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HRA 09-11 Renewal of General Liability & Property Insurance & Auth Not Waiving of the Statutory Tort Liability on the League of Mn Cities Insurance Trust Policy � ` October 6, 2009 HRA Repor� 2009-11 � City of Kopkin� � `, RENEWAL OF GENERAL LIABILITY AND PROPERTY INSURANCE AND : AUTHORIZE NOT WAIVING 0F THE STATUTORY TORT LTABILITY ON THE LEAGUE OF MINNESOTA CITIES' INSURANCE TRUST POLICY Prouosed Action � Staff recommends adoption of the following: Move to abprove renewal of the LM�IT'Insurance PolicX � for �he HRA and to not waive the statutorv torC liabilitv limits to the extent of the coverage pnrchased Ado.ption of this motion will xesult in staff moving forward with the proposed LMCIT insurance coverage - �; including not waiving the statutory: tort liability lirriits. The staff recommendation to not waive the statutory . tort liability limits is based on liability exposure to the city in the form of higher prerriiums. Overview : :: .The renewal date for the HRA Insurance Policy is 11/1/09 and is for a one year period:' The LMCIT �ias indicated that insurance rates will increase about 0-2% for fleet liability insurance, 0-2% for automobile ! physical`darnage, 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. Qur specific claim history which has been low for the HRA will also have • an,impact on tlie rates. The premium for the 2008-09 insurance year was $20,834 which was'a modest $:500 increase over the previous year. ' Primarv 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 recommcnds 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 lirrixts of ` the liability coverage obtained from LNICIT.. SupportinE Information . • LMCIT Waiver Form : • LMCIT Memo — LMCIT Liability Coverage Qptions ������������ � Christine Harkess, CPA, CGFM - ' � Finance Director SECTION L UABILITY 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 $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. o/f the city waives the statutory fort limits and does nof 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 occurcence to which the statutory tort limits apply would also be limited to $1,200,000., regardless of the number of claimants. _!f the city waives the statutory tort limits and purchases excess liabilrty coverage, a single claimant could potentially recover an amount up to the limit of the coverage purchased. The total which all claimants wouid 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 October 6, 2009 Signature Position Finance Director Return this completed form to LMCIT 145 University A ve. W., St. Paul, MN, 55103-Z044 � � �i -�� ��� � 6 ---=.; - j�. y � �o� ,�c�� � � j.,EAGUEoe- CE�NN�CTING & 1NNC?VATING �INNESOTA 5 �� 4 . 1 = ?��� C[TI�S RISK MANAGEMENT INFORMATION LMCIT LIABILITY COVERAGE OPTIONS Liability Limits, Cove�age Limits, and Waivers When reviewing this memo, it is important fo note that the statutory liability limits will increase on July 1, 2009 from $400,000 to $500,000 per claimant, and from $1.2 million to $1.5 million per occurrence. LMCIT will automatically adjust members' liability coverage to reflect I this change. 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 I I 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 c(aimant 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 j $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 (imit of $1,200,000 per occurcence, 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: , Products / com leted o erations $2,000,000 annuall Failure to su 1 utilities $2,000,000 annuall EMF $2,000,000 annuall Limited ollution* $2,000,000 annuall Mold $2,000,000 annuall Land use litigation** $1,000,000 annuall Em lo ers liab�lity (work com ) $1,200,000 annuall . ,;::�;� G LEAGUE C�F MINNE$OTA CITIES i:�sunivexsi���nvr:.4v��r rric»e:tGS!)281-I20t) �:•�x:(U5t?"L8i-1298 � 1 N� U Etf� N C E T k2U ST s�r. a>n���., nn�� ssE�r�-z�,��:F �7 Fii�r,: (SQ�) 92S-t 122 wct4: ���s,�w.t.titic..��7w - -- - - - - - - - , , . , . � :, - � _: _ _ � * 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. If the statute limits our liability to $1,200,000 per occurrence, why would the city purchase higher coverage limits than that? There ai•e several different reasons why cities should strongly consider carrying fiigher 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 foN 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 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 wel(. However there are a couple of important restrictions on how the excess coverage applies to risks that are subject to aggregate limits: � 2 ' r:;:i I • The excess coverage does not apply to three risks: failuNe to supply utilities; mold; and "limited pollution " claims if either the pollutant release or the damage is below ground or in �, a body of wate�°; and � • The excess coverage does not automatically apply to liquor liability unless the city I specifically requests it. 3. The city may be required by contract to carry higher coverage limits. Occasionally, a contract �i 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 I 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 I name. �,,; This issue of multiple covered parties can also arise is if the city has agreed by contract to name another entit as a covered a, or to defend and indemnif another entit . Y P �'h' Y Y I 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. I i What excess liability coverage limits are available? Excess coverage is available in $1 million increments, up to a maximum of $5 million. i 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 pol(ution, mold, failure to supply utilities, auto no-fault, uninsured / underinsured motorist, workers � compensation, disability, or unemployment claims, or claims under the medical payments coverage. i � We're just a small city. Isn't excess liability coverage really just something that big � cities might need? j Absolutely not. If anything, excess (iability coverage is even more important to a small city. � i I � ; ; 3 � - -- __ _ __ _ : , � - -- • 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 taxpayeis 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 statutocy 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. Ifthe 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. � 4 ii1iU How would the waiver affect our city's coverage or risk on those ciaims 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. 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 otentia(1 recover up to $2.2 million in I P Y . . . damages in a smgle 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 neg(igence: 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 i injuries. Excess coverage under the waiver option makes more funds available to compensate the ' victims in that kind of situation. I The cost of the excess (iability 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. ;�.�„ � 5 i _ - � -- , - _ _- - - - - -: -- .. . , ,... :; ., - - - - --- ; t • I'm still confused. Who can I talk to? Feel free to call the Underwriting Department at 651-281-1200 or 800-925-1122. Pete Tritz 12/08 � • 6 /.° � �o� �o.� _ L,EAGUEoF CONNECTING &[NNOVATiNG ' �iNNESOTA siNC:t: i�l� � � �ITt�s � _ LMCIT Liability Coverage Options ' On a liability claim to which On a liabiliiy 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 Clty' 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 number of claimants. occurrence. ' Does not have excess coverage & Does not waive the statutory limits $400,000 $1,200,000 $1,200,000 Does not have excess coverage & Waives the statutory limits $1,200,000 $1,200,000 $1,200,000 Has $1,000,000 of excess coverage & Does not waive the statutory limits $400,000 $1,200,000 $2,200,000 _ Has $1,000,000 of excess coverage & : � Waives the t ' it s atutory lim s $2 200 000 $2 200 000 $2,200,000 ., , � , � :� ' C:EACiUE OI' MINNESOTA CITIES i.�st�n�vrr.srrvnti�:.�e�i; rric��e:t�>51�'LSt-I200 r,�x:(6�17281-12�?8 �', � I N S U E2AN C E T RU ST s�r_ �At��_ �nn .s, En�-z�r.�., °rc�i.t_ f-i7� i: (s001 ��2s- i t 22 r�ve�: w�vG��.�h,c.�»�4 � '�, � � �