HRA Report 10-09 General Liability and Property InsuranceSeptember 7, 2010 M HRA Report 2010-09
City of Iiophl's
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
for the HRA 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 renewal date for the HRA Insurance Policy is 11/1/10 and is for a one year period. The LMCIT has
indicated that insurance rates will increase about 0-2% for fleet liability insurance, 0-2% for automobile
physical damage, 2-6% for liability insurance and 2-6% 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. Our specific claim history which has been low for the HRA will also have
an impact on the rates. The premium for the 2009-2010 insurance year was $20,524 which was a slight
decrease of $310 over the previous year.
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
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:
o 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.
a 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.
a .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.
HOPKINS HRA accepts liability coverage limits of $ 500,000/$1,500.000
from the League 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.
❑ 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.
Date of city council meeting September 7, 2010
Signature Position Finance Director
Return this completed form to LMCIT, 145 University Ave. W., St. Paul, MN. 55103-2044
Page 16
�L' / 1 `U
LEAGUE or CONNECTING & INNOVATING
MINNESOTA SINCE 1913
CITIES
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 the city's needs.
Statutory Limits on Municipal Tort Liability
The statutes limit a city's 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 LMCIT's Basic Primary Liability
Coverage
LMCIT's liability coverage provides a limit of $1,500,000 per
occurrence, matching the per -occurrence part of the statutory
municipal tort liability limit. Beside the overall coverage limit
of $1,500,000 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:
Something to Think About
Under the basic coverage form, the
$500,000 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.
Products
$2,000,000 annually
Failure to supply utilities
$2,000,000 annually
EMF
$2,000,000 annually
Limitedpollution*
$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.
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LEAGUE OF MINNESOTA CITIES 1:15 u111Nivr:r HAVE WIS1 PHONE: (651) 291-1200 FAX: (650 291.1299
INSURANCE TRUST sr. PAUL PAiN 5s103.2044 I'01.L f:Pr : (900)925-1122 wwwu%ic .oroc
If the Statute Limits our Liability,Y 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 parry.
• 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.
LMCIT's 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 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 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.
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
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.)
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 $1,500,000 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 it's
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.
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What's the Effect of Waiving the Per Claimant Statutory Liability Limit?
If the city chooses the "waiver" 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 individual's 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
• The city is in fact liable.
• The injured party's actual proven damages are greater
than the statutory limit.
Very literally, applying the statutory liability limit means an
'.
Highlight
The waiver option coverage does not
give the city better protection. The
benefit is to the injured party.
i ured 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.
For claims the statutory tort liability limits don't apply to, it doesn't affect how the city's coverage or
risk on those claims. Waiving the statutory tort limits has no effect on claims the statutory limits
don't apply 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 it's one 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
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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 doesn't cover it. The waiver
form specifically says 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 there is no risk 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.
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.
Pete Tritz 12/09
Your League Resource
Feel free to call the Underwriting
Department at 651-281-1200 or 800-
925-1122 with any questions.
c
LEAGUE OF
SINN ESOTA
CITIES
CONNECTING & INNOVATING
SINC F, 1913
LMCIT Liability Coverage Options
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LEAGUE OF MINNESOTA CITIES 14iUNIVERSITY Alvlk.WEST 1111C)NE:(651)281-1201) FAX:(651)281.-1298
IN S U RAN C E T RUST sr. P;\ R, MN 55103•2044 r01.1. FREE: (800) 925-1122 �kEt�: w-,wvv,.uVc.C7kG
On a liability claim to which
On a liability claim to which
the statutory limits apply
the statutory limits do not apply
Coverage structure
This is the maximum
This is the maximum total
This is the maximum amount of damages which LMCIT would
If the city:
amount a single claimant
amount that all claimants could
pay on the city's behalf for a single occurrence, regardless of
could recover on an
recover on a single occurrence.
the nu>nber of claimants.
occurrence.
Does not have excess coverage &
Does not waive the statutory limits
$500,000
$1,500,000
$1,500,000
Does not have excess coverage &
Waives the statutory limits
$1,500,000
$1,500,000
$1,500,000
Has $1,000,000 of excess coverage &
Does not waive the statutory limits
$500,000
$1,500,000
$2,500,000
Has $1,000,000 of excess coverage &
Waives the statutory limits
$2,500,000
$2,500,000
$2,500,000
LEAGUE OF MINNESOTA CITIES 14iUNIVERSITY Alvlk.WEST 1111C)NE:(651)281-1201) FAX:(651)281.-1298
IN S U RAN C E T RUST sr. P;\ R, MN 55103•2044 r01.1. FREE: (800) 925-1122 �kEt�: w-,wvv,.uVc.C7kG