Eleven Maryland counties and 29 municipalities, hit hard by the steeply rising cost of liability insurance, have formed a pool that is expected to reduce insurance rates and provide up to $1 million in coverage for claims.

John Donaho, chairman of the new nonprofit fund, said local governments are contributing $2.7 million to the Local Government Insurance Trust, which will cover liability claims against local government officials and police, as well as claims stemming from such mishaps as automobile accidents. Policies began July 1.

Among the area municipalities participating in the program are Bowie, Cheverly, College Park, Gaithersburg, Laurel and Takoma Park.

Increasingly, small governments have been finding it difficult to keep pace with rising insurance rates, which are attributable in large part to a surge in the number of claims. Organizers of the pool estimate an average 38 percent savings for jurisdictions joining the trust this year, Donaho said.

Jon Burrell, executive director of the Maryland Municipal League, said insurance rates for several local governments in the state rose 100 to 250 percent from 1985 to 1986.

In Gaithersburg, for example, City Manager Sanford W. Daily said that insurance rates for the city government there jumped from $25,419 for a 1983-1984 policy to $153,863 for 1986-1987.

Daily said the coverage for the periods was virtually the same except for adding $9,083 to cover liability claims against public officials, which was not included in the 1983-1984 policy.

The soaring costs, he said, "simply make you look elsewhere."

For that reason, Daily said, the city chose to join the insurance pool.

By joining the Local Government Insurance Trust, Daily said, Gaithersburg will pay $103,000 this year for the same coverage.

He noted that $25,000 of the amount paid into the trust will go into a "reserve pool intended to build up funds for the future."

Daily, who became one of the trust's organizers through his membership on the Municipal League's Insurance and Benefits Committee, said that, in a few years, the reserves combined with the lower rates available to a pool will allow "considerable savings."

Said Burrell, "We were in a position where we had to do something. We had to make insurance more affordable and more available to local governments."

Burrell said that while small jurisdictions would seemingly be enticed by the low rates, some "have been skeptical of joining up with a venture that is untested in this area."

"For now, they may feel more comfortable staying with a private insurer that they have been with for some time."

Donaho said that in about a year, the fund will seek accreditation from the Public Risk Management Association, a Washington-based organization that examines similar pools to assess their financial stability.

Donaho said fund officials are not concerned that the pool will be exhausted by numerous claims. He said that "industry experience" combined with a new $250,000 cap on individual li"We were in a position where we had to do something. We had to make insurance more affordable and more available to local governments."

-- Jon Burrell

ability claims make in "inconceivable" that enough claims could be settled in one year so cause a collapse of the trust.

To maintain stability for the insurance pool, Burrell said, organizers of the trust concluded that participating jurisdictions must have combined operating budgets of at least $150 million, excluding education budgets. Administrative costs for the first year are estimated at $82,000.

The trust was formed after nearly two years of study by the Maryland Municipal League, the Maryland Association of Counties and Baltimore officials..

Donaho said 150 such government pools currently operate in the country, 25 of which are run by state municipal leagues.

Larger jurisdictions, with heftier budgets and increased chances of being hit with more sizable liability claims, may form a separate insurance pool, Donaho said, "to take care of their special needs."

Donaho said Montgomery, Prince George's, Howard, Anne Arundel, Baltimore and Harford counties have expressed an interest in participating in such a fund, as have the cities of Rockville and Baltimore.