9.e) Staff Report-2014 Insurance Coverage Renewal c� � f �
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SCANDIA
Staff Report
Date of Meeting: October 15, 2013
To: City Council
From: Kristina Handt, City Administrator
Re: 2014 Insurance Coverage Renewal
Background:
The City purchases all of its liability and property insurance coverage through the League of
Minnesota Cities Insurance Trust (LMCIT). LMCIT is a cooperative, member-owned
organization founded in 1980 that provides property, liability, workers' compensation and
employee benefit needs to Minnesota cities. Members contribute premiums to a jointly-owned
fund rather than paying premiums to buy insurance from a private insurance company. The funds
are used to pay for members' claims, losses and expenses. LMCIT's property/casualty program
has more than 1,100 members. LMCIT coverage is designed specifically for Minnesota Cities.
The city has not recently looked for other quotes. There are few, if any, insurance companies
that could provide comparable coverage.
The City Council must decide each year whether to waive the statutory monetary limit on tort
liability. If the city does not waive the limit, an individual claimant would be able to recover no
more than $500,000 on any claim to which the limits apply, with a total limit on a single
occurrence of$1.5 million. If the city does waive the limit, an individual claimant could
potentially recover an amount up to $1.5 million, plus any excess liability insurance coverage
(Scandia currently carries $1 million.). Most communities (about 70%) do not waive the limit.
Previously, Scandia waived the limit,but decided not to do so in 2009, 2010, 2011, 2012 and
again in 2013. In 2010, it was estimated that the city saves approximately $450 per year on
liability insurance premiums by not waiving the limit. LMCIT's publication on liability
coverage and waivers is attached for your information.
In 2012, the Council raised the deductible from $500 to $1,000. The deductible is proposed to
remain at $1,000 for 2014.
Issue:
Should the City renew with LMCIT for 2014? Should the tort liability limit be waived?
Proposal Details:
Staff is recommending the City renew liability insurance with LMCIT for 2014. The renewal
date is actually 12/1/13. Rate information will be available in mid-November but is estimated to
be 1-2%inflationary increase.
Staff is further recommending the Council not waive the limit on tort liability.
Fiscal Impact:
Rates for 2014 are not yet available. The final cost will be determined based on coverage
selected by the City. In 2013, the total premium for liability and property insurance was about s
$34,340. Each year, LMCIT returns dividends to its members. The dividends vary significantly
year-by-year.
Options:
1) Renew insurance coverage with LMCIT for 2014, and pass a motion to not waive the tort
liability limits.
2) Renew insurance coverage with LMCIT for 2014, and pass a motion to waive the tort
liability limits.
3) Seek other quotes
4) Take no action
Recommendation:
Option 1.
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jJEAGUEor C�NNECTING & INNOVATING
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C1T1 ES
RiSK MANAGEMEWT INFORMATION
LMCIT LIABILITY COVERAGE OPTIONS
Liability Limits, Coverage Limits, and Waivers �
LMC1T glves cltfes severa!optfons for structuring the)r lJablllty coverage. The city can choose
elfher to walve or not to walve the monetary 1lmits fhe statutes provlde;and the clty can select
from among several liabflfty coverage►fmlts. Thfs memo discusses these optlons and ldentifles
some lssues to consider f»declding which of the options best meeis the clty's needs.
Statutory Limits on Municipat Tort Liability
The statutes limit a city's tort tiability to a maximum of$500,000 per claimant and$i,500,000 per
occurrence. These limits apply whether th$claim is against the ciry, 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 statutocy municipal tort liability limit, Beside the overall coverage limit of
$1,500,000 per occurrence,there are also annual aggregate limits(that is, liniiTs on tlie tota) amotEnt
of coverage for the year regardless of the nutnber of claims}, for certain specific risks. Aggregate
limits apply to the following:
Products $2,000,000 a��nuall
Failure to su 1 utilities $2,d00,000 annuall
Data securit breaches $2,000,000 annuall
EMF $2,000,000 annuall
Limited ollution�` $2,000,000 annually
Mold $2,000,000 annuall
Land use liti ation** $1,000,000 an��uall
Em lo ers liabili (�vork com $1,500,000 annuaii
*Includes sudden and accidental releases of pollutants;
herbicide and pesticide application;sewer ruptures,overflows �
and backups;and lead a�id asbestos claims.Dredging or More Information ,
excavation clain�s are subject to a$250,000 sublinut. These �or more information about land
limits apply to both datnages and defense costs. use litigation coverage,please see
"`*Coverage is pro��ided on a sliding scale percentage basis, the memo lMCl7 Covera�e for i
which is based on participation in LMCIT's online land use Liti�ation Relatin�to Land Use.
training. Coverage applies to both damages and litigation costs.
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LEAGUE UI� MINNESOTA CITIES i�;u�viv�k�in-n��r.����si riic,Ni:it,s�i2s�-J2tx� i:�x i�s�i2s� 12��s ?
INSURANCET}tUST sr.r,��ii..n�nssiva.zi�as ru�ir�:tf:(800���25-ii�? ���Fi� ��t��vi.�li.i,r.�,
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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
liaUility coverage. !
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The Statutory Tort Limits Either po Not or May Not Apply to Several Types of Claims (
Some examples include: j
• Claims u�rderfede�•al civrl riglrts laws. These include Section 1983,the Americans with
Disabilities Act,etc.
• Claims for tort liability that the city has assennerl by co�itf-act. This occurs when a city agrees in a
contract to defend ai�d indemnify a private party. _
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• 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 o��goes to
Washington to loi�by,etc. ;
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• Clainrs baserl on.liquor sales. This mostly affects cities with municipal liyuor stores,but it could
also arise in connection��vith beer sales at a fire relief association fi�nd-raiser, for example,
• Clai»rs Gased o�a "laking"lheory. Suits challenging land use regulations frequently include an �
"inverse condemnation"claim, alleging that the regiilation amounts to a"taking"of the property. !
LMCIT's Primary Liability Coverage has Annual Limfts on Coverage for a few Specific Risks
The table on page one lists the liability risks to which aggregate coverage limits apply. If tlie city has
a loss or claim in one of these areas,there miglii 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 liaUility coverabe gives '';
the city additional protection against this risk as�vell. �
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 frot apply to three risks: failin•e to supply:�tilities; �»olc�•and "lin►ired
pollution"clarnts if erflter the pollutaal release a�the danrage is beloti+�growad or in n body of
water;and '
• The excess coverage does�rot automatically apply to liquor Iiabilih�unless the city specifically
requests it.
The City may be Requlred by Contract to Carry Higher Coverage Limits ',
Occasionally,a conh�act might include a requirement the city carry more than$1,500,000 of coverage �'
limits. Canying excess coverage is a way to meet these requirements. (There's also another option '
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for cities in Niis situation. LMC1T can issue an endorsement to increase the city's caverage limit only
for claims relating to that particular co��t�•act. There's a small charge for these"laser"enclorsemet�ts.)
There may be more than One Potitical SubdivisEon 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 pariy 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 fron�
both the city and the EDA,since there are nvo political subdivisions involved. Excess coverage is
one way to provide enough coverage limits to address tliis situation. Another solution is for the HRA,
EDA,or port authority to carry separate liability coverage in its o�vn name.
This issue of multiple covered parties can also arise is if the city has agreed by contract to name j
another entity as a covered party,or to defend and indemnify another entity.
Citfes Sometimes Carry Higher Coverage Limits Because of a Cancern the Courts Might Overturn the �
Statutory Liability Limits
However,those limits have now been tested and upheld several times in Minnesota. While it's
al�vays possible that a future court might decide to throw out the statutory limits, this is now less of a
concern.
Availabie Excess Liability Coverage Limits
Excess coverage is availaUle 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: certain limited ,
pollution cIaims; mold claims;claims for failure to supply utilities; auto no-fault claims; uninsured/ ,
underinsured motorist cIaims;workei•s' compensation,disability,or unemployment claims; or claims '
under the medical payments coverage. ,
Who Needs Excess Liability Coverage? '
If anything,excess liaUility coverage is even more important to a sma11 city railier than to a large city. �
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If a city ends up�vith more liability than it has coverage,the city will have to either dra�v on exisiing
funds or go to its taxpayers to pay that judgment. A la�•ge city faced with,say,a million do]]ars of
liability over and aUove what its LMCIT coverage pays might be able to spread that$1 million cost
over severa]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. $1 niillion divided among �
200 taxpayers is$S,OQO apiece—enough to be a real problem for many. �
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What's #he Effect of Waiving the Per Claimant Statutory Liabllity Limit?
If the city chooses the"waive�"option,tl�e city and LMCIT no lo�iger can use the statutory limit of
$500,000 per claimant as a defense. Because tl�e waiver increases the exposure, the premium is
roaghly 3%higher for coverage under the waiver option.
If the city waives the statutory limit,an individual claimant could therefore recover up to$I,SOd,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,SU0,000 per occurrence
would stil) apply; that tvoutd liniit the individual's recovery to a iesser amount if there�vere multipie
claimants.
Why Would the City Choose ta Pay More to Get Waiver-Option Coverage?
The statutory liability limit oniy comes into play in a case where
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• The city is in fact liable. Fi;ghlight �
• The injured party's actual proven damages are
greater than the statutory limit. The waive�option coverage does not ;
give the city better protection. The 1
Very literally,applying the statutory liability limit means benefit is to the injured party. �
an injured party won't be fully compensated for his/her !
actual,proven damages that were caused by city negligence. Some eities 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. Waivi2�g the statutory IiaUility limits is a way to do that. ;
Other cities may feel that the apprapriate policy is to minimize the expenditure of the taxpayers'
funds Uy taking full advantage of every protection the legislature has decided to provide. There's no �
right or wrong answer on#his point. It's a discretionary question of city policy that each city council
needs to decide for itself.
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For claims the statutory tort liability limits don't apply to, it doesn't affect how the city's coverage or 'I
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 tl�en potentially recover up to$2.S million in ;
damages in a single occurrence. If the city carries higher excess coverage limits,the potential i
maximum recovery par occurrence is correspondingly higher. �
Carrying excess coverage under the waiver option is a way to address an issue that some cities find
houbling: the case where many people are injured in a single occurrence caused by city negligence. 1
Suppose,for example,that a city vehicle negligently runs into a scliool Uus full af kids,causing �
multiple serious injuries. $1,500,000 divided 50 ways may not go far toward compensating for those j
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injuries. Excess coverage under the waiver option makes more fi�nds available to cocnpensate 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 tha2�the cost difference at the primary level
because for a city that carries excess coverage,waiving the statutory tort limits increases both the per-
clainiant exposure and the per-occut-rence exposure. ;
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Waiving Statu#ory Tort Liability Limits: Increase in Risk?
There is no increase in risk foc•the city to end up with tiability if LMC1T doesn't cover it. The�vaiver '
form specifically says#he city is waiving the statutory tort liahility limits only to the extent of the
city's coverage. �
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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 tl�at could liappen to any city. But the waiver doesn't increase tl�at
risk.
Can we Waive the Statutory Tort Limits for the Primary Coverage but not for the
Excess Coverage?
No. If the city decides to�vaive the statutory tort limits,that waiver applies to the full extent of the
coverage Iimits the city has. The city cannot partially waive the staturory limits. i
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ls there a Simple way to Summarize #he Options? Your l.eague Resaurce
It's not necessarily simpie, buT the table on tlie following
page is a shorthand sutnmary of what the effect�vould Ue of Feei free to call the Underwriting
the various coverage structure options in differeni department at 651-z81-1200 or
circumstances. 800-925-1122 with any
questions.
Pete Tritz 2/I2 '
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