HomeMy WebLinkAbout15.F.5. Open Meeting law Insurance
CITY OF SHAKO PEE JS F.S'.
Memorandum
TO: Mayor and Council
Mark McNeill, City Administrator
FROM: Gregg Voxland, Finance Director
SUBJ: Open Meeting Law Insurance
DATE: September 25, 2003
Introduction
Council had requested a quote on having open meeting law defense
coverage.
Background
The cost for open meeting law defense coverage would be $2,641. This
would be for 100% reimbursement for the City, SPUC and the EDA.
Elected and appointed officials and employees would be covered.
Please see attached for detailed information.
The General fund budget for insurance is currently $3,300 over budget.
The premiums for adding the new police station and library are not yet
included. I do still need to review the premiums for liability
insurance to see if there is a way to reduce the charge.
Action
Discuss and give staff direction.
Gregg Voxland
Finance Director
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OPEN MEETING LAW DEFENSE COST
REIMBURSEMENT AGREEMENT
I. OPEN MEETING LAW DEFENSE 2. LMelT shall have no duty to provide
COST COVERAGE a defense to a city official with
LMCITwHl reimburse a city official for 80 respect to a legal action against that
city official seeking penalties based
percent of the defense costs incurred by upon an alleged violation of the
the city official in defending an Open Minnesota Open Meeting Law;
Meeting Law lawsuit, if the following however, LMelT shall have the right
conditions are met: to intervene at its expense in the
investigation or defense of such
1, The date on which the Open legal action.
Meeting Law lawsuit is
commenced must be within the 3. The city or the city officia.l shall give
term of this agreement; and; prompt notice to LMelT of any
actual or threatened legal action
2. The date on which the violation against the city official seeking
took place or is alleged to have penalties against the city official for
taken place must be on or after an alleged violation of the Minnesota
the retroactive date, if any, Open Meeting Law.
shown in the Declarations.
4. The city and the city official shall at
An Open Meeting Law lawsuit is all times cooperate with and
deemed to be commenced on the date promptly respond to LMelT's
the city official is served notice of the requests for information,
lawsuit. investigative data, records, or any
other material documentation.
II. LIMITS
5. The city official will be reimbursed
The Open Meeting Law Defense Cost only for defense costs incurred with
Reimbursement Agreement Limit is respect to legal services actually
$50,000. This is the most LMCITwil1 rendered and expenses actually
reimburse anyone city official for incurred.
defense costs for Open Meeting Law
lawsuits commenced during the term of 6, The city official shall have complete
this agreement, regardless of the freedom to choose an attorney
number of lawsuits, the number of licensed in the State of Minnesota to
actual or alleged violations, or the date provide the city official with legal
the defense costs are actually incurred, services with respect to which
defense costs are reimbursable
III. CONDITIONS AND EXCLUSIONS under this Agreement.
1. The term of this Agreement shall 7, It is the express intent of the parties
be one year beginning with the to this Agreement that, neither the
effective date stated in the citynor the city official, waive any
Declarations. Subsequent immunities, defenses, or limitations
renewals of this Agreement shall on liability available under Minnesota
be treated as separate terms. statutes or common law.
LMCIT
OMLRA.1 (11/93)(Rev,11/99) Page 1 of 2
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8. In the event that a city official makes a
recovery of defense costs from any third 2. hCity official' means any former or
party, LMelT shall be reimbursed for present elected or appointed official of
any payment it has made under this the city or any present or former
Agreement after the city official has employee of the city.
been fully reimbursed for his/her 20%
share of the defense costs. 3. II Defense costs' means reasonable and
necessary attorney fees, court costs.
9. LMelT may cancel this Agreement by court reporter and transcript fees,
mailing or delivering written notice to the general witness and expert witness fees
city at least: and expense, and similar defense
related costs. Defense costs does not
a. Ten (10) days before the effective include any fines or penalties, or any
date of cancellation for nonpayment attorney's fees awarded to a plaintiff in a
of the charge for this Agreement; or suit charging a violation of the Open
Meeting Law.
b. Thirty (30) days before the effective
date of cancellation for any other 4. "Joint powsrs entity' means an
reason. operating entity created by two or more
governmental units entering into an
If LMCIT decides not to renew this agreement as provided by statute for the
Agreement, LMCITwill mail or joint exercise of governmental powers.
deliver to the city written notice of An intergovernmental agreement will be
non-renewal not less than thirty 30 deemed to create a jOint powers entity if
days before the expiration date. the agreement establishes a board with
the effective power to do any of the
10. It is mutually understood and agreed fOllowing,regardless of whether the
that the city and all other LMCIT pool specific consent of the constituent
participants are jointly and severally governmental units may also be
liable for all claims and expenses of the required:
pool. The amount of any liabilities in
excess of assets may be assessed to a. To receive and expend funds;
LMCIT pool participants when a
deficiency is identified. b, To enter into contracts;
IV. DEFiNITIONS c, To hire employees;
1. "City' means the city or other d. To purchase or otherwise acquire
governmental body or entity first named and hold real or personal property; or
in the Declarations, Unless specifically
named in the Declarations, city shall not e. To sue or be sued.
include a gas, electrical, or steam
utilities commission; port authority, 5, II LMClr' means tile League of
housing and redevelopment authority. Minnesota Cities Insurance Trust.
economic development authority, area
or municipal redevelopment authority, or 6. II open Meeting Law lawsuit' means a
similar agency; municipal power agency; lawsuit seeking penalties against a city
municipal gas agency; hospital or official based on an allegation that the
nursing home board or commission; city official has violated M.S. '471.705,
airport commission; welfare or public commonly known as the Minnesota
relief agency; school board; or joint Open Meeting Law,
powers entity.
LMC1T
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OPEN MEETrNG LAW DEFENSE COST
REIMBURSEMENT AGREEMENT
REIMBURSEMENT PARTICIPATION ENDORSEMENT
It is understood and agreed that Section I. Open Meeting Law Defense
Cost Coverage is amended to modify the percentage of reimbursement
of a "defense costs" from 80% to 100%.
This mod rfication does not change the maximum amount of
reimbursement as specified in Section II. Limits and as shown in the
Agreement Declarations.
All other terms and conditions remain unchanged.
OMLw001 (11/97) II
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LMC LMCIT
Risk Management Information
Laasua of 1<1;""a.ot" C;t;~8 145 University Avenue W cst, St. Paul, MN 55103-2044
Cilia. promctirfg IlxCQ!I,mC<l phone: (651) 281-1200. (800) 925-1122
Fax: (651) 281-1298 . TDD (651) 281-1290
W"Ww.1mcit.lmnc,org
OPEN MEETING LA W DEFENSE COVERAGE
LMCIT offers members of the LMCIT property/casualty program an optional Open Meeting
Law Defense Cost coverage. This coverage will reimburse city officials for either 80% or 100%
of the legal costs they incur to defend themselves if they are charged with violating the Open
Meeting Law. This memo addresses some oftbe questions that will corne up when city officials
are deciding whether this coverage makes sense for their city,
Why is this needed? Doesn't our LMCIT liability coverage cover Open Meeting Law
claims?
Generally, no, The LMCIT liability coverage is designed to respond to claims for damages. The
Open Meeting Law provides for a $300 civil penalty, and loss of office for repeated violations.
If tbe official intentionally violated the law, the court can also order the official to pay up to
$13,000 of the opposing side's attorneys' fees. Fines and penalties are not "damages" for
purposes of the liability coverage, and LMCIT therefor generally has no duty to get involved in
defending Open Meeting Law charges under the liability coverage,
The only exception is if the Open Meeting Law charge is combined with a claim for damages
that is covered under the liability coverage. For instance, if an employee brought a wrongful
termination action against a city, the employee might also charge that there waS a violation of the
open meeting law as part of the tennination process. In that case, LMCIT would be responsible
for defending the entire litigation - the Open Meeting Law charge as well as the covered liability
claim. But an Open Meeting Law charge by itselfis not a claim for damages, and the LMCIT
liability coverage would therefor not respond.
Why provide coverage for this type of exposure?
One of LMCIT's member cities asked the LMCIT Board to consider adding this kind of
coverage. The request grew out of an instance in which several council members incurred very
substantial legal bills defending themselves against an Open Meeting Law charge.
The Board recognized that defending an Open Meeting Law charge can cost a city official a lot
of money, Defense costs are often the most significant financial consequence of these lawsuits.
The statutory penalty of $300 might be relatively minor, but defense costs can easily run to
thousands of dollars. And those costs are incurred whether or nofthe official is ultimately found
to have violated the law,
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The Board noted that many violations of the law are inadvertent; sometimes the council members
may even have acted on an attorney's advice. The Board also realized that it's easy to make an
accusation of an OML violation, forcing the city council member to expend significant sums to
defend himlherselfregardless of the merits of the allegation. The threat of that kind oflitigation
could even be used as a tactic to intimidate or coerce council members in some cases. Finally,
the Board assumed that most council members try in good faith to comply with the law. But
sometimes even these best faith efforts are not enough to head off an Open Meeting Law lawsuit.
Why should public funds be used to pay for defending someone who actually did violate the
Open Meeting Law? Doesn't this encourage city officials to violate the law?
The legislature has spelled out in the statute what the penalties are for violating the law: a $300
civil penalty; potential loss of office for repeated violations; and possibly an order to pay the
plaintiffs attorneys' fees if the court finds that the individual intended to violate the law. If the
individual has to pay for hislhcr own defense costs as well, the real monetary penalty to the
individual can be many times greater than the penalty the legislature provided in the statute. And
how much those defense costs are may not have much relation to how serious the violation was.
If more serious penalties are needed to deter violations, the legislature can increase the penalties.
That makes more sense than using defense costs as a kind of "hidden penalty" which can be
wildly disproportionate to how serious the offense was, and which is incurred even ifthere was
no offense.
Why is the coverage optional? Why not simply provide it as a standard part of the liability
coverage?
The LMCIT Board recognized that there are good public policy reasons why a city might want to
protect its officials from this risk. But the Board also recognized that some cities might consider
it inappropriate to use their taxpayers' funds for this purpose. Making the coverage optional lets
each city make this call for itself.
Who wonld be covered by the Open Meeting Law Defense Cost Reimbursement coverage?
Any elected or appointed official or employee of the city is covered. This doesn't include
officials or employees of a utilities commission, port authority, HRA, EDA, redevelopment
authority, municipal power or gas agency, hospital or nursing home board, airport commission,
or joint powers board unless that board is specifically named in the Declarations.
What does it cover?
The standard Open Meeting Law Defense Coverage will reimburse a city official for 80% of the
defense cost incurred by the city official in defending an Open Meeting Law lawsuit. The city
has the option for an additional premium to increase the coverage percentage to 100%.
The Open Meeting Law Defense Costs Reimbursement Agreement is limited to $50,000. This is
the most LMCIT will reimburse anyone city official for defense costs for Open Meeting Law
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suits begun during the coverage term, regardless of the number of suits or the number of actual
alleged violations.
What doesn't it cover?
There are two major kinds of costs for which this coverage would not reimburse the official:
1. Any fine or penalty for violating the open meeting law.
2. Any award that orders the city official to pay for the opposing party's attorney's fees.
As an example, suppose a newspaper is successful in bringing an open meeting claim against a
city official. The judge awards a $300 penalty against the official and also orders the official to
pay the attorneys fees incurred by the newspaper in bringing the claim. The new coverage would
not payor reimburse either the penalty or the attorneys fees awarded.
Note too that this coverage would not cover any legal costs that the city might incur if the city
itself were somehow made a party to the Open Meeting Law litigation - unless, of course, it was
part of a suit that also included a covered claim for damages, as discussed earlier.
Would this coverage protect a city official who is accused of attending an illegal meeting of
some other board or commission, other than the city council?
Yes. Forexample, suppose a city official is accused of violating the Open M~eting Law at a
meeting of a joint powers board the official serves on. The city's OML coverage would apply to
that charge. But it would not pay for defending the other members of the board. Unless the joint
powers board has open meeting law coverage itself, those other members would only be covered
if their own cities have open meeting law defense coverage.
How does the Open Meeting Law Defense Cost Reimbursement Coverage work?
The coverage is different from other LMCIT coverages in a couple important ways. First, unlike
LMCIT's liability coverages, the Open Meeting Law coverage does not pay the legal costs on the
city official's behalf. Instead, LMCIT will reimburse the city official for 80% (or 100%, if the
city chose that option) of those costs to a maximum of$50,000, after the official has incurred
those costs. The city official remains responsible for paying hislher defense attorney, including
the 20% which LMCIT will not reimburse as well as any costs over $50,000.
Second, the city official retains control of the litigation. The city official decides what attorney
to hire, whether to settle or compromise the litigation, whether to appeal, etc.
The coverage is triggered when a lawsuit is served on the city official alleging a violation of the
Open Meeting Law. If a lawsuit is filed during that term of the agreement, the city official has to
1) notify LMCIT oftbe litigation; and 2) select defense counseL
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How much will this coverage cost?
The charge for the 80% coverage option is 1.2% of the city's LMCrr liability premium, subject
to a $450 minimum premium. For the 100% coverage option, the cost is 1.4%, subject to a $540
minimum.
In an individual city's case the premium could be somewhat higher if in the underwriter's
judgement there is a substantially higher risk of Open Meeting Law claims in that city. We
expect this to be rare though; so far no such surcharges have been applied.
A private insurance company says that since their liability insurance policy doesn't exclude
open meeting law claims, we wouldn't need a separate open meeting law policy if we bought
insurance from them. Is this true?
Some people selling errors and omissions insurance policies for private insurance companies
have suggested that separate coverage isn't needed because their errors and omissions insurance
policy doesn't have a specific exclusion for open meeting law claims. Therc are a couple of
problems with this approach.
first, an open meeting law charge often does not involve a claim for damages. If you look for
coverage under a liability insurance policy, the problem isn't that it's an excluded claim; the
problem is that it's not a claim for damages at all. Without a claim for damages, there's nothing
to trigger coverage in the first place. Before relying on a private insurer's policy for this
. exposure, it would be a good idea to get it in writing that the insurer will in fact pay for
defending open meeting law claims even if there isn't a claim for damages.
The second problem is that liability insurance policies usually give the insurer the right to settle
the claim at their discretion. It will often be a lot cheaper to simply "cop a plea" and pay the
$300 penalty even if the charge really isn't justified, rather than paying thousands of dollars in
legal fees todefend it. An insurer covering an open meeting law claim might very well decide
that that's the most sensible thing to do, in the same way that insurers sometimes pay
questionable damage claims simply because it's cheaper than defending them. That would
resolve the litigation cheaply, but it may not be the resolution the city official would prefer.
Whom can we call if we have other questions?
If you need additional infonnation or have other questions, you can contact Tom Grundhoefer or
Pete Tritz at the League office, or call your LMCIT underwriter. We'd also appreciate any
comments or suggestions city officials have for ways this coverage could be improved, or for any
other changes cities would like LMCIT to consider.
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