with the requirements of PRISM. Members must also cooperate with the thir d party administrator in providing all necessary information in order for claims to be administered appropriately.
B. PRISM shall be responsible for ensuring qualified personnel administer claims in the Deductible Buy-Down Program and that claims are administered in accordance with P RISM’s Liability Claims Administration Standards (Addendum B).
C. PRISM shall be responsible for ensuring a claims administration audit utilizing PRISM’s Liability Claims Administration Standards (Addendum B) is performed once every two (2) years.
D. PRISM shall be responsible for obtaining an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) annually.
VI. PROPERTY PROGRAM
A. Members of the Property Program shall maintain appropr iate records including a complete list of insured locations and sc hedule of values pertaining to all real property. Such records shall be provided to PRISM or its brokers as requested by the Executive or Property Committees. 198
B. Each Member shall perform a real property replacement valuation for all locations over $250,000. Valuations shall be equivalent to the Marshall Swift system and shall be performed at least once every five (5) years for all locations over $1,000,000 and at least once every ten (10) ye ars for all locations with a valuation between $250,000 and $1,000,000. New members shall have an appraisal or valuation performed within one year from entry into the Program.
VII. MEDICAL MALPRACTICE PROGRAM
A. Program I
1. Members of Medical Malpractice Program I (hereinafter Program I) shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member.
a. Members of Program I shall use only qualified personnel to administer its health facility claims.
b. Qualified defense counsel experienced in health facility law shall handle litigated claims.
c. Members of Program I shall use the "Claims Reporting and Handling Guidelines" in the PRISM Medical Malpractice
Program Operating and Guidelines Manual (hereinafter
Operating and Guidelines Manual), and shall advise its claims administrator that these claims handling guidelines are utilized in PRISM's medical malpractice claims audits.
2. Members of Program I shall provide PRISM written notice of any potential excess claim or "major incident" in accordance with the requirements of PRISM and of the excess carrier as stated in the Operating and Guidelines Manual. Updates on such claims or major incidents shall be provided as requested by PRISM.
3. A claims administration audit utilizing PRISM's Claims Reporting and Handling Guidelines in the Operating and Guidelines Manual shall be performed once every three (3) years. In addition, an audit will be performed within twelve (12) months of any of the following events:
a. There is an unusual fluctuation in the Member's claims experience or number of large claims, or
b. There is a change of health facility claims administration firms, or
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c. The Member is a new member of the Medical Malpractice Program, or
d. The Medical Malpractice Committee requests an audit. The claims audit shall be performed by a firm(s) selected by PRISM.
Recommendations made in the claims audit shall be addressed by the Member and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
4. Each Member shall maintain records of claims in each category of coverage (i.e. bodily injury, property damage, expense) or as defined by PRISM and shall provide such records to PRISM as directed by the Board of Directors or applicable committee. Such records shall include open and closed claims, allocated expenses, and shall not be capped by the Member’s self-insured retention.
5. Members of Program I shall obtain an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) at least once every three (3) years. Based upon the actuarial recommendations, the Member should maintain reserves and make funding contributions equal to or exceeding the present value of expected losses and a reasonable margin for contingencies.
6. The Member shall have an effective risk management program in accordance with the "Risk Management Guidelines" as stated in the Operating and Guidelines Manual.
B. Program II
1. For Medical Malpractice Program II (hereinafter Program II) Members, PRISM shall be responsible for the investigation, settlement, defense and appeal of any claim made, suit brought or proceeding instituted against the Member. PRISM may contract with a third p arty administrator for handling of such claims.
2. PRISM shall be responsible for ensuring the third party administrator uses qualified personnel to administer Program II claims.
3. PRISM shall be responsible for ensuring qualified defense counsel experienced in health facility law shall handle litigated claims.
4. PRISM shall be responsible for ensuring a claims administration audit utilizing PRISM's Claims Reporting and Handing Guidelines in the Operating and Guidelines Manual shall be performed once every two (2) years.
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The claims audit shall be performed by a firm(s) selected by PRISM.
Recommendations made in the claims audit shall be addressed by the third party administrator and a written response outlining a program for corrective action shall be provided to PRISM within sixty (60) days of receipt of the audit.
5. PRISM shall be responsible for obtaining an actuarial study performed by a Fellow of the Casualty Actuarial Society (FCAS) annually.
6. The Member shall have an effective risk management program in accordance with the "Risk Management Guidelines" as stated in the Operating and Guidelines Manual.
VIII. SANCTIONS
A. PRISM shall provide the Member written notification of the Member's failure to meet any of the above-mentioned standards or of other concerns, which affect or could affect PRISM.
B. The Member shall provide a written response outlining a program for corrective action within sixty (60) days of receipt of PRISM's notification.
C. After approval by the Executive or applicable Program Committee of the Member's corrective program, the Member shall implement the approved program within ninety (90) days. The Member may request an additional sixty (60) days from the Executive or applicable Program Committee. Further requests for extensions shall be referred to the Board of Directors.
D. Failure to comply with subsections B or C may result in cancellation of the Member from the affected PRISM Program in accordance with the provisions in the Joint Powers Agreement.
E. Notwithstanding any other provision herein, any Member may be canceled pursuant to the provision of the Joint Powers Agreement. 201
1 EXHIBIT A
NATIONAL LIABILITY
CLAIMS ADMINISTRATION STANDARDS
The following Standards have been adopted by the Public Risk, Innovation, Solutions, and Management (hereinafter PRISM). It is the intent that these standards shall be followed by the Participant and/or third party administrator.
I. CLAIMS INVESTIGATION
A. Complete initial investigation answer ing questions such as who, what, where, when and why. Investigations shall be completed within forty-five (45) days of the Participant’s knowledge of claim, including statements from participants and witnesses, appro priate official reports, investigative reports, site inspections, relevant documents and photos/videos.
B. Identify liab ility issues, including immunities, comparative negligence, joint tortfeasors and joint and several liability.
C. Initiate the development of informatio n on damages including, but not limited to:
1. Property damage
2. Nature and extent of injuries
3. Medical costs (billed and paid)
4. Lost wages (past and future)
5. Other economic damages
6. Non-economic damages
D. Obtain and review relevant contracts and insurance documents, to determine whether there is any sharing or complete transfer of the risk.
1. Hold-harmless and/or indemnity agreements
2. Additional insured requirements
E. Ensure proper preservation of evidence.
F. Evaluate the need to utilize experts.
G. Indexing.
1. All bodily injury claims shall be initially reported to the Index Bureau and re-indexed on an as needed basis thereafter.
PRISM maintains a membership with the Index Bureau that Participants can 202
2 access.
H. Secure estimate s or appraisals for damaged property.
I. All notices (pertaining to claim insufficiency, returning late claims, claims rejections, etc.) shall be done in accordance with the relevant Governmental Code provisions.
II. PRISM REPORTIN G REQUIREMENTS
A. First Report
The Participant shall give PRISM immediate written notice for any claims or suits which the Participan t becomes aware of that include injury of the following types:
a. Death
b. Paralysis, paraplegia, quadriplegia
c. Loss of eye(s), or limbs
d. Spinal cord or brain injury
e. Dismemberment or amputation
f. Sensory organ or nerve injury or neurological deficit g. Serious burns
h. Severe scarring
i. Sexual assault or battery including but not limited to rape, molestation or sexual abuse
j. Substantial disability or disfigurement
k. Any class action
l. Any claim or suit in which PRISM is named as a defendant; or
m. Any injury caused by lead.
Additionally, the Participant must report to PRISM an occurrence, offense, or wrongful act as follows:
As respect to the General Liabili ty 1 Program Participants, this includes any occurrence, offense, or wrongful act in which the amount incurred has reached 50 percent or more of their individual self-insured retention or $500,000, whichever is lower.
As respect to the General Liabili ty 2 Program Participants, this includes any occurrence, offense, or wrongful act in which the amount incurred has reached 50 percent of their individual self-insured retention.
Utilize the current First Report Pot ential Excess Liability Claims form, 203
3 available through PRISM’s website, and transmit to PRIS M by email to [email protected].
First report forms shall, at a minimum, include the following:
Participant’s name
Participant’s claim number
Defense counsel’s name and firm name
Lead Claimant’s first and last name
Specific date of loss
Brief description of the incident
Established reserves for indemnity, litigation, and expense
B. Status Reports
After the First Report to PRISM, status reports, whether provided by the Participant, third party administrator or defense counsel, shall be provided at a minimum of every ninety (90) days (more frequently if warranted). Status reports shall focus on changes in liability analysis, damages, and reserves.
C. Photos, diagrams, estimates, st atements, contracts, medical, law enforcement and coroner's reports (where applicable), claim forms, lawsuits (including amended complaints), motions for summary judgment, demurrers, dismissals, appellate brie fs and orders/rulings/judg ments shall be in the claims file, and provided to
PRISM, within ninety (90) days of receipt of the
material.
D. Closure Reports
When a claim or suit that has been reported to PRISM is settled, dismissed or closed in any other fashion, PRIS M shall be provided with the closing documents and an accounting of the final paid amounts on the exposure for indemnity, litigation, and expense withi n 90 days from the day the final defense bill is paid.
III. MEDICARE REPORTING
A. Proper verification of a claimant’s st atus as to Medicare eligibility shall be completed and documented in every file involving a bodily injury. In those cases where the claimant does meet the eligibility requirements, mandatory reporting to the Center for Medicare and Medicaid Services (CMS) must be completed directly or th rough a reporting agent in compliance with State Children’s Health Insurance Program (SCHIP) Section 111 of the Medicare Medicaid and SCHIP Extension Act of 2007.
204
4 IV. RESERVING
Each claim should be reviewed and evaluated according to the me rits of the claim and based upon the most current and reliable information received, starting with the initial report of claim and continuing thr ough final resolution. Delays result in understated reserves and, possibly, missed opportunities to settle.
A. An accurate and approp riate initial indemnity reserve shall be established on all reportable claims based on facts know n, upon completion of the initial investigative report or when suit is filed, whic hever occurs first. In addition, separate legal and adjusting reserves shall be established.
Indemnity reserves shall reflect the most probable outcome plus exposure to plaintiff attorney’s fees and costs.
Most probable outcome is the potential total amount a plaintiff could expect to receive, either through settlement or verdict, after factoring in the Participant’s percentage of liability. (This approach is neither the best nor worst case outcome).
Factors to consider when evaluating the potential total settlement or verdict a plaintiff could expect to receive include but are not limited to:
Extent of injuries and/or damages
Medical expenses
Loss of income
Any other related expenses
Future anticipated expenses
Total of both gross and out-of-pocket expenses
Permanent injury
Disfigurement/scarring
Pain and suffering
Any other intangible factors which may result in a higher or lower claim value such as jurisdiction, credibility of parties/witnesses, etc.
Percentage of liability is determined by various factors that are discovered during an investigation. Reserves shall be adjusted accordingly, as facts are developed, to properly reflect the exposure. These factors include but are not limited to:
a. Facts of loss
b. Applicable laws
c. Defense Counsel evaluations
d. Jury Verdict evaluation
e. The extent of plaintiff's liability (comparative negligence) 205
5 f. The number of co-defendants and their percentage of liability g. The ability of the co-defendants to respond financially to any settlement or verdict
h. Any other mitigating factors
2. Reserves shall be set at the most probable outcome even if it exceeds the Participant’s Self-Insured Retention. In all litigated Excess reportable cases, the Participant shall set a meaningful indemnity reserve.
3. Reserves shall be evaluated for adequacy at least every ninety (90) days.
All reserve changes shall be documented in a paper or electronic file providing explanation of the reason for the reserve change or notation that the current reserve is adequate and why. PRISM shall be notified of all reserve changes within thirty (30) days of the change being made.
V. DOCUMENTATION
A. Each file shall contain informati on necessary to document the decisions made, including: all demands, offers of settlement and settlement authority.
For those cases in which the: (1) Bodily Injury claim is reserved above twenty five (25) percent of the SIR.; (2) Property Damage claim is reserved above twenty five (25) percent of the SIR; and (3) All claims that meet PRISM’s
excess reporting requirements regardless of reserves, the following information shall be contained in each file:
1. Claimant(s) Information
2. Date of Loss
3. Claim Number
4. Facts of accident or occurrence
5. Witness/Participant Statement
6. Reserve rationale
7. Assessment of liability
8. Damages/injuries, including medical costs, lost wages, dependency, property damage estimates, total loss evaluations, loss of use claims, and other damages
9. Index Bureau reporting
10. Coverage questions
11. Excess potential
12. Structured Settlement possibilities (where applicable)
13. Alternative Dispute Resolution
14. Subrogation potential (where applicable)
15. Immunities
16. Future course of action
17. Next diary date
18. If litigated, identify counsel on both sides
206
6 19. Offsets or liens that may need to be considered
20. Medicare eligibility and reporting
21. Risk and insurance transfer
VI. CASE SETTLEMENT FACTORS
A. Settlement evaluation and authority by the Participant shall be documented.
On cases exceeding the SIR, prior writ ten settlement au thority must be obtained from PRISM.
B. The settlement shall be reasonable in light of damages, injuries, liability, and any obligations to Medicare.
C. Settlements shall be effect ed in a timely manner, with consideration given to structures, statutory offers (Rule 68 or state statute) where applicable, and/or alternative dispute resolution.
D. Contributions from joint tortfeasors shall be considered.
E. Proper releases and dismissals s hall be secured and c opies provided to PRISM.
VII. LITIGATED FILES
A. Defense litigation pl an shall be in the file.
B. Defense attorney’s initial evaluation and budget shall be completed and in the file within sixty (60) days of assignment. If the billed amount of attorney’s fees and costs exceeds seventy-five (75) percent of the total budget, then the defense attorney shall provide an updated budget.
C. On litigated cases, def ense counsel shall also include PRISM on their mailing lists for copies of correspondence, reports, evaluations, interrogatory summaries, deposition summaries and medical summaries. Actual deposition transcripts, interrogatories, their answers to interrogatories and interim billings are not required.
Updated reports shall provide a summary of pertinent information based on the status of a case. Pertinent information includes, but is not limited to:
Identified experts – what their analysis has concluded, their credibility as a witness (both plaintiff and defense), and how their testimony will/will not influence the case potential.
Witness deposition summaries incl uding an evaluation of their 207
7 credibility as a witness and how their testimony will/will not influence the case potential.
A summary of relevant document s disclosed or obtained through discovery and an analysis of their impact on the case.
A summary of applicable case law and immunities.
Updated evaluation of damages including, but not limited to, billed and paid medical bills, estimated future medical expenses, past and future wage loss estimates, and general damage estimates.
Analysis of liability and potential se ttlement/verdict value as well as suggested next steps (MSJ, Motion to Dismiss, Mediation, etc.).
D. The defense attorney shall make pro per follow-up requests for investigation.
E. There shall be timely recommendations from defense firms regarding expert retention, settlements, and trial preparation.
F. Defense costs shall be controlled by t he Participant. Depositions, retention of experts, expert costs, and other defense costs shall be approved by the Participant.
G. Litigation outcom e and total costs shall be documented.
H. There shall be timely notification to relevant employees and other parties regarding pending litigation.
No less than forty-five (45) days prior to trial, counsel shall provide a pre- trial report that discusses the following:
1. Case Summary
Plaintiff and any individual Defendants including counsel’s opinion as to how each will be viewed by a jury
List of claims
Summary of Facts
Expected percipient witness testimony
Expected Liability Expert Testimony
Summary of Critical Liability Issues
Summary of Special and G eneral Damages including
expected damage expert testimony
Summary of Punitive Damages and non-monetary relief
requested (if applicable)
Attorneys’ fees and costs estimate for claims that involve 208
8 the potential award of attorneys’ fees
2. Evaluation
Potential Verdict Value
Comparative Fault Analysis
Settlement Discussion summary
Probability of Defense Verdict
Throughout trial, a daily trial status update shall be provided to PRISM by defense counsel, the Participant, or the Third-Party Administrator. This can be informal, such as an email or voic email advising of the day’s activities, impressions of witnesse s, any impacting developments, and an update regarding the next day’s schedule.
I. Appropriate Dismissal Motions shal l be made for failure to meet the applicable jurisdictional statutes for timely serving a complaint, conducting discovery, or bringing a complaint to trial.
VIII. SUMMARY
The file shall be completely documented. Audits conducted by PRISM’s Auditor shall measure whether performance is consistent with these standards. 209
Adopted: June 4, 1999
Amended: October 1, 2004
Amended: June 19, 2008
MEMORA NDUM OF UNDERSTA NDING
PROPERTY PROGRAM
This Memorandum of Understanding is entered into by and between the Public Risk Innovation, Solutions, and Management (hereinafter referred to as " PRISM") and the participating members who are signatories to this Memorandum.
1. Joint Powers A greem ent. Except as is otherwise provided herein, all terms used herein shall be as defined in Article 1 of the Joint Powers Agreement Creating the Public Risk Innovation, Solutions, and Management (hereinafter referred to as "Agreement"), and all other provisions of the Agreement not in conflict with this Memorandum shall also be applicable.
2. Program Committe e. There is hereby established a Property Program Committee (hereinafter referred to as "Property Committee" or “Committee”) and, except as otherwise provided herein, said Committee shall have full authority to determine all matters affecting the members including, but not limited to, approval of new members and premium/rate setting and establishment of policies regarding data submission and provisions for notice of withdrawal, as long as such policies are not in conflict with the Joint Powers Agreement.
The Property Committee shall consist of eleven (11) voting members and two (2) alternates. The Executive Committee of PRISM shall appoint the Committee members, to be selected from members in the Program as follows: Seven (7) of the C ommittee members are to be appointed from the member s who make up the top fourteen (14) members according to the amount of annual property premium paid (“Large Members”).
Two (2) of the Committee members are to be appointed from those remaining members not within the top fourteen (14) members (“Smaller Members”). One (1) of the members may be appointed from any member (“At Large”). The remaining seat shall be designated for a Public Entity member. If there are no Public Entity nominees or not enough members available from a category (Large, Smaller, At Large), the Executive Committee shall make the appointment from members participating in the Program without regard to category.
The two (2) alternates may be appointed from any member.
The terms of the members of the Committee shall be for two (2) years, except for the Public Entity representative and the alternate representatives whose terms shall be for one (1) year. The expiration dates of the two-year appointments shall be staggered so that terms of no more than five (5) members will expire at any one time. The Committee will annually, at its first meeting of the calendar year, select its officers, c onsisting of a Chair and Vice Chair.
The Committee, when necessary to fulfill the purposes of this Memorandum, shall meet on the call of the Chair of the Committee as provided in Article 12 of the Agreement and Article VI of the Bylaws of PRISM (hereinafter referred to as the “Bylaws”).
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Adopted: June 4, 1999
Amended: October 1, 2004
Amended: June 19, 2008
A majority of the members of the Committee shall constitute a quorum for the transaction of business. Except as otherwise provided herein, all actions of the Property Committee shall require the affirmative vote of a majority of the members of the Committee. Any meeting of the Committee shall be subject to the applicable provisions of Government Code § 54950 et seq., commonly known as the “Brown Act.”
3. Pre miums. The participating members, in accordance with the provisions of Article 14 of the Agreement, shall be assessed an annual premium for the purpose of funding the Property Program. Annual premium contributions, including administrative costs associated with the Program shall be established by the Property Committee.
4. Cost Allocation. Each member’s share of annual premium shall be determined by the Property Committee; however, the Committee may delegate any or all of this authority as it deems appropriate.
5. Application to the Program. All applications to join the Property Program will be evaluated and subject to approval by the Committee and the underwriter. Any entity, which makes application to become a participating member of the Program, who is not already a participating member in PRISM must also be approved in accordance with the provisions of Article 19 of the Agreement.
New members may be added to the Program during the term of the coverage year on a pro-rata basis.
6. Withdrawal and/or Cancellation From the Program. Withdrawal of a member from the Program shall be in accordance with the withdrawal provisions of Article 20 or 21 of the Agreement.
7. Late Payments. All provisions for payments shall be in accordance with the Invoicing and Payment Policy adopted by the Board of Directors. Notwithstanding any other provision to the contrary regarding late payment of invoices or cancellation from a Program, at the discretion of the Executive Committee, any member that fails to pay an invoice when due may be given a ten (10) day written notice of cancellation.
8. Resolution of Disputes. Any question or dispute with respect to the rights and obligations of the parties to this M emorandum shall be determined in accordance with Article 31 of the Agreement, Dispute Resolution.
9. Amendment. This Memorandum may be amended by a majority vote of the Property Committee, upon ninety (90) days advance written notice to the members and county counsels. Each member shall approve of any amendment by signature on the Memorandum by a member ’s representative who shall have authority to execute this Memorandum. Should a member of the Program fail to execute any amendment to this Memorandum within the time provided by the Committee, the member will be deemed to have withdrawn from the Program on the next annual renewal date.
211
Adopted: June 4, 1999
Amended: October 1, 2004
Amended: June 19, 2008
6/19/2008
10. Complete Agreement. Except as otherwise provided herein, this Memorandum constitutes the full and complete agreement of the members.
11. Severability. Should any provision of this Memorandum be judicially determined to be void or unenforceable, such determination shall not affect any remaining provision.
12. Effective Date of A greem ent. This Memorandum shall become effective on the date of coverage for the member or upon approval by the Property Committee of any amendment, whichever is later.
13. Execution in Counterparts . This Memorandum may be executed in several counterparts, each of which shall be an original, all of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Memorandum as of the date set forth below.
Dated Public Risk Innovation, Solutions, and Management
Dated Member Entity: x 212
MEMORANDUM
CITY OF CHINO
PUBLIC WORKS DEPARTMENT
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TO: LINDA REICH, CITY MANAGER
FROM: HYE JIN LEE, DIRECTOR OF PUBLIC WORKS
SUBJECT
..titl e
Approve the Consolidation, Amendment, and Reconciliation of Lewis Companies Construction Credit Reimbursement Agreements for Circulation Development Impact Fees (DIF). ..end
RECOMMENDATION
..recommendation
1) Approve the First Amendment to Contract No. 2025 -167, the Construction Credit and Reimbursement Agreement for The Preserve Circulation (Streets, Signals and Bridges) Development Impact Fee Program for projects constructed between 2004 and 2019, in the amount of $2,944,627.25, for a revised total contract amount not to exceed $38,076,155.62, between the City of Chino and Chino Development Corporation, a California corporation, and Chino Preserve Development Corporation, a California corporation; 2) accept the updated Circulation DIF Credit and Reimbursement Reconciliation for project -specific development projects in the amount of $10,720,544.70 through May 31, 2025; and 3) authorize the City Manager to execute all the necessary documents on behalf of the City. ..body
FISCAL IMPACT
There is no direct fiscal impact to the City.
Staff will conduct an annual reconciliation of Development Impact Fee (DIF) credits and will return to the City Council annually with an updated audit and reconciliation until th e outstanding obligations and balances under the applicable agreements have been fully resolved.
Public improvements financed through Community Facilities District No. 2003 -3 are not eligible for cash reimbursement under the DIF Program. Such improvements may only be recognized as DIF credits to the extent permitted under the applicable agreements and in a manner consistent with the City’s DIF program requirements.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
Financial Stability
Responsible Long-Range Planning
Public Service Excellence through Internal and External Partnerships
Revenue:
Expenditure:
Transfer In: Transfer Out:
213
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TITLE: APPROVE THE CONSOLIDATION, AMENDMENT, AND RECONCILIATION OF
LEWIS COMPANIES CONSTRUCTION CREDIT REIMBURSEMENT AGREEMENTS FOR CIRCULATION DEVELOPMENT IMPACT FEES (DIF).
PAGE: 2
BACKGROUND
In preparation for the upcoming Development Impact Fee (DIF) Nexus Study Update, staff is conducting a comprehensive review of all existing DIF -related agreements, including those associated with circulation, water, sewer, storm drain, and miscellaneous residential amenity improvements. This reconciliation is intended to identify and confirm any outstanding deferred DIF obligations, including remaining cr edit balances and reimbursement amounts owed to the developer. The purpose of this review is to ensure prior commitments are accurately documented and appropriately incorporated into the updated Nexus Study.
Please note, this City Council item is limited to the Circulation DIF Program. This program includes several existing agreements and obligations, including construction credit and reimbursement agreements, covenant agreements, and project -specific agreements as discussed below. Collectively, these agreements establish the framework for issuing DIF credits and reimbursements for eligible backbone infrastructure, such as arterial roadways, traffic signals, and related circulation improvements necessary to support growth within the City.
1. Validation of Additional Eligible Costs
Contract No 2025-167 (First Amendment)
The Preserve Development Agreement required the master developer, Lewis Management Corporation (Lewis), to construct major circulation improvements necessary to support long - term development within The Preserve. Accordingly, Lewis completed various eligible circulation improvements, including streets and traffic signals, that qualify for reimbursement or credit under the City’s Circulation DIF Program.
On November 19, 2024, the City and Lewis entered Contract No. 2025-167 as a comprehensive true-up and reconciliation of eligible Preserve circulation improvements constructed between 2004 and 2019. The agreement established the total validated cost of the eligible improvements, documented the Circulation DIF credits issued to date, and identified the remaining reimbursement and credit balance owed to the developer. The total not -to-exceed amount under the original agreement is $35,131,528.37.
Following execution of Contract No. 2025 -167, staf f continued reviewing historical documentation and coordinating with the developer to ensure that all eligible circulation improvements had been accurately captured. As part of that reconciliation effort, staff, in coordination with David Taussig & Associates, Inc. (DTA), identified an additional $2,944,627.25 in eligible circulation improvements that were not included in the original agreement. These improvements are associated with Tract Map Nos. 18840 and 19994 (Harvest Project), generally located at the northwest corner of Hellman Avenue and Pine Avenue, as well as the Block 4 development, generally located at the southwest corner of Hellman Avenue and Market Street.
The additional eligible costs include street, traffic signal, landscaping, parkway, and median improvements along Market Street, Discovery Park Avenue, East Preserve Loop, and Hellman Avenue. These costs were not included in the original reconciliation under Contract No. 2025 - 167, as they were associated with subsequent reimbursement request s submitted by Lewis through CFD Payment Request No. 61, CFD Payment Request No. 61 Supplement 1, and CFD 214
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TITLE: APPROVE THE CONSOLIDATION, AMENDMENT, AND RECONCILIATION OF
LEWIS COMPANIES CONSTRUCTION CREDIT REIMBURSEMENT AGREEMENTS FOR CIRCULATION DEVELOPMENT IMPACT FEES (DIF).
PAGE: 3
Payment Request No. 62. The timing of these CFD reimbursement requests did not align with the initial reconciliation process, and therefore, the costs were not available for inclusion at that time.
Below is a summary of the Validated Costs:
Description Amount
Original Validated Costs $35,131,528.37
Total Additional Eligible Costs $ 2,944,627.25
Revised Total Validated Costs $38,076,155.62
As a result of this reconciliation, Contract No. 2025 -167 must be amended to incorporate the additional validated costs. The First Amendment increases the total validated cost under the agreement from $35,131,528.37 to $38,076,155.62.
Additionally, under the reconciled totals reflected in Contract No. 2025 -167, Lewis received $4,000,000 in cash reimbursement in December 2024 and $28,527,475.23 in Circulation DIF credits toward eligible circulation improvement costs. After application of those reimbursemen ts and credits to the total validated cost of the eligible improvements, a remaining credit/reimbursement balance of $5,548,680.39 is still owed to the developer, as summarized below.
Description Amount
Revised Total Validated Costs $38,076,155.62
Circulation DIF Credits ($28,527,475.23)
Cash Reimbursement ($ 4,000,000.00)
Remaining Balance $ 5,548,680.39
2. Circulation DIF Credit Reconciliation
Project Specific Agreements (2020 through Present)
In addition to Contract No. 2025-167, the City has executed several project -specific Construction Credit and Reimbursement Agreements for Preserve circulation improvements completed from 2020 through the present. These agreements document additional eligible circulation infrastructure associated with specific tracts and development phases. Collectively, these agreements account for $10,720,544.70 in additional Circulation DIF credits issued to the developer through May 31, 2025.
Contract No. Tract No. Project Description DIF Credits
2022-029 18480 Harvest (for Pine) $ 5,326,638.73
2022-163 16420-3 Commercial Town Center $ 2,154,012.17
2022-163 16420-3 Homecoming Phase 5 $ 1,070,696.00
2023-249 16420-4 Block 9 $ 1,340,967.46
2024-277 16420-5 Block 3A $ 635,628.00
2026-209 16420-6 Block 11 $ 192,602.34
Total $10,720,544.70
215
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TITLE: APPROVE THE CONSOLIDATION, AMENDMENT, AND RECONCILIATION OF
LEWIS COMPANIES CONSTRUCTION CREDIT REIMBURSEMENT AGREEMENTS FOR CIRCULATION DEVELOPMENT IMPACT FEES (DIF).
PAGE: 4
3. Covenant Agreement Reconciliation
As part of staff’s broader reconciliation of Preserve-related Circulation DIF obligations, staff also reviewed previously executed Covenant Agreements associated with prepaid DIF obligations for certain residential developments along Pine Avenue within The Preserve.
These agreements were established to support the ultimate design and construction of Pine Avenue. Lewis was originally conditioned to construct Pine Avenue from Euclid Avenue to Johnson Avenue under Tract Map No. 20161 as part of its development obligations. That requirement was subsequently removed through a development modification, and the City ultimately assumed responsibility for delivery of the project.
As a result, Lewis was required to prepay the applicable Circulation DIF to ensure funding would be available for the City to proceed with the improvements. These improvements include elevating the roadway profile wit h embankments on both the north and south sides, as well as improvements to the Euclid Avenue and Pine Avenue intersection to enhance safety and reduce congestion.
The prepaid DIF was collected through building permits associated with the Van Vliet development, generally located north of Pine Avenue, south of Bickmore Avenue, west of Rincon Meadows Avenue, and east of Mayhew Avenue, as well as the Block 4 development located at the southwest corner of Hellman Avenue and Market Street. Collectively, these developments generated a little over $7 million in prepaid Circulation DIF.
Because the developer prepaid the DIF, they are entitled to corresponding DIF credits in accordance with the terms of the Covenant Agreements.
As part of this reconciliation effor t, staff, in coordination with DTA conducted a comprehensive review of all Circulation DIF credits issued through May 31, 2025. The purpose of this review was to confirm that the appropriate fees were assessed and that all associated prepaid balances were properly applied.
Based on this analysis, staff identified the need to true-up the remaining prepaid fee balances to ensure that the City’s records accurately reflect the final reconciled credit amounts. Specifically, the proposed amendment acknowledges and reconciles the status of the following agreements:
Covenant Agreement for Prepayment of Circulation DIF related to Tract Map No. 20161 (Van Vliet), dated July 21, 2020; and
Covenant Agreement for Prepayment of Circulation DIF related to Tract Map No. 20164 (Block 4), dated July 21, 2020.
The reconciliation confirms that:
No remaining credit balance exists under the Block 4 Covenant Agreement; and A balance of $169,977.90 Circulation DIF credits remain under the Tract 20161 Covenant Agreement, which will be applied toward the remaining 32 units within that tract moving into the future.
216
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TITLE: APPROVE THE CONSOLIDATION, AMENDMENT, AND RECONCILIATION OF
LEWIS COMPANIES CONSTRUCTION CREDIT REIMBURSEMENT AGREEMENTS FOR CIRCULATION DEVELOPMENT IMPACT FEES (DIF).
PAGE: 5
This reconciliation does not create any new credit or reimbursement obligation. Rather, it formally documents the remaining prepaid balance held under the existi ng agreements and confirms the amount to be applied to future building permits.
ISSUES/ANALYSIS
In addition to reconciling the various credit, reimbursement, and covenant agreements, staff and DTA conducted a detailed review of historical fee applicatio n records to verify that all DIFs, across all fee categories, were assessed using the appropriate land use categories and fee schedules in effect at the time each fee was paid or credited.
Staff’s analysis also includes fee categories for which Lewis is re sponsible for direct payment, including Law Enforcement, Fire Suppression, Congestion Management Program (CMP), Administrative, and General Facilities fees. These categories represent obligations for which Lewis is required to remit payment, and for which no DIF credits or reimbursements are permitted under the applicable ordinances, nexus methodology, and governing agreements.
Based on staff’s audit, Lewis owed the City $160,206 in Administrative fees, $11,696 in Police DIF, and $2,091 in Fire DIF; these a mounts have been invoiced and paid. The review also determined that Lewis is entitled to a refund of $309,567 in Congestion Management Program (CMP) fees and $2,710 in General Facilities fees.
Staff is in the process of issuing the refunds, which will requ ire a corresponding accounting adjustment to Community Facilities District (CFD) No. 2003 -3, as these fees were previously satisfied through CFD bond proceeds. Staff will coordinate with the City’s CFD consultant, Webb & Associates, to ensure the adjustmen t is implemented in a legally compliant and fiscally defensible manner, and that no duplication of funding occurs.
Therefore, staff recommends that the City Council take the following actions:
1. Approve the First Amendment to the Construction Credit and Reimbursement Agreement for The Preserve Circulation (Streets, Signals & Bridges) DIF Program to incorporate the additional eligible circulation improvements and update the corresponding credit and reimbursement balances; and
2. Approve the Circulation DIF Credit Reconciliation through May 31, 2025, for the project - specific agreements identified above.
Approval of these actions will finalize the City’s reconciliation of Preserve Circulation DIF obligations, bring all related agreements current, improve the accuracy and defensibility of the City’s DIF records, and provide a reliable foundation as staff moves forward with the upcoming DIF Nexus Study Update. This effort also establishes a clean basel ine for future administration.
Staff anticipates returning in September with an annual reconciliation item to true up all Circulation DIF credits and reimbursements for Fiscal Year 2025-26.
Attachment - Rev Circulation DIF Credit Reconciliation and Amendment
217
Contract No.:
Approved:
CIRCULATION DIF CREDIT RECONCILIATION THROUGH MAY 31, 2025 FOR THE FOLLOWING AGREEMENTS:
1. CONTRACT NO 2025-167
2. CONTRACT NO. 2022-029 Tr 18480 (Harvest (for Pine)
3. CONTRACT NO. 2022-163 Tr 16420-3 (Commercial Town Center)
4. CONTRACT NO. 2022-163 Tr 16420-3 (Homecoming Phase 5)
5. CONTRACT NO. 2023-249 Tr 16420-4 (Block 9 – Independence)
6. CONTRACT NO. 2024-277 Tr 16420-5 (Block 3A)
7. CONTRACT NO. Tr 16420-6 (Club in Main Block 11)
AND
FIRST AMENDMENT TO CONSTRUCTION CREDIT AND REIMBURSEMENT AGREEMENT FOR
THE PRESERVE CIRCULATION (STREETS, SIGNALS AND BRIDGES) DEVELOPMENT IMPACT
FEE PROGRAM
(Circulation Projects 2004-2025)
THIS CIRCULATION DIF CREDIT RECONCILIATION (“ Reconciliation”) and FIRST
AMENDMENT TO CONSTRUCTION CREDIT AND REIMBURSEMENT AGREEMENT FOR THE
PRESERVE CIRCULATION (STREETS, SIGNALS AND BRIDGES) DEVELOPMENT IMPACT FEE PROGRAM (“Amendment No. 1 ”) is made and entered into thi s ___ day of ______________, 20__ (“Reconciliation Date”), by and between the CITY OF CHINO, a California municipal corporation (“City”) and CHINO DEVELOPMENT CORPORATION , a California corporation and CHINO PRESERVE DEVELOPMENT CORPORATION, a California Corporation (collectively, “Developer”). City and Developer are sometimes hereinafter referred to individually as " Party" and jointly as " Parties". All capitalized terms used and not defined herein, shall have that definition ascribed to it in the Contract 2025-167 (defined below).
RECITALS
WHEREAS, City and D eveloper entered into that certain Contract No. 2025 -167 entitled “Construction Credit and Reimbursement Agreement for the Preserve Circulation (Streets, Signals and Bridges) Development Impact Fee Program (Circulation Projects 2004 -2019)” on November 19, 2024 218
(the “ Contract 2025 -167”) whereby the C ity agreed to reimburse D eveloper for the design and construction of various Circulation Facilities from The Preserve Circulation DIF funds.
WHEREAS, Developer has completed the design and construction of additional circulation facilities under Contract 2025-167 as described in Section 1(a) below as the “ Additional Tracts 19994/18480 Circulation Facilities ”. For the purposes of this Reconciliation , all of those circulation improvements described in Contract 20 25-167 and the Additional Tracts 19994/18480 Circulation Facilities are collectively referred to as the “Contract 2025-167 Circulation DIF Improvements”. All of the Contract 2025-167 Circulation DIF Improvements have been completed and accepted by the City for which Circulation DIF Credits in the total amount of $ 38,076,155.62 were provided to Developer under Contract 2025-167 as identified in Exhibit B attached hereto.
WHEREAS, City and Developer subsequently entered into the following additional contracts for the design and construction of additional circulation improvements required within The Preserve Specific Plan by the Preserve Development Agreement No. 2004 -073 for the Developer Properties covered by these additional contracts (the “Additional Circulation DIF Agreements”):
CONTRACT NO. 2022-029 Tr 18480 (Harvest (for Pine)
CONTRACT NO. 2022-163 Tr 16420-3 (Commercial Town Center)
CONTRACT NO. 2022-163 Tr 16420-3 (Homecoming Phase 5)
CONTRACT NO. 2023-249 Tr 16420-4 (Block 9 – Independence)
CONTRACT NO. 2024-277 Tr 16420-5 (Block 3A)
CONTRACT NO. Tr 16420-6 (Club in Main Block 11)
WHEREAS, all of the circulation improvements required under the Additional Circulation DIF Agreements (the “Additional Circulation DIF Improvements”) have been completed and accepted by the Cit y for which Circulation DIF Credits in the total amount of $10,720,544.70 were provided to Developer as identified in Exhibit B attached hereto.
WHEREAS, pursuant to Section 4 of the Contract 2025-167, C ity and Developer met fo r the purpose of ascertaining Credits to the Circulation DIFs issued by City to the Developer after the Effective Dates of the Contract 2025 -167 and the Additional Circulation DIF Agr eements for Developer's Properties, the amount of any cash reimbursements made to Developer, and remaining amount of the Circulation DIFs held by the City through and including May 31, 2025.
TERMS
NOW, THEREFORE, the Parties agree as follows:
1. AMENDMENT AND RECONCILIATION.
(a) Amendment to Contract 2025-167/Additional Tracts 19994/18480 Circulation Facilities.
Between the Effective Date and May 31, 2025, DEVELOPER has completed all work 219
required in connection with the design and construction of certain additional Circulation Facilities in Tract 19994 and Tract 18480 of Developer’s Properties (collectively the “Additional Tracts 19994/18480 Circulation Facilities”) at the following additional DIF Costs: Tract 18840 $67,970.29 ; Tract 19994 $2,876,656.96 . Exhibit A to the Contract 2025-167 is amended by adding page “A-4” attached hereto , which identifies the Additional Tracts 19994/18480 Circulation Facilities and the Circulation DIF Credit amounts for those Circulation Facilities. The Summary of Improvements in the Contract 2025-167 is amended to include the Additional Tracts 19994/18480 Circulation Facilities and Section 2.1 of the Contract 2025-167 is amended to increase the Total DIF Cost of the Project from $35,131,528.37 to $ 38,076,155.62.
(b) Circulation DIF Credit and Reimbursement Reconciliation . Exhibit B of the Contract 2025-167 is hereby deleted in its entirety and replaced with an updated Exhibit B attached hereto which shall constitute a revision to and update of the Circulation DIF Credit and Reimbursement Reconciliation and the Circulation DIF Credit and Reimbursement Amount in the Contract 2025 -167 from the Effective Date of the Contract 2025 -167 though and including May 31, 2025. Section 2.2 of the Contract 2025-167 is amended to increase the Circulation DIFs from $28,208,553.49 to $28,527,475.23 and Section 2.3 is amended to reduce the Remaining Circulation DIF Credit and Reimbursement Amount from $6,922,974.88 to $ 5,548,680.39 (the “Remaining Credit Balance ”) all as set forth in Exhibit B attached. The Remaining Credit Balance does not include the Remaining Tract 20161 Circulation DIF Credits set forth in Section 2 below.
(c) Updated DIF Credit Addendum. Exhibit C of the Contract 2025-167 is hereby deleted and replaced with an updated Exhibit C attached hereto.
2. COVENANT AGREEMENT RECONCILIATION. City and Developer are also parties to: (1) that certain Covenant Agreement for Prepayment of Development Impact Fees for Tract 20161 dated July 21, 2020 (the “Tract 20161 Covenant Agreement”), and (2) that certain Covenant Agreement for Prepayment of Development Impact Fees Credits for approved the Developer's application for PL 18-0012 (Master Site Approval) and PLI 8-0013, -0014, - 0015, -0016, -0017, -0097 and -0098 (Tentative Tract Map Nos. 20164, 20165, 20166, 20167, 20168, 20248 and 20249) dated July 21, 2020 (the “ Block 4 Covenant Agreement”) (together the “ Covenant Agreements ”). Capitalized terms used in this Section 2 are as defined in the Covenant Agreements . Developer has pre-paid Cash Amounts for the Circulation DIF for all of the dwelling units required by the Covenant Agreements. The Parties agree that there are no Cash Amounts for Circulation DIF remaining under the Block 4 Covena nt Agreement and that there is only $169,977.90 of Cash Amounts for Circulation DIF remaining under the Tract 20161 Covenant Agreement (“Remaining Tract 20161 Circulation Cash Amount”) from the Covenant Agreement as referenced in Exhibit B. The CITY hereby agrees to apply the Remaining Tract 20161 Circulation Cash Amounts for Circulation DIF for the remaining 32 units in Tract 20161.
3. WARRANTY RE ABSENCE OF DEFAULTS. D eveloper represents and warrants to City that, as of the Reconciliation Date, Developer is not in default of any material term of Contract 2025-167 or the Additional Circulation DIF Agreements (collectively the “Agreements”), and that there have been no events that, with the passing of time or the giving of notice, or both, would constitute a material default under the Agreement s by Developer.
220
4. CONTINUING EFFECT OF AGREEMENT. Except as amended by this Amendment , all provisions of the Contract 2025-167 shall remain unchanged and in full force and effect.
5. COUNTERPARTS. This Reconciliation and Amendment may be executed in multiple identical counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
221
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed as of the day and year first above written.
DEVELOPER CITY
CHINO DEVELOPMENT CORPORATION, a
California corporation
CITY OF CHINO, a municipal corporation
_________________________________
Bryan Goodman
Its: ____________________
_________________________________
Linda Reich
City Manager
CHINO PRESERVE DEVELOPMENT
CORPORATION, a California corporation
ATTEST:
_________________________________
Bryan Goodman
Its: ____________________
_________________________________
Natalie Gonzaga
City Clerk
APPROVED AS TO CONTENT:
_________________________________
Hye Jin Lee
Director of Public Works
APPROVED AS TO FORM:
_________________________________
Fred Galante
City Attorney
WBF:aa Z:\Legal\PROJECT DEV - CALIFORNIA\Chino - The Preserve G2182\DIF Fees\1DIF Agmt Amendments\Drafts\First Amendment Street DIF Cont Credit Reimbmt Agmt (11-25-25) v3.docx
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EXHIBIT A
Page A-4
Additional Street Improvements Added to Contract
#2025-167
Project -Tract #
Additional
Costs
Tr. 18840
$
67,970.29
Tr. 19994 $ 2,876,656.96
Total Additional Streets Costs
to be added to Contract 2025-167 $ 2,944,627.25
223
EXHIBIT B
Streets DIF Credit Summary as of 5/31/2025 Contract # 2025-167 Tract Builder Project Density Total Units Total Building Permits Total Credits 16420.1 LMC HCP Maintenance Bldg S qFt - (17,663.24) HCP Pool Bldg S qFt - (7,544.60) HCP R ec Center Bldg S qFt - (107,042.00) Homecoming- Ph 1 HDR 152 152 (984,200.00) Homecoming- Ph 2 HDR 189 189 (1,223,775.00) Homecoming- Ph 3 HDR 458 458 (2,965,550.00) 16519 J ohn Laing S ecret G arden MDR 84 84 (468,399.00) 16520 Lennar G arden G len I LDR 51 51 (447,216.00) 16521 K . Hovnanian T en Bloom R oad MDR 69 69 (375,659.00) 16522 Centex Canterburry G rove I LDR 48 48 (423,328.00) 16523 S hea Iris LDR 61 61 (526,242.00) 17148 S tandard Pacific Hidden Hollow MDR 81 81 (586,183.00) 17149 S tandard Pacific S hady Lane MDR 60 60 (428,915.00) 17150 S hea E nchanted Forest LDR 55 55 (505,890.00) 17266 Pardee Candlewood LDR 64 64 (776,215.00) 17357 KB E vergreen MDR 58 58 (327,562.00) 17390 Brookfield Mulberry - Casita MDR 126 126 (760,141.00) 17514 Centex Citrus Commons HDR 118 118 (659,856.00) 17515 Centex Agave MDR 104 104 (588,020.00) 17571 Western National Affordable Apartments HDR 250 250 (1,801,250.00) 17574 Cal Atlantic Amelia (stark) MDR 110 110 (888,910.00) 17610 Centex Canterburry G rove II LDR 48 48 (441,504.00) 17611 KB Cantana MDR 21 21 (143,199.00) 17612 KB Ariatta MDR 42 42 (286,398.00) 17613 Lennar G arden G len II LDR 51 51 (469,098.00) 17616 S hea T etherwind MDR 162 162 (945,756.00) 17635 Woodside Homes Palisades LDR 79 79 (999,595.00) 18693 KB Lynbrook MDR 114 114 (777,366.00) 18778 K . Hovnanian S onata MDR 65 65 (443,235.00) 18890 William Lyon Laurel Lane (Deboer) MDR 70 70 (558,530.00) 19749 7 E leven Mill Creek - G as S tation S qFt - - (47,169.10) Boos Development Mill Creek - J iffy Lube S qFt - - (61,199.27) DL Pine Mill Creek - Car Wash S qFt - - (77,098.12) 19980 LMC Homecoming- Ph 4 HDR 454 454 (3,520,316.00) 20102 T riPointe Lot 14/15 - Hazel HDR 20 133 133 (773,171.00) 20102.1 T riPointe Lot 14/15 - Ivy HDR 20 113 113 (657,043.00) Lot 14/15 - Ivy II AG Buffer HDR 20 21 21 (122,199.00) 20165 Century PA 5 G reenway LDR 79 79 (240,969.75) 20166 K B Home PA 4 Driftstone LDR 69 69 (210,467.25) 20167 Lennar Voyage PA1 LDR 60 60 (183,015.00) 20168 R ichmond American Parklin PA2&3 LDR 68 68 (207,417.00) 20169 Lewis-T BD T BD MDR D 26 - - 20170 R ichmond American PA-3 Liberty - G ardenside MDR D 80 80 (244,020.00) 20171 T riPointe PA-2/8/9 Bungalow - Delia MDR A 123 123 (250,507.95) 20172 Pulte PA-4 - Monarch MDR D 76 76 (231,819.00) 20173 Beazer PA-6/7 Z innia MDR A 149 143 (291,240.95) 20231 Lennar Lot 11 - Morning S un HDR 20 106 106 (616,814.00) 20232 William Lyon Lot 11 - Verbena HDR 20 70 70 (407,330.00) 20248 Lennar Voyage PA6&7 LDR 56 56 (170,814.00) 20249 R ichmond American Parklin PA8&9 LDR 56 56 (170,814.00) 20270 R ichmond American PA-5 Liberty - G ardenside MDR D 36 36 (109,809.00) Totals 4,565 4,533 (28,527,475.23)
Contract #2025-167 Credits T otal excludes: T otal S treets DIF Credits 2025-167 to 5/31/25 4,533 28,527,475.23 Projects covered under other Contracts T otal S treets DIF Credits Additional Contracts:
2022-029, 2022-163, 2023-249, 2024-277 2022-029, 2022-163, 2023-249, 2024-277 and T ract 16420-6 projects and T ract 16420-6 projects to 5/31/25 1,061 10,720,544.70 T otal also excludes S treets Cash DIF prepayments T otal S treets Cash DIF Prepayments used to 5/31/25 - 4,291,660.10 per Covenant Agreements T r 20161 & 20164 T otal S treets DIF Credits & Cash Prepayments to 5/31/25 5,594 43,539,680.03 totaling $4,461,637.70 less used to date $4,291,660.10
leaves balance $169,977.60 for 32 units in T r 20161
Totals Thru 05/31/2025
224
Transportation DIF Credit Summary
Existing
Contracts
Tract Map No. Development Allocated Credits
2022-029 18480 Harvest (for Pine) $ 5,326,638.73 2022-163 16420-3 Commercial Town Center $ 2,154,012.17 " " Homecoming Ph 5 $ 1,070,696.00
2023-249 16420-4 Block 9 - Independence $ 1,340,967.46 2024-277 16420-5 Block 3A $ 635,628.00
16420-6 Club on Main Block 11 $ 192,602.34
Subtotal
$ 10,720,544.70
Contract #2025-167 DIF Agreement (Projects Constructed from 2004-2019)
$ 38,076,155.62
Total DIF Credits Issued to Developer (as of May 31, 2025) $ 48,796,700.32
Contract 2025-167 Validated Costs (Projects 2004-2019) $ 38,076,155.62 Allocated DIF Credits Proposed DIF Agreement $ (28,527,475.23) Cash paid 12/2024 $ (4,000,000.00)
Remaining Credit Balance $ 5,548,680.39
225
EXHIBIT C
DIF CREDIT ADDENDUM
ADDENDUM NO. 1
(Assignment of Credit)
❖ DIF Credit and Reimbursement Summary:
Total Credit Amount Credits Applied Balance
Circulation DIF $ 38,076,155.62
($32,527,475.23) $5,548,680.39
Balance Credits Assigned Balance Forward
Assigned DIF Credit $
Chino Preserve Development Corporation is hereby transferring DIF Credit in the amount of $_____________________ to:
❖ Assignee: __________________________________
❖ Credit Transfer Amount $_______________
❖ Remaining Credit: $_______________
"Any transfer or assignment of credits or reimbursement rights acknowledged in this Addendum shall be made in accordance with City procedures, on a form approved by and acknowledged by the City. All parties to this Addendum agree that City will have no obligation to recognize or honor an assignment or transfer that does not comply with the terms of this Addendum."
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MEMORANDUM
CITY OF CHINO
ADMINISTRATION DEPARTMENT
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TO: LINDA REICH, CITY MANAGER
FROM: FRED GALANTE, CITY ATTORNEY
SUBJECT
..titl e
Purchase of Real Property at 13272 6th Street.
..end
RECOMMENDATION
..recommendation
1) Adopt Resolution 2026 -026, authorizing the Purchase and Sale of Real Property and Joint Escrow Instructions (“Purchase Agreement”) to acquire a property at 13272 6 th Street (“Property”) from Terri Gillette, as Successor Trustee of the Sturzenegger Family Trust, and Kent H. Cheng, as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 Trust (jointly the “Owner”) in the amount of $2,500,000, including $11,000 for fees and other costs related to the sale; 2) appropriate $2,511,000 from the General Fund balance; and 3) authorize the City Manager to execute all necessary documents.
..body
FISCAL IMPACT
The acquisition was not previously anticipated and therefore not included in the FY 2025 -26 Adopted Budget. Approval of the Purchase Agreement will utilize the remaining $1.8 million FY 2025-26 budget surplus and a portion of the $6.8 million available unassigned General Fund balance to cover the purchase in the amount of (i) the purchase price of $2,500,000, (ii) costs to conduct due diligence estimated at approximately $6,000, plus (iii) escrow fees and costs not t o exceed $5,000. The City is also exploring other alternative funding sources to reimburse the General Fund.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
Positive City Image
Responsible Long-Range Planning
Revenue:
Expenditure: 1009020-48000-MS267
Transfer In: Transfer Out:
227
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TITLE: PURCHASE OF REAL PROPERTY AT 13272 6TH STREET.
PAGE: 2
BACKGROUND
The Property at 13272 6 th Street (APN 1020 -282-12) is directly across from the Chino Civic Center. The Property consists of approximately 2.38 acres and is improved with a 70+ year old commercial building of approximately 67,000+ square feet, which is not worth renovating.
City Staff has confirmed by a Comparative Analysis issued by Doverspike & Associates, Inc. (“Doverspike”) dated November 11, 2025, comparing appraisal reports issued by Doverspike and Micheal Freudenthal & Associates that the Property is worth the Owner’s asking price of $2,500,000.
ISSUES/ANALYSIS
With City Council approval, the Property may be repurposed for public use in the future.
Purchase Agreement Terms: City and Owner have negotiated the Purchase Agreement, which contains the following terms.
Purchase Price: $2,500,000
Deposit: $60,000
Escrow: Commonwealth Land Title Insurance Company
Title Insurance:
Insurer: Commonwealth Land Title Insurance Company
Title Policy: An ALTA (non -extended) owner’s title policy to be issued to City closing with exceptions approved by City.
Due Diligence Period: 90 days from City’s receipt of all required information from Owner. If Phase I report recommends a Phase II report be obtained, the due diligence period will be extended to 10 days after receipt of the Phase II report. City is responsible for the cost of all due diligence work.
Close of Escrow: 7 business days after expiration of due diligence period. However, Owner has the right to extend the closing for up to 90 days if necessary for Owner to cause the t enant to vacate the Property.
Representations & Warranties: City is acquiring the Property in AS -IS condition except for limited representations and warranties by Owner. The representations and warranties survive for 2 years from the closing.
Costs: Owner shall pay the cost of the owner’s title insurance policy, cost of natural hazard disclosure report and ½ of all escrow charges. City shall pay ½ of escrow charges. City will also be responsible for the cost of all its due diligence work. Real estate t axes shall be prorated to closing and utilities shall be terminated by Owner prior to the closing.
Liquidated Damage Clause: City has the right to terminate the agreement with the Deposit returned if it disapproves the Property prior to the end of the Due Diligence Period. If the City elects not to purchase the Property after that period has expired, it may do so but will technically be in breach of the PSA and will forfeit the Deposit ($60,000) to the Owner pursuant to a liquidated damage clause, which means that the maximum liability for breach is $60,000.
Broker: City is represented by Paul Collins of Highland Partners Corp. (“ City’s Broker ”) pursuant to that certain Buyer-Broker Exclusive Representation Agreement dated May 22, 2025, as amended which provides that City’s Broker will only be paid by Owner. Accordingly, the 228
CITY COUNCIL MEETING DATE: APRIL 21, 2026
TITLE: PURCHASE OF REAL PROPERTY AT 13272 6TH STREET.
PAGE: 3
Purchase Agreement provides for Owner to pay City’s Broker an amount equal to 2% of the Purchase Price at the closing.
City Manager Authority: The Purchase Agreement provides auth ority for the City Manager to execute all documents to implement the transaction including authority to make modifications or amendments including extensions of time.
Planning Commission Approval:
At its meeting held on April 15, 2026, the Planning Commis sion, with a vote of 6 -0-1, found the acquisition as being in conformance with the general plan.
Attachment: Resolution 2026-026 including Purchase and Sale Agreement
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RESOLUTION NO. 2026-026
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO,
CALIFORNIA, APPROVING A PURCHASE AND SALE AGREEMENT
WITH TERRI GILLETTE, AS SUCCESSOR TRUSTEE OF THE
STURZENEGGER FAMILY TRUST AND KENT H. HENG, AS SUCCESSOR TRUSTEE OF THE LANGDON AND JO ANN TANNEHILL 1992 TRUST, TO ACQUIRE THAT CERTAIN PROPERTY LOCATED AT 13272 6TH STREET
IN THE CITY OF CHINO
WHEREAS, Terri Gillette, as Successor Trustee of the Sturzenegger Family Trust and Kent H. Heng, as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 Trust (“Owner”) owns that certain commercial real property located at 13272 6th Street in the City of Chino, (APN:
1020-282-12) which is improved with a 68,524 square foot commercial building, as depicted on Exhibit A (“Property”); and
WHEREAS, the Owner leases the Property to a wholly-owned subsidiary which operates a commercial cabinet manufacturing business on the Property (“Current Tenant”); and WHEREAS, Staff recommends the City acquire the Property free of the Current Tenant as the city deems appropriate for future uses adjacent to the Civic Center; and WHEREAS, Staff recommends the City Council approve the Agreement for Purchase and Sale of Real Property and Joint Escrow Instructions pursuant to which City will acquire the Property free of the Current Tenant for the purchase price of $2,500,000 (“Purchase Pr ice”) attached hereto as Exhibit B (“Purchase Agreement”), which Purchase Price includes an initial deposit required to be made by the City of $60,000 upon the opening of escrow; and WHEREAS, Staff has confirmed that the Purchase Price is supported by comparable sales prices of commercial property in the area of the Property; and WHEREAS, Staff will continue to perform its due diligence investigation of the Property after opening of escrow and following Owner’s delivery of all reports, surveys, environmental assessments, engineering reports and other documents material to the Property per the terms of the Purchase Agreement; and
WHEREAS, Section 65402 of the Government Code requires that the Planning Commission report to the City Council as to whether the acquisition of real property conforms with the City of Chino General Plan; and
WHEREAS, on April 15 , 202 6, the Planning Commission of the City of Chino duly considered the proposed acquisition and determined that the proposed acquisition of the Property at 13272 6th Street, Chino is in conformance with the General Plan.
NOW THE REFORE, THE CITY COUNCIL OF THE CITY OF CHINO, CALIFORNIA, HEREBY RESOLVES AS FOLLOWS:
SECTION 1. The foregoing recitals are hereby incorporated and adopted as the findings of the City Council.
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SECTION 2. That the City Council hereby approves the purchase of the Property located at 13272 6th Street in the amount of $2,500,000 pursuant to the Purchase Agreement plus the cost for due diligence (estimated at $6,000) and escrow and closing costs not to exceed $5,000.
SECTION 3. The City Manager or designee is hereby authorized and directed to proceed with the acquisition of the Property pursuant to the Purchase Agreement and to execute all documents on behalf of the City, including execution of all related escrow, closing, and similar documents necessary to finalize the acquisition pursuant to the Purchase Agreement.
SECTION 4. The City Clerk shall certify to the passage and adoption of this resolution, and the same shall thereupon take effect and be in force.
PASSED, APPROVED, AND ADOPTED THIS 21st DAY OF APRIL 2026.
______________________________
Eunice M. Ulloa, Mayor
ATTEST:
_____________________________
Natalie Gonzaga, City Clerk
STATE OF CALIFORNIA }
COUNTY OF SAN BERNARDINO } ss
CITY OF CHINO }
I, Natalie Gonzaga, City Clerk, City of Chino, California do hereby certify that the foregoing Resolution No. 2026-026 was duly adopted by the City Council of the City of Chino, at the regular meeting on the 21st day of April 2026 by the following vote:
AYES Councilmembers
NOES Councilmembers
ABSENT Councilmembers
ABSTAIN Councilmembers
Attachments
Exhibit A – Depiction of Property
Exhibit B – Purchase Agreement
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EXHIBIT A
DEPICTION OF PROPERTY
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01225.0020 2071915.61
AGREEMENT FOR PURCHASE AND SALEOF REAL PROPERTY AND JOINT ESCROW INSTRUCTIONSTHIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY AND JOINT ESCROW INSTRUCTIONS (Agreement) is made this ___ day of ________, 2026Agreement Dateby and between TERRI GILLETTE, as Successor Trustee of the Sturzenegger Family Trust and KENT H. CHENG, as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 Trust (jointly and severally Seller), and CITY OF CHINO, a California municipal corporation (Buyer).R E C I T A L S:A.Seller owns that certain improved real property (approximately 2.38 acres) located at 13272 6th Street, in the City of Chino, County of San Bernardino, State of California (APN1020-282-12) more particularly described in Exhibit A (Property) which is improved with a commercial building containing approximately 68,524Building. B.The Property is currently leased to Oak Design CorporationCurrent Tenantwhich operates a commercial cabinet manufacturing business on the Property which lease terminates on July 2, 2026 Current Lease.C.Seller desires to sell and Buyer desires to buy, the Property together upon the terms and conditions more particularly set forth herein.NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the parties hereto agree as follows:TERMS AND CONDITIONS:1. PURCHASE AND SALE OF PROPERTY.1.1 Purchase and Sale. Pursuant to the terms and conditions of this Agreement,Buyer hereby agrees to purchase from Seller and Seller agrees to sell to Buyer, the Property AS-IS but free and clear of the Current Lease pursuant to Section 1.3. Seller hereby agrees to continue to maintain the Property in its current operating condition until the Closing (as defined in Section 5.1) and not to extend the Current Lease during the term of this Agreement.1.2 Waiver and Release. The Purchase Price (as defined in Section 3.1) is all-inclusive of Sellerand Seller knowingly and voluntarily waives, releasesand discharges Buyer from liability and responsibility for or related to any right Seller has, has had or in the future may have to any claim for compensation or damages or liability of any kind, acquisition of the Property including, without limitation, severance damages, relocation expenses attributable to any lease; damage to or loss of improvements pertaining to realty, costs, interest, im whatsoever._________________ Seller 1.3 Termination of Current Lease. Seller agrees to not amend or extend the Current 233
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Lease. Seller shall promptly notify Buyer when the Current Tenant has vacated the Property. If Tenant does not vacate the Property as required by the Current Lease, Seller shall promptly and diligently pursue all applicable remedies to acquire possession of the Property free from the Current Tenant and terminating the Current Lease. Seller shall promptly notify Buyer in writing Tenant Vacation Noticediligently pursuing all applicable remedies to acquire possession of the Property from the Current Tenant and terminating the Current Lease, Seller shall have the right to extend the Closing Date (as defined in Section 5.1) for a period of up to ninety (90) days upon written notice to Buyer and Escrow. 2. OPENING OF ESCROW. Within three (3) days after the execution of this Agreement by both Buyer and Seller, the parties shall open an escrow (Escrow) with by causing an executed copy of this Agreement to be deposited with Kim Hernandez, Senior Escrow Officer, at Commonwealth Land Title Insurance Company, 4400 MacArthur Blvd., Ste. 800, Newport Beach, CA 92660 (702) 219-4846 [email protected] Escrow Officer(as defined in Section 2.2(aOpening of Escrow 3. PURCHASE PRICE; DEPOSIT; PAYMENT OF PURCHASE PRICE. 3.1 Purchase Price. The purchase price for the Property is Two Million Five Hundred Thousand Dollars ($2,500,000) Purchase Price 3.2 Payment of Purchase Price. a. Deposit. Concurrently with Opening of Escrow, Buyer shall deposit with Escrow Holder the sum of Sixty Thousand Dollars ($60,000DepositEscrow Holder for the benefit of the parties and applied against the Purchase Price at Closing (as defined in Section 5) or released, refunded or forfeited in accordance with the terms of this Agreement. b. Payment of Purchase Price. On or before 12:00 p.m. on the business day preceding the Closing Date or such earlier time as required by Escrow Holder in order to close Escrow on the Closing Date, Buyer shall deposit in Good Funds the Purchase Price less the Deposit plus any additional amounts to be paid by Buyer.3.3 Good Funds. Prior to Closing, aGood Funds shall mean a wire transfer of funds from a financial institution located in the State of California. All funds provided for herein shall be in U.S. Dollars. 4. CLOSING FUNDS AND DOCUMENTS REQUIRED FROM BUYER AND SELLER.4.1 Seller. Seller agrees that on or before 12:00 noon on the day preceding the Closing Date, Seller will deposit or cause to be deposited with Escrow Holder all of the following: a. The grant deed in the form attached as Exhibit B executed and acknowledged by Seller Grant Deed. b. Any documents reasonably required by the Title Company to issue the Title Policy. c. Seller has provided the Tenant Vacation Notice to Buyer. 234
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d. A Non-Foreign Affidavit as required by federal law. e. Such funds and other items and instruments as may be necessary in order for Escrow Holder or the Title Company to comply with this Agreement. 4.2 Buyer. Buyer agrees that on or before 12:00 noon on the day preceding the Closing Date, Buyer will deposit with Escrow Holder all additional funds and all of the following:a. The cash balance of the Purchase Price, together with Buyer's share of any Escrow closing costs and prorations in the amount determined by Escrow Holder, shall be delivered to Escrow Holder by Buyer in Good Funds. b. A Certificate of Acceptance in the form attached to the Grant Deed executed by Buyer Certificate of Acceptance c. A Preliminary Change of Ownership Statement completed in the manner required by San Bernardino PCOR d. Such other items and instruments as may be necessary in order for Escrow Holder to comply with this Agreement. 4.3 Recordation, Completion and Distribution of Documents. Escrow Holder shall confirm that any documents signed in counterpart are matching documents and shall combine the signature pages thereof so as to create fully executed documents. Escrow Holder will date all the documents with the date of Close of Escrow. Escrow Holder will cause the Grant Deed (with the Certificate of Acceptance attached) to be recorded when it can issue the Title Policy in accordance with Section 6.2, and hold for the account of Buyer and Seller, respectively, the funds and items described above to be delivered to Buyer and Seller, respectively, through Escrow, less costs, expenses and disbursements chargeable to the parties pursuant to this Agreement. 5. CLOSING DATE; EXTENSION OF CLOSING; TIME IS OF ESSENCE. 5.1 Closing Date. Close of Escrowbusiness days after Buyer has issued the Due Diligence Approval Notice. Seller has the right to extend the Close of Escrow pursuant to Section 1.3. 5.2 Definition of Closing. The terms Close of Escrow and/or Closing mean the time Grant Deed is recorded in the Official Records of the County Recorder of San BernardinoCounty, California. 5.3 Time is of Essence. The parties specifically agree that time is of the essence of this Agreement. 5.4 Possession. Upon the Close of Escrow, possession of the Property shall be delivered to Buyer free and clear of any persons or claimants including, but not limited to, the Current Tenant which must have vacated the Property leaving it in good condition and repair. 5.5 Authority of City Manager. By its execution of this Agreement, Buyer authorizes its City Manager or his/her designee (who has been designated by City Managerdelivered to Seller and Escrow Holder) shall have the authority to execute documents on behalf 235
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of Buyer including, but not limited to, issuing approvals, disapprovals, extensions and amendments as approved by the City Attorney. Any such approval, disapproval, extension or amendment executed by the City Manager or his/her designee shall be binding on Seller. 6. TITLE POLICY. 6.1 Approval of Title. (a) Preliminary Title Report; Disapproved Exceptions. Promptly following execution of this Agreement but in no event later than five (5) days following Opening of Escrow,a preliminary title report shall be issued by Commonwealth Land Title Insurance Company (Title Company), describing the state of title of the Property, together with legible copies of all exceptions and a map plotting all easements (Preliminary Title Report). Within ten (10) days after Buyer's receipt of the Preliminary Title Report, Buyer shall notify Seller in writing (Buyer's Title Notice) of Buyer's disapproval of any matters contained in the Preliminary Title ReportDisapproved Exceptions). (b) In the event Buyer delivers Buyer's Title Notice within said period, Seller shall have a period of seven (7) days after receipt of Buyer's Title Notice in which to notify Buyer of Seller's election to either (i) agree to attempt to remove the Disapproved Exceptions prior to the Close of Escrow; or (ii) decline to remove any such Disapproved Exceptions (Seller's Notice). If Seller notifies Buyer of its election to decline to remove the Disapproved Exceptions (or fails to notify Buyer), or if Seller is unable to remove the Disapproved Exceptions (other than any obligations of Buyer under Section 7), Buyer may elect either to terminate this Agreement and the Escrow or to accept title to the Property subject to the Disapproved Exception(s). Buyer shall exercise such election by delivery of written notice to Seller and Escrow Holder within five (5) days following the earlier of (i) the date of written advice from Seller that such Disapproved Exception(s) cannot be removed; or (ii) the date Seller declines to remove such Disapproved Exception(s). (c) Amendments/Supplement. Upon the issuance of any amendment or supplement to the Preliminary Title Report which adds additional exceptions, the foregoing right of review and approval shall also apply to said amendment or supplement; provided, however, that Buyer's initial period of review and approval or disapproval of any such additional exceptions shall be limited to seven (7) days following receipt of notice of such additional exceptions and limited only to such additional exceptions. (d) Monetary Liens are Disapproved Exceptions. Nothing to the contrary herein withstanding, Buyer shall be deemed to have automatically objected to all deeds of trust, mortgages, judgment liens, federal and state income tax liens, delinquent general and special real property taxes and assessments and similar monetary encumbrances affecting the Property(excluding any such items caused by Buyer) Monetary Liens, and Seller shall discharge any such Monetary Liens prior to or concurrently with the Close of Escrow except as otherwise specifically provided in this Agreement. (e) Current Lease is Disapproved Exception. Buyer has disapproved the Current Lease and Seller shall provide such documents as required by the Title Company so the Current Lease will not be shown as an exception and the Current Lease is a Disapproved Exception. 236
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6.2 . At the Close of Escrow, Escrow Holder shall furnish Buyer with an ALTA (non-extended) owner's policy of title i Title Policytitle to the Property vested in Buyer, containing only (i) non-delinquent real property taxes and assessments; (ii) exceptions approved by Buyer in accordance with Section 6.1; and (iii) exceptions caused solely by the acts of Buyer (collectively Permitted Exceptions. The Policy shall be paid by Seller. If Buyer elects to obtain an extended ALTA ownerBuyer shall be responsible to secure a survey at its own cost and expense which shall be delivered to the Title Company not less than ten (10) days prior to Closing and Buyer shall be responsible to pay for any additional premium. The Title Policy shall include extended coverage or endorsements that Buyer may request not be a condition to or otherwise delay the Closing unless the additional coverage is agreed to by Seller in writing with respect to a Disapproved Exception. 7. DUE DILIGENCE AND DUE DILIGENCE PERIOD. For a period of ninety (90) days following subject to extension as provided below Due Diligence PeriodBuyer shall have the right to perform anyinvestigations or inspections (including, but not limited to, review of title) as Buyer may reasonably determine in order to assess its willingness to purchase the Property pursuant to the terms of this Agreement. Notwithstanding the foregoing, if the Phase I report recommends that a Phase II report be obtained, the Due Diligence Period shall be extended until fifteen (15receipt of the Phase II report. Buyer shall have the right to exercise this extension by providing written notice of the exercise of the extension together with a copy of the Phase I report. Upon receipt of the Phase II report, Buyer shall promptly provide a copy of same to Seller. 7.1 Review and Approval of Documents and Materials. a. Materials. Within three (3) days of the Opening of Escrow, Seller shall deliver to Buyer any and all reports, surveys, environmental assessments, engineering reports and other documents which are material to the or of its agents, respecting the Property, including, but not limited to, the following (collectively Materials: All plans & specifications, construction documents, surveys, geological, soils, engineering, environmental, structural, mechanical, and safety inspections and reports and any other similar documents; NHD Report (pursuant to Section 7.4); A list of all capital improvements made to the Property by Seller; Copies of any governmental correspondence regarding zoning, use or code compliance issues affecting the Property; Copies of the Current Lease; and Copies of Contracts Seller is makes no representation to Buyer that it has any of the Materials above except the (i) Current Lease; and (ii) Contracts. 7.2 Buyer and Right of Entry. During the Due Diligence Period, Buyer and its agents may, at Buyerof the Property, including building inspections, environmental site assessments including a Phase 237
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I and an asbestos and lead paint investigation as desired by Buyer. If the Phase I report recommends a Phase II report, Buyer shall have the right to obtain same. Buyer may also conduct such investigations with regard to the Materials, zoning, building codes, and availability of permits and approvals for its intended construction and use of the Property, as it deems prudent in its sole discretion provided same do not unreasonably interfere with the Current Tenant or its operations. Prior to entry upon the Property, Buyer, and/or any of its consultants entering upon the Property,shall provide evidence to Seller that Buyer has procured and paid premiums for an all-risk public liability insurance policy written on a per occurrence and not claims made basis in a combined single limit of not less than ONE MILLION DOLLARS ($1,000,000) which insurance names Seller as additional insured. Buyer shall keep the Property free and clear of all mechanic liens, lis pendens and other liens arising out of the entry and work performed under this paragraph and shall maintain or assure maintenance of workers' compensation insurance (or state approved self-insurance) on all persons entering the Property in the amounts required by the State of California. Buyer shall promptly repair and restore the Property to the condition that it was in prior to those tests and inspections and shall indemnify, defend and hold Seller harmless from all damages, costs, loss, expense (including attorney fees) and liability resulting from Buyeractivities, acts, and omissions on the Property, including, but not limited to, mechanic liens. Agreement. At Closing, Buyer shall take the Property subject to any title exceptions caused by Buyer exercising this license to enter the Property and such shall be deemed a Permitted Exception. Prior to entry, Buyer shall submit written requests in writing to Seller for date, time, contact information and purpose for such entry and Buyer shall not unreasonably withhold access for Buyer to enter the Property. 7.3 Buyer. If Buyer approves the Property, Buyer shall deliver a Due Diligence Approval Noticeon or before the expiration of the Due Diligence Period. Buyer shall have the right at any time on or before the expiration of the Due Diligence Period (as may be extended) to terminate this determines in its sole and absolute discretion that the Property is not acceptable to Buyer. Buyer may exercise its right to terminate by delivering written notice of termination to Seller and Escrow Termination Noticed. Upon the timely delivery of such Termination Notice, (i) Escrow Holder shall promptly return the Deposit to Buyer; and (ii) this Agreement shall automatically terminate and be of no further force or effect and neither party shall have any further rights or obligations hereunder except for those obligations which expressly survive termination. 7.4 NHD Report. Within five (5) days of Opening of Escrow, Escrow shall order and deliver to Buyer and Seller a Natural Hazards Disclosure report from Disclosure Source for the Property NHD Report . The cost of the NHD Report shall be paid by Seller.8. CONDITIONS PRECEDENT TO CLOSE OF ESCROW. 8.1 Conditions to Buyer's Obligations. The obligations of Buyer under this Agreement are subject to the satisfaction or written waiver, in whole or in part, by Buyer of each of the following conditions precedent : (a) Title Company will issue the Title Policy as specified in Section 6.2. (b) Buyer has issued the Due Diligence Approval Notice in accordance with Section 7.3. 238
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(c) Seller has issued the Tenant Vacation Notice and provided written confirmation of termination of the Current Lease and that Current Tenant has vacated the Property to the Title Company and Buyer in a form satisfactory to the Title Company and Buyer. (d) Seller has terminated all the Contracts and provided written confirmation of same to Buyer. (e) Escrow Holder holds and will deliver to Buyer the instruments and funds, if any, accruing to Buyer pursuant to this Agreement. (f) Seller is not in default of its obligations under this Agreement. 8.2 Conditions to Seller's Obligations. The obligations of Seller under this Agreement are subject to the satisfaction or written waiver, in whole or in part, by Seller of the following conditions precedent : (a) Buyer has delivered the balance of the Purchase Price to Escrow Holder. (b) Escrow Holder holds and will deliver to Seller the instruments and funds accruing to Seller pursuant to this Agreement. (c) Buyer is not in default of its obligations under this Agreement. 9. REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to Buyer that, to knowledge, as of the Agreement Date and as of the Closing Date, that: a. This Agreement has been duly authorized and executed on behalf of Seller. As of the Opening of Escrow, this Agreement constitutes a valid and binding agreement, enforceable in accordance with its terms. b. Seller is not a party to any contract, agreement or commitment to sell, convey, assign, transfer, or otherwise dispose of any portion or portions of the Property. c. Seller represents that, except as provided in the Materials possession or control): (i) the Property is not in breach of any environmental laws; and (ii) the Property is free of any Hazardous Materials that would trigger response or remedial action under any environmental laws or any existing common law theory based on nuisance or strict liability. This warranty is limited to matters of which Seller has current actual knowledge, and Buyer acknowledges that Seller has not made (nor will make) any affirmative investigation or inquiry as to environmental issues affecting the Property in connection with this Agreement. As used in this Agreement, the term hazardous or toxic substances, material or waste or related materials, including any any applicable federal, state or local laws or regulations, including without limitation petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety 239
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of persons. d. There is no litigation pending, threatened against or by Seller or the Property which relates to, or if decided adversely, could have a material adverse effect upon, the Property (including condemnation or similar proceedings). e. Except as disclosed to Buyer by Seller as part of the Materials, the Property is not subject to any other Contracts and Seller has the right to terminate the Contracts prior to Closing. f. The Current Lease will terminate by its terms prior to the Closing and to deliver the Property to Buyer at Closing free of the Current Lease and the Current Tenant will have no right to claim any rights against the Property or Buyer. No representation, statement or warranty by Seller in this Agreement contains or will contain any untrue statements or omits, or will omit, a material fact necessary to make the statement of fact therein recited not misleading. The representations and warranties of Seller and any other representations and warranties of Seller contained elsewhere in this Agreement are true and correct on and as of the date of this Agreement and at Closing and shall survive the Closing, until the date which is twenty-four (24) months after the Closing ("Survival Date") without the necessity of a separate written certificate regarding the same, whereupon such representations and warranties shall be of no further force or effect. Actual knowledge shall not be deemed to exist merely by assertion by Buyer of a claim that any of the foregoing persons should have known of such facts or circumstances, if such person did not have actual knowledge thereof. The preceding notwithstanding, Seller shall promptly advise Buyer if Seller acquires any information following the Agreement Date which would make any of the representations and warranties set forth in this Section 9 above untrue; provided that it shall not be a breach of such representation or warranty if the information which renders the representation or warranty untrue was not known by Seller as of the Agreement Date. If Seller or Buyer acquires any information following the Agreement Date which would make any of the foregoing representations or ten (10) business days written notice to Seller after learning of such information, to terminate this Agreement by delivery of written notice to Seller and, in the event of such termination, all rights and obligations under this Agreement shall cease and the Deposit shall be promptly returned to Buyer; provided, however, if Buyer fails to give written notice of termination within ten (10) business days, then Buyer shall not have the right to terminate this Agreement nor receive the return of the Deposit as provided in this paragraph above based on such representation or warranty that becomes untrue. If, prior to the Closing Date, Buyer becomes aware of any facts that make any of the representations or warranties set forth in Section 8 untrue, but Buyer nevertheless elects to close escrow hereunder, then Buyer shall be deemed to have waived any claim against Seller based on such representation or warranty that Buyer knew was untrue as of the Closing Date. The provisions of the immediately preceding sentence shall survive the Close of Escrow. 10. ESCROW PROVISIONS. 10.1 Escrow Instructions. Sections 1 through 6, inclusive; 8, 10, 14, and 15 constitute the escrow instructions to Escrow Holder. If required by Escrow Holder, Buyer and Seller agree to execute Escrow Holder's standard escrow instructions, provided that the same are consistent with and do not conflict with the provisions of this Agreement. In the event of any such conflict, the provisions of this Agreement shall prevail. The terms and conditions in sections of this 240
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Agreement not specifically referenced above are additional matters for information of Escrow Holder, but about which Escrow Holder need not be concerned. Buyer and Seller will receive conflict with this Agreement, the general provisions will control as to the duties and obligations of Escrow Holder only. Buyer and Seller agree to execute additional instructions, documents and forms provide by Escrow Holder that are reasonably necessary to close Escrow. 10.2 General Escrow Provisions. Escrow Holder shall deliver the Title Policy to the Buyer and instruct the San Bernardino County Recorder to mail the Grant Deed to Buyer at the address set forth in Section 14 after recordation. All funds received in this Escrow shall be deposited in one or more general escrow accounts of the Escrow Holder with any bank doing business in San Bernardino County, California, and may be disbursed to any other general escrow account or accounts. All disbursements shall be according to that party's instructions. 10.3 Real Property Taxes; Utilities. a. Real Property Tax Prorations. Real property taxes shall not be delinquent and shall be prorated to Closing. b. Utilities. Buyer and Seller shall cause all utilities which are in the name of Seller to be transferred to the name of Buyer as of the Close of Escrow or as soon thereafter as practicable. Seller shall be entitled to retain (and receive a refund) for any and all utility deposits which are held by the utility company. c. No Rent Proration. As the Current Lease is to be terminated prior to Closing, there shall be no proration of any rent required under this Agreement. 10.4 Payment of Costs. a. Cost Allocation. Seller shall pay the costs for the Title Policy, the cost of NHD Report and one-half (1/2) of the escrow costs Buyer shall pay one-half (1/2) of the escrow costs . All other costs of Escrow not otherwise specifically allocated by this Agreement shall be apportioned between the parties in a manner consistent with the custom and usage of Escrow Holder for major commercial real estate transactions in San BernardinoCounty. NOTE: No documentary transfer taxes shall be paid or charged to Seller based on the exemption set forth in R&T Code Section 11922 as the Property is being transferred to a governmental agency. No recording fees for the Grant Deed shall be payable pursuant to Government Code Section 27383. b. Commission. Seller shall be charged with payment of the Commissions pursuant to Section 10.8. c. Closing Statement. At least two (2) days prior to the Closing Date, Escrow Holder shall furnish Buyer and Seller with a preliminary escrow closing statement which shall include each pstatement shall be approved in writing by the parties. As soon as reasonably possible following the Close of Escrow, Escrow Holder shall deliver a copy of the 241
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final Escrow closing statement to the parties. 10.5 Termination and Cancellation of Escrow. If Escrow fails to close as provided above, either party may elect to cancel this Escrow upon written notice to the other party and Escrow Holder. Cancellation of Escrow, as provided herein, shall be without prejudice to whatever legal rights Buyer or Seller may have against each other arising from the Escrow or this Agreement. 10.6 Information Report. Escrow Holder shall file and Buyer and Seller agree to cooperate with Escrow Holder and with each other in completing any report (Information Report) and/or other information required to be delivered to the Internal Revenue Service pursuant to Internal Revenue Code Section 6045(e) regarding the real estate sales transaction contemplated by this Agreement, including without limitation, Internal Revenue Service Form 1099-B as such may be hereinafter modified or amended by the Internal Revenue Service, or asmay be required pursuant to any regulation now or hereinafter promulgated by the Treasury Department with respect thereto. Buyer and Seller also agree that Buyer and Seller, their respective employees and attorneys, and escrow Holder and its employees, may disclose to the Internal Revenue Service, whether pursuant to such Information Report or otherwise, any information regarding this Agreement or the transactions contemplated herein as such party reasonably deems to be required to be disclosed to the Internal Revenue Service by such party pursuant to Internal Revenue Code Section 6045(e), and further agree that neither Buyer nor Seller shall seek to hold any such party liable for the disclosure to the Internal Revenue Service of any such information. 10.7 No Withholding as Foreign Seller. Seller represents and warrants to Buyer that Seller is not, and as of the Close of Escrow will not be, a foreign person within the meaning of Internal Revenue Code Section 1445 or an out-of-state seller under California Revenue and Tax Code Section 18805 and that it will deliver to Buyer on or before the Close of Escrow a non-foreign affidavit on Escrow Holder's standard form pursuant to Internal Revenue Code Section 1445(b)(2) and the Regulations promulgated thereunder and a California Form 590-RE. 10.8 Brokerage Commission. Seller and Buyer represent to each other that they have had no dealings with any broker or finder in connection with this Agreement or the transaction contemplated hereby except (i) Huang Wang of HW & Associates (Broker Lic. #01709495)represents Seller ("Seller's Broker"), and (ii) Paul Collins of Highland Partners Corp (Broker Lic. #01904030) represents Buyer's Broker"). Seller shall be responsible (i) for any commission that may be owed to Seller's Broker; and (ii) to pay Two Percent (2%) of the Purchase or person other than the Broker listed above are entitled to receive any broker's commissions or finder's fees or similar compensation in connection with any aspect of this transaction. It is agreed that if any claims for brokerage commissions or fees are ever made against Seller or above, all such claims shall be handled and paid by the party whose actions or alleged commitments form the basis of such claim. The party against whom the claim for such fees is made shall indemnify and defend and hold the other party harmless from any and all such claims or demands with respect to any brokerage fees or agent's commissions or other compensation asserted by any person, firm, or corporation in connection with this Agreement or the transactions contemplated herein. 11. INTENTIONALLY OMITTED. 242
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12. BREACH. A party shall only be in breach of this Agreement after written notice has been provided and such party has failed to cure such breach within ten (10) days of such notice; provided, however, if the party in breach has committed to attempt to cure and has commenced to cure and is diligently prosecuting such cure the breaching party shall have twenty (20) days to cure the issue. The parties shall execute an extension of Escrow in accordance with this provision. 13. LIQUIDATED DAMAGES. IF BUYER SHOULD DEFAULT UNDER THIS AGREEMENT, THEN BUYER AND SELLER AGREE THAT SELLER WILL INCUR DAMAGES BY REASON OF SUCH DEFAULT BY BUYER OR FAILURE OF ESCROW TO CLOSE ON OR BEFORE THE CLOSING DATE, WHICH DAMAGES SHALL BE IMPRACTICAL AND EXTREMELY DIFFICULT, IF NOT IMPOSSIBLE, TO ASCERTAIN. BUYER AND SELLER, IN A REASONABLE EFFORT TO ASCERTAIN WHAT SELLER'S DAMAGES WOULD BE IN THE EVENT OF SUCH DEFAULT BY BUYER HAVE AGREED BY PLACING THEIR INITIALS BELOW THAT THE DEPOSIT SHALL BE DEEMED TO CONSTITUTE A REASONABLE ESTIMATE OF SELLER'S DAMAGES UNDER THE PROVISIONS OF SECTION 1671 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. IN THE EVENT OF AND FOR SUCH DEFAULT BY BUYER, THE DEPOSIT (AS DEFINED IN SECTION 3.2.a.iii) SHALL BE SELLER'S SOLE MONETARY REMEDY THEREFOR, ALTHOUGH THE FOREGOING LIMITATION OF DAMAGES SHALL NOT APPLY TO ANY INDEMNIFICATION OBLIGATIONS OF BUYERUNDER SECTION 7.___________________ ___________________14. NOTICES.All notices required or permitted under this Agreement shall be in writing and shall be served on the parties at the addresses set forth below. Any such notices shall, unless otherwise provided herein, be given or served (i) by depositing the same in the United States mail, postage paid, certified and addressed to the party to be notified, with return receipt requested, (ii) by overnight delivery using a nationally recognized overnight courier, (iii) by personal delivery, or (iv) by email (provided the email was acknowledged as received by the recipient). Notice deposited in the mail in the manner hereinabove described shall be effective upon receipt or rejection of such notice. Notice given in any other manner shall be effective only if and when received (or rejected) by the party to be notified between the hours of 8:00 a.m. and 5:00 p.m. California time of any business day with delivery made after such hours to be deemed received the following business day.however, no notice of a change of address shall be effective until actual receipt of such notice.Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice. Notices given by counsel to the Buyer shall be deemed given by Buyer and notices given by counsel to the Seller shall be deemed given by Seller.To Buyer:City of Chino 13220 Central AveChino, CA 91710Attention: Dr. Linda Reich, City ManagerEmail:[email protected] a copy to: Aleshire & Wynder, LLP1 Park Plaza, Suite 1000Irvine, CA 92614Attention: Fred Galante, City Attorney 243
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Email: [email protected] With a copy to: Highland Partners Corp. Attn: Paul Collins 880 Apollo Street Suite 329 El Segundo, CA 90245 [email protected] To Seller: TERRI GILLETTE, Trustee KENT H. CHENG, Trustee 1499 Huntington Drive Suite 315 South Pasadena, CA 91030 [email protected] With a copy to: Huang Wang HW & Associates 1499 Huntington Drive Suite 315 South Pasadena, CA 91030 [email protected] To Escrow Holder: Commonwealth Land Title Insurance Company 4400 MacArthur Blvd. Suite 800 Newport Beach, CA 92660 Attn: Kim Hernandez, Senior Escrow Officer Email: [email protected] 15. ADDITIONAL BUSINESS TERMS. 15.1 No Marketing of Property. While this Agreement is in effect, Seller agrees that it will not market the Property to any other party in any manner. 15.2 No Impairing of Title. Until the Closing, Seller shall not do anything which would impair Seller's title to the Property. 15.3 Current Lease. While this Agreement is in effect, Seller shall not amend or extend the Current Lease or agree to allow the tenant to holdover under the Current Lease. 16. GENERAL PROVISIONS. 16.1 Assignment. Neither party shall have the right to assign this Agreement or any interest or right hereunder or under the Escrow without the prior written consent of the other party.Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of Buyer and Seller and their respective heirs, personal representatives, successors and assigns.16.2 . In any action between the parties hereto, seeking enforcement of any of the terms and provisions of this Agreement or the Escrow, or in connection with the Property, the prevailing party in such action shall be entitled, to have and to recover from the other party its reasonable attorneys' fees and other reasonable expenses in connection with such action or proceeding, in addition to its recoverable court costs. 244
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16.3 Interpretation; Governing Law. This Agreement shall be construed according to its fair meaning and as if prepared by both parties hereto. This Agreement shall be construed in accordance with the laws of the State of California in effect at the time of the execution of this Agreement. Titles and captions are for convenience only and shall not constitute a portion of this Agreement. As used in this Agreement, masculine, feminine or neuter gender and the singular or plural number shall each be deemed to include the others wherever and whenever the context so dictates. 16.4 No Waiver. No delay or omission by either party in exercising any right or power accruing upon the compliance or failure of performance by the other party under the provisions of this Agreement shall impair any such right or power or be construed to be a waiver thereof. A waiver by either party of a breach of any of the covenants, conditions or agreements hereof to be performed by the other party shall not be construed as a waiver of any succeeding breach of the same or other covenants, agreements, restrictions or conditions hereof. 16.5 Modifications. Any amendment or modification to this Agreement, in order to become effective, shall be made by written document executed by both parties. 16.6 Severability. If any term, provision, condition or covenant of this Agreement or the application thereof to any party or circumstances shall, to any extent, be held invalid or unenforceable, the remainder of this instrument, or the application of such term, provisions, condition or covenant to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 16.7 Merger. This Agreement and other documents incorporated herein by reference contain the entire understanding between the parties relating to the transaction contemplated hereby and all prior to contemporaneous agreements, understandings, representations and statements (including letters of intent), oral or written, are merged herein and shall be of no further force or effect. 16.8 Execution of Documents. The parties agree to execute such instructions to Title Company and such other instruments and to do such further acts as may be reasonably necessary to carry out the provisions of this Agreement. 16.9 Relationship of Parties. Notwithstanding anything to the contrary contained herein, this Agreement shall not be deemed or construed to make the parties hereto partners or joint venturers, or to render either party liable for any of the debts or obligations of the other, it being the intention of the parties to merely create the relationship of Seller and Buyer with respect to the Property to be conveyed as contemplated hereby. 16.10 No Personal Liability. No member, official, employee, agent or contractor of Buyer shall be personally liable to Seller in the event of any default or breach by Buyer or for any amount which may become due to Seller for any Buyer obligations under the terms of the Agreement. 16.11 Force Majeure. If either party is delayed or prevented from performing any act required in this Agreement by reason of any event beyond the reasonable control of either party, including without limitation, by labor disputes, pandemic, fire, unusual delay in deliveries, weather or acts of God, terrorism, delay in the issuance of permits or approvals, acts of governmental entities, unavoidable casualties or any other such causes beyond such p 245
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time herein fixed for completion of such obligation(s) shall be extended by the number of days that such party has been delayed. 16.12 Representation by Counsel. Each party hereto represents and agrees with each other that it has been represented by or had the opportunity to be represented by, independent counsel of its own choosing, and that it has had the full right and opportunity to consult with its respective attorney(s), that to the extent, if any, that it desired, it availed itself of this right and opportunity, that it or its authorized officers (as the case may be) have carefully read and fully understand this Agreement in its entirety and have had it fully respective counsel, that each is fully aware of the contents thereof and its meaning, intent and legal effect, and that it or its authorized officer (as the case may be) is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence.16.13 No Third-Party Beneficiaries. Except as otherwise expressly set forth herein, Seller and Buyer do not intend, and this Agreement shall not be construed, to create a third-party beneficiary status or interest in, nor give any third-party beneficiary rights or remedies to, any other person or entity not a Party to this Agreement. 16.14 Execution in Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one agreement binding on all parties hereto, notwithstanding that all parties are not signatories to the original or the same counterpart. 16.15 Electronic Execution. This Agreement may be electronically executed by the parties in accordance with the requirements of E-SIGN and UETA by such third-party providers such as DocuSign or AdobeSign. 16.16 Exhibits. Exhibits A and B are attached hereto and incorporated herein by reference. [SIGNATURES ON FOLLOWING PAGE] 246
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement for Purchase and Sale of Real Property and Joint Escrow Instructions as of the Agreement Date.Note: Sections 1.2 and 13 must be initialed by the parties as indicated.SELLER: BUYER: __________________________TERRI GILLETTE, as Successor Trustee of the Sturzenegger Family Trust __________________________KENT H. CHENG, as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 TrustAccepted and Agreed to:ESCROW HOLDER:COMMONWEALTH LAND TITLE INSURANCE COMPANYBy: _________________________ Kim Hernandez, Senior Escrow OfficerDated: ________________, 2026 CITY OF CHINO, a California municipal corporation By: ________________________ Dr. Linda Reich, City ManagerATTEST:___________________________Natalie Gonzaga, City Clerk APPROVED AS TO FORM:ALESHIRE & WYNDER, LLPBy: ________________________________ Fred Galante, City Attorney 247
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EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY That certain real property located in the City of Chino, County of San Bernardino, State of California legally described as follows: LOTS 1 TO 6, INCLUSIVE, AND 17 TO 24, INCLUSIVE, BLOCK 37, TOWN OF CHINO, IN THE CITY OF CHINO, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS SHOWN BY MAP ON FILE IN BOOK 4, PAGE 51 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. TOGETHER WITH VACATED ALLEY LYING BETWEEN LOTS 1 TO 6, INCLUSIVE, AND 19 TO 24, INCLUSIVE, AND VACATED ALLEY LYING BETWEEN LOTS 18 AND 19. 248
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EXHIBIT BGRANT DEEDRecording Requested By and When Recorded Return to:City of Chino 13220 Central AveChino, CA 91710Attention: City ClerkGRANT DEEDFOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged TERRI GILLETTE, as Successor Trustee of the Sturzenegger Family Trust and KENT H. CHENG, as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 Trust Grantorgrants to theCITY OF CHINO, a California municipal corporation (Granteeinterest in that certain real property in the City of Chino, County of San Bernardino, State of California, as more particularly described in Exhibit A attached hereto and incorporated by PropertyIN WITNESS WHEREOF, Grantor has caused this Grant Deed to be executed on its behalf as of the date written below.GRANTOR:__________, 2026______________________DONALD STURZENEGGER as Successor Trustee of the Donald Sturzenegger 1992 Trust _________________________LANGDON H. TANNEHILL as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 Trust APN. 1020-282-12Exempt from recording fees per Govt Code Section 27383THE UNDERSIGNED GRANTOR DECLARES that the documentary transfer tax (computer on full value) is not applicable pursuant to R&T Code Section 11922.
NOT TO BE EXECUTED UNTIL CLOSINGNOT TO BE EXECUTED UNTIL CLOSING 249
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CERTIFICATE OF ACCEPTANCE (California Government Code Section 27281) This is to certify that the interest in real property conveyed by that certain Grant Deed dated as of _____________, 2026, executed by TERRI GILLETTE, as Successor Trustee of the Sturzenegger Family Trust and KENT H. CHENG, as Successor Trustee of the Langdon and Jo Ann Tannehill 1992 Trust as Grantor, in favor of the CITY OF CHINO Granteeis accepted by the undersigned officer on behalf of Grantee and the Grantee consents to the recordation thereof by its duly authorized officer. Dated as of: _____________, 2026. CITY OF CHINO By: _________________________________ Dr. Linda Reich, City Manager NOT TO BE EXECUTED UNTIL CLOSING 250
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EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY That certain real property located in the City of Chino, County of San Bernardino, State of California, and is described as follows: LOTS 1 TO 6, INCLUSIVE, AND 17 TO 24, INCLUSIVE, BLOCK 37, TOWN OF CHINO, IN THE CITY OF CHINO, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS SHOWN BY MAP ON FILE IN BOOK 4, PAGE 51 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. TOGETHER WITH VACATED ALLEY LYING BETWEEN LOTS 1 TO 6, INCLUSIVE, AND 19 TO 24, INCLUSIVE, AND VACATED ALLEY LYING BETWEEN LOTS 18 AND 19. 251
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STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN BERNARDINO ) On _________________, 2026 before me, ___________________________, a notary public, personally appeared _______________________________________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. _________________________________________ Notary Public SEAL:
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy or validity of that document. 252