Saratoga Springs, New York just got a warning that should terrify every taxpayer in America. The city’s accounts commissioner issued a stark message: resolve ongoing civil rights lawsuits, or lose liability insurance entirely. Without coverage, every legal bill, every settlement, every attorney fee comes straight from the city budget—meaning your property taxes.
This isn’t about premium hikes or rate adjustments. We’re talking about total coverage withdrawal, forcing cities to self-insure against lawsuits that can run into millions. And Saratoga Springs isn’t alone—municipalities nationwide face the same risk as public entity insurers grow increasingly cautious about civil rights litigation exposure.
Here’s what happens when your city loses its insurance safety net.
Why Insurers Are Walking Away from Cities
Public entity liability insurance covers municipalities against lawsuits—civil rights claims, police misconduct cases, employment discrimination suits. These policies traditionally provided a financial buffer between litigation costs and taxpayer wallets. That buffer is cracking.
Saratoga Springs’ accounts commissioner warned city officials that unresolved civil rights lawsuits threaten their coverage entirely. Translation: the insurance company is watching, and if the city doesn’t settle or win these cases soon, the policy disappears.
Why the pressure? Civil rights litigation has exploded over the past decade. Between 2010-2020, federal civil rights cases increased 41% according to U.S. Courts data, with police misconduct and First Amendment violations leading the surge. Insurers are recalculating risk.
When a municipality faces multiple civil rights suits simultaneously, insurers see a pattern—not isolated incidents. That pattern signals systemic issues, which means future claims are likely. For insurers, that’s unsustainable risk. Their response? Drop coverage before the next verdict hits.
What Self-Insurance Actually Costs Taxpayers
Lose your city’s liability insurance, and you’re in self-insurance territory. That’s not a technical insurance term—it’s a fancy way of saying “the city pays everything out of pocket.”
Consider the math. A single police misconduct case can settle for $500,000 to $2 million. Legal defense costs alone run $150,000-$400,000 per case, win or lose. Now multiply that by three or four active lawsuits. You’re looking at $3-8 million in unbudgeted expenses.
Where does that money come from? Three sources, all painful:
- Property tax increases—the most direct route, hitting homeowners with special assessments or rate hikes to cover litigation reserves.
- Service cuts—cities slash parks, libraries, road maintenance to fund legal fees. Infrastructure budgets become lawsuit piggy banks.
- Bond rating downgrades—unexpected legal liabilities damage credit ratings, making future borrowing more expensive. That cost compounds for decades.
Saratoga Springs’ commissioner noted the financial impact could be “significant.” That’s bureaucrat-speak for budget catastrophe. Cities typically allocate 1-3% of budgets for insurance premiums. Self-insuring lawsuits? That can consume 10-15% overnight.
The Coverage Death Spiral
Here’s the part most people miss: losing liability insurance creates a vicious cycle.
Without insurance, cities can’t attract qualified employees—police officers, city managers, department heads—because professional liability coverage vanishes. Who wants a government job with personal lawsuit exposure? Recruitment suffers, quality declines, and operational mistakes increase. More mistakes mean more lawsuits.
Simultaneously, cities without insurance become lawsuit magnets. Plaintiffs’ attorneys know uninsured municipalities face pressure to settle quickly (to avoid draining budgets), making them easier targets. According to Public Risk Management Association data, uninsured municipalities face 2.3x more lawsuits than insured peers within two years of losing coverage.
The insurance market watches this spiral, too. Even if a city resolves its current cases, getting re-insured after coverage loss is brutal. Premiums can jump 300-500%, with massive deductibles and exclusions that render policies nearly useless.
Other Cities Already Hit This Wall
Saratoga Springs isn’t pioneering this disaster—it’s joining a growing list.
| City | Year Lost Coverage | Trigger Event | Taxpayer Impact |
|---|---|---|---|
| Ferguson, MO | 2016 | Police shooting lawsuits | $6.4M budget shortfall |
| Stockton, CA | 2012 | Multiple civil rights cases | Contributed to bankruptcy |
| Camden, NJ | 2011 | Employment discrimination suits | $11M in emergency cuts |
Ferguson’s case is particularly instructive. After the 2014 Michael Brown shooting, the city faced over 20 federal civil rights lawsuits. By 2016, their insurer declined renewal. The city budget, around $14 million annually, suddenly carried $6.4 million in uninsured litigation costs. Property taxes rose 18%, services collapsed, and a consent decree with the Department of Justice forced expensive police reforms on top of lawsuit costs.
Stockton went further—partial uninsured liability exposure contributed to its 2012 bankruptcy filing, the largest municipal bankruptcy in U.S. history at the time. Lawsuits weren’t the only factor, but they were accelerant on an already smoldering budget crisis.
What Risk Management Actually Means Now
Cities facing this threat have limited options, none great:
Option 1: Settle aggressively. Resolve every pending lawsuit, even unfavorable ones, to prove to insurers the risk is contained. This often means overpaying settlements to avoid trial costs, rewarding plaintiffs with weak cases just to preserve coverage. Financially painful but strategically necessary.
Option 2: Join risk pools. Multiple municipalities pool resources to self-insure collectively, spreading risk across dozens of cities. These work—until one member faces catastrophic claims that drain the pool. Then premiums spike for everyone. The Association of Governmental Risk Pools notes pool membership has grown 34% since 2020, reflecting the commercial insurance retreat.
Option 3: Implement prevention programs. Invest heavily in police training, HR compliance, body cameras, citizen oversight—anything that reduces lawsuit probability. This costs money upfront but theoretically lowers long-term risk. The catch? Results take years, and insurers want immediate risk reduction.
Saratoga Springs appears to be pursuing Option 1. The commissioner’s public warning signals urgency to settle cases before the insurer’s patience expires. That’s expensive negotiation leverage for plaintiffs—everyone knows the city is desperate.
The Insurance Industry’s View
From the insurer’s perspective, this isn’t about abandoning municipalities—it’s about underwriting discipline. Public entity insurers argue cities with repeated civil rights suits demonstrate management failures that make future claims predictable.
They have a point. A 2023 study by the National League of Cities found that municipalities with 3+ civil rights lawsuits in two years have a 73% probability of facing additional claims within the next three years. That’s not insurance—that’s subsidizing dysfunction.
Insurers also note that jury awards in civil rights cases have escalated dramatically. Median settlements rose from $285,000 in 2015 to $750,000 in 2024, according to Police Magazine industry data. Factor in attorney fees (often 2-3x settlement amounts in civil rights cases due to fee-shifting statutes), and a single case can cost $2-3 million.
With those economics, insurers argue they can’t profitably cover high-risk municipalities at any premium. The math doesn’t work. So they exit.
5 Warning Signs Your City Could Be Next
Most residents don’t follow municipal insurance until it’s too late. Watch for these red flags:
- Multiple federal lawsuits within 18 months. One suit is a problem. Three is a pattern insurers will notice.
- Consent decrees or DOJ investigations. Federal oversight signals systemic issues that terrify underwriters.
- Rising insurance premiums above 15% annually. That’s your insurer pricing in higher risk before potentially dropping coverage.
- City forming “litigation reserves” in budget. This means finance officials are preparing for self-insurance scenarios.
- Emergency sessions about “risk management.” When city councils hold closed-door insurance discussions, coverage may already be threatened.
If you spot three or more signs, start attending budget meetings. Ask direct questions about insurance status, lawsuit reserves, and contingency plans. Your property tax bill depends on the answers.
Frequently Asked Questions
Can a city operate without liability insurance?
Legally, yes—most states don’t require municipalities to carry liability insurance. Practically, it’s financial suicide. Cities without coverage face unlimited lawsuit exposure, with every judgment paid from general funds (taxpayer money). Large verdicts can bankrupt smaller municipalities or force service cuts that cripple basic operations. Self-insurance only works for wealthy cities with massive reserves, and even then, it’s risky. Ferguson, MO operated partially uninsured and faced budget collapse. The choice isn’t really a choice—it’s coverage or crisis.
How much does municipal liability insurance typically cost?
For a mid-sized city (population 50,000-100,000), annual premiums run $500,000-$1.5 million for comprehensive liability coverage including police professional liability, employment practices, and general liability. That’s assuming no major claims history. Cities with active lawsuits or adverse verdicts can see premiums double or triple. Small towns under 10,000 residents might pay $75,000-$200,000 annually. Deductibles range from $100,000-$500,000 per occurrence, meaning cities self-insure the first chunk of every claim anyway. Coverage limits typically cap at $5-10 million per occurrence, with aggregate limits of $10-20 million.
What happens to property taxes if a city loses insurance?
Property taxes typically rise 12-20% within two years of coverage loss, either through direct rate increases or special assessments to fund “litigation reserves.” Cities must budget for worst-case lawsuit scenarios, creating reserves of $5-15 million depending on pending cases. That money comes from three sources: tax increases, service cuts, or both. Ferguson, MO saw 18% property tax increases after losing coverage. Smaller cities hit harder—a town of 15,000 might need to raise $3 million in litigation reserves, representing 20-30% of their entire budget. Homeowners pay the price through tax bills that climb $300–$800 annually on median-value properties.
Are civil rights lawsuits against cities increasing?
Absolutely. Federal civil rights cases against municipalities increased 41% between 2010-2020, with police misconduct (Section 1983 claims) and First Amendment violations driving growth. The trend accelerated post-2020, with body camera footage and social media making police interactions more visible and litigated. Cities now face lawsuits over incidents that previously went unreported. Attorney fee-shifting in civil rights cases (where cities pay plaintiffs’ legal costs if they lose) makes these suits financially attractive for plaintiffs’ lawyers, increasing filing rates. The result: even small cities now defend multiple federal cases simultaneously, straining budgets and spooking insurers who see no end to the litigation wave.
Should residents worry if their city joins a risk pool?
Risk pools are better than self-insurance but come with risks. When multiple cities pool resources to collectively insure, they spread lawsuit costs across members—which works until one city faces catastrophic claims that drain the pool. Then all members face assessment calls (additional premium payments) to replenish reserves. Well-managed pools maintain adequate reserves and exclude high-risk members, but underfunded pools can collapse during heavy claim years, leaving members partially uninsured. Before your city joins a pool, check its reserve ratio (should be 1.0 or higher), claims history, and member retention rates. Pools with 15%+ annual member turnover signal instability—cities are fleeing after assessment surprises.
Your City, Your Tax Bill, Your Risk
Saratoga Springs’ insurance crisis is a preview, not an outlier. As civil rights litigation grows and insurers tighten underwriting, more cities will face the same ultimatum: resolve lawsuits or lose coverage. Either option costs taxpayers money—settlements drain reserves, and coverage loss triggers property tax increases.
The insurance commissioner’s warning is rare public honesty about a crisis most officials hide until budget crisis forces disclosure. Most residents learn their city lost insurance only when property tax bills arrive with 15% increases and “litigation reserve assessment” line items.
Check your city’s budget. Count pending lawsuits. Ask about insurance status. The answers determine whether your property taxes stay stable or explode. Because when cities can’t insure, taxpayers become the insurer of last resort—and that’s an expensive policy with no coverage limits.