CR 11-116 - InsuranceDecember 6, 2011 Council Report 2011-116
• City of Kopkim
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 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 LMCIT has indicated that insurance rates will increase 3% for property insurance and will remain the same as
2010 for fleet liability, automobile physical damage, and liability 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.
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 1% over last year's premium. The primary reason for the increase is the result of
higher property values, and reserves for ongoing liability claims. The premium for 2011 was $199,622 which was a
• $15,523 increase from 2010. The 2012 increase is estimated at $2,100.
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
$94,678. In addition we will be sharing in a $12 M LMCIT dividend this year. Those funds will add to our insurance
reserves for potential claims and deductibles.
Primary Issues to Consider
• Deductible amount
• Tort liability exposure
Staff Recommendation
Finance recommends renewal of the LMCIT Insurance Policy 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
• Election of waiver of tort limits for liability
• Liability exposure if we elect to waive the tort limits for liability
Christine Harkess, CPA, CGFM
Finance Director
Financial Impact: $ 200,000 (est) Budgeted: Y/N X N Source: All Funds
Related Documents (CIP, ERP, etc.): Notes:
Additional Information
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.
• Cost savings to the city of NOT waiving the statutory tort limits is approximately $4,000 which is not a
huge savings but when considering the budget challenges for 2011 should be taken into consideration.
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 1/3rd 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.
SECTION 1: 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:
If the city 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 which 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 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 $1,500,000. 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 $1,500,000., 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.
City of Hopkins accepts liability coverage limits of $ 500,000/$1,500,000 from the League of
Minnesota Cities Insurance Trust (LMCIT).
Check one:
0 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 December 6, 2011
Signature Position Finance Director
Return this completed form to LMCIT, 145 University Ave. W., St. Paul, MN. 55103-2044
•
LlAGUEOF CONNECTING &INNOVATING
MINNESOTA s►rc► 191;
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
iCoverage
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 annual]
Failure to supply utilities
$2,000,000 annually
EMF
$2,000,000 annual]
Limitedpollution*
$2,000,000 annually
Mold
$2,000,000 annual]
Land use liti ation**
$1,000,000 annual]
Employers liability (work comp)
1 $1,500,000 annual]
* 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 145 UNIVERSITY AVE. WEST PE1ow,:(651)281-1200 rAM:(651)281-1298
INSURANCE TRUST ST. PAUL MN 55103.2044 rot i, mtu: (800) 925-11.22 wE1+: www.►.Mc.oxc
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 "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.
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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.
0
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.
inured 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.
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