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9.a) 2011 Insurance Coverage Renewal . � Meeting Date: 11/16/2010 Agenda Item: � �1 � City Council Agenda Report City of Scandia 14727 209th St. North Scandia, MN 55073 (651) 433-2274 Action Requested: Discuss annual renewal of insurance coverage from League of Minnesota Cities Insurance Trust (LMCIT) and decide whether or not to waive the monetary limits on tort liability established by Minnesota Statutes for 2011. Deadline/Timeline: The renewal date for all insurance coverage provided by LMCIT is December 1, 2010. Background: • The City purchases all of its 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. Attached is a publication from the League of Minnesota Cities about how to compare coverage and quotes. The city has not recently looked for other quotes. There are few, if any, insurance companies that could provide comparable coverage. • Rates for 2011 are not yet available. The final cost will be determined based on coverage selected by the City. In 2010, the total premium was $30,035. Each year, LMCIT returns dividends to its members. The dividends vary significantly year-by-year(in 2009, Scandia's dividend was $4,900.) • 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.) Page 1 of 2 I 1/08/10 � . • Most communities (about 70%) do not waive the limit. Previously, Scandia waived the limit, but decided not to do so in 2009 and 2010. The City saves approximately$584 per year on liability insurance premiums by not waiving the limit. LMCIT's publication on liability coverage and waivers is attached for your information. • The City currently has a deductible of$500 for all claims. Staff investigated the possibility of increasing the deductible to $1,000 and found that it would save about $1,800 annually. Increasing the deductible to $2,500 would save about $3,450. � Over the last 3 policy years, the city has submitted 6 insurance claims, 5 of which were paid for a total deductible cost of$2,500. Assuming roughly the same premium savings, if the deductible had been $1,000 instead of$500 during those 3 years, the net savings over that time would have been $2,900. If the deductible had been $2,500 instead of$500 during those 3 years, the net savings would have been $350. Based on the number of claims the city submits, it would not appear to be a good value to increase the deductible to $2,500. • JoAnn Buse of Security State Agency will be available at the November 16 meeting to answer any questions that the Council may have. Recommendation: I recommend that the Council renew insurance coverage with LMCIT for 2011, and not waive the tort liability limits. The Council should discuss whether or not to increase the deductible from $500 to $1,000 for the new policy year. Attachments/ • "Comparing City Liability, Property, Auto, Crime and Bond Materials provided: Coverage Quotes", LMCIT • "LMCIT Liability Coverage Options", LMCIT ContaCt(s): JoAnn Buse, Agent Security State Agency(433-5753) Prepared by: Anne Hurlburt, Administrator (insurance renewal 2011) Page 2 of 2 11/08/10 o � LEAGUE oF CONNECTING & INNOVATING MINNESOTA SINCE 1913 CITIES RISK MANAGEMENT INFORMATION COMPARING CITY LIABILITY, PROPERTY, AUTO, CRIME AND BOND COVERAGE QUOTES Some Questions to Ask The commercial insurance industry has always run in cycles. There are periods when insurance companies are very competitive and are eager to write business, offering low premiums rates and flexible terms. There are also periods when insurance is expensive and hard to find. Regardless of the state of the market, many cities feel iYs a good management practice to periodically compare what the commercial companies offer with the coverage available from LMCIT. But in making that comparison, it's important to look not just at cost but also at the coverage as well. The LMCIT coverage was designed specifically to meet cities' needs, and is broader than any type of coverage offered by commercial insurance carriers. If you are looking at a commercial insurance company's policy or policies as an alternative to LMCIT,this list of questions can help identify some of the differences in coverage. LMCIT can answer"yes"to all of these questions. If a private carrier can't,their coverage isn't as good as LMCIT's(keep in mind some of these coverages are optional in LMCIT, and there are limits on certain LMCIT coverages for various risks and exposures.) Ask the agent or insurance company offering the coverage to answer these questions in writing. If you buy their insurance, keep a copy of the response with your policy. It will be useful when you have a claim. Some questions to ask about liability coverage 1. Does it cover the liability exposures of ambulance attendants, paramedics, and"First Responders"? 2. Does it cover the professional malpractice exposure of an engineer, surveyor,or accountant who is a city employee? 3. Does it cover libel, slander, defamation, and invasion of privacy arising out of the operation of a public access or city government cable TV channel, or a cable broadcast of council meetings? 4. Suppose a police officer acting in good faith misjudges the amount of force that is reasonable to use in making an arrest; that is, the officer in good faith thought the force he used was LEAGUE OF MINNESOTA CITIES 145UNIVfRSl7`YAVE.N��sr rtiohe:tGS])281-1200 rnx:(bS])281-]298 I N SU RAN C E TRU ST 5"I.PAU►,Mh SS143-2044 �ot.i.Fn�t:(800)925-1 l22 WkH:WWW.LMC.ORG reasonable, but a court later disagrees. Does the policy cover both the city's and the officer's liability for assault and battery or for using unreasonable force? 5. Suppose an officer acts in bad faith and intentionally uses an unreasonable amount of force on a suspect, who then sues both the city and the officer. Is the city's liability covered? 6. Are each of the following"named insureds"under the policy? • City council members • Members of boards or commissions • City volunteers,whether individuals or organizations • Other elected or appointed city officials • City employees, whether full-time, part-time, or temporary • Relief associations and their officers, employees, and members • The ambulance service medical adviser or medical adviser • Former city officers, employees, and volunteers 7. Does it provide at least $1,500,000 of coverage for each occurrence, regardless of the number of occurrences, the number of defendants, or the number of claimants? (Many policies have a "general aggregate" limit, which limits the total amount the insurance company will pay under the policy, regardless of the number of claims. LMCIT's coverage has no general aggregate limit, although there are aggregate limits on coverage for the following types of claims: products and completed operations, failure to supply, limited pollution, land use liability, EMF, outside organization, and mold.) 8. Does it cover liability for employment actions such as hiring, firing, disciplining or promoting? 9. Does it cover liability for claims of sexual or racial harassment? 10. Does it cover punitive damages to the extent permitted by statute? 11. Does it cover violations of civil rights? 12. Does it cover the city's statutory duty to indemnify volunteer firefighters for automobile liability incurred while responding to a fire? 13. For any "claims-made"policy(most public officials"errors and omissions" policies are claims-made): a. Does it guarantee you the right to purchase an unlimited extended reporting period, even if you cancel the policy or decide not to renew it? b. Is the price of the extended reporting period specified in the policy itself? 14. Does it cover city liability arising from a city officer's or employee's malfeasance? 2 15. Does it pay for the defense of an officer or employee accused of malfeasance? 16. Does the errors and omissions policy cover property damage or bodily injury resulting from a "wrongful act"? (Don't confuse this with coverage for property damage or bodily injury caused by an "occurrence".) 17. Does it cover suits by one city employee against another employee or against the city? 18. Are general liability, police liability, ambulance liability, firefighters' liability, errors and omissions, and employment liability coverage provided in a single form by a single carrier? (If not,there is a possibility for coverage disputes among the insurers.) 19. Are special events covered? (LMCIT does not exclude coverage for special events per se, though certain activities sometimes associated with special events are excluded; motor vehicle races, fireworks, and mechanical rides are examples.) 20. Does the coverage preserve all of the city's statutory and common-law defenses? (Some policies explicitly waive all "governmental immunity"defenses.) 21. Does it cover liability arising out of strikes, riots, or civil commotion? 22. Does it pay on behalf of the insured, rather than reimbursing you after you have paid the loss and defense costs? 23. Does it provide"overlap" coverage? ("Overlap" coverage provides that if there is a dispute between two or more of the city's insurers as to which is liable for a particular claim,the insurers and not the city bear the cost of resolving that dispute.) 24. Is the carrier willing to provide coverage for joint powers entities such as watershed management organizations, cable TV commissions, sewer boards, and so on? 25. Does it cover the liability of the ambulance services medical adviser or medical director for his/her administrative actions? (The medical director's own malpractice coverage might not apply to administrative actions, as distinguished from professional medical activities.) 26. Does it cover liability for inverse condemnation when a court determines that a zoning or other land use regulation has resulted in a temporary taking of private property? 27. Does it cover claims for attorneys' fees that are claimed as part of a civil rights suit seeking an injunction but not seeking monetary damages? 28. If statutory plaintiff attorney fees are awarded in connection with a covered damage claim, would the insurance pay those attorney fees? 3 29. Does it cover the liability arising out of operating an employee benefit plan or advising employees regarding such a plan? 30. Does it cover the fiduciary liability of board members of a fire relief association? 31. Does it cover liability for accidental spills of pollutants? 32. Does it let you buy higher liability coverage limits where needed, without waiving the statutory liability limits where they apply? 33. Does it cover liability for lead contamination? 34. Does it cover liability for asbestos contamination? 35. Does it cover those liability, clean-up, and defense costs for an underground tank leak or spill which are not reimbursed by the state Petrofund? 36. Does it cover liability for mold? 37. Does it defend employment-related charges against the city that are filed with the EEOC or Human Rights Commission, even if those charges don't explicitly claim money damages? 38. Does it cover administrative actions charging violations of HIPAA data privacy and data security regulations, even if there's no explicit claim for damages? 39. Is there coverage to defend open meeting law charges against city officials? This coverage is standard for members of the LMCIT property/casualty program. 40. If back wages are awarded as damages for wrongful termination of an employee, are those damages covered? 41. Is there coverage for the city's liability for loss of or damage to property belonging to others that's in the city's care, custody and control? 42. Are claims for damages caused by electromagnetic fields covered? 43. Are claims for damages caused by stray voltage covered? 44. Does it cover damages from the failure to supply utilities? 45. Is coverage available for the professional activities of an attorney who is a city employee? 46. Does it cover legal costs for litigation relating to land use regulation, even if that litigation doesn't involve a claim for damages? 4 47. Does it cover legal costs for litigation relating to development and redevelopment activities, even if that litigation doesn't involve a claim for damages? 48. Does it cover legal costs for litigation relating to franchising or other regulation of private utilities or refuse collection, even if that litigation doesn't involve a claim for damages? 49. Does it cover litigation challenging the city's authority to engage in enterprise operations such as utilities, internet, or telecommunications services, even if that litigation doesn't involve a claim for damages? 50. Does it cover legal costs for litigation relating to land use regulation, development, franchising, or enterprise operations even if the city initiated that litigation? 51. Suppose a city employee is sued because of some action they took as a member of a joint powers board they sit on as the city's representative. The joint powers board doesn't have insurance itself, and isn't a"named insured"on the city's insurance. Does the employee or the city have any protection? 52. Is coverage available for liability claims relating to a city airport? (Coverage of bodily injury and property damage claims relating to airport operations is an optional coverage with LMCIT.) 53. Is coverage available for damages to private property caused by a sewer back-up or water main break, irrespective of whether the city is legally liable for that damage because of city negligence? (The standard LMCIT liability coverage covers sewer back-up claims like any other liability claim. LMCIT also offers a"no-fault" sewer back-up coverage option.) 54. Does it cover a joint planning board created under an orderly annexation agreement? Some questions to ask about property coverage 1. Is the coverage written without a coinsurance clause? If not,the insurance company may penalize you on a claim if they determine that you didn't purchase and pay for adequate coverage limits. 2. Does the insurance company provide appraisals for your property? If not, you'll need to either come up with the values yourself or pay for a professional appraiser. If the values you come up with aren't adequate, you may not have enough coverage if a loss occurs and you might be subject to a coinsurance penalty. 3. Does the insurance company cover your buildings and their contents for replacement cost? (LMCIT propeRy coverage is all on a replacement cost basis, except for vacant buildings.) 4. Does the insurance company cover your mobile equipment—i.e., "inland marine"property— at replacement cost? 5 5. Is property coverage automatic for minor pieces of equipment, or do you have to specifically schedule each one in order to have coverage? 6. Does it cover sewer backups and other non-flood water damage to city property? 7. Does it cover flood damage for buildings outside the 500-year flood plain? 8. Is supplemental flood coverage available for buildings within the 500-year flood plain? 9. Is loss of income and extra expense coverage included? 10. Are police dogs covered, including the cost of training a replacement dog? 11. Do you have any protection if you forget to schedule property coverage for a particular building or other piece of property? 12. Is coverage available for damage to city utility poles and lines? 13. Does it cover earthquake damage? 14. Is property in transit covered? 15. Does it cover vandalism damage to golf course greens, tees, signs, etc.? 16. Does it cover damage to city property caused by an off-premises power failure? (Note: This LMCIT coverage doesn't apply to municipal utilities property.) 17. Does it cover accounts receivable? 18. Does it cover computer equipment and media, including the cost to recover or reconstruct data and programs? 19. Does it cover damage caused by a computer virus? 20. Does it cover damage caused by a computer"hacker"? 21. Does it cover art objects? 22. Does it cover the cost to replace valuable papers? 23. If a building is damaged or destroyed, does the coverage pay the additional costs to clean up asbestos and other pollutants? 24. Does it cover those liability, clean-up, and defense costs for an underground tank leak or spill which are not reimbursed by the state Petrofund? 6 25. Does it cover the cost to remove storm debris from a city park? 26. Does it cover property belonging to others that's in the city's care,custody, and control? 27. Does it cover your employees' personal tools or equipment used on city business? 28. Does it cover extraordinary and unanticipated expenses the city incurs to protect the public health and safety or to meet the city's legal obligations? 29. Does it automatically cover a newly-acquired or newly-constructed building? (LMCIT covers newly-acquired or newly�onstructed buildings up to $5 million, at no additional cost until the city's next renewal.) 30. Does it automatically cover a newly-acquired piece of mobile equipment? (LMCIT covers newly-acquired mobile property, which also applies to equipment which the city rents or borrows, up to $500,000, at no additional cost until the city's next renewal.) 31. Does it automatically cover the builders risk on a city building that's being constructed, altered, or repaired? (LMCIT provides automatic builders risk coverage if the total project cost is under$2 million.) 32. Does it cover property damage caused by terrorism? 33. Does it cover property damage caused by criminal acts other than vandalism? 34. Does it cover the cost of necessary pollutant cleanup resulting from damage to the property? 35. Does it cover the additional costs to re-certify a "green" building? 36. Does it cover the additional cost to recycle debris when required for"green"certification? Some questions to ask about auto coverage 1. Does it cover all city vehicles automatically for physical damage, or do you have to report and schedule each individual vehicle in order to have coverage? 2. Is replacement cost coverage available for city vehicles? 3. Does the auto liability coverage apply as excess over the personal auto coverage of an officer or employee using his/her car on city business? 4. Does the auto liability coverage apply as excess over the personal auto coverage of a city volunteer using his/her car on city business? 7 5. Does the city have the option to make its auto liability coverage primary for an officer, employee, or volunteer using his/her own vehicle on city business? 6. Does the auto physical damage coverage apply automatically to a vehicle the city borrows, rents, or leases? 7. Does it cover the city's or the individual's liability for damage to a rental car that a city officer, employee, or volunteer rents for use on city business? 8. Does it provide an auto liability coverage limit of at least$1,500,000? 9. Will there be an extra charge to add liability and or physical damage coverage for a vehicle the city acquires mid-term? 10. Does it cover automotive liability the city has assumed by contract—through a defense and indemnification agreement, for example? Some questions to ask about crime coverage 1. Does it provide a$250,000 limit for crime losses of money and securities, including reimbursement for reasonable audit and accounting costs the city incurs to identify the existence and amount of a claim(LMCIT reimbursement for auditing and accounting costs is limited to an amount equal to 25% of the actual covered loss)? 2. Does it provide a blanket limit for crime losses, regardless of which "premises"the funds were stolen from? (If the coverage is based on a particular"premises"and funds were stolen by means of computer fraud or electronic funds transfer, it might be hard to establish that the theft was from a covered premises.) 3. Does it cover theft of city funds by computer fraud? 4. Does it cover theft of city funds by fraud or swindle? (Many crime policies exclude coverage if you were "induced by a dishonest act to voluntarily part with"the money or securities.) 5. Would it cover a burglary loss from a building following an unexpected event that impaired the security of the building? 6. Does it cover theft by extortion or threat of violence? 7. Does it cover losses from forgeries or alterations? 8. Does it cover thefts from vending machines? (Many crime forms cover only vending machines that have a"continuous recording device".) 9. Are relief association funds covered? 8 Some questions to ask about bond coverage l. Does the bond cover all losses resulting from the official's failure to faithfully perform his/her duties? (Many bond forms only cover employee dishonesty. Some faithful performance bond forms exclude various specific types of claims. A bond form that excludes certain losses wouldn't seem to meet the statutory requirements for those officials who are required by law to have a faithful performance bond. 2. Are the bond limits realistic? (A $5,000 or$10,000 bond might comply with the statute,but doesn't give the city much real protection.) 3. Would the faithful performance bond cover a third party's loss caused by the officer's dishonesty or other malfeasance? (Some bond forms have a"sole benefit" clause, and would only cover the city's own loss. Those bonds wouldn't seem to meet the statutory requirements for positions required to have a faithful performance bond.) 4. Would the faithful performance bond cover a tort claim or a civil rights claim against the officer based on the officer's malfeasance? (These exclusions are often found in bond forms. A faithful performance bond that excludes these would not meet what the statutes require.) 5. Does the faithful performance bond cover investment losses caused by the officer's malfeasance? 6. Does it cover relief association funds? 7. Does it cover relief association officers? 8. Does it cover the relief association's gambling manager? Do These Things Really Matter? Some people might suggest these items are merely unimportant"frills"that aren't worth worrying about. But remember: Every"no" answer represents a claim which LMCIT would cover but the private insurance company wouldn't. It's easy to make insurance cheap by excluding coverage for certain things. But if coverage is excluded for a particular kind of claim, it means the city retains the risk of loss in those areas. From the city's standpoint, retaining risk is a great way to reduce premiums. But coverage exclusions are an unpredictable way of retaining risk. You might not have a claim that falls into one of the exclusions—but then, you might have a$1,000,000 loss that falls into the exclusion. A better and more predictable way to reduce costs by retaining risk is to use deductibles. This could be a per-occurrence deductible, or an "annual" deductible under which the city keeps the financial responsibility for claims up to a certain dollar amount each year, or a combination of the two. By retaining risk this way, you know how much risk you're retaining and can budget for it. Pete Tritz 12/09 9 o � L,EAGUE oF CONNECTING & INNOVATING MINNESOTA S1NCE 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 Something to Think About Coverage LMCIT's liability coverage provides a limit of$1,500,000 per Under the basic coverage form,the occurrence, matching the per-occurrence part of the statutory $500,000 per claimant part of the municipal tort liability limit. Beside the overall coverage limit statutory liability limit is not waived,so if the statutory limit of$1,500,000 per occurrence, there are also annual aggregate applies to the particular claim, limits(that is, limits on the total amount of coverage for the LMCIT and the city would be able to year regardless of the number of claims), for certain specific use that limit as a defense. risks. Aggregate limits apply to the following: Products $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 loyers liability(work com ) $1,500,000 annually * Includes sudden and accidental releases of pollutants; herbicide and pesticide application; sewer ruptures, overflows and backups; and lead and asbestos claims. The limit applies to both damages and defense costs. ** Coverage is on a sliding scale percentage basis, and applies to both damages and litigation costs. LEAGU E OF M 1 N N ESOTA C IT1 ES ias uNivE�:sirv nve.�vEST riioNE:(GS1)28]-1200 Fnx:(GS])287-1298 I N SU RANCE TRUST ST.PAUL. MN 55103-2044 TOLL FR[E:(HOO)�Z$-1�ZZ WER:WWW.tMC.ORG 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 po 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 aggegate 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. 3 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. Hi hli ht • The injured party's actual proven damages are greater The waiver option coverage does not than the statutory limit. give the city better protection. The benefit is to the injured party. Very literally, applying the statutory liability limit means 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 yuestion 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 maximurn 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 4 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. Your League Resource Is there a Simple way to Summarize the Options? Feel free to call the Underwriting It's not necessarily simple, but the table on the following page Department at 651-281-1200 or 800- is a shorthand summary of what the effect would be of the 925-1122 with any questions. various coverage structure options in different circumstances. Pete Tritz 12/09 5 00 � L,EAGUE,oF COI�NECT'ING & INNOVATING MINNESOTA siNCE ���3 CITIES LMCIT Liability Coverage Options 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 number 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 M W N ESOTA CITI ES 145 UNIVERSITYAVE.WE57 rHON[:(651)281-1200 r-nx (G5t)281-1298 l NSURANCE TRUST 5T. PAUL MN SSI03-2044 TOLL FREE:(8OO)9ZS-I12Z WE6:WWW.IMC.ORG