HomeMy WebLinkAbout13.F.1. 2007-08 Property/Liability Insurance Renewals
/3. I=' L
CITY OF SHAKOPEE
Memorandum
TO: Mayor and Council
Mark McNeill, City Administrator
FROM: Gregg Voxland, Finance Director
RE: 2007/08 Property/Liability Insurance Renewals
DATE: July 20, 2007
Introduction
Council is requested to approve of the renewal of property and liability
insurance coverage from the League of Minnesota Cities.
Background
Renewal
Attached is a list of property/liability insurance premiums for the renewal
of the present coverage with the League of Minnesota Cities insurance Trust
(LMCIT) . The policy period is August I, 2007 to July 31, 2008.
Basic Policy
The policies proposed are basically the same as current coverage. The
premiums are slightly smaller than last year but more items and value are
covered. The decrease is mainly due to lower rates. The total deposit
premium has increased from $380,857 to $417,194 covering the City, SPUC and
EDA.
The main reason for the increase in premium is an increase in property
values from 59 million to 72 million and the resultant premium increase of
$35,512.
All of the coverages are from the League of Minnesota Cities Insurance
Trust.
There is more detail available on the policy for any Council member that
desires it.
Optional Coverage
Quotations were not requested for the following coverages:
Flood
Earthquake
PIP (auto coverage)
Volunteer accident
Asbestos removal liability (in excess of basic coverage of $200,000)
Open meeting law defense
Joint Powers contracts
Fire works
Utility poles and lines - SPUC
Independent Administrative Boards
Premise medical - no fault coverage
Extraordinary expense (loan for disasters)
The city budget contains $299,870 (General Fund $242,610) for insurance
(not counting employee group or work compo insurance) and deductibles
across all funds, excluding SPUC. SPUC share in the cost of the
insurance is $119,460 and the city is $297,734.
One of the items for the renewal of the property/liability insurance is to
not waive the monetary limits on municipal tort liability. Council
previously did not waive the monetary limits on tort liability established
by Minnesota Statutes 466.04 and the renewal was processed accordingly. The
current liability limit is $1,000,000.
In a move that is contrary to private insurance companies, LMCIT has
included terrorism property coverage up to $1,000,000 as a result of 9/11.
There is also included up to $1.5 million coverage for mold liability.
Umbrella liability coverage
It has been a number of years since the Council actively discussed having
an umbrella liability policy. The city did have one a number of years
ago. Attached is a memo from the League on the issue. Also attached is
a recommendation from the City Attorney on the matter.
Some types of claims are not covered by the immunity limit and extension
of coverage to additional insured parties under the city policy may not
be within the immunity limits.
The premium for excess liability coverage is $66,161 for one million and
for two million it is $99,242.
Under/uninsured motorist coverage
The current policy has $1,000,000 for this it is recommended that Council
consider lowering this to $50,000 for a premium savings of $2,265. This
coverage provides insurance for the occupant of a vehicle when injured by
a vehicle without adequate insurance. For city vehicles, the employees
are covered by work comp so in essence this provides duplicate coverage
and the individuals own private insurance should also provide coverage
under underinsured and uninsured.
Driver motor vehicle records
Commercial insurers for business require annual checks of driving records
of employees. The previous carrier for the city did check records. The
League does not but leaves that up to the city. Shakopee only checks the
records upon hire.
Although the Employee Handbook requires employees to notify supervisors
when an incident occurs there is no verification by the city. The recent
case of a city employee with a poor driving record illustrates the point.
with emergency vehicles, large vehicles and equipment and group
transport, the City is at risk and not being diligent in protecting
itself and the public by not annually checking driving records. There is
a statistical correlation between a private driving record and the
driving behavior on the job. The city should be checking motor vehicle
record annually for those who drive on city business and adopt a policy
on what action to take based on certain driving infractions up to and
including termination when operating vehicles/equipment is a required
part of a position.
Action Recommended
1. Move to accept the prop~rty/liability insurance renewals from the League of
Minnesota cities Insurance Trust for a deposit premium of $417,194, and not
waive the monetary limits on tort liability established by Minnesota
Statutes 466.04.
2. Discuss excess liability coverage and give staff direction.
3. Move to reduce under/uninsured motorist coverage to $50,000.
4. Move to promptly and annually check motor vehicle records of persons who
operate motor vehicle/equipment on city business and direct staff to
develop a policy delineating what action the city will take based various
infractions.
Gre!!voXland
Finance Director
finance\docs\insure\prplia07
CITY OF SHAKOPEE -7-
COMPANY PREMIUM COMPARISON
SUMMARY:
2006-2007* 2007-2008*
PROPERTY $ 73,331 $108,843
INLAND MARlNE $ 9,882 $ 11,429
CRIME $ 1,595 $ 1,752
MUNICIP AL LIABILITY $214,128 $203,615
ERRORS & OMISSIONS INCLUDED INCLUDED
AUTOMOBILE $ 71,952 $ 78,781
BOILER & MACHINERY $ 10.432 $ 12.774
TOTAL PREMIUM $381,320. $417,194
i
*Premium at Inception of Policy & Does Not Include Interim Endorsements or Updates.
-_._----~
Kennedy 470 U.S. Bank Plaza
200 South Sixth Street
Minneapolis, MN 55402
Graven (612) 337-9300 telephone
(612) 337-9310 fax
C H ART ERE 0 http://www.kennedy-graven.com
Affirmative Action, Equal Opportunity Employer
JAMES J. THOMSON
Attorney at Law
Direct Dial (612)337-9209
Email: jthomson@kennedy-graven.com
MEMORANDUM
TO: Gregg V oxland, Finance Director
FROM: James J. Thomson, City Attorn~
DATE: August 1,2007
RE: Umbrella Liability msurance Coverage
You asked me for my input with respect to whether the City should consider purchasing
umbrella liability insurance coverage from the League of Minnesota Cities msurance Trust
("LMCIT"). The City's insurance agent is suggesting that the City consider such an option because
of the growth of the City and the increased cost of claims and litigation. A million-dollar umbrella
policy would cost approximately $66,000 annually and a $2 million-dollar umbrella liability
insurance policy would cost $99,000 annually.
The League of Minnesota Cities has issued a memorandum that summarizes LMCIT's
liability coverage options. The memo addresses several questions with respect to umbrella
coverage, and I will try not to repeat that information here.
The main reason why cities choose to purchase umbrella coverage is that the monetary
limits of liability for claims against cities do not apply to all claims. (page 2 of the League memo
addresses that issue.) The two significant claims that are not included in the monetary cap are
claims arising under federal law and claims based on a .'takings" theory. The pending lawsuit
involving Ridge Creek I is an example of a claim that is not covered by the statutory limits.
A second reason why cities choose to purchase umbrella coverage is that certain types of
claims, such as land use ones, have an annual one-million dollar aggregate limit, not a one million
dollar "per occurrence" limit. Purchasing a one-million dollar umbrella policy would increase the
annual aggregate limit for those types of claims.
In deciding whether to buy umbrella coverage, the City Council should also keep in mind
that, although the LMCIT policy coverage is extensive, it does not cover all types of claims. The
SMSC Fee-to- Trust matter is an example such a matter. Purchasing an umbrella policy would not
change that situation.
315552vl JJT SH155-23 I
I contacted a senior claims representative at LMCIT to discuss this issue with him. He told
me that although IMCIT does not receive a significant amount of lawsuits exceeding the basic
coverage, they do happen primarily in police civil rights cases and land use cases. He did not know
off the top of his head what percentage of cities in the metropolitan area procure wnbrella policies.
Ultimately, the question of whether to buy umbrella coverage comes down to a
cost/benefit and risk assessment analysis, which is a policy issue for the City Council to decide.
Litigation against cities, especially developing ones, is not going to decrease. In addition, plaintiffs
are coming up with more ingenious legal theories to assert against cities. Although many of those
theories will probably be covered under the LMCIT policy, not all of them will be. On balance, the
Council could reasonably conclude that purchasing wnbrella coverage is a prudent allocation of city
resources.
315552vl JJT SH155-23
2
LMC League of Minnesota Cities
Insurance Trust
145 University Avenue West, st. Paul, MN 55103-2044
~ 0/ Mirmesola Cities (651) 281-1200 · (800) 925-1122
Cities p7OWIC16ng e:ccJJtmClll Fax: (651) 281-1298 · TDD: (651) 281-1290
www.lmnc.org
RISK MANAGEMENT INFORMATION
LMCIT LIABILITY COVERAGE OPTIONS
Liability Limits, Coverage Limits, and Waivers
LMCIT gives cities several options for structuring their liability coverage. The city can choose
either to waive or not to waive the monetary limits that the statutes provide; and the city can
select from among several liability coverage limits. This memo discusses these options and
identifies some issues to consider in deciding which of the options best meets the city's needs.
What are the statutory limits on municipal tort liability?
The statutes limit a city's tort liability to a maximum of $300,000 per claimant and $1,000,000
per occurrence. These limits apply whether the claim is against the city, against the individual
officer or employee, or against both.
What are the coverage limits for LMCIT's basic primary liability coverage?
LMCIT's liability coverage provides a limit of $ 1,000,000 per occurrence, matching the per-
occurrence part of the statutory municipal tort liability limit. Under the basic coverage form the
$300,000 per claimant part of the statutory liability limit is not waived, so if the statutory limit
applies to the particular claim, LMCIT and the city would be able to use that limit as a defense.
Beside the overall coverage limit of $1,000,000 per occurrence, there are also annual aggregate
limits (that is, limits on the total amount of coverage for the year regardless of the number of
claims), for certain specific risks. Aggregate limits apply to the following:
Products / com leted 0 erations $1,000,000 annuall
Failure to sup ly utilities $1,000,000 annually
EMF $1,500,000 annually
Limited ollution* $1,000,000 annually
Lead and asbestos* $200,000 annually
Mold $1,500,000 annuall
Land use liti ation** $1,000,000 annually
Em layers liability (work com) $1,000,000 annually
* The limit applies to both damages and defense costs.
** Coverage is on a sliding scale percentage basis, and applies to both damages and litigation
costs.
If the statute limits our liability to $1,000,000 per occurrence, why would the city purchase
higher coverage limits than that?
There are several different reasons why cities should strongly consider carrying higher limits of
liability coverage.
1. The statutory tort limits either do not or may not apply to several types of claims. Some
examples include:
. Claims under federal civil rights laws. These include Section 1983, the Americans with
Disabilities Act, etc.
. Claims for tort liability that the city has assumed by contract. This occurs when a city
agrees in a contract to defend and indemnify a private party.
. Claims for actions in another state. This might occur in border cities that have mutual
aid agreements with adjoining states, or when a city official attends a national conference
or goes to Washington to lobby, etc.
. Claims based on liquor sales. This mostly affects cities with municipal liquor stores, but
it could also arise in connection with beer sales at a fire relief association fund-raiser, for
example.
. Claims based on a "taking" theory. Suits challenging land use regulations frequently
include an "inverse condemnation" claim, alleging that the regulation amounts to a
"taking" ofthe property.
2. LMCIT's primary liability coverage has annual limits on coverage for a few specific
risks. The table on page 1 lists the liability risks to which aggregate coverage limits apply.
If the city has a loss or claim in one of these areas, there might not be enough limits
remaining to cover the city's full exposure if there is a second loss of the same sort during the
year. Excess liability coverage gives the city additional protection against this risk as well.
However there are a couple of important restrictions on how the excess coverage applies to
risks that are subject to aggregate limits:
. The excess coverage does not apply to four risks: lead and asbestos;failure to supply
utilities; mold; and "limited pollution" claims if either the pollutant release or the
damage is below ground or in a body of water; and
. The excess coverage does not automatically apply to liquor liability unless the city
specifically requests it.
3. The city may be required by contract to carry higher coverage limits. Occasionally, a
contract might include a requirement that the city carry more than $1,000,000 of coverage
limits. Carrying excess coverage is a way to meet these requirements. (There's also another
2
option for cities in this situation. LMCIT can issue an endorsement to increase the city's
coverage limit only for claims relating to that particular contract. There's a small charge for
these "laser" endorsements.)
4. There may be more than one political subdivision covered under the city's coverage.
An HRA, EDA, or port authority is itself a separate political subdivision. If the city EDA,
for example, is named as a covered party on the city's coverage and a claim were made that
involved both the city and the EDA, theoretically the claimant might be able to recover up to
$1,000,000 from the city and another $1,000,000 from the EDA, since there are two political
subdivisions involved. Excess coverage is one way to provide enough coverage limits to
address this situation. Another solution is for the HRA, EDA, or port authority to carry
separate liability coverage in its own name.
This issue of multiple covered parties can also arise is if the city has agreed by contract to
name another entity as a covered party, or to defend and indemnify another entity.
5. Cities sometimes choose to carry higher coverage limits because of a concern that the
courts might overturn the statutory liability limits. However, those limits have now been
tested and upheld several times in Minnesota. While it's always possible that a future court
might decide to throw out the statutory limits, this is now less of a concern.
What excess liability coverage limits are available?
Excess coverage is available in $1 million increments, up to a maximum of $5 million.
We're just a small city. Isn't excess liability coverage really just something that big cities
might need?
Absolutely not. If anything, excess liability coverage is even more important to a small city.
If a city ends up with more liability than it has coverage, the city will have to either draw on
existing funds or go to its taxpayers to pay that judgment. A large city faced with, say, a million
dollars ofliability over and above what its LMCIT coverage pays might be able to spread that
$1 million cost over several thousand taxpayers. The small city by contrast might be dividing
that same $1 million cost among only a couple hundred taxpayers. $1 million divided among
5000 taxpayers is $200 apiece - annoying but probably at least manageable for most taxpayers.
$1 million divided among 200 taxpayers is $5000 apiece - enough to be a real problem for many.
How does excess coverage apply to uninsured/underinsured motorist coverage?
If the city carries excess liability coverage, the city has the option to have the excess coverage
also apply to uninsured or underinsured motorist (UM/UIM) claims. To do so, the city must first
increase its primary UM/UIM limit from the basic $50,000 to $1,000,000. There are additional
premium charges both to increase the primary UM/UIM limit and to apply the excess coverage
to the UM/UIM exposure. The city needs to consider whether the benefit from having higher
UM/UIM limits is worth that cost.
3
The UMIUIM coverages are intended to assure that an injured driver will be compensated if s/he
is injured in an accident caused by an uninsured or underinsured driver. The UMlUIM coverage
steps into the place of the liability insurance that the driver should have had.
Keep in mind that in the case of city vehicles, an injury to the driver while operating a city
vehicle would in most cases be covered by workers' compensation. The amounts the individual
would be able to recover from UMIUIM would be in addition to the medical, indemnity, and
other benefits paid under work camp. In many cases, it would amount to a double recovery for
the individual's injuries.
A city might decide to carry a higher limit for a couple reasons: if they believe the workers'
compensation benefits are insufficient to compensate their injured employees; or if they want to
make sure that non-employees riding in city vehicles are fully compensated in the event of an
accident with an uninsured or underinsured vehicle. (Note that in most cases the passenger's
own UMlUIM would also respond.)
LMCIT now gives the cities who participate in the primary liability coverage the option to
waive the $300,000 per claimant statutory liability limit. What's the effect if we do this?
Ifthe city chooses the "waiver" option, the city and LMCIT no longer can use the statutory limit
of $300,000 per claimant as a defense. Because the waiver increases the exposure, the premium
is roughly 3% higher for coverage under the waiver option.
Ifthe city waives the statutory limit, an individual claimant could therefor recover up to
$1,000,000 in damages on a claim. Of course, the individual would still have to prove to the
court or jury that s/he really does have that amount of damages. Also, the statutory limit of
$1,000,000 per occurrence would still apply; that would limit the individual's recovery to a
lesser amount if there were multiple claimants.
Why would the city choose to pay more in order to get the waiver-option coverage? Does it
give the city better protection?
No. Buying coverage under the "waiver" option doesn't protect the city any better. The benefit
is to the injured party.
The statutory liability limit only comes into play in a case where
1. the city is in fact liable; and
2. the injured party's actual proven damages are greater than the statutory limit.
Very literally, applying the statutory liability limit means that an injured party won't be fully
compensated for his/her actual, proven damages that were caused by city negligence. Some
cities as a matter of public policy may want to have more assets available to compensate their
4
citizens for injuries caused by the city's negligence. Waiving the statutory liability limits is a
way to do that.
Other cities may feel that the appropriate policy is to minimize the expenditure ofthe taxpayers'
funds by taking full advantage of every protection the legislature has decided to provide. There's
no right or wrong answer on this point. It's a discretionary question of city policy that each city
council needs to decide for itself.
How would the waiver affect our city's coverage or risk on those claims that the statutory
tort liability limits don't apply to?
It doesn't. Waiving the statutory tort limits has no effect on claims that the statutory limits don't
apply to.
What's the effect of waiving the statutory limits if we have excess coverage?
If the city has $1 million of excess coverage and chooses to waive the statutory tort limits, the
claimants (whether it's one claimant or several) could then potentially recover up to $2 million in
damages in a single occurrence. If the city carries higher excess coverage limits, the potential
maximum recovery per occurrence is correspondingly higher.
Carrying excess coverage under the waiver option is a way to address an issue that some cities
find troubling: the case where many people are injured in a single occurrence caused by city
negligence. Suppose, for example, that a city vehicle negligently runs into a school bus full of
kids, causing multiple serious injuries. $1,000,000 divided 50 ways may not go far toward
compensating for those injuries. Excess coverage under the waiver option makes more funds
available to compensate the victims in that kind of situation.
The cost of the excess liability coverage is about 25% greater if the city waives the statutory tort
limits. The cost difference is proportionally greater than the cost difference at the primary level
because for a city that carries excess coverage, waiving the statutory tort limits increases both the
per-claimant exposure and the per-occurrence exposure.
If we waive the statutory tort liability limits, does it increase the risk that the city will end
up with liability that LMCIT doesn't cover?
No. The waiver form specifically says that the city is waiving the statutory tort liability limits
only to the extent of the city's coverage.
Of course, that's not to say that there is no risk that the city's liability could exceed its coverage
limits. We listed earlier a number of ways that could happen to any city. But the waiver doesn't
increase that risk.
5
Can we waive the statutory tort limits for the primary coverage but not for the excess
coverage?
No. If the city decides to waive the statutory tort limits, that waiver applies to the full extent of
the coverage limits the city has. The city cannot partially waive the statutory limits.
I'm confused. Is there a simple way to summarize the options?
It's not necessarily simple, but the table on the following page is a shorthand summary of what
the effect would be of the various coverage structure options in different circumstances.
I'm still confused. Who can I talk to?
Give us a call at the League office. Pete Tritz, Tom Grundhoefer, Bill Everett, Doug Gronli, or
any ofLMCIT's property/casualty underwriters will be glad to talk with you.
6
LMCIT Liability Coverage Options
On a liability claim to which On a liability claim to which
the statutory limits apply the statutory limits do not apply
Coverage structure
This is the maximum This is the maximum This is the maximum amount of damages which
If the city: amount a single claimant total amount that all LMCIT would pay on the city's behalffor a
could recover on an claimants could recover single occurrence, regardless of the number of
occurrence. on a single occurrence. claimants.
Does not have excess coverage &
Does not waive the statutory limits $300,000 $1,000,000 $1,000,000
Does not have excess coverage &
Waives the statutory limits $1,000,000 $1,000,000 $1,000,000
Has $1,000,000 of excess coverage &
Does not waive the statutory limits $300,000 $1,000,000 $2,000,000
Has $1,000,000 of excess coverage &
Waives the statutory limits $2,000,000 $2,000,000 $2,000,000
PST 12/04