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2.4. ERMUSR 05-12-2015 Elk River *-' Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: Elk River Municipal Utilities Commission Theresa Slominski, Finance and Office Manager John Dietz—Chair Al Nadeau—Vice Chair Daryl Thompson—Trustee MEETING DATE: AGENDA ITEM NUMBER: May 12, 2015 2.4 SUBJECT: Resolution Electing Not to Waive Statutory Tort Limits for Liability Insurance BACKGROUND: The League of Minnesota Cities Insurance Trust(LMCIT)requires annual approval of the Utilities' intent to waive or not waive the statutory limits on tort liability as set forth in Minnesota Statutes. DISCUSSION: Attached is information regarding making a decision on whether to elect not to waive, or to waive, the statutory limits. On May 4th the City opted to not waive the statutory limits and I have no reason to recommend that the Utility not follow the same direction. Last year we followed the same process and did not waive the limits. This is also the recommendation we have received from our insurance agent. ACTION REQUESTED: Staff recommends that the Elk River Municipal Utilities Commission elect to not waive the statutory tort limits for liability insurance,per the attached LMCIT Liability Coverage Waver Form. P�OINEAED BY Page 1 of 1 11 I1UREI Reliable Public Power Provider P O W E R E D T O S E 46 0 LEAGUE of CONNECTING & INNOVATING MINNESOTA SINCE 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. What are the 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. What are the coverage limits for LMCIT's basic primary liability coverage? For coverage written or renewed on or after November 15, 2014, LMCIT's liability coverage will provide a limit of$2,000,000 per occurrence. Besides the overall coverage limit of$2,000,000 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: Products $3,000,000 annually Failure to supply utilities $3,000,000 annually Data security breaches $3,000,000 annually EMF $3,000,000 annually Limited pollution* $3,000,000 annually Mold $3,000,000 annually Employers liability(work comp) $1,500,000 annually Land use/special risk litigation** $1,000,000 annually Activities in outside organizations $100,000 annually *Includes sudden and accidental releases of pollutants; h erbicide and pesticide application; sewer ruptures,overflows and backups; and lead and asbestos claims. Dredging or excavation claims are subject to a$250,000 sublimit. These limits apply to both damages and defense costs. **Coverage is provided on a sliding scale percentage basis, which is based on participation in LMCIT's online land use training. Coverage applies to both damages and litigation costs. 47 Why does LMCIT provide higher coverage limits than the statutory limit? The reason is to give member cities better protection. The statutory liability limit caps the city's liability for many types of claims. But some liability claims, which are listed in the next section, aren't covered by the statutory limit, so the city's potential liability is unlimited. The higher limit also protects against a major incident in which many people might be injured. The $2,000,000 per occurrence coverage limit gives the city better protection for these types of claims, and makes it less likely the city could end up with liability exceeding its coverage limit. Another reason to provide higher limits is because it's increasingly more common to see contracts require more than the statutory limit of$1,500,000; a more common figure is a $2,000,000 limit. LMCIT's higher limits will now meet this requirement, but if even higher limits are required, there is the option to carry LMCIT's excess coverage to meet the additional requirements. LMCIT can also issue an endorsement to increase the city's coverage limit only for claims relating to a particular contract. If the statute limits our liability and LMCIT is already providing higher limits than required, why purchase even more limits? There are four good reasons why cities should strongly consider carrying LMCIT's excess coverage,which provides higher limits of liability coverage. Excess coverage is available in $1,000,000 increments, up to a maximum of$5,000,000. 1. The statutory tort limits either do not or may not apply to several types of claims The following are the types of claims the statutory limits do not apply to. LMCIT's higher limit of$2,000,000 will definitely provide better protection against these types of claims, but there could be cases where even that limit might not be enough. • 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. 2. LMCIT's primary liability coverage has annual limits on coverage for a few specific risks The table on page 1 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. 48 Excess liability coverage gives the city additional protection against this risk as well. There are, though, 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 the following types of risks: o Failure to supply utilities. o Mold. o "Limited pollution" claims if either the pollutant release or the damage is below ground or in a body of water. o Auto no-fault claims. o Uninsured/underinsured motorist claims. o Workers' compensation, disability, or unemployment claims. o Claims under the medical payments coverage. • The excess coverage does not automatically apply to liquor liability unless the city specifically requests it. 3. The city may be required by contract to carry higher coverage limits LMCIT's limit of$2,000,000 will meet most contract requirements, but if even higher limits are required, LMCIT's excess coverage is an option. LMCIT can also issue an endorsement to increase the city's coverage limit only for claims relating to a particular contract. 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 $1,500,000 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. Who needs excess liability coverage? If anything, excess liability coverage is even more important to a small city rather than to 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, $1,000,000 of liability over and above what its LMCIT coverage pays might be able to spread that cost over several thousand taxpayers. The small city by contrast might be dividing that same $1,000,000 among only a couple hundred taxpayers. $1,000,000 divided among 5,000 taxpayers is $200 apiece—annoying but probably at least manageable for most taxpayers. $1,000,000 divided among 200 taxpayers is $5,000 apiece—enough to be a real problem for many. What's the effect of waiving the"per claimant"statutory liability limit? For cities that choose to waive the statutory limits,the city is choosing to waive the protection of the statutory limits, up to the amount of coverage the city has. Someone with a claim against a 49 city that has waived the statutory limits would be able to recover up to $2,000,000(of course the individual would have to prove to the court or jury that he or she really does have that amount of damages),rather than the statutory limit of$500,000 per claimant. Because the waiver increases the exposure, the premium is roughly 3% higher for coverage under the waiver option. For cities that choose not to waive the statutory limits, the city's liability is limited by the statute to no more than$500,000 per claimant and $1,500,000 per occurrence. LMCIT's higher coverage limits would only come into play on those types of claims that aren't covered by the statutory liability limit. Why would the city choose to pay more for the 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 a n injured party won't be fully compensated for his or 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. What's the effect of waiving the statutory limits if the city has excess coverage? If the city has $1,000,000 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 $3,000,000 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 children, causing multiple serious injuries. $1,500,000 divided 50 ways may not go far toward compensating for those 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. Is there an increase in risk if the city waives the statutory tort liability limits? 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. 50 Of course, that's not to say there is no risk the city's liability could exceed its coverage limits. Listed earlier in this memo are a number of ways that could happen to any city, but the waiver doesn't increase that risk. Can the city 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 Your League Resource page is a shorthand summary of what the effect would be Call the Underwriting of the various coverage structure options in different Department at 651.281.1200 circumstances. or 800.925.1122 with any questions. 51 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 $2,000,000 Does not have excess coverage& Waives the statutory limits $2,000,000 $2,000,000 $2,000,000 Has$1,000,000 of excess coverage& Does not waive the statutory limits $500,000 $1,500,000 $3,000,000 Has$1,000,000 of excess coverage& Waives the statutory limits $3,000,000 $3,000,000 $3,000,000 52 0 LEAGUE OF CONNECTING &INNOVATING MINNESOTA SINCE 1913 CITIES LIABILITY COVERAGE -WAIVER FORM LMCIT members purchasing coverage must complete and return this form to LMCIT before the effective date of the coverage.Please return the completed form to your underwriter or email to pstech @lmc.org This decision must be made by the member's governing body every year. You may also wish to discuss these issues with your attorney. League of Minnesota Cities Insurance Trust(LMCIT)members that obtain liability coverage from LMCIT must decide whether to waive the statutory tort liability limits to the extent of the coverage purchased. The decision has the following effects: If the member 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 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 apply regardless of whether the city purchases the optional excess liability coverage. n If the member waives the statutory tort limits and does not purchase excess liability coverage,a single claimant could potentially recover up to$2,000,000 for a single occurrence. (Under this option,the tort cap liability limits are waived to the extent of the member's liability coverage limits,and the LMCIT per occurrence limit is$2 million.)The total all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to$2,000,000, regardless of the number of claimants. If the member 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 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. Elk River Municipal Utilities LMCIT Member Name Check one: ❑ The member DOES NOT WAIVE the monetary limits on municipal tort liability established by Minnesota Statutes, Section 466.04. ❑ The member WAIVES the monetary limits on municipal tort liability established by Minnesota Statutes, Section 466.04 to the extent of the limits of the liability coverage obtained from LMCIT. Date of city council/governing body meeting Signature Position 145 UNIVERSITY AVE.WEST PHONE:(651)281-1200 FM:(651)2814299 ST. PAUL, MN 55103-2044 TOLL FREE:(800)9254122 WEB:WWW.LMC.ORG 53