CR 08-105 Authorize Renewal of the League of Minnesota Cities Insurance Trust PolicyNovember 3, 2008
Christine Harkess, CPA, CGFM
Finance Director
AUTHORIZE RENEWAL OF THE
LEAGUE OF MINNESOTA CITIES INSURANCE TRUST POLICY
Council Report 2008 -105
Proposed Action
Staff recommends adoption of the following 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.
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 limts on tort liability thus saving the city
approximately $4,000 in premiums.
Overview
The LMCIT has indicated that insurance rates will increase about 0% for fleet liability insurance, 2 -3% for
automobile physical damage, 2 -6% for liability insurance and 2 -3% for property insurance due to recent
overall industry claim history. Our actual increases will be known once the renewal application has been
submitted and the rate quoted. Rates for all other coverage, excess liability, and boiler & machinery remain
the same. The rate changes are primarily driven by changes in the Leagues loss experience. While rates do
influence premiums, an individual city's actual premiums will also be affected by changes in its expenditures,
property values, payrolls, and other exposure measures and also by changes in the city's experience rating.
The insurance premium for Hopkins will increase overall approximately 4 -7% over last year's premium. The
primary reason for the increase is the result of higher property values, and reserves for ongoing liability
claims.
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 $124,080.
Primary Issues to Consider
• Deductible amount
• Tort liability exposure
Staff Recommendation
Finance recommends renewal of the LMCIT Insurance Policy and based on past council action waiving of 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 Resource document on liability coverage options
Financial Impact: $ 200,000 Budgeted: Y/N X N Source: All Funds
Related Documents (CIP, ERP, etc.): Notes:
Additional Iniformation
The statutory municipal tort liability limits are $400,000 per claimant, $1,200,000 per occurrence. The
$400,000 per claimant liability is currently 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 waives the statutory tort limits and does not purchase excess liability
coverage. A single claimant could potentially recover up to $1,200,000 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 $1,200,000, 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 $400,000 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 $1,200,000. These statutory tort limits apply regardless of whether or not the city purchases
optional excess liability coverage.
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 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.
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
$400,000. 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 $1,200,000. 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 $1,200,000. 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 $1,200,000.,
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.
This decision must be made by the city council. Cities purchasing coverage must complete and 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.
The City of Hopkins accepts liability coverage limits of $ 1,200,000
of Minnesota Cities Insurance Trust (LMCIT).
Check one:
The city DOES NOT WAIVE the monetary limits on municipal tort liability established by Minnesota Statutes
466.04.
tx
Date of city council meeting November 3, 2008
SECTION I: LIABILITY COVERAGE WAIVER FORM
Signature Position
Return this completed form to LMCIT,, 145 University Ave. W., St. Paul, MN. 55103 - 2044
from the League
The city WAIVES 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.
Products / completed operations
$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)
$1,200,000 annually
LEAGUE or
MINNESOTA
CITIES
CONNECTING & INNOVAT[
SINCE 1913
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 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 $400,000 per claimant and $1,200,000 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 $1,200,000 per occurrence, matching the per -
occurrence part of the statutory municipal tort liability limit. Under the basic coverage form the
$400,000 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 $1,200,000 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:
* 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.
LEAGUE OF MINNESOTA CITIES
INSURANCE TRUST
145 UNIVERSITY AVE. WEST PHONE: (651) 281° -1200 FAX: (651) 281 -1298
r. PAUL, MN 55IO3.2044 1011.1 RIM: (800) 925 -1122 wVE 3: WWW.3.,k•1cc)r;G
If the statute limits our liability to $1,200,000 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 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 "taking" theory. 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 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 of 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
"limited pollution" 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.
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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 $1,200,000 of coverage limits.
Carrying excess coverage is a way to meet these requirements. (There's also another 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 $1,200,000 from the
city and another $1,200,000 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 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.
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.
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, or unemployment claims, or claims under the medical payments coverage.
We're just a small city. Isn't excess liability coverage really just something that big
cities might 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
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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.
LMCIT now gives the cities who participate in the primary liability coverage the
option to waive the $400,000 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
$400,000 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 $1,200,000
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 $1,200,000 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 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 full 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 statutory limits don't
apply to.
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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 $2.2 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 runs into a school bus full of kids, causing
multiple serious injuries. $1,200,000 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 form specifically says that the city is waiving the statutory tort 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.
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 structure options in different circumstances.
I'm still confused. Who can I talk to?
Give us a call at the League office. Pete Tritz, Ann Gergen, Doug Gronli, or any of LMCIT's
property /casualty underwriters will be glad to talk with you.
Pete Tritz 2/08
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