CR 04-192 Minnesota Cities Insurance Trust Policy
CITY OF
December 15, 2004 ~ Council Report 04-192
HOPKINS
. AUTHORIZE RENEWAL OF THE
LEAGUE OF MINNESOTA CITIES INSURANCE TRUST POLICY
Proposed Action
Staffrec0111mends adoption of the follow1ng: Move to renew the League of Minnesota Cities Insurance
Trust policy and continue to 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.
This does not include med1cal insurance coverage. The recommendation to waive the statutory tort
liability limits is based on past action by the City Council. You may of course choose to not waive the
statutory li111ts on tort liability thus sving the city approximately $3,300 1n premiums.
Overview
The statutory municipal tort liability limits continue to be $300,000 per claimant, $1,000,000 per occurrence.
The statutory tort liability limit of $1 ,000,000 is the same as last year. The $300,000 per cla1mant liability is
cunently waived. The city council must make the decision to waive or not waive the tort liability limit. See
attached LJ...ICIT resource document regarding liability coverage options.
The cities insurance premium will increase approximately $6,000 or 3.9% over last year's premium for a total
. of $164,000. The primary reason for the increase is the result of higher property values, or experience factor
and an inflationary increase. Overall general liability rates will decrease 7%, property rates will increase 2%,
and auto liability rates will increase 3%. Rates for all other coverages rema1n the same,
Overall, the liability and property loss picture doesn't look much different than 1t did a year ago, and the
League isn't seeing any new trends or alamling pattems, Liability loss costs, which make up about half of the
property/casualty total have been stable and in line with or below projections. The League was able to
decrease the liability rates because the LMC Board decided to significantly increase the amount of risk
LMCIT retains on liability claims from $500,000 to $1,000,000 per occurrence. They're also increasing their
retention on property losses, but by a smaller portion. Keeping more risk significantly reduces their
reinsurance costs but also means they they'll be paying more of the losses directly and that their loss cost will
vary more from year to year. In the long run they expect that the increased retention will product a significant
net savings for LMCIT members.
Finance continues to recommend the deductible amount of $20,000/$40,000 with $1,000 per occutTence after
reaching the maximum of $40,000. The current amount available in the insurance risk fund to cover
deductible costs is $93,655.
Primarv Issues to Consider
. The City of Hopkins currently waives the statutory tort limits and does not purchase excess liability
coverage. A single claimant could potentially recover up to $1,000,000 on a single occurrence. The total
which all claimants would be able to recover for a single occurrence to which the statutory tort limits
e apply is also limited to $1,000,000, regardless of the number of claimants. The cost of waiving the
statutory tort limit is approximately $3,300 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 $300,000 on any claim to which the statutory t0l1limits 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 $1,000,000. These statutory tort limits apply regardless of whether or not the city purchases
optional excess liability coverage,
Staff Recommendation
Finance recommends renewal of the LMCIT [nsurance Policy and based on past conncil action waiving of the
monetary limits on the t011liability established by Minnesota Statutes 466.04, to the extent of the limits of the
liability coverage obtained from LMCIT.
Supporting Information
. LMCIT Waiver Fon11
. LMCIT Resource document on liability coverage options
th ~ . , / /
,'-1(,</, le'l7'<. J c::j~ 1 Q:f/.:f-/
Christine Harkess, CPA, CGFM
Finance Director
.
IFinancial Impact: (approximately) $164,000 Budgeted: Yes Source: All funds I
.
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LMCIT LIABILTIY COVERAGE - W AlVER 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 statut01Y tort limits, an individual claimant would be able to recover
no more than $300,000 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 $1,000,000. These statutory tort limits would apply regardless of whether or not the
city purchases the optional excess liability coverage.
> If the city waives the statutOlJl tort limits and does not purchase excess liability coverage, a single
claimant could potentially recover up to $1,000,000 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 $1,000,000, 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.
The decision must be made by the city council. Cities purchasing coverage must complete and return
. this form to the LMCIT before the effective date of the coverage. For further infonnation, contact
LMCIT. You may also wish to discuss these issues with your city attorney.
The City of Hopkins accepts liability coverage limits of $ LOOO,OOO
from the League of Minnesota Cities Insurance Trust (LMCIT).
Check one:
The city DOES NOT WANE the monetary limits on municipal tort liability established
by Minnesota Statutes 466.04.
XX The city WAIVES the monetary limits on tort liability established by Minnesota Statutes
466.04, to the extent of the limits ofthe liability coverage obtained from LMCIT.
Date of city council meeting
Signature Position
Return this completedfrom to LMelT, 145 University Ave. W, St. Paul 'MN 55103-2044
. LMCIT(ll/OO)(Rev. 11103) Page 1 of I
LMC League of Minnesota Cities
. Insurance Trust
145 University Avenue West, St Paul, MN 55103-2044
L""9". 0{ Minn..soW CiH.,. (651) 281-1200 . (800) 925-1122
Cia.... prrnnvHng =lI.n... Fax: (651) 281-1298 . TOO: (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 stmcturing 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 occunence, matching the per-
occunence part of the statutOlY 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:
$1,000,000 annuall
$1,000,000 ailllUall
$1,500,000 annuall
$1,000,000 ailllUall
$200,000 annuall
$1,500,000 annuall
$1,000,000 annuall
) $1,000,000 ailllUall
* 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.
.
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. 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 1tllderfederal civil rights laws. These include Section 1983, the Americans with
Disabilities Act, etc.
. Claims for tort liahility that the city has assumed hy cOlltract. This occurs when a city
agrees in a contract to defend and indemnify a private party.
. Claims for actiolls 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 011 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 011 a "taking" theOlY. Suits challenging land use regulations frequently
include an "inverse condemnation" claim, alleging that the regulation amounts to a
"taking" of the 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 ofthe 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 restTictions on how the excess coverage applies to
risks that are subject to aggregate limits:
. The excess coverage does not appzv to four risks: lead and asbestos;failure to supply
utilities: mold; and "limited pollution" claims ifeither the pollutant release or the
damage is below ground or ill a body oftvater: 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
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. 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 cany
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 indemnity 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
migbt 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 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
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 canies 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
. UMfUIM limits is worth that cost.
3
.
The UMIUIM coverages are intended to assure that an injured driver will be compensated if slhe
is injured in an accident caused by an uninsured or underinsured driver. The UMIUTM 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 UM/UIM 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 UM/UIM 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?
If the 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.
If the 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 slhe 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
.
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. 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 of the taxpayers'
funds by taking fi111 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 statut01Y 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 nms 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 fonn specifically says that the city is waiving the statutory t011 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.
.
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. 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 stnlcture options in different circumstances.
I'm still confused. Who can I talk to'!
Give us a call at the League office. Pete Tritz, Tom Gnlndhoefer, Bill Everett, Doug Gronli, or
any ofLMCIT's property/casualty underwriters will be glad to talk with you.
.
.
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