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HomeMy WebLinkAbout13.A.1. Consider Policy on Sanitary Sewer Backup Damage Claims J3,A. I. CITY OF SHAKOPEE Memorandum TO: Mayor & City Council Mark McNeill, City Administrator FROM: Bruce Loney, Public Works Director SUBJECT: Consider Policy on Sanitary Sewer Backup Damage Claims DATE: October 6, 2009 INTRODUCTION: At the September 9, 2009 City Council meeting, under City Council consensus, the City Council directed staff to consider a policy on negotiating sewer backup claims. This memo will address the directive. BACKGROUND: The City of Shakopee has insurance for liability claims with the League of Minnesota Cities Insurance Trust (LMCIT). For sanitary sewer backup damage claims, the City follows a procedure in which the property owner submits a claim to our insurance company. Claims are processed by the LMCIT and a determination of liability is done by an insurance adjustor. The LMC has asked for a formal Sanitary Sewer Policy for the purpose of performing good maintenance practices for the sanitary sewer system. The City adopted Resolution No. 6217, which adopted a Sanitary Sewer Policy and established maintenance criteria. The LMCIT has recommended this policy and procedures to limit liability and ensure coverage by the LMC. By following the policy and performing good maintenance on the sewer system, the City may be found not liable for damage in a sewer backup situation in the City's sewer main. The reason being is that the City cannot control what is put in the system by users. Attached to this memo is an informational document from the LMC and as it pertains to liability claims from sewer backups. The recommended practice and procedure that staff follows in a sewer backup situation is as follows: 1. Respond to the backup and open the blocked area as far as possible and do not admit to any liability. 2. Notify the property owner to contact their insurance company and to submit a claim to our insurance company, if desired. 3. Have the LMCIT adjustor review the facts of the sewer backup and maintenance records to determine if the City is liable. 4. Insurance adjustor makes the determination and notifies the City and property owner. 5. If City is liable, the insurance pays damages. 6. If City is not liable, the option for property owners is to the take the City to court or until recently, the City has offered settlement payment agreements to avoid court. The recent payment of damages, in which the City was not liable, has prompted the directions of forming a policy on settlement payments in the future. For consideration of a policy, in regards to this issue, staff sees the following: 1. Do not offer settlement payments and allow the claim to go to court to determine if the City is liable or not. 2. Approve a settlement payment on a case by case basis and use the recent settlement as a basis for payment determination. 3. Purchase the no fault insurance from the LMC that was mentioned in June. Council elected not to go with the additional insurance, due to the cost per year versus number of claims per year. Staff believes Option No.1 is the fairest policy when considering property owners who purchase private sanitary sewer backup coverage on their insurance policy and those who do not. Options No.2 and No.3 would not provide any incentive for some owners to purchase insurance and allow the City to offer a settlement payment or purchase a no fault insurance policy. Staff did check with our insurance carrier and an endorsement for sewer backup coverage for a minimum $5,000 coverage and $250.00 deductible would cost approximately $40.00 per year. Also, if a homeowner purchases the coverage, the insurance company would probably go after the City and its insurance company to collect for damages. Property owners who do not have insurance would be on their own to take the City to court to determine liability. Staff did check with other cities and most follow a no payment policy and rely on the insurance adjustor's determination on whether the City is liable or not. One main reason for this is that the LMCIT has to defend the City and pay for any damages the court may decide against the City. One city (Burnsville) has the no fault insurance to pay for sewer backups even if the city is not liable. Staff did present the no fault insurance option to the council on June 16,2009. In the cities that staff checked, no city has a written policy on settlement payments. Previously, staff did recommend to review possible settlement payments on a case by case basis. In summary of this item, the LMC would recommend allowing claims to court to determine liability. Also, the practices provide incentive to property owners to purchase private insurance coverage and treats those with or without insurance the same. Staff does not recommend establishing a written policy on negotiating settlement payments. However, the City could continue with a case by case basis and use the past practice as a guideline. Staff would like further discussion and direction from Council on this item before finalizing proceeding to establish any written policy. BUDGET IMPACT: Settlements which are paid after the City is found to be liable are covered by the LMCIT (less deductible). If the City is not liable, and a payment is directed by the City to be paid by the LMCIT, the City's claims "experience" and subsequent premiums will increase. Settlements which are negotiated outside of the normal process are the responsibility of the City; City payments will then come from the Sanitary Sewer Fund. Ultimately, payments from that fund impacts all sanitary sewer ratepayers throughout Shakopee. AL TERNA TIVES: 1. Discuss options of handling sewer backup damage claims and provide direction to staff on a formal policy or not. 2. Table for additional information. RECOMMENDATION: Discuss options of handling sewer backup damage claims and provide direction to staff on a formal policy or not. ~neY, Public Works ENGR/2009-PROlECTS/2009-COUNCIUSEWER-BACKUP-POLICY ~, ~': -, 1J RESOLUTION NO. 6217 A Resolution Adopting A Sanitary Sewer Policy For The City Of Shakopee WHEREAS, the City Council desires to establish a written policy on the sanitary sewer system for the City of Shakopee; and WHEREAS, a Sanitary Sewer Policy has been prepared and was reviewed by the City Council at its April 5, 2005 Council meeting. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SHAKOPEE, MINNESOTA: 1. That the Sanitary Sewer Policy, a copy of which is attached hereto is hereby adopted. 2. This policy shall become effective April 19, 2005. Adopted in O.ct//).i:.? session of the City Council of the City of Shakopee, Minnesota, held this /974 dayof ~AtJl ,2005. , f Qt(~~ Mt<for of the ty of Shakopee ATTEST: :i:D71/~-~.M / ~ ity Clerk ENGRlEMPLOYEEFOWERlPl'ENNlNGTONICOUNCl11RES6217 '. ... J SAt'\JITARY SEWER POLICY FOR THE CITY OF SHAKOPEE 1. Purpose The purpose ofthis policy is to provide the City of Shakopee's procedures for maintaining its sanitary sewer system. These procedures are necessary to prevent sewer backups into homes and businesses and the natural environment. Maintenance also protects and extends the life of the City's sanitary sewer system. The City will provide such maintenance in a safe and cost effective manner, keeping in mind safety, budget, personnel and environmental concerns. The City will use city employees, equipment and/or private contractors to conduct this maintenance. II. Routine Maintenance and Inspection 1. Sanitary Sewer Lines- a. Scope of City's Responsibility - The City will maintain the city's sanitary sewer lines. Private property owners are responsible for the maintenance of the private lines from the city's main line to any buildings. b. Schedule - The City will clean every sanitary sewer line every three years. c. Problem Area - This is defmed as an area that has had a sewer backup, blockage or a known problem such as grease accumulation or shallow slope. This area will be cleaned twice a year for the first year. If there are no further problems, it will be cleaned once the second year and then to a regular schedule the third year. d. Equipment - Lines will be cleaned with a j etter. e. Televising Inspection - The lines will be inspected by television camera every 10 years. Any lines that are located on a street where a street maintenance project is planned will be inspected prior to those projects. Camera inspection will also be available to inspect lines where there are possible problems. 2. Sanitary Sewer Lift Stations a. Schedule - The City will maintain the lift stations that the City is responsible for annually using specific maintenance that is reasonable and recommended. The maintenance is reflected in the checklists developed for each lift station. , .. ~.: .. b. Electrical Components - An electrician will be hired annually to inspect and maintain the electrical components of the lift stations. c. Flow Meters - The flow meters at the lift stations will be checked on a weekly basis to ensure that the lift stations are working properly and to detect any problems in the system. III. Emergency Response 1. Definition - An emergency response occurs in response to a call from citizens, fellow employees, or an alarm that indicates that there is a possible problem in the sanitary sewer system. 2. Response - After receiving notice of a possible problem, an employee will respond and determine ifthere is a problem in the city's system. Ifthere is, he or she will remedy it based on accepted procedures. If necessary, the city employee will obtain assistance from other city employees or outside contractors such as electricians or engineers. IV. Inflow/Infiltration 1. Definitions - Inflow is where storm water is misdirected into sanitary sewer system through intentional connections such as sump pumps and roof leaders. Infiltration is where storm and ground water get into the sanitary sewer system through cracks or leaks in the sewer pipes or manholes. Inflow and infiltration can lead to backups, overflows and unnecessary and expensive treatment of storm water. 2. Inflow - To reduce inflow, the City has developed a program to eliminate illegal connections to the sanitary sewer system. This includes enforcement of the ordinance banning such connections and public education to encourage voluntary compliance. 3. Infiltration - To reduce infiltration, the City employees will annually inspect manholes and repair any that contribute to this problem. The sewer lines are maintained and inspected pursuant to Section II of this policy. v. Training The City will provide training on a regular basis to employees that will be involved in the routine maintenance and the emergency response on the procedures to follow and the on how to use the proper equipment. VI. Work Schedule for City Employees "i -, ,,- ~ ,- City employees will be expected to work eight-hour shifts. In emergencies, employees sometimes have to work in excess of eight-hour shifts. However, because of budget and safety concerns employees may be limited in how long they work. VII. Weather Conditions Sewer maintenance operations will be conducted only when weather conditions do not endanger the safety of city employees and equipment. Factors that may delay sewer maintenance operations include; severe cold, flooding, rain, snow and wind. VIII. Documentation The City will document all of its inspection, maintenance and emergency responses for its sanitary sewer system. The City will also document any circumstances where something has occurred that limits its ability to comply with this policy. These records will be kept in accordance with the City's record retention schedule. 0; Gi \.~/ LEAGUE OF CONNECTING & INNOVATING MINNESOTA SINCE 1913 ClTI ES RISK MANAGEMENT INFORMATION WHEN LMCIT DENIES A LIABILITY CLAIM A scenario A water main breaks and your city's sewer system backs up into several homes causing major damage. Or someone falls and is injured on a city sidewalk. Or a tree falls in a windstorm and damages a car. A citizen has a loss and is looking to the city to pay for it. Your city has liability coverage through LMCIT, so you report the claim to LMCIT - and the claim is denied. City officials quickly hear from angry citizens demanding to know why LMCIT won't pay for such losses and what the city is going to do about it. Background The League of Minnesota Cities Insurance Trust (LMCIT) provides liability coverage for over 800 Minnesota cities. LMCIT is not an insurance company - it is a cooperative self-insurance organization of cities. The idea behind LMCIT is that rather than paying premiums to an insurance company, the cities pool those funds and use them to cover claims. Any funds LMCIT collects from its members that are not needed to cover losses or expenses are returned to member cities as dividends. LMCIT has returned over $191 million in dividends to its member cities since 1987. When LMCIT denies a liability claim, it is usually not an issue of coverage - i.e. whether or not the city's LMCIT liability coverage covers the claim. Rather, the issue is liability; that is, is the city legally liable for the damages of each particular claim? About liability When a third party makes a claim against the city and the city submits that claim to LMCIT, the key issue is liability. It's important to remember that the city isn't automatically liable simply because the injury occurred on city property, or because city equipment or personnel were involved. It's very much an over-simplification, but, in general, for the city to be liable for someone else's damages, three conditions must be met: 1. The city must have been negligent. That is, the city must have done something it shouldn't have done, or failed to do something it should have done. 2. The damages must have been caused by the city's negligence. 3. It must not be one of the areas in which the city is immune from liability. LEAGUE OF MINNESOTA CITIES 14$ UNIVHISllY AVf. WEST PHONE: (651) 281-1200 fAX: (6511281-1298 INSURANCE TRUST S"[ I'Alll.. MN 5S103-1IH4 10ll rtlEt: (800l 925- 1122 WH\: WW\'U.MCORG When the city reports a liability claim to LMCIT then, the key issue for LMCIT's claims staff is whether the city is legally liable for the damages that are being claimed. Sometimes it's very clear from the facts that the city is liable. In such cases, the adjuster's job is to pay the claimant a fair settlement of the damages as quickly as possible. In other cases, it may be very clear that the city is not liable, in which case the adjuster will deny liability and decline to offer any settlement. In many cases though, it may not be obvious whether the city is liable. The facts may be unclear or disputed; it may be debatable whether or not the city acted negligently; other parties' negligence (including the claimant's) may be involved; there may be questions about what really caused the damages; and so on. It's harder to generalize about these cases. Depending on the particular facts and circumstances and how likely it seems that the city will ultimately be held liable, LMCIT's claims staff mayor may not attempt to negotiate a compromise settlement in these kinds of cases. Ultimately, of course, evaluating and deciding on liability is what the court system is for. If a claimant disagrees with LMCIT's denial of a claim, the claimant can bring the issue to the courts. If that happens, it's LMCIT's responsibility to pay for the cost of defense and to pay the damages the court awards against the city. One final note. Legally, the burden is on the person making the claim to prove that the defendant is liable. In other words, it's the claimant's responsibility to show that the city is liable - not the city's responsibility to show that the city isn't liable. That doesn't mean that LMCIT's adjusters will simply sit back and do nothing, waiting for the claimant to assemble and present the evidence. The LMCIT adjuster's job is to investigate the claim, collect the relevant facts and information, and make a reasonable evaluation of whether the city is liable. It does mean, though, that if that investigation doesn't produce good evidence to show that the city is liable, LMCIT's position will be to deny city liability. Keep in mind too that when LMCIT denies liability on a claim, it shouldn't necessarily be interpreted as saying that the damage is the claimant's own fault. Why does LMCIT stick to a legal liability standard in deciding whether or not to pay a liability claim? No one - neither city officials, nor LMCIT staff-enjoys telling a citizen thatthe city is not responsible for their damages because their problem was not caused by city negligence. But if we apply the standard of legal liability, sometimes that's exactly what we have to say. Sometimes that means that the city officials will hear complaints from an angry citizen. The reaction is very understandable: I've been injured, and it was the city's tree (or sidewalk or sewer or whatever) and I didn't do anything wrong. From a political standpoint, it would sometimes be a lot easier to simply make a payment to the damaged party, even though legally the city isn't liable for that payment. However, there are at least three good reasons why it wouldn't be appropriate for LMCIT to do so: . First, the funds LMCIT uses to pay claims are public funds that are really the joint property of LMCIT's member cities. Because we are dealing with public funds held by LMCIT in trust, we have a duty to ensure that those funds are paid out only when legally owed. To do otherwise would amount to making a gift of those public funds to a private individual. 2 . Second, the funds LMCIT uses to pay claims really belong jointly to all ofLMCIT's member cities. LMCIT is simply holding the money in trust for these members. Each member city has the right to expect that LMCIT will pay those funds out only if the money is in fact legally owed. . Finally, we have to be concerned about setting a precedent. IfLMCIT were to make a payment on one such claim to one person in one city, LMCIT would have to be prepared to do so for every claimant in every member city that faces a similar situation. What if we disagree with the LMCIT adjuster's determination? There's often a good deal of judgment involved in evaluating liability, and it's certainly possible that city officials may disagree or have questions about the LMCIT adjuster's evaluation and conclusions. Those disagreements can be in either direction; it could be a case where you think that a claim LMCIT has denied should be paid, or a case where you think a claim LMCIT plans to pay should be denied. The first thing to do is to talk with the adjuster. If there are facts or infonnation that the adjuster isn't aware of, or if there are issues that s/he hasn't investigated which you feel should be, give the adjuster a call. It's not the adjuster's job to do everything possible to either deny or to pay a claim; the adjuster's job is to try to get it right. In some cases, you may still have concerns or questions after talking with the adjuster. If so, please call Doug Gronli, LMCIT Claims Manager, at (651) 281-1279, Pete Tritz at (651) 281~1265 or Ann Gergen at (651) 281-1291. We'll be glad to review the claim to make sure that we're comfortable with the position the adjuster has taken on LMCIT's behalf, or to modify that position if it's appropriate. If LMCIT has denied liability on a claim, and the city believes it should be paid, can the city pay the claim itself, using the city's own funds? City officials may feel it's appropriate to pay a claim denied by LMCIT out of city funds. They may feel it is the city's responsibility to take care of its citizens, regardless oflegalliability, or they may simply and understandably feel sympathy for the claimant's situation. Obviously, the city council is responsible for the city's funds and has the power to decide when and how those funds should be spent. But while it's clearly the council's call, the city also needs to think about some of the same issues that LMCrT has to consider. One important question, of course, is whether this is an appropriate and authorized use of city funds. We'd suggest that cities discuss this with the city attorney before making a payment in these kinds of circumstances. Another important issue is the precedent the city would set by making a voluntary payment in a particular case. Once the city has made a payment in one circumstance, it would be very difficult not to do so again for the next citizen who's in a similar circumstance. Depending on the size and 3 number of such future claims, the total cost to the city could be much greater than the amount in question on this one claim. While it is, of course, up to the council to decide what to do, in many cases a better solution may be to focus on solving the problems that have resulted in claims against the city, and to provide citizens with the information they need to protect themselves from loss. LMCIT is here to help If you receive questions from citizens or the press, or if you have questions regarding your city's coverage, your city's liability, LMCIT's investigation ofthe claim, or any related area of concern, please call the LMCIT staff. We'll do everything we can to answer your questions, to get you the information you need, and, if necessary, to correct any mistakes or problems there may be. Dealing with a denied claim can be a difficult process, especially in times of community hardship. If you have any questions about the information contained in this article, or any other concerns related to LMCIT, please call Doug Gronli, Ann Gergen, or Pete Tritz at the numbers shown on the previous page, or toll-free at (800) 925-1122. Pete Tritz 10/23/07 4 Sewer Backup Liability Losses Sewer claims comprise about 13 percent of all V ~ liability loss costs. The number of claims has Sewer Backups at a Glance remained fairly steady, averaging about 564 claims From 2005-2008 sewer backup costs per year, or 21 percent of all incurred liability were mostly attributable to damages. claims. Claims comprised: . 13 percent of all liability costs Loss costs in each of the last five years have been . 1 percent of all liability expenses more than $1 million, with most costs associated . 25 percent of all liability damages with damages. Sewer backups made up 25 . 21 percent of all liability claims percent of all liability damages from both 2001- ~ A 2004 and 2005-2008. Total Incurred liability Damages 1 Total Incurred liability Damages I 2005-2008 at 3-31-09 2001-2004 at 3-31-09 Admin E&O I i 2% Employment I 14% Admin E&O 3% Sewer liability costs during 2005-2008 averaged $1.7 million per year, and $1.2 million from 2001 to 2004. Costs surpassed the $2 million mark during 2005, in large part due to three claims with significant damages: one city had three homes affected by a large rainfall where water entered the sanitary system through a damaged manhole; another city had nine homes damaged as a result of city sewer flushing activities; and the other had a large sewer backup loss due to lack of maintenance and grease in the main line. Total damages for these three claims were nearly $400,000. I Sewer Backup Incurred Costs at 3-31-09 $2,500,000 800 $ 2 ,000 ,000 '" 600 .~ $1,500,000 U 400 ~ $1,000,000 cu .c $ 500,000 200 ~ z $0 '01 '02 '03 '04 '05 '06 '07 '08 '09 _Incurred Damages ~ Incurred Expenses - Number of Claims Page 10 of20