II. 3. ITEM 2016-10 Authorize renewal of general liability and property insurance and grant authorization to not waive the statutory tort liability on the League of Minnesota Cities Insurance Trust PolicyNovember 1, 2016HRA Report 2016-10
RENEWAL OF GENERAL LIABILITY AND PROPERTY INSURANCE AND
AUTHORIZATION TO NOT WAIVE THE STATUTORY TORT LIABILITY
ON THE LEAGUE OF MINNESOTA CITIES INSURANCE TRUST POLICY
Proposed Action
Staff recommends adoption of the following: Moveto approve renewal of the LMCIT nsuranceolicy
for the HRA and to not waive the statutory tort liability limits to the extent ofthe 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 staffrecommendation to not waive the
statutory tort liability limits is based on liability exposure to the ity in the formof higher premiums.
This is the option selected this past year.
Overview
The renewal date for the HRA Insurance Policy is 11/1/16 and is for a one year period. The LMCIT has
indicated that insurance rates will increase about 0-3% for automobile physical damage, 0-3% for
municipal liability and auto liability insurance and 2-3% for property insurance due to recent overall
industry claimhistory. Our actual increases will be known once the renewal application has been
submitted and the rate quoted. Our specific claimhistory, which has been low for the HRA will also
have an impact on the rates. The premiumfor the 2015-2016 insurance year was $16,950, which was a
decrease of $1,059 or 5.9% over the previous year. This is the third premiumdecrease in a row.
Primary Issues to Consider
Election of waiver of tort limits for liability
Liability exposure if we elect to waive the tort limits for liability
Staff Recommendation
Finance recommends renewal of the LMCIT Insurance Policy based on past HRA Board action 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
LMCIT Waiver Form
LMCIT Memo – LMCIT Liability Coverage Options
____________________________
Christine Harkess, CPA, CGFM
Finance Director
LIABILITY COVERAGE – WAIVER FORM
LMCIT members purchasing coverage must complete and return this form to LMCIT before the effective date of
the coverage. Please return the completed form to your underwriter or email to pstech@lmc.org
This decision must be made by the member’s governing body every year. You may also wish to discuss these issues with
your attorney.
League of Minnesota Cities Insurance Trust (LMCIT) members that obtain liability coverage from LMCIT must decide
whether to waive the statutory tort liability limits to the extent of the coverage purchased. The decision has the following
effects:
If the member 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 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 the city purchases the optional excess liability coverage.
If the member waives the statutory tort limits and does not purchase excess liability coverage, a single claimant could
potentially recover up to $2,000,000 for a single occurrence. (Under this option, the tort cap liability limits are waived to
the extent of the member’s liability coverage limits, and the LMCIT per occurrence limit is $2 million.) The total all
claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited
to $2,000,000, regardless of the number of claimants.
If the member 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 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.
LMCIT Member Name
Check one:
The member DOES NOT WAIVE the monetary limits on municipal tort liability established by Minnesota Statutes,
Section 466.04.
The member WAIVES the monetary limits on municipal tort liability established by Minnesota Statutes, Section
466.04 to the extent of the limits of the liability coverage obtained from LMCIT.
Date of city council/governing body meeting
SignaturePosition
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
some issues to consider in deciding which of the options best meets
Statutory Limits on Municipal Tort Liability
The statutes limit a tort liability to a maximum of $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.
Coverage Limits for Basic Primary Liability
Something to Think About
Coverage
ƓķĻƩ ƷŷĻ Ĭğƭźĭ ĭƚǝĻƩğŭĻ ŅƚƩƒͲ ƷŷĻ
liability coverage provides a limit of $1,500,000 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.
Claims based on a theory. Suits challenging land use regulations frequently include
an alleging that the regulation amounts to a of the
property.
Primary 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
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.
2
The City maybe Required byContracttoCarryHigherCoverage Limits
Occasionally, a contract might include a requirement the city carry more than $1,500,000 of coverage
limits. Carrying excess coverage is a way to meet these requirements. also another option
for cities in this situation. LMCIT can issue an endorsement to increase the coverage limit only
for claims relating to that particular contract. small charge for these
There may be more than One Political Subdivision Covered Under 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 coverage and a claim were made that involved
both the city and the EDA, theoretically the claimant might be able to recover up to $1,500,000 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
However, those limits have now been tested and upheld several times in Minnesota. While
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
the Effect of Waiving the Per Claimant Statutory Liability Limit?
If the city chooses the option, the city and LMCIT no longer can use the statutory limit of
$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
would still apply; that would limit the recovery to a lesser amount if there were multiple
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.
The injured actual proven damages are greater
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
injured party 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 citizens for injuries caused by the
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 of the
funds by taking full advantage of every protection the legislature has decided to provide. no
right or wrong answer on this point. a discretionary question of city policy that each city council
needs to decide for itself.
For claims the statutory tort liability to, it affect how the coverage or
risk on those claims. Waiving the statutory tort limits has no effect on claims the statutory limits
to.
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
claimants (whether claimant or several) could then potentially recover up to $2.5 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?
There is no increase in risk for the city to end up with liability if LMCIT cover it. The waiver
form specifically says the city is waiving the statutory tort liability limits only to the extent of the
coverage.
Of course, not to say there is no risk the liability could exceed its coverage limits. We
listed earlier a number of ways that could happen to any city. But the waiver increase that
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
not necessarily simple, but the table on the following page
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
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