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IV.4. Renewal of General Liability and Property Insurance; Harkess December 2, 2014Council Report 2014-131 RENEWAL OF GENERAL LIABILITY AND PROPERTY INSURANCE AND AUTHORIZE NOT WAIVING OF THE STATUTORY TORT LIABILITY ON THE LEAGUE OF MINNESOTA CITIES INSURANCE TRUST POLICY Proposed Action Staff recommends adoption of the following: Move to approve renewal of the LMCIT Insurance Policy and to not waive the statutory tort liability limits to the extent of the coverage purchased. Adoption of this motion will result in staff moving forward with the proposed LMCIT insurance coverage including not waiving the statutory tort liability limits. The staff recommendation to not waive the statutory tort liability limits is based on liability exposure to the city in the form of higher premiums. Overview The LMCIT has indicated that insurance rates will decrease about 4% for property/casualty insurance, 6% for auto physical damage, and auto liability and bond rates will be unchanged. LMCIT rates for optional coverage will change as follows: machinery breakdown will decrease 5% and excess liability will decrease 12%. We anticipate that insurance premium for Hopkins will be relatively flat. Just because rates will decrease does not correspond to rate decreases for a specific city. That’s because actual premiums are also affect ted by changes in city expenditures, property values, payrolls, experience rating, the third year of transition to the new liability rating system and other exposure measures. The premium for 2014 was $236,985, a $32,191 increase over 2013. Finance continues to recommend the deductible amount of $20,000/$40,000 with $1,000 per occurrence after reaching the maximum of $40,000. The current amount available in the insurance risk fund to cover deductible costs is $273,960. In addition we will be sharing in a $9.5M LMCIT dividend this year. Those funds will add to our insurance reserves for potential claims and deductibles. Primary Issues to Consider Deductible amount € Tort liability exposure € Staff Recommendation Finance recommends renewal of the LMCIT Insurance Policy and to not waive the monetary limits on the tort liability established by Minnesota Statutes 466.04, to the extent of the limits of the liability coverage obtained from LMCIT. Supporting Information Election of waiver of tort limits for liability € Liability exposure if we elect to waive the tort limits for liability € ____________________________ Christine Harkess, CPA, CGFM Finance Director Financial Impact: $ 238,000 (est) Budgeted: Y/N X N Source: All Funds Related Documents (CIP, ERP, etc.): _____ ______Notes: ___________ _________ Additional Information The statutory municipal tort liability limits are $500,000 per claimant, $1,500,000 per occurrence. The $500,000 per claimant liability is currently not waived. The city council must make the decision to waive or not waive the tort liability limit. See attached LMCIT resource document regarding liability coverage options. This memo provides a good overview of the liability limits however it hasn’t been updated with the new tort limits yet. The City of Hopkins currently does not waive the statutory tort limits and does not purchase excess € liability coverage. A single claimant could potentially recover up to $1,500,000 on a single occurrence. The total which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply is also limited to $1,500,000, regardless of the number of claimants. The cost of waiving the statutory tort limit is approximately $4,000 and is already included in the cities annual premium amount. If the City of Hopkins does not waive the statutory tort limits, an individual claimant would be able to € recover no more than $500,000 on any claim to which the statutory tort limits apply. The total which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply, would be limited to $1,500,000. These statutory tort limits apply regardless of whether or not the city purchases optional excess liability coverage. Cost savings to the city of NOT waiving the statutory tort limits is approximately $4,000 which is not a € huge savings but not waiving does limit our exposure and possible claims that could add to future increases. Overall, the liability and property loss picture doesn’t look much different than it did a year ago, and the League isn’t seeing any new trends or alarming patterns. Liability loss costs, which make up about half of the property/casualty total, have been remarkably stable for the past few years. Actual loss costs at the rd LMCIT have been coming in below projections. Property makes up about 1/3 of the LMCIT loss cost. Despite the stability, litigation relating to land use regulation and development continues to be a concern of the League. Land use litigation costs average the League over $2 million a year – about 20% of the total liability loss cost – and they can vary a great deal from year to year. SECTION I: LIABILITY COVERAGE WAIVER FORM Cities obtaining liability coverage from the League of Minnesota Cities Insurance Trust must decide whether or not to waive the statutory tort liability limits to the extent of the coverage purchased. The decision to waive or not to waive the statutory limits has the following effects: If the city does not waive the statutory tort limits, an individual claimant would be able to recover no more than $500,000. on any claim to which the statutory tort limits apply. The total which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would be limited to $1,500,000. These statutory tort limits would apply regardless of whether or not the city purchases the optional excess liability coverage. If the city waives the statutory tort limits and does not purchase excess liability coverage, a single claimant could potentially recover up to $1,500,000. on a single occurrence. The total which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to $1,500,000., regardless of the number of claimants. If the city waives the statutory tort limits and purchases excess liability coverage, a single claimant could potentially recover an amount up to the limit of the coverage purchased. The total which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to the amount of coverage purchased, regardless of the number of claimants. Claims to which the statutory municipal tort limits do not apply are not affected by this decision. Cities purchasing coverage must complete and This decision must be made by the city council. return this form to LMCIT before the effective date of the coverage. For further information, contact LMCIT. You may also wish to discuss these issues with your city attorney. accepts liability coverage limits of $ from the League of Minnesota Cities Insurance Trust (LMCIT). Check one: DOES NOT WAIVE The city the monetary limits on municipal tort liability established by Minnesota Statutes 466.04. WAIVES The city the monetary limits on tort liability established by Minnesota Statutes 466.04, to the extent of the limits of the liability coverage obtained from LMCIT. Date of city council meeting Signature Position 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 the statutes provide; and the city can select from among several liability coverage limits. This memo discusses these options and identifies Statutory Limits on Municipal Tort Liability 500,000 per claimant and $1,500,000 per occurrence. These limits apply whether the claim is against the city, against the individual officer or employee, or against both. rimary Liability Something to Think About Coverage …ƓķĻƩ ƷŷĻ Ĭğƭźĭ ĭƚǝĻƩğŭĻ ŅƚƩƒͲ ƷŷĻ 500,000 per υЎЉЉͲЉЉЉ ƦĻƩ ĭƌğźƒğƓƷ ƦğƩƷ ƚŅ ƷŷĻ occurrence, matching the per-occurrence part of the statutory ƭƷğƷǒƷƚƩǤ ƌźğĬźƌźƷǤ ƌźƒźƷ źƭ ƓƚƷ municipal tort liability limit. Beside the overall coverage limit ǞğźǝĻķͲ ƭƚ źŅ ƷŷĻ ƭƷğƷǒƷƚƩǤ ƌźƒźƷ of $1,500,000 per occurrence, there are also annual aggregate ğƦƦƌźĻƭ Ʒƚ ƷŷĻ ƦğƩƷźĭǒƌğƩ ĭƌğźƒͲ limits (that is, limits on the total amount of coverage for the \[a/L ğƓķ ƷŷĻ ĭźƷǤ Ǟƚǒƌķ ĬĻ ğĬƌĻ Ʒƚ year regardless of the number of claims), for certain specific ǒƭĻ ƷŷğƷ ƌźƒźƷ ğƭ ğ ķĻŅĻƓƭĻ͵ risks. Aggregate limits apply to the following: Products $2,000,000 annually Failure to supply utilities $2,000,000 annually EMF $2,000,000 annually Limited pollution* $2,000,000 annually Mold $2,000,000 annually Land use litigation** $1,000,000 annually Employers liability (work comp) $1,500,000 annually * Includes sudden and accidental releases of pollutants; herbicide and pesticide application; sewer ruptures, overflows and backups; and lead and asbestos claims. 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, Why Purchase Higher Coverage Limits? There are several different reasons why cities should strongly consider carrying higher limits of liability coverage. 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. . Suits challenging land use regulations frequently include property. rimary Liability Coverage has Annual Limits on Coverage for a few Specific Risks The table on page one 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 c 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 important restrictions on how the excess coverage applies to risks that are subject to aggregate limits: The excess coverage does not apply to three risks: failure to supply utilities; mold; and a body of water; and The excess coverage does not automatically apply to liquor liability unless the city specifically requests it. 2 The City may be Required by Contract to Carry Higher Coverage Limits Occasionally, a contract might include a requirement the city carry more than $1,500,000 of coverage for claims rela There may be more than One Political Subdivision Covered Under the CCoverage An HRA, EDA, or port authority is itself a separate political subdivision. If the city EDA, for both the city and the EDA, theoretically the claimant might be able to recover up to $1,500,000 from both the city and 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. Cities Sometimes Carry Higher Coverage Limits Because of a Concern the Courts Might Overturn the Statutory Liability Limits always possible that a future court might decide to throw out the statutory limits, this is now less of a concern. Available Excess Liability Coverage Limits Excess coverage is available in $1 million increments, up to a maximum of $5 million. Does the Optional Excess Coverage Apply to all Types of Claims? No. The excess liability coverage does not apply to the following types of claims: limited pollution, mold, failure to supply utilities, auto no-fault, uninsured / underinsured motorist, workers compensation, disability, unemployment claims, or claims under the medical payments coverage. Who Needs Excess Liability Coverage? If anything, excess liability coverage is even more important to a small city, rather than a large 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 of liability 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 5,000 taxpayers is $200 apiece annoying but probably at least manageable for most taxpayers. $1 million divided among 200 taxpayers is $5,000 apiece enough to be a real problem for many. 3 $500,000 per claimant as a defense. Because the waiver increases the exposure, the premium is roughly 3% higher for coverage under the waiver option. If the city waives the statutory limit, an individual claimant could therefore recover up to $1,500,000 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 $1,500,000 per occurrence claimants. Why Would the City Choose to Pay More to get Waiver-Option Coverage? The statutory liability limit only comes into play in a case where Highlight The city is in fact liable. T ŷĻ ǞğźǝĻƩ ƚƦƷźƚƓ ĭƚǝĻƩğŭĻ ķƚĻƭ ƓƚƷ than the statutory limit. ŭźǝĻ ƷŷĻ ĭźƷǤ ĬĻƷƷĻƩ ƦƩƚƷĻĭƷźƚƓ͵ ŷĻ ĬĻƓĻŅźƷ źƭ Ʒƚ ƷŷĻ źƓƆǒƩĻķ ƦğƩƷǤ͵ Very literally, applying the statutory liability limit means an proven damages that were caused by city negligence. Some cities as a matter of public policy may want to have more assets available to c negligence. Waiving the statutory liability limits is a way to do that. funds by taking full a needs to decide for itself. For claims the statutory tort liability risk on those claims. Waiving the statutory tort limits has no effect on claims the statutory limits Effects of Waiving the Statutory Limits if there is Excess Coverage If the city has $1 million of excess coverage and chooses to waive the statutory tort limits, the .5 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. $1,500,000 divided 50 ways may not go far toward compensating for those 4 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. Waiving Statutory Tort Liability Limits: Increase in Risk? The waiver form specifically says the city is waiving the statutory tort liability limits only to the extent of the ge. risk. 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. Your League Resource Is there a Simple way to Summarize the Options? CĻĻƌ ŅƩĻĻ Ʒƚ ĭğƌƌ ƷŷĻ …ƓķĻƩǞƩźƷźƓŭ 5ĻƦğƩƷƒĻƓƷ ğƷ ЏЎЊΏЋБЊΏЊЋЉЉ ƚƩ БЉЉΏ is a shorthand summary of what the effect would be of the ВЋЎΏЊЊЋЋ ǞźƷŷ ğƓǤ ƨǒĻƭƷźƚƓƭ͵ various coverage structure options in different circumstances. Pete Tritz 12/09 5 This is the maximum amount of damages which LMCIT would the statutory limits do not apply On a liability claim to which 00,00000,00000,00000,000 5555 $1,$1,$2,$2, imants. the number of cla LMCIT Liability Coverage Options amount that all claimants could recover on a single occurrence. This is the maximum total On a liability claim to which 00,00000,00000,00000,000 the statutory limits apply 5555 $1,$1,$1,$2, amount a single claimant This is the maximum recover on an 00,00000,000 00,00000,000 occurrence. 55 $1,$2, 55 $$ could & Has $1,000,000 of excess coverage & Has $1,000,000 of excess coverage Does not waive the statutory limitsDoes not waive the statutory limits Does not have excess coverage & Does not have excess coverage & Coverage structure Waives the statutory limitsWaives the statutory limits If the city: