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Memo- Sewer Back-Up Insurance CITY OF HOPKINS I FINANCE DEPARTMENT I MEMORANDUM Date: To: September 19, 2006 Mayor & City Council ,Jk' Christine Harkess, Finance Director lJ~ ... From: Subject: Sewer Back-up Insurance Over the past year we have been working with our insurance company to determine what documents we need to put into place in order to receive underwriting on sewer-back up insurance. In light of the change in the council with the addition of two new members we'd like to re-visit this issue and bring everyone up to date on what Sewer Back-up Insurance is and isn't and what is covered upon receiving this coverage. We also need to determine if there is adequate cost benefit to purchasing the policy. Attached are several documents from the League of MN Cities Insurance Trust (LMCIT) that does a very good job explaining this policy. In the past I did some research on this type of insurance. This is a recap of that information: · There are currently 50 cities that have this insurance with the LMCIT · The underwriting criteria is very stringent - per our insurance agent . We must own a Jet Vac or jetter vehicle (which we do) . Premium cost is 8.5% of our liability premium or approximately $6,700. . We have approximately 3,000 customers; therefore our cost per customer would be about $2.23 or 18.75~ per month. Coverage Limits are - . $10,000 per building per year . F or purposes of the limit, a structure or group of structures that is served by a single connection to the city's sewer system will be considered a single building. . Deductibles apply and claims under the no-fault coverage are treated as a liability claim, so the same per-occurrence and/or annual deductibles will apply. In order for the claim to receive relief on the city's policy the following four conditions must be met: . The sewer backup resulted from a condition in the city's sewer system . The sewer backup was not the result of an obstruction or other condition in sewer pipes or lines which are not part of the city's sewer system or which are not owned or maintained by the city. . The sewer backup was not caused by or related to a catastrophic incident. . The date of the occurrence giving rise to the claim for damages must be on or after the retroactive date shown on the endorsement. Here are several scenarios of how claims against this policy might be paid- Scenario #1 Homeowner has no sewer back up insurance on their homeowners policy and experiences $5,000 of damage. The city's policy would cover them up to $5,000. Scenario #2 Homeowner has no sewer back up insurance on their homeowners' policy and experiences over $10,000 of damage. No other homeowner on their line has losses. The city's policy would only cover losses up to $10,000. Scenario #3 Homeowner has no sewer back up insurance on their homeowners' policy and experiences over $10,000 of damage. Several other homeowners on their line also have losses. Total claims paid would be $10,000 to all claimants regardless of the total of the claims. Scenario #4 Homeowner has sewer back up insurance on their homeowners policy and experiences $5,000 of damage. The city's policy would cover them up to $5,000 only after they have received relief on their personal homeowners policy. Scenario #5 Homeowner has sewer back up insurance on their homeowners' policy and experiences over $10,000 of damage. No other homeowner on their line has losses. The city's policy would only cover losses up to $10,000 again only after they have received relief on their personal homeowners policy. Scenario #6 Homeowner has sewer back up insurance on their homeowners' policy and experiences over $10,000 of damage. Several other homeowners on their line also have losses. The city's policy would only cover losses up to $10,000 only after they have received relief on their personal homeowners policy. Total claims paid would be $10,000 to all claimants regardless of the total of the claims. If there is a mix of claimants having personal sewer back up insurance and those that don't claims applied to the city's exposure would be after any personal insurance amounts were paid. Scenario #7 Homeowner has sewer back up insurance on their homeowners' policy and experiences over $10,000 of damage. Several other homeowners on different lines also have losses. The city's policy would cover losses on each homeowner on separate lines up to $10,000 each only after they have received relief on their personal homeowners policy. Total claims paid would be $10,000 to each claimant on the different lines. These scenarios are not meant to be inclusive of the different types of claim situations nor are they to be interpreted as how the claims may actually be paid. Only our insurance adjusters can determine the validity of each claim and how the claims are structured, or deductibles and limits applied. Actions steps with regards to sewer-back up insurance. Determine if we would like to continue pursuing this coverage Determine method of payment for the premium - Options are: o Have the sewer fund absorb the premium cost o Add an amount on the bill as a per customer charge for sewer backup coverage - ie: $2.25 per year or 18-20~ per month. · Apply for the coverage and go through the underwriting process · Pass a resolution establishing limited sewer backup, clean up and property damage protection. · Inform the public via the city's website, newsletter and press releases that we have obtained this coverage and detailing what it does and does not cover. · Develop a formal sanitary sewer maintenance policy. The LMC has provided me with a model policy. LMCIT Risk Management Information League of Minnesota Cities Cities promoting excellence 145 University Avenue West, St. Paul, MN 55103-2044 Phone: (651) 281-1200 . (800) 925-1122 Fax: (651) 281-1298 . TDD (651) 281-1290 www.lmcit.lmnc.org OPTIONAL "NO-FAULT" SEWER BACK-UP COVERAGE LMCIT offers property/casualty member cities "no-fault" sewer back-up coverage. This new optional coverage will reimburse a property owner for up to $10,000 of clean-up costs and damages caused by a sewer back-up, irrespective of whether the city was negligent or legally liable for those damages. This new coverage option is intended to do several things: · To reduce health hazards by encouraging property owners to get back-ups cleaned up as quickly as possible. · To reduce the frequency and severity of sewer back-up lawsuits. I.e., property owners may be less inclined to sue if they receive conciliatory treatment at the time of the back-up. · To give cities a way to address the sticky political problems that can arise when a property owner learns that the city and LMCIT won't reimburse him for his sewer back-up damages because the city wasn't negligent and is therefor not legally liable. Many cities and their citizens may find this new coverage option to be a helpful tool. However, it's also important to realize that it's not a complete solution to sewer back-up problems, and that not every possible back-up will be covered. What sewer back-ups would be covered by the new coverage? The no-fault coverage would reimburse the property owner for sewer back-up damages, regardless of whether the city was legally liable, if the following conditions are met: . The back-up must have resulted from a condition in the city's sewer system or lines. A back- up caused by a clog or other problem in the property owner's own line would not be covered. . It's not one of the situations that's specifically excluded in the coverage. . The coverage limit has not been exceeded. Which situations are excluded? The no-fault coverage will not apply in several "catastrophic" type situations. Specifically, these are: · Any weather-related or other event for which FEMA assistance is available; · Any interruption in the electric power supply to the city's sewer system or to any city sewer lift station which continues for more than 72 hours; or · Rainfall or precipitation that exceeds the amount determined by the National Weather Service to constitute a 100-year storm event. What costs would be covered? The no-fault sewer back-up coverage would reimburse the property owner for the cost of cleaning up the back-up, and for any damage to the property, up to the coverage limit. For purposes of the city's deductibles, claims under the no-fault coverage are treated as liability claims, so the same per-occurrence and/or annual deductibles will apply. However, there are certain costs that would not be reimbursed under the no-fault coverage: · Any costs which have been or are eligible to be covered under the property owner's own homeowner's or other property insurance; and · Any costs that would be eligible to be reimbursed under an NFIP flood insurance policy, whether or not the property owner actually has NFIP coverage. What is the coverage limit? The limit is $10,000 per building per year. For purposes of the limit, a structure or group of structures that is served by a single connection to the city's sewer system will be considered a single building. Only true "no-fault" claims are counted toward the $10,000 limit. Claims for damages caused by city negligence, for which the city would be legally liable in any case, are not charged against that limit. What does it cost? The premium charge for the optional no-fault sewer back-up coverage will be 8.5% of the city's municipal liability premium. The LMCIT Board's intent is that this coverage option be self- supporting, so we'll be monitoring and if necessary adjusting these charges in the future. 2 Is every city automatically eligible? No. The city will need to meet these underwriting criteria: · The city must have a policy and practice of inspecting and cleaning its sewer lines on a reasonable schedule. · If there are any existing problems in the city's system which have caused back-ups in the past or are likely to cause back-ups, the city must have and be implementing a plan to address those problems. · The city must have a system and the ability to respond promptly to back -ups or other sewer problems at any time of the day or week. · The city must have in place an appropriate program to minimize stormwater inflow and infiltration. · The city must have in place a system to maintain records of routine sewer cleaning and maintenance, and of any reported problems and responses. We'd stress that in making the underwriting evaluation we're trying to focus on reasonableness, rather than on creating very specific standards. That is, the intent isn't to set an arbitrary requirement that sewers be inspected and cleaned every six months or every three years or whatever. What makes sense in one city with some older and sometimes sagging clay lines probably wouldn't make sense in a city with newer plastic lines, and vice versa. From the underwriting standpoint, the real concern is that the city has considered its own situation and developed polices, practices, and schedules that make sense for its own situation. How would the no-fault coverage work if we had a sewer back-up that was caused by city negligence, and where the city was legally liable for the resulting damages? If the situation isn't one where the no-fault coverage applies, the city's LMCIT liability coverage would respond just as it does now. That is, LMCIT would investigate and if necessary defend the claim on the city's behalf, and would pay the resulting damages if in fact the city is legally liable for those damages. The same would be true for damages that exceed the $10,000 no-fault limit, or for a subrogation claim against the city by the homeowner's insurance company. The city's existing LMCIT liability would respond just as it does now. What's the legal basis for this coverage? Wouldn't it be a gift of public funds to pay damages that the city isn't legally liable for? First, as noted earlier, one goal is to help reduce health hazards by encouraging prompt clean- ups. That's clearly a public purpose and in the public interest. 3 Second, the law and facts surrounding most sewer back-up claims are rarely so clear that the liability issue is entirely black and white. There's virtually always a way that a claimant's attorney can make some type of argument for city liability. Having this coverage in place should help eliminate the need to spend public funds on litigation costs in many of these cases. Finally, part of the process for putting the coverage in place is for the city council to pass a formal resolution that makes this no-fault sewer back-up protection part of the agreement between the city and the sewer customer. The idea is that by paying his sewer bill, the sewer user is purchasing not just sewer service but also the right to be reimbursed for certain specified sewer back-up costs and damages. In other words, the basis for the no-fault payments to the property owner would be the contract between the city and the sewer user. How do we put coverage in place? Contact your LMCIT underwriter for an application. If the city qualifies for coverage, we'll send the city a formal quote, along with a model resolution. To put coverage in place, the city council must formally pass that resolution, and send a copy to LMCIT. If the city decides to add this coverage, it will also be important to make sure the citizens know about it. LMCIT can also provide models for a press release, newsletter article, utility bill insert, etc. Who can we contact with questions or comments? Contact your LMCIT underwriter, or Pete Tritz at the League office. We're also interested in hearing cities' reactions to this new coverage option, especially if there are changes you'd like to see. PST 3/10/2003 4 LMCIT Risk Management Information League 0/ Minnesota Cities Cities promoting excellence 145 University Avenue West, St. Paul, MN 55103-2044 phone: (651) 281-1200 . (800) 925-1122 Fax: (651) 281-1298 . TDD (651) 281-1290 www.lmcit.lmnc.org LOSS CONTROL ADVICE TO AVOID LIABILITY FOR SEWER BACKUPS To avoid sewer back-up liability, a city needs to exercise reasonable care for its sewer system. This means an inspection and maintenance program and emergency procedures must be established. The following are parts of a city sanitary sewer program. 1. Inspection and Maintenance Program Develop a regular schedule of inspection and maintenance that should include some of the following procedures depending on city resources. Lines · Clean lines with jetter or rodder machines · Attach proofer to show lines are clear · Flush lines with water from fire hydrants . Inspect lines by looking down manholes · Inspect lines with video camera · Use root killer chemical in areas with many trees and root problems. Lift Stations . Inspect and maintain annually or more often if possible · Inspect flow meters on a regular schedule to determine if pumps are working · Check alarm systems . Have an electrician check electrical components 2. Problem Areas . Have a system to designate problem areas (e.g. history of backups, known roots or grease) Maintain those areas more often than the regular schedule Keep a list of those problem areas and a system to indicate when an area may no longer be considered a problem area . . 3. Emergency Response System . Develop a procedure to respond to sewer backups . Designate who will be on call and how they will respond · Notify dispatchers and city employees of your emergency procedures · Train employees on the emergency procedures · Develop a contingency plan for more sewer emergencies · Notify the public of your procedures so they know who to call and what to expect 4. Inflow and Infiltration Problems If your community has problems with storm water getting into the sanitary sewer system, you need to act to remedy the problem. · Inspect all city buildings, manholes and other possible sources of storm water and correct them if they are part of the problem · Communicate to the public that there is a problem and request that sources of storm water such as sump pumps and rain leaders be disconnected from the city system · Inspect lines with video camera during or after rain to determine possible sources · Do smoke testing of lines · Conduct engineering study to find out where the problems are located · Implement engineering recommendations depending on resources · Develop an ordinance for a sump pump inspection program with penalties for noncompliance 5. Document, Document, Document · Keep records of all of your actions regarding inspection and maintenance program · Train employees on why records are important and how to fill out the records · Develop written policies and procedures that are flexible and realistic . Keep daily logs of employee's actions 6. Long Term Plans If you can't fix the problem now, develop long range plans based upon your resources. This could include dividing the city into areas. Document at the city council level what these plans are and any changes in the plans that occur. It is important to inspect and maintain your sanitary sewer system. In order to do this, the city may have to expend additional resources. Spending money for maintenance may reduce the possibility of backups or make it more likely the city will not be found responsible for any damages. Ellen A. Longfellow, 3/01 2 LMC LMCIT Risk Management Information League of Minnesota Cities Cities promoting excellence 145 University Avenue West, St. Paul, MN 55103-2044 Phone: (651) 281-1200. (800) 925-1122 Fax: (651) 281-1298 . TDD (651) 281-1290 www.lmcit.lmnc.org STOP THAT BACK-UP Model Sanitary Sewer Maintenance Policy Minnesota cases have illustrated how important it is for cities to have maintenance policies. Policies for maintenance activities help plan for the use of the city's resources, establish priorities for this type of work, and provide an explanation as to how the city performed the maintenance. This is particularly true for sanitary sewer system maintenance. Legal Background A policy can help the city explain what it did and why it did it. A policy can support a finding that the city exercised reasonable care and was not negligent. Generally, Minnesota courts have held that in order to be responsible for the damages from a sewer backup, the city must be found negligent. To prove negligence, it must be shown that there was a defect in the city's sewer system, the city had notice of the defect, and failed to correct it within a reasonable time. Minnesota Statute 466.03 subd. 6 states that cities are immune from liability for discretionary policy decisions based upon the weighing of political, social, safety, and economic factors. Official immunity, which has been created by case law, also provides protection for city officials for discretionary actions of individual employees. In 200 I, the Minnesota Court of Appeals found that the City of Albert Lea had discretionary immunity from a sanitary sewer backup claim. (Christopherson v. City of Albert Lea, 623 N.W. 2d 272, (Minn. Ct. App. 2001). The Court held that the city's conduct involved policy- making when it decided how to maintain its sanitary sewer system. This specifically supports the idea of a sanitary sewer maintenance policy. Written Policy A written policy is important because it provides the city with a consistent and documented method of performing the maintenance. It also provides guidance and assistance to employees on how to do the maintenance activities, employee performance, and assistance in long-term planning of the number of employees and the amount of equipment needed for the level of maintenance. In addition, a written policy can protect the city from liability by helping support defenses of discretionary immunity and no negligence. A written policy helps to clarify what the policy is and what it requires. This material is provided as genera~ information and is not legal advice. Consult your city attorney for advice concerning specific situations. Basic Components of a Sanitary Sewer Maintenance Policy · Purpose · Routine Maintenance and Inspection · Emergency Response · Inflow and Infiltration · Training · Weather Conditions · Work Schedule · Documentation Options All methods of conducting inspection and maintenance of a sewer system should be included in the policy. Some cities use chemicals to remove roots while others use a proofer attached to the jetter or rodder machines. The proofer shows that the line is clear from any obstructions. In addition, the maintenance policy should refer to related contingency plans concerning alternative power sources if the electricity to the lift stations goes off. This often includes the use of permanent or portable generators. Resolution The city council should review the sewer maintenance policy and pass a resolution to adopt it. This will support that the policy was a discretionary decision as compared to a ministerial act. By reviewing the policy and passing a resolution elected officials can be aware of the public works department's procedures, which would help if they were ever called about sewer maintenance. Training Public works employees should be trained on the existence and the provisions of the sewer maintenance policy and the equipment used to implement safety policies. Review of Policy The policy should be reviewed periodically to determine ifit needs to be changed. The employees who perform the sewer maintenance should be consulted to determine if the policy as written is workable. Documentation The city should keep records of all activities under its sewer maintenance policy. This includes routine maintenance and inspection, emergency responses and activities under inflow/infiltration program. Publicize Policy The city should make citizens aware of the policy through city newsletters, newspapers, and web site. By publicizing the policy, the city can make citizens aware of the provisions so they know what to expect in terms of level of service for sewer maintenance. Ellen A. Longfellow 04/03 2 LMC LMCIT Risk Management Information League of Minnesota Cities Cities promoting excellence 145 University Avenue West, St. Paul, MN 55103-2044 Phone: (651) 281-1200. (800) 925-1122 Fax: (651) 281-1298 . TDD (651) 281-1290 www.lmcit.lmnc.org MODEL SANITARY SEWER MAINTENANCE POLICY This is a sample policy for guideline purposes only. Please consult your city attorney when developing your own policy. 1. Puroose The purpose this policy is to provide the City of 's procedures for maintaining its sanitary sewer system. These procedur~s 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. 2. Routine Maintenance and Insoection A. Sanitary Sewer Lines - 1. 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. 2. Schedule - The City will clean every city sanitary sewer line every three years. 3. Problem Area - This is defined 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. 4. Equipment -Lines will be cleaned with a jetter or a rodder machine. The equipment used depends upon the location, type of line and if there are any known problems that are handled better with one of the machines. 5. Television 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. The city will also use the camera to inspect any sewer lines in a new development before the city accepts those lines as city lines. Camera inspection will also be available to inspect lines where there are possible problems. This material is provided as general information and is not legal advice. Consult your city attorney for advice concerning specific situations. 6. Visual inspection - The lines will be visually inspected annually by employees looking down the manholes to determine if there are any problems. 7. Flushing inspection - Every dead-end manhole will be flushed annually to clean out the line and to determine if there are any problems with the flow. B. Sanitary Sewer Lift Stations 1. Schedule - The City will maintain the lift stations annually using specific maintenance that is reasonable and recommended. That maintenance is reflected in the checklists developed for each lift station. 2. Electrical components - An electrician will be hired annually to inspect and maintain the electrical components of the lift stations. 3. Flow Meters - The flow meters at the lift stations will be checked on a daily basis to ensure that the lift stations are working properly and to detect any problems in the system. 3. Emer2:encv ResDonse A. 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. B. Response - After receiving notice of a possible problem, an employee will respond and determine if there is problem in the city's system. If there 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. 4. Inflow/Infiltration A. Definitions: Inflow is where storm water is misdirected into the 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. B. 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. C. 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 2 of this policy. In addition to the routine maintenance, the City has adopted a twenty year plan to replace sewer lines that are cracked and in need of repair. 2 5. Trainine 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. 6. Work schedule for city emnlovees 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. 7 . 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. 8. 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. Ellen A. Longfellow 04/03 3 Resolution # RESOLUTION ESTABLISHING LIMITED SEWER BACK-UP CLEAN UP AND PROPERTY DAMAGE PROTECTION FOR MUNICIPAL SEWER CUSTOMERS. RECITALS WHEREAS, the city affords municipal sanitary sewer services to many of the property owners within the city; and WHEREAS, on occasion blockages or other conditions in city sanitary sewer lines may result in the back-up of sewage into properties that are connected to those city sanitary lines; and WHEREAS, sewer back-ups into property pose a public health and safety concern; and WHEREAS, it is not always easy to discern the exact cause and responsibility for municipal sanitary sewer back-ups, and WHEREAS, the City Council desires to encourage the expeditious clean-up of properties that have encountered sewer back-ups; and WHEREAS, the City Council desires to minimize the potential of expensive lawsuits arising out of sewer back-up claims, and WHEREAS, the City is a member of the League of Minnesota Cities Insurance Trust; and WHEREAS, the League of Minnesota Cities Insurance Trust is making available to the city a limited "no fault" sewer coverage that will reimburse property owners for certain clean-up costs and property damage irrespective of whether the City is thought to be legally at fault. NOW THEREFORE, BE IT RESOLVED, by the City Council of , Minnesota, as follows: As part of the contract for the provision of sewer services to the customers of the City, and in consideration of the payment of sewer bills, the City agrees to reimburse its sanitary sewer customers for up to $10,000 of clean-up costs and property damages caused by a sanitary sewer back-up, irrespective of whether the city is thought to be negligent or otherwise legally liable for those damages, subject to the following conditions: a. The back-up must have resulted from a condition in the city's sanitary sewer system or lines, and not from a condition in a private line. b. The back-up must not have been caused by catastrophic weather or other event for which Federal Emergency Management Assistance is available c. The back-up must not have been caused by an interruption in electric power to the city's sewer system or to any city lift station, which continues for more than 72 hours. d. The back-up must not have been caused by rainfall or precipitation that would constitute a 100-year storm as determined by the National Weather Service. e. Neither the city nor the League Minnesota Cities Insurance Trust (LMCIT) will reimburse any costs which have been or are eligible to be covered under the property owner's own homeowners or other property insurance, or which would be eligible to be reimbursed under a National Flood Insurance Protection (NFIP) policy, whether or not the property owner actually has NFIP coverage. f. The maximum amount that the City or LMCIT will reimburse is $10,000 per building per year. In this regard, a structure or group of structures served by a single connection to the city's sewer system is considered a single building. Adopted by the council this day of (month). ~. City Clerk Mayor