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9.a) Staff Report-2013 Insurance Coverage Renewal �: \ /_^` `� �J `f ` �-i CANDIA Staff Renort Date of Meeting: October 16,2012 To: City Council From: Kristina Handt, City Administrator Re: 2013 insurance Coverage Renewal Agenda Item#: 9.a) 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 and again in 2012. 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. Last year the Council raised the deductible from$500 to $1,000. The deductible is proposed to remain at$1,000 for 2013. Issue: Should the City renew with LMCIT for 2013? Should the tort liability limit be waived? Proposal Details: JoAnn Buse of Security State Agency will be available at the October 16 meeting to answer any questions that the Council may have. Fiscal Impact: Rates for 2013 are not yet available. The final cost will be determined based on coverage selected by the City. In 2012, the total premium was $34,057. Each year, LMCIT returns dividends to its members. The dividends vary significantly year-by-year. Options: 1) Renew insurance coverage with LMCIT for 2013, and pass a motion to not waive the tort liability limits. 2) Renew insurance coverage with LMCIT for 2013, and pass a motion to waive the tort liability limits. 3) Seek other quotes 4) Take no action Recommendation: Option 1. _ i j iI ! � N' ' ; L,EAGUEor CONNECTING & iNNOVATiNG � M(NN�SOTA si�vc:r: i��i ► � C1T1 ES ; i i i i RISK MANAGEMENT INFORMATION I LMCIT LIABILxTY COVERA,GE UPTIUNS f Liability Limits, Coverage Limits, and Waivers � � LMCIT gives c!t►es several optlons for structuring thelr llabillty coverage. The city can chaose � elther to walve or not to walve the monetaty Ilmlts the stafutes provlde;and the clty can select � from among several llab!!!ty coverage lfmits. Thls memo dlscusses fhese optlons and ldentifJes ; some lssues to conslder!n dec�ding whlch of the optlons best meets the clty's needs. � Statuto Limits on Munici al Tort Liabilit � ►'Y P Y The statutes limit a city's tort tiahility 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 I emplayee,or against both. � � Coverage Limits for LMClT's Basic Primary Liability Coverage ; LMCIT's liabitity coverage provides a limit of$1,500,000 per occurrencc,matching the per- � occurrence part of the statutory municipal tort liability limit. Beside the ovexall coverage litnit of $1,540,000 per occurrence,there are also annual aggregate limits(that is,limits on the total amount I of coverage for the year regardless of the number of claims),for certain specific risks. Aggregate ; limits appiy to the following: � Products $2,000,000 annuall Failure to su I utilities $2,004,000 annuall Data securi breaches $2,400,000 annuall EMF $2,000,000 annuall Limited ollution* $2,000,000 annuall ' Mold $2,000,000 annuall i Land use liti ation** $1,000,000 annuall I Em lo ers liabili work com $1,500,000 annuall � *Includes sudden and accidental releases of pollutants; i herbicide and pesticide application;sewer ruptures,overflows More Information � and backnps;and lead and ashestos claims.Dredging or � excavation claims are subject to a$250,040 sublimit. These for more information about land j limits apply to both damages and defense costs, use Iitigation coverage,ptease see j **Coverage is provided on a sliding scale percentage basis, the memo LMCIT Coveraae for { which is based on participation in LMCiT's online la��d use Liti�ation Relatin�to Land Use. + haining. Coverage applies to both damages and litigation costs. — ! I ( I � � ! LEAGUE OF MINNESOTA CIT1�$ 1-ISUNIVER�ITY����.wrst riic�Nc:K,S�►28�-Izoo i,��:��51�2s1-t2�►h � I NSURANCE TitUST sr.i�hui..n�n ssio�-�a� Tl)il FRfk:IBl)U)�)Z$-I l22 ���Fn����v�vi.a�.��r.�; j � i � � i i If the Statute Limits our Liabitity,Why Purchase Higher Coverage Limits? , There are several different reasons why cities should strongly consider carrying higher limits of ; liability coverage. I The Statutory Tort Limlts Elther po Not or May Not Appiy to Several Types of Claims � Some examples include: � 1 • Claims un�lerfederal civil rights laws. These inciude Section 1983,the Americans with ! Disabiliries Act,etc. ; � • Claims for tort liabilit��that tlre city has ass:r�ned by contract. This occurs when a ciry agrees in a � contract to defend and indemnify a private party. s 3 • Claims for actio�rs iie a�rother state. This rr►ight occur in border cities that have mutual aid ; agreements with adjoining states,or when a city o�cial attends a national canference or goes to ; Washington to lobby,etc. � 1 • Clai�rrs based o�a 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 exampie. ! ; • Clair�rs Gased on a "takrng"theory. Suits challenging land use regulations&equently include an ; "inverse condemnation"claim,alleging that the regulation amounts to a"taking"of tl�e property. ! LMCIT's Primary Llability Coverage has Annual Ltmits on Coverage for a few Speclflc Rtsks � Tl�e table on page one lists the liability risks to wl�ich aggregate coverage limits apply. If the ciry has � a loss or clai�n in one of these areas,there might not be ettough limits remaining to cover the city's i full exposure if there is a second loss of the same sori during the year. Excess liability coverage gives j the city additional protection against this risk as well. 1 s However,there are a couple important reshictions 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:�tiliries;n�old;crrrd "lin�iled � pollution"claints if eitlter the pollu�ant release or�he dalnage is be%ti��grv:rnd nr in a bodj�of water;and � I • The excess coverage does not automatical/y appdy to liq►�or liabili.ry unless the city specifically � requests it. j The City may be Required by Cantract to Carry Higher Coverage Limits i Occasionally,a contract might include a reyuirement the city carry more than$1,500,400 of coverage i limits. Carrying excess coverage is a way to meet these requirements. (There's also another option I I , ; I I f � z ` � I _ i � ; � i � i i for citics 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"endorsernents.) There may be more than One Potitical Subdivision Covered Under the City's Coverage ; An HRA,EDA,or port authority is itself a separate political subdivision. If the city EDA, for I 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,ar to defend and indemnify another entity. ; 3 I Cities Sometimes Carry Nigher Coverage Limits Because of a Concern the Caurts Might Overturn the 1 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 no�v less of a ;. concern. Available Excess Liability Coverage Limits ; Excess coverage is available in$1 million increments,up to a maximum of$5 million. ; � Does the Optional Excess Coverage Apply to Atl Types of Claims? No. The excess liabiiity coverage does not apply to the fallowing types of claims; certain limited ' pollution claims;mold claims;claims for failure to suppty utilities;auto no-fault claims;uninsured/ � underinsured motorist claims;workers' compensation,disabiliry,or unemployment claims;or claims ' under the medical payments coverage. � I Who Needs Excess Liability Coverage? ' If anything,excess liability coverage is even more important to a small city rather ihan to a targe city. { If a city ends up wifh more liability than it has coverage,the city will have to either draw on existing � funds or go to its taxpayers to pay that judgment. A large city faced with,say,a million dollars of I liabi)ity over and above what its LMCIT coverage pays might be able to spread that$] 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 5,004 taxpayers is$200 i apiece—annoying but probably at Ieast manageable for most taxpayers. S 1 mitlion divided among 200 taxpayecs is$5,000 apiece—enough to be a real problem for many. I ; i 1 � , 1 � I � i 3 j I i i . i ; - i I i ; � G What's the Effect of Waiving the Per Claimant Statutory Liability Limit? i If the city chooses the"waiver"option,the city and LMC1T no longer can use the statutory fimit of ' $500,000 per claimant as a defense. Because the waiver increases the exposure,the pren�ium is roughly 3%higher for coverage under the waiver option. j i If the city waives the statutory limit,an individual claimant could therefore recover up to$1,500,004 � in damages on a claim. Of course,the individual wouid 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 woukd limit the individual's recovery to a lesser amount if there�vere multipie i 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�vhere • The city is in fact liable. Mighli�ht • The injvred party's actual proven damages are The waiver option coverage does not greater than the statutory limit. give the city better protection. The � 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 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 Uy 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 ihose claims. Waiving ihe statutory tort limits has no effect on claims the statutory limits ' don't apply to. � I � Effects of Wafving the Statutory Limits if there is Excess Coverage � 3 If the city has$1 million af excess coverage and chooses to waive the statutory tort limits, the ; claimants(whether iYs one claimant or several)couid then potentially recover up to$2.5 million in i . damages in a single occurrence. If the city caxxies 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,eausing multiple serious injuries. $1,5(?0,000 divided 50 ways may not go far toward compensating for those � , , 1 , � 4 � _ � i � I anjuries. Excess coverage under the waiver option makes more funds avaiiable to compensate the � victims in that kind of situation. t , The cost of the excess liability caverage is about 25%greater if the city�vaives the statutory tort � limits. The cost difference is proportionally greater than the cost difference at the primary level I because for a city that carries excess coverage,waiving the statutory tort limits increases both the per- I claimant exposure and the per-occurrence exposure. i i Waiving Statutory Tort Liability Limlts: lncrease in Risk? 1. There is no increase in risk for the city to end up with tiability 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. � � i 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. ; ' k Can we Waive the Statutory Tart Limits for the Primary Coverage bui not for the ; Excess Coverage? 'f 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 partiaily waive the statutory limits. � I Is there a Simple way to Summarize the Options? Your League Resource i It's not necessarily simple,but the table on the following �" page is a shorthand summary of what the effect would be of Feel free to call the Underwriting i the various coverage structure options in different Department at 651-z81-1200 or j circumstances. 800-925-1122 with any j questions. � I Pete Tritz 2/12 � I � i � i ; _ i i 5 . � �,EAGUEoF CONNECTING & INN4VATIIVG �INI�TES�TA scr�cE asis CITIES LMCIT Liability Coverage Options On a liability claim to which On a liability clairn 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: �nount 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 th.e 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 $1,500,400 Has$1,000,000 of excess coverage& Does not waive the statutory limits $SOO,OOQ $1,54d,000 $Z,soo,oao Has S1,OOO,Q00 of excess coverage& waives the statutory timits $2,500,000 $2,500,000 $2,500,000 LEAGUE C�F MINNESUTA CITIES �a>��.,����;.,,,�.,,�, «�,,, �•,,,,�F i65i�zsi-tzoo �„� iG�11?hl•1�'>S INSUItANCE TRUST .� �•:,��� �,��«„�;<<,a, ,,,,� ��:�.� txoo}��s-��?2 �<<,� ���,,,���„� ����;