2.4. ERMUSR 05-10-2016 4 --
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 10, 2016 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. Last year we did not waive the limits, and neither did the
City. At the April 18, 2016 City Council meeting, they elected to not waive the limits for this
year as well. The recommendation we have received from our insurance agent is not to waive the
limits.
ACTION REQUESTED:
Staff recommends the adoption of the attached resolution electing not to waive the statutory tort
limits for liability insurance, per the attached LMCIT Liability Coverage Waiver Form.
ATTACHMENTS:
• Resolution No.16-3 —Electing Not to Waive the Statutory Tort Limits for Liability
Insurance
• LMCIT Liability Coverage Waiver Form
• LMCIT Liability Coverage Guide
POWERED 11
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RESOLUTION No. 16-3
BOARD OF COMMISSIONERS
ELK RIVER MUNICIPAL UTILITIES
A RESOLUTION ELECTING NOT TO WAIVE THE STATUTORY TORT LIMITS
FOR LIABILITY INSURANCE
WHEREAS, Elk River Municipal Utilities (Utilities)participate in the League of Minnesota
Cities Insurance Trust(LMCIT) insurance program; and
WHEREAS, The 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;
WHEREAS, The Utility has evaluated whether to waive the limit of tort liability and
whether to purchase excess liability coverage from the LMCIT.
NOW,THEREFORE, BE IT RESOLVED that the Elk River Municipal Utilities of the City of
Elk River elects to not waive the statutory tort liability limit established by Minnesota Statute
466.04.
This Resolution Passed and Adopted this day of , 2016.
John Dietz, Chair
Troy Adams, P.E., General Manager
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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.
• 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 ail 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 FAX:(651)281-1299
ST. PAUL, MN 55103-2044 TOLL FREE:(800)925-1122 WEB:WWW.utC.ORG
54
0 0 INFORMATION MEMO
LEAGUE
MINNESOTA LMCIT Liability Coverage Guide
CITIES
Learn about liability (casualty) coverage offered by the League of Minnesota Cities Insurance Trust
(LMCIT), including unique coverage situations for land use litigation, airports, sewer backups, special
events,joint powers entities and more. Understand coverage limits and various incentive programs.
Includes information on filing a liability claim.
I. About the League of Minnesota Cities
RELEVANT LINKS: Insurance Trust
LMC information memos, The League of Minnesota Cities Insurance Trust(LMCIT)is a cooperative
LMCIT Property,Crime,
Bond,and Petrofund joint-powers organization formed by Minnesota cities in 1980 as one of the
Coverage Guide;LMCIT first municipal self-insurance pools in the country. It exists solely to meet the
Auto Coverage Guide;
LMCIT Workers' risk management and coverage needs of Minnesota cities and other types of
Compensation Coverage entities. It provides coverage for members' property, liability,workers'
Guide,and LMCIT
Eligibility Requirements. compensation, and auto risks.
For more information This Coverage Guide provides a summary of liability coverage available
contact the LMCIT
Underwriting Department through the Trust. LMCIT urges members to examine the coverage document
651.281.1220 for actual wording. In all cases, the coverage document outlines coverage,
800.925.1122.
exclusions and limitations.
II. Liability coverage
LMC information memo, The LMCIT liability coverage is designed to meet member cities' coverage
Comparing Coverage
Quotes. needs in as simple and foolproof a manner as possible. LMCIT uses its own
unique coverage document to provide liability coverage to member cities.
LMCIT structures liability coverage differently than private insurance
companies typically do. One big difference is that LMCIT uses a single
coverage document, rather than issuing separate policies to cover general
liability, errors and omissions,police liability, and so on.
For more information on The industry term"general liability"or a"commercial general liability"
liability see Handbook,ch.
19,Insurance and Loss (CGL)policy refers to coverage issued to organizations to protect them from
Control;Handbook,ch.18, liability claims for bodily injury,property damage, and advertising and
Liability.
personal injury. The LMCIT liability coverage is technically not a CGL,but
encompasses coverage for risks typically covered by a CGL. The LMCIT
liability coverage is tailored specifically for cities in Minnesota and is much
broader than a regular CGL policy.
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A. Covered parties
Generally, the following are covered parties under the LMCIT municipal
liability coverage.
• City and its officers, employees, and volunteers.
• Relief associations.
• Some joint planning boards.
• Coverage is automatically provided for additional covered parties, on a
limited basis, for organizations from which the city leases premises or
equipment. This additional insured status is only granted if the city is
contractually obligated to have the lessor named as an additional insured.
It only applies to bodily injury,property damage, or personal injury for
claims that are made by the lessor due to the city's acts during the terms of
the lease agreement.
• Independent contractors acting in the administrative capacity of medical
director or medical advisor to the city ambulance service; or serving as a
member of, or representing the city as a member of a committee,
subcommittee, board, or commission.
If the city is required to add another party as an"additional insured"or
"additional covered party,"LMCIT can add the party on the city's municipal
See Section III.I,Joint liability coverage by endorsement. Also,joint powers entities and the
powers entities and Section
III.Q,Separate city boards following city boards, commissions, and agencies are not covered parties
and commissions. unless they are specifically named or added by endorsement.
• Gas, electrical, or steam utilities commissions.
• Port authorities, housing and redevelopment authorities, economic
development authorities, area or municipal redevelopment authorities, or
similar agencies.
• Municipal power or gas agencies.
• Welfare or public relief agencies
• School boards.
• Independent contractors.
B. Liability claims
The LMCIT liability coverage provides protection for claims someone else
makes against the city, an officer or employee, or another covered party. The
coverage only protects these persons for actions arising from the course and
scope of his or her duties.
The coverage applies to damages and defense costs. Damages is specifically
defined in the coverage document,but essentially it means money. However,
certain items are specifically included and others are specifically excluded by
the definition.
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The LMCIT municipal liability coverage is claims-made. In other words, in
order to be covered the claim must be reported either within the coverage
period or within an applicable extended reporting period if the city has left
LMCIT (there are a few types of claims to which the extended reporting
period does not apply). For certain types of claims,the coverage document
further specifies when the claim is deemed to be made.
Coverage only applies if the occurrence giving rise to the claim occurred after
the applicable retroactive date, which is specified in the declarations. It is
generally the date when the city first joined LMCIT or added the specific
coverage in question. The coverage document further spells out how the
occurrence date is determined for specific types of claims. Most cities have
been LMCIT members long enough that the retroactive date is rarely an issue.
C. Liability exclusions
Since the LMCIT liability coverage is broad in scope, sometimes it's easier to
first look at what's not covered by LMCIT rather than what is covered.
Following are some of the standard exclusions to be aware of.
1. Liability not covered
See Section III.M,Open • Damages arising out of a city's bankruptcy, except some defense cost
meeting law and bankruptcy
lawsuits. reimbursement coverage is available for city officials under the LMCIT
defense cost reimbursement coverage.
• Criminal proceedings.
• Most non-sudden pollution.
• Nuclear hazards.
• War.
• Amounts owed under contract.
• Condemnation, except some regulatory takings.
• Damage the city does to its own property.
• Fixing the city's own work.
• Not paying employees for the work they did.
• Recalling defective products.
2. Risks that must be specifically underwritten
See Section IILA,Airports; • Airports.
Section III.C,Dams and
downstream liability; • Dikes or Class I or Class II dams.
Section IILG,Fireworks;
Section III.I,Joint powers • Fireworks the city sponsors.
entities;and Section III.Q, • Joint powers entities.
Separate city boards and
commissions. • Separate boards, commissions, and agencies.
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3. Risks for which specialty coverage is needed
• Aircrafts (a drone is not considered an"aircraft"as long as it's not
designed for the transport of persons or property).
• Architects.
• Big boats.
See Section III.K,Liquor • Doctors, most nurses, dentists,pharmacists, and psychologists.
liability. • Liquor sales.
See Section III.T,Special • Motorized amusement rides, such as carnival rides.
events. • Motor vehicle demolition derbies,racing,pulling contests, or stunt
driving.
• Prisons.
See Section III.T,Special • Railroads.
events. • Rodeos.
• Specialty type operations such as hospitals, clinics,nursing homes and
See Section LILT,Special licensed child care programs.
events. • Stunting activities or events that involve a significant risk of serious injury
to the participant, performer, or others, such as high-wire acts,base or
bungee jumping, skydiving,circus type acts, and acts involving dangerous
animals.
D. Coverage limits
LMCIT gives cities several options for structuring their liability coverage. The
city can also choose either to waive or not to waive the monetary tort caps the
statutes provide. It can also select from among several liability coverage
limits.
1. LMCIT primary liability limits
Minn.Stat.§466.04. The statutory municipal tort liability is limited to a maximum of$500,000 per
claimant and$1.5 million per occurrence. These limits apply whether the
claim is against the city, against the individual officer or employee, or against
both.
LMCIT's liability coverage provides a standard limit of$2 million per
occurrence. Coverage limits that are higher than the statutory tort caps are in
place for a couple reasons.
See Section II.D.3.a, First,the statutory liability limit caps the city's liability for many types of
Statutory limits may not
apply. claims. But some types of liability claims aren't subject to the statutory tort
caps, so the city's potential liability is unlimited for some types of claims.
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Second, it's increasingly more common to see contracts require more than the
statutory limit of$1.5 million; a more common figure is $2 million. LMCIT's
higher limit meets this requirement,but if even higher limits are required,
See Section 11.113, there is the option to carry LMCIT's excess liability coverage to meet the
Purchasing higher liability additional requirements. In some cases LMCIT, in partnership with its
limits.
reinsurers, can also issue an endorsement to increase the city's coverage limit
only for claims relating to a particular contract.
In addition to the LMCIT coverage limit of$2 million per occurrence, there
are 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 claims arising out of the following:
• Products $3 million annually
• Failure to supply utilities $3 million annually
See Section III.B,Data Data securitybreaches $3 million annually
breach and •
computer-related risks. • Electromagnetic fields $3 million annually
See Section III.J,Land use • Limited contamination $3 million annually
and special risk litigation. • Land use/special risk litigation $1 million annually
See Section III.D, • Activities in outside organizations $100,000 annually
Employees'activities in
outside organizations.
Failure to supply utilities applies to the failure to supply water, electricity, gas,
or steam service. It also applies to damages arising out of the failure to supply
phone and internet or other electronic data transmission services.
Limited contamination includes the sudden and accidental release of
pollutants;herbicide and pesticide applications; sewer ruptures, overflows,
and backups; lead and asbestos claims; mold claims; organic pathogen claims;
hostile fire claims; and excavation and dredging claims. Excavation and
dredging claims are subject to an annual$250,000 sublimit. These limits
apply to both damages and defense costs.
See Section rII.J,Land use Land use litigation coverage is provided on a sliding scale percentage basis,
and special risk litigation.
which is based on participation in LMCIT's online land use training.
Land Use Incentive Coverage applies to both damages and litigation costs.
Program.
2. Statutory liability limits
Minn.Stat.§466.04. The statutory municipal tort cap is limited to a maximum of$500,000 per
claimant and$1.5 million per occurrence. These limits apply whether the
claim is against the city, against the individual officer or employee, or against
both. The LMCIT liability coverage provides a standard limit of$2 million
per occurrence.
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See summary of Liability At the city's coverage renewal each year, it must decide whether to waive or
Coverage Options and the
effects of choosing the not to waive the statutory limits. There is no right or wrong answer on this
various coverage structure point. It's a discretionary question of city policy that each city council needs
options.
to decide for itself.
a. Waiving the statutory limit
For cities that choose to waive the statutory limits,they are waiving the
protection of the statutory limits, up to the amount of coverage the city has.
Someone with a claim against a city that has waived the statutory limits would
be able to recover up to the LMCIT standard limit of$2 million,rather than
the statutory limit of$500,000 per claimant. Because the waiver increases the
exposure,the premium is roughly 3 percent higher for coverage under the
waiver option.
A city may choose to pay more in premium for the waiver option because the
statutory liability limit only comes into play in a case where the city is in fact
liable and the injured party's actual proven damages are greater than the
statutory limit. 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.
There is no increase in risk if the city waives the statutory liability limits. In
other words,there is no risk for the city to end up with liability if LMCIT
doesn't cover it. The LMCIT waiver form specifically says the city is waiving
the statutory tort caps only to the extent of the city's coverage. That's not to
say there is no risk the city's liability could exceed its coverage limits. There
are certain situations in which this could happen, but the waiver doesn't
increase that risk.
See Section II.0.3, In those cases where the city waives the statutory limit,but also purchases the
Purchasing higher liability
limits. LMCIT excess liability coverage, a claimant could potentially recover more.
For example, if the city has $1 million of excess coverage and chooses to
waive the statutory tort caps, 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 maximum recovery per occurrence is correspondingly higher.
See Section 11.0.3, Carrying LMCIT's excess coverage under the waiver option is a way to
Purchasing higher liability
limits. address an issue that some cities find troubling: the case where many people
are injured in a single occurrence caused by city negligence. An example is if
a city vehicle negligently ran into a school bus full of children causing
multiple serious injuries. The statutory limit of$1.5 million 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.
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See Section II.D.3, The cost of the excess liability coverage is about 25 percent greater if the city
Purchasing higher liability
limits. waives the statutory tort caps. 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 caps increases both the per
claimant exposure and the per occurrence exposure.
b. Not waiving the statutory limit
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$1.5 million
See Section II.D.3.a, per occurrence. LMCIT's higher coverage limits would only come into play
Statutory limits may not
apply. on those types of claims that aren't covered by the statutory limit.
3. Purchasing higher liability limits
LMCIT makes available the option of carrying higher coverage limits than the
basic limit of$2 million per occurrence. This coverage, called excess liability
coverage, is available in $1 million increments up to a maximum of$5
million.
There are several different reasons why cities should strongly consider
carrying LMCIT's excess liability coverage.
a. Statutory limits may not apply
Minn.Stat.§3.736. The statutory tort caps 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, and so on.
• 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.
• 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 fundraiser, 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.
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b. Annual limits apply in LMCIT's coverage for specific
risks
See Section II.D,Coverage Besides LMCIT's overall coverage limit of$2 million per occurrence,there
limits.
are also annual aggregate limits for certain specific risks. 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.
See Section II.D.3, There are,however, a couple important restrictions on how the excess
Purchasing higher liability
limits. coverage applies to risks that are subject to aggregate limits. The excess
coverage does not apply to the following types of risks.
• Failure to supply utilities.
• Mold.
• Lead and asbestos.
• Excavation and dredging.
• Sudden and accidental release of pollutants below ground or within or on
the surface of any body of water.
LMC information memo, • Auto no-fault claims.
LMCIT Auto Coverage • Uninsured/underinsured motorist claims.
Guide and LMCIT Workers'
Compensation Coverage • Workers' compensation, disability, or unemployment claims.
Guide. • Claims under the medical payments coverage.
See Section III.L,Medical • Claims arising from the activities of outside organizations.
payments;Section III.D,
Employees'activities in • No-fault sewer backup
outside organizations;and • The excess coverage does not automatically apply to liquor liability unless
Section IILK,Liquor
liability. the city has specifically requested it.
c. Contracts may require higher coverage limits
See Section II.D.3, Occasionally, a contract might include a requirement that the city carry more
Purchasing higher liability
limits. than$2 million per occurrence in coverage limits. Carrying excess coverage is
LMC information memo, a way to meet these requirements. There's also another option for cities to
Making and Managing City contact LMCIT and it can issue an endorsement to increase the city's
Contracts,Section IV.B.6, coverage limit only for claims relating to that particular contract. There's a
Umbrella/excess insurance.
small charge for this, and the contract and additional underwriting information
may be required.
d. Multiple political subdivisions
There may be more than one political subdivision covered under the city's
coverage.
•
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See Section III. Se
Q,Separate
A housing and redevelopment authority(HRA), economic development
city boards and
commissions. authority(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 $1.5 million from both the city and
the EDA, since there are two political subdivisions involved. Excess coverage
See Section II.D.3, is one way to provide enough coverage limits to address this situation.
Purchasing higher liability
limits. Another solution is for the HRA, EDA, or port authority to carry separate
liability coverage in its own name.
LMC information memo, The issue of multiple covered parties can also arise is if the city has agreed by
Making and Managing City
Contracts,Section contract to name another entity as a covered party, or to defend and indemnify
IV.B.I.b,Additional another entity.
insured provisions.
e. Courts may overturn statutory liability limits
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.
Ill. Coverage details on specific liability
exposures
The LMCIT liability coverage is broad,but there are a number of situations
where the city needs to take additional action or be aware of special coverage
terms and limits.
A. Airports
LMCIT offers optional airport liability coverage to members of the
property/casualty program. Coverage is available for airports that are operated
by a city,by a joint powers entity that includes at least one city, or by a
special purpose district. Coverage is available for most municipal airports;
however, larger airports that have scheduled service are not eligible.
1. Coverage limits
The airport liability coverage is very broad and carries a per occurrence limit
of$2 million and an annual aggregate limit of$3 million. It is subject to the
same deductibles that apply to the city's municipal liability coverage. Higher
See Section ILD.3,
Purchasing higher liability limits can be provided through LMCIT's optional excess liability coverage,
limits. although it is not available as an option for airport risks only.
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2. Coverage terms
Cities or joint powers entities that choose the LMCIT airport coverage option
are provided coverage under the city's existing LMCIT liability coverage
document. It is provided under an endorsement that modifies the"airport"
exclusion in the basic municipal liability coverage document.
Since the airport liability exposure is wrapped under the basic LMCIT liability
coverage document, the coverage for liability related to airport operations is
extremely broad. It is specifically designed to address several important
airport exposures, including:
• Damage to an aircraft that's in the city's care, custody, and control or what
is commonly referred to as"hangarkeeper's liability."
• Products liability coverage for city fueling operations.
• Claims relating to noise, vibration, and so on.
• Exposures related to errors and omissions such as employment liability
and liability for damages other than bodily injury, personal injury or
property damage (the errors and omissions risk is covered under the city's
existing LMCIT liability coverage).
There are only a few specific airport-related exclusions to be aware of,
including:
• Any aircraft exhibitions,racing, stunting, aerobatics, skydiving or similar
activities the city sponsors or participates in.
• Liability relating to any fixed based operator activities such as aircraft
service,maintenance, or repair which the city performs (there is an
exception related to fueling operations by the city).
• Liability relating to any aircraft products the city sells.
• Liability for damage to an aircraft that's in the city's care, custody, and
control while the aircraft is in flight.
• Liability arising from operation of an aircraft by the city is generally
excluded, although there is an exception for situations where the city
might"operate" someone else's aircraft simply for the purpose of moving
it around on the airport premises. If a city employee flies airplanes on city
business, separate liability coverage is needed.
An independent contractor is not a covered party under the city's coverage. If
See Section III.H,
Independent contractors. the city contracts with an independent contractor for airport management or
other services related to the airport, the contractor needs his or her own
LMC information memo, liability coverage. To help municipal airport owners make informed risk
MunicipalAirport Owner's management decisions when negotiating or amending contracts, LMCIT has
Guide.
developed a guide to developing agreements with various independent
contractors.
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Transportation Security It's also important to note the Transportation Security Administration requires
Administration.
airports with scheduled passenger flight service to have arrangements in place
for law enforcement officers to provide backup security service. In many
cases, city police are performing this function. If the city police are providing
this type of airport security service, make sure to contact LMCIT and have the
city's LMCIT liability coverage endorsed to cover this exposure. Without that
endorsement,the city's liability coverage won't respond to claims arising
from this activity.
3. Premium costs
LMCIT Liability Rating LMCIT doesn't make a specific charge for the airport operations
System.
endorsement. However, premium for the exposure is accounted for indirectly
through the standard liability rating system for all city operations. Under this
system, annual expenditures and number of employees are two of the key
rating factors for the liability premium calculation, so to the extent that annual
airport expenditures and the number of airport employees are reported along
with regular rating factors,premium for the airport operations exposure is
accounted for in the same manner as any other city department or operation.
4. Evaluating coverage under another carrier
LMCIT's primary goal in offering airport liability coverage is to improve
cities' protection for the risks associated with operating an airport. In
reviewing some conventional airport liability insurance policies,there are
three things to be aware of:
• Airport liability policies are often very convoluted and hard to read,with
complicated language,multiple endorsements, and endorsements
modifying other endorsements. Many airport operators may find it
difficult to understand what the coverage is for.
• Airport liability policy wording is not standardized. There can be subtle,
and sometimes not so subtle, variations in how an exclusion or definition
or coverage grant is worded in one policy compared to another. Those
variations can make a significant difference in what is and isn't covered
under one policy compared to another.
P Y
• Airport liability policies sometimes leave some surprising and potentially
problematic coverage gaps.
The following are a few examples of exclusions and limitations found in some
airport liability policies. Not every airport liability policy has all of these
provisions, and how the provisions are worded varies from policy to policy.
Most times these things won't matter until, of course, a claim is tendered.
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• Personal injury. This could leave the city with no coverage for a
defamation claim relating to the airport operations. For example, if an
airport board member or employee made a critical comment about a
contract service provider, the individual could be sued for defamation.
• Products/completed operations. If the city sells fuel,this could be a
problem. Imagine a crash caused by contaminated fuel or even a
contaminated sandwich in a vending machine.
• Noise and interference. There are common exclusions for noise,
interference with the use of property, or electromagnetic interference. A
city airport might very well face these kinds of claims, especially if there
are residences or businesses near the airport. Even a successful defense
could be expensive.
• Medical malpractice. This exclusion is often worded so it applies to any
medical treatment,not just treatment provided by medical personnel. It
could leave an airport employee without coverage if she or he provides
CPR or other first aid in an emergency and a liability claim results. The
Good Samaritan law may ultimately provide protection,but defense costs
could still be significant.
• Malicious act or act of sabotage. Suppose vandals damage runway lights
or beacons, or place an obstruction on a runway. This exclusion would
leave the city airport without coverage.
• Damages arising out of an air traffic control facility. This exclusion is
sometimes written so it applies even if it isn't the city's air traffic control
facility. If an accident were caused by an air traffic control problem, the
city airport could be named in the lawsuit. The city's defense would be to
show the problem was caused by the air traffic controller and not by the
city. This would also require proof that the coverage doesn't apply.
• Combined claims. Normally the rule is that if a lawsuit involves a
combination of covered and non-covered claims, the insurer must defend
the entire suit. Some provisions say that in a"combined claim,"the
insurer will only reimburse the insured for that portion of the defense costs
which the city proves can be attributed to a covered claim. This effectively
eliminates the"benefit of the doubt"which the insured normally gets on
coverage issues. In some cases, it could be very expensive.
• Airmeets. Most policies have this exclusion in one form or another.
Sometimes it's worded so broadly that the exclusion would apply to a
simple"fly-in"type event that doesn't involve any racing or stunting.
B. Data security breach and computer-related risks
LMCIT information memo, Computers at city hall and in city offices can be bombarded with viruses on a
Computer and Network
Loss Controlregular basis, and may even be subject to hacker attacks or cybercrime. This
might impact city systems like email, and could also affect computerized
billing or records management systems.
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LMCIT's municipal liability coverage responds to claims for damages in the
following scenarios:
• City is sued for invasion of privacy or a data practices violation resulting
from the actual or potential unauthorized access of private or confidential
data stored in the city's computer system.
• City employee uses city's email system for sexual,racial, or other
harassment of another employee.
• City employee subscribes to a job-related listsery where she or he
comments about a vendor and gets sued for defamation.
• City employee uses city's web access to view pornography; another
employee sees it and sues the city on a hostile environment claim.
• Hacker attack or virus disables the city's 911 or fire beeper system; the
citizen whose house burns down sues the city for damages based on the
city's negligent failure to safeguard its system.
• City's website infringes on a copyright or trademark and the city is sued.
• Hacker hijacks the city's email system and uses it in a"denial of service"
attack on a company that sells products over the web, resulting in a
substantial loss of sales. The target company sues the city for negligently
failing to take reasonable steps to safeguard the city's system,which may
have allowed the attack to occur.
See Section II.D.1,LMCIT The LMCIT liability coverage also provides third-party coverage for liability
primary liability limits.
claims for data security breaches, subject to a$3 million aggregate.
LMC information memo, First-party coverage for data breach claim mitigation and notification costs are
LMCIT Property,Crime,
Bond,and Petrofund provided through LMCIT's property coverage. That coverage provides costs
Coverage Guide. to respond to a breach the member has or believes it has had, including legal
and information technology consulting,providing notice to affected persons,
credit monitoring and identity theft services, and similar things.
C. Dams and downstream liability
See Section II.C.2,Risks The LMCIT liability coverage contains an exclusion for damages arising out
that must be specifically
underwritten. of the failure or bursting of any dike, levee, or similar structure, as well as any
Class I or Class II dam as classified by the commissioner of the Department of
Minn.R.6115.0340.
Natural Resources pursuant to Minnesota Rules.
Upon request, LMCIT can review the downstream liability exposure for these
types of structures and at times can remove the exclusion depending on the
specific circumstances.
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D. Employees' activities in outside organizations
It's important for cities to be aware of what organizations city employees are
participating in, and to decide whether or not the city considers participating
in those organizations to be part of the employee's duties as a city employee.
It's in both the city's and the employee's interest to address that question up
front.Not doing so could leave a gap in liability coverage not only for the
city,but for the individual employee as well.
The goal of the LMCIT liability coverage is to protect LMCIT members'
funds by controlling the risk of very large loss costs that could result from
these types of claims and provide some certainty as to when these types of
claims are covered and when they are not.
1. Coverage limits and terms
City officers and employees often participate in outside organizations that are
related in some way to their city duties. Examples include:
• Associations of wastewater operators.
• Fire instructors.
• Finance officers.
These organizations may engage in a wide variety of types of activities such
as holding conventions, fundraising activities, and training. If the employee's
activities in those organizations lead to a liability claim against the individual,
the organization may or may not have insurance or assets to defend and
indemnify the employee for the liability claim. If the organization is unable or
unwilling to defend the individual, she or he will very likely look to the city
for protection.
The LMCIT liability coverage includes provisions addressing when and how
the coverage will respond to claims against city officers or employees arising
from their activities as officers or members of outside organizations.
Following is the definition of the"outside organizations"that are affected:
• A formally organized membership organization.
• A professional organization.
• Any for profit or nonprofit corporation.
See Section III.Q,Separate The coverage provisions only affect organizations where the individual is the
city boards and
commissions. member. It does not affect organizations where the city is a member. This
includes things like a joint powers entity; other governmental entities such as
an HRA,utility commission, or port authority; city relief associations(these
are already automatically covered under the city's LMCIT liability coverage);
and any entity that's named as a covered part on the city's coverage.
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For purposes of when and if the LMCIT coverage applies,the first step is for
the city council to determine whether or not an employee's activities in a
particular organization are considered to be within the scope of his or her city
duties. The council's decision is final for purposes of coverage, and this
determination can be made at any time either in advance or after a claim has
already occurred.
See Section II.D,Coverage When the city council makes this determination, coverage for claims arising
limits and Section II.D.3,
Purchasing higher liability from that employee's activities in that organization are subject to a$100,000
limits. annual aggregate limit. If the city purchases LMCIT's excess liability
coverage, it cannot be applied to these types of claims.
When the city decides that participation in a particular organization will be
considered to be within the scope of an employee's duties as a city employee,
it also has implications for other areas besides liability. Here are a couple
considerations to keep in mind:
LMC information memos, • If the employee is injured, it would be covered by the LMCIT workers'
LMCIT Workers'
Compensation Coverage compensation coverage if the city is a member of the LMCIT workers'
Guide and Fair Labor compensation program.
Standards Act(FLSA):
Determining Exempt vs. • For employees who are not exempt from the Fair Labor Standards Act,
Non-Exempt Status. time spent on organization activities would likely have to be considered
work time for purposes of calculating overtime and other measures.
The reason LMCIT leaves it to the city council to determine whether or not an
employee's activities in an outside organization are considered to be within
the scope of his or her city duties is because LMCIT does not have the
opportunity to be aware of the activities of these organizations,to evaluate the
risks of those activities, or to provide risk management assistance to control
and minimize those risks.
Essentially, it can put LMCIT in the position of being the "insurer by default"
of risks that it didn't know about or didn't have any opportunity to control. It
also eliminates any potential factual disputes about whether or not coverage
applies. Again, the city can make the determination whether someone is acting
within the scope of his or her city duties in advance or after a claim has
already occurred.
See Section II.D,Coverage The reason for a$100,000 annual aggregate limit on this coverage is because
limits.
employees from many different cities might be involved in the same
organization, which could lead to a lawsuit in a single incident. That in turn
could mean there's a claim under several cities' LMCIT liability coverages.
The $100,000 annual aggregate limit greatly reduces the potential for
catastrophically large loss costs to LMCIT. At the same time, it provides some
safety net protection that should be enough to address many of the surprise
situations that might surface.
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2. Determining employees' status
The LMCIT liability coverage applies to claims against an individual while
within the scope of duty. Determining whether an employee's activities in a
particular organization are within his or her city duties is sometimes difficult.
There are a wide range of organizations that relate in different ways to city
activities. Some organizations clearly have the purpose of benefiting the city;
some are focused on broader public benefit, and benefit the city only
indirectly if at all; others are clearly more focused on benefiting the
individual,rather than the city; and many have all of these purposes in varying
combinations.
The city council might not have a clear idea of what activities the outside
organization is engaged in or even that the employee is involved in such an
organization. At the same time,though,most cities also don't want to just
leave their employee hanging on his or her own if he or she is being sued; and
that may lead the city after the fact to take an expansive view of what's part of
the employee's duties.
As a first step, it's a good idea to find out what organizations the city
employees are involved in as members or officers that might arguably be
considered to be city-related. The city will want to find out what the purpose
of each organization is and what sorts of activities the organization is involved
in. For coverage purposes, the city can make the determination of whether or
not participating in a particular organization is considered to be within the
employee's duties at any time either in advance or after a claim has already
occurred.
However, because of the potential effect on the employee (i.e., in the case
where the city decides that participating in the organization is not part of the
employee's job), it makes sense to make the determination in advance so as to
avoid unpleasant surprises for the employee and potentially difficult decisions
later for the council. Depending on the city,that determination might be made
by the council or delegated to the city manager or other officer.
In cases where the city determines that participation in a particular
organization is not part of the city employee's city duties,the city should let
LMC models,Letters to the employee know that if she or he chooses to participate in the organization,
Employees for their she or he is doing so on her or his own. It is good practice to provide that
Activities in Outside information to the employee in writing. Some cities may prefer to handle
Organizations.
those communications as a general memo to all employees covering all
organizations,rather than as an individual communication to each employee.
Either way is workable; the key is to make sure the employees know the city's
position and understand the implications.
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In cases where the city concludes that an employee should be encouraged or
even required to participate in a particular organization, the city will want to
find out whether the organization has liability coverage to protect its members
and officers for claims arising from those activities. If the organization hasn't
done anything to cover the liability risks its officers and members face
because of the organization's activities, the city has several options:
• The city can decide it's comfortable simply assuming the risk that the
damages and defense costs for a liability claim against a city employee
See Section II.D,Coverage arising from his or her activities in the organization will not be greater
limits.
than the LMCIT liability coverage limit of$100,000. If the city
determines that participation in a particular organization is within the
Minn.Stat.§466.07. scope of an employee's duties, state law requires the city to defend and
indemnify the employee for tort claims arising from that activity. If the
cost exceeds the $100,000 coverage limit,the rest will be the city's
responsibility.
• The city can decide that participating in the organization will not be
considered part of the employee's city duties. In that case, the city should
make sure the employee understands that if she or he chooses to
participate, she or he is doing so on his or her own.
• The city may want to encourage the organization to obtain liability
coverage. In some cases, depending on the organization's purpose and
structure, LMCIT may be able to provide coverage.
If a city pays an employee for time spent working with or participating in an
outside organization, it will be very hard for the city to argue that the activity
is outside the scope of the employee's duties. At the very least it puts the city
in a very odd position of telling the employee the activity wasn't part of his or
her duties even though they were being paid. If the city treats the employee's
time spent participating in an outside organization's activities as paid work
time, it will almost certainly be interpreted to mean that the city does in
practice consider it part of the employee's duties. That in turn would trigger
both the LMCIT coverage and the city's own duty to defend and indemnify,
notwithstanding the city's stated intent to the contrary.
For more information see If the city does wish to allow use of paid work time to participate in an
HR Reference Manual,ch.
7,Personnel Policies. organization that the city does not consider part of the employee's city duties,
the best approach might be to formally structure it as a type of paid leave. In
other words,the city could adopt a formal policy allowing the employee to
take paid time off for this purpose, similar to sick, vacation or funeral leave.
Treating it as a form of paid leave might help avoid creating the implication
that participating in the organization is part of the employee's city duties.
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In evaluating the risks involved when city employees are participating in
Minn.Stat.§317A.257. outside organizations, it's important to note that state law provides some,but
by no means complete,protection from liability claims for unpaid officers or
members of a nonprofit corporation,. The Federal Volunteer Protection Act
Federal Volunteer also provides some liability protection for volunteers performing services for
Protection Act,Public Law
105-19. nonprofit or governmental organizations. Again,though, that protection is not
complete and is subject to a number of exceptions.
E. Employment practices
There is not a separate coverage part for employment practices liability
coverage. In other words, LMCIT coverage applies for employment practices
claims even though there is no specific coverage part for it. Most
Equal Employment employment-related claims filed, including administrative charges made to the
Opportunity Commission. Equal Employment Opportunity Commission(EEOC), the Minnesota
MN Department of Human Department of Human Rights (MDHR), or a local human rights commission,
Rights. are deemed to be claims for damages.
F. Firefighters
See Section II.A,Covered There is no separate coverage part for fire department operations. The basic
parties. LMCIT liability coverage contains no general exclusions for claims arising
LMC information memo, out of fire departments or firefighter operations. Fire relief associations and
Fire Department
Management and Liability their members, officers, and employees are also covered parties under the
Issues. LMCIT liability coverage. They do not need to be scheduled or endorsed onto
the city's liability coverage.
See Section In.I,Joint Since the basic LMCIT liability coverage contains an exclusion for claims
powers entities.
arising out of joint powers entity activities, it is very important that coverage
is specifically arranged for joint powers fire departments or districts.
G. Fireworks
See Section II.C.2,Risks The LMCIT liability coverage contains an exclusion for any liability arising
that must be specifically
underwritten. out of the city's ownership, sponsorship, or operation of fireworks displays.
This exclusion applies both if city employees or volunteers are setting off
fireworks and if the city itself sponsors or contracts for a fireworks display.
This exclusion does not apply to a fireworks display that is sponsored and
operated by someone else. Where the city's only role is in regulating,
licensing, or providing public safety services,the city's LMCIT liability
coverage will cover liability the city incurs because of those activities.
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To determine whether If the city is involved in fireworks as an operator or as a sponsor,the city
LMCIT can provide
coverage for fireworks, won't have liability coverage for any damages arising out of the display,
complete the LMCIT unless the city takes special steps to put coverage into place. In some
Fireworks'Questionnaire.
circumstances, LMCIT can delete the exclusion and provide liability coverage
for a fireworks display.
LMC information memo, In considering whether the city should contract with someone else or operate a
Fire Department
Management and Liability fireworks display itself, it's important to remember that every fireworks
Issues. display must be supervised by an operator who has been certified by the State
Minn.Stat.§624.22. Fire Marshal. State law also requires that any fireworks display meet safety
State Fire Marshall. guidelines developed by the State Fire Marshal.
If the city contracts with someone else to operate the fireworks display, which
is the preferred loss control approach,he or she must apply to the city for a
Minn.R.7511.3308. display permit, and before granting the permit the city fire chief must make
sure the applicant is properly certified and that the proposed display will meet
the applicable safety requirement and guidelines.
The city should also make sure the contractor has adequate insurance limits
and lists the city as an additional insured under the contractor's insurance. By
doing the latter, LMCIT can then on request delete the fireworks exclusion
from the city's coverage for a small cost. The city's LMCIT liability coverage
would then apply as excess over the contractor's coverage. This would give
the city additional protection in case of a very large claim, if the contractor's
insurance company went broke, and so on.
Unfortunately, it's not always possible for cities to hire a private contractor to
handle the fireworks display. Sometimes the only feasible option is for the
Minn.Stat.§624.22. city to put on the display itself, using city staff and volunteers. In this
State Fire Marshall. situation, LMCIT can by endorsement provide the needed liability coverage,
To determine whether provided the city has adequately trained staff and a safe location for the
LMCIT can provide display and meets the State Fire Marshal's requirements for operator
coverage for a fireworks certification and fireworks display safety. Cities should contact LMCIT as
display,complete the
LMCIT Fireworks early as possible to allow the underwriting staff enough time to evaluate
Questionnaire. whether LMCIT will be able to provide the requested coverage.
H. Independent contractors
See Section II.A,Covered Independent contractors are not covered parties under the city's LMCIT
parties, liability coverage. The only exceptions are independent contractors acting in
the administrative capacity of medical director or medical advisor to the city
ambulance service and independent contractors serving as a member of, or
representing the city as a member of, a committee, subcommittee,board, or
commission.
73
LMC information memo, Cities need to be concerned about a contractor's liability coverage. LMCIT
Making and Managing City
Contracts,Section Iv.B.1, strongly encourages cities to make sure that every contractor has liability
Commercial general insurance,which is typically in the form of a commercial general liability
liability insurance.
(CGL)policy. LMCIT recommends the city attempt to get the city named as
an additional insured on the contractor's policy.
LMCIT Liability Rating If certain types of law enforcement contracts and some other types of non-
System.
professional service contracts are arranged in a manner that adequately
reduces the city's liability exposure, cities can potentially reduce their LMCIT
municipal liability coverage premium. Because of this, cities should carefully
review all contracts and requests for additional insureds with the city's legal
counsel and through LMCIT's Contract Review Service.
LMCIT Contract Review LMCIT's Contract Review Service is a free program that helps guard member
Service.
cities against common contract liability exposures by identifying defense and
Chris Smith,LMCIT Risk indemnification language that may be problematic. Advice and
Management Attorney
651.281.1269 recommendations are provided to help ensure contracted activities fall within
800.925.1122 the scope of LMCIT coverages. This service does not replace the services of
csmith@lmc.org
city attorneys. Review can be as broad or as narrow as needed to respond to
the city's concerns and protect the city's interests.
I. Joint powers entities
See Section II.C.2,Risks A joint powers entity is not a covered party in the city's LMCIT liability
that must be specifically
underwritten. coverage unless special arrangements have been made. Cities must be careful
to make sure that any joint powers entity in which they participate does in fact
have liability coverage. If not,the city can be left with a coverage gap if it is
sued because of something the joint powers board did or if a personal injury
or property damage arises from the activities of the joint powers entity.
LMCIT makes available two ways in which coverage can be provided for a
joint powers entity and its members. LMCIT requires that cities take special
steps to put coverage into place because it helps in avoiding some of the
problems that can be created if several different parties' individual coverage
became involved in defending suits that arise out of a single incident.
If an incident were to occur, the chances are that the plaintiff would sue
everyone in sight: the joint entity, all of the individuals involved, all of the
constituent cities, and so on. Under LMCIT's approach, the joint entity's
coverage document would respond to all of those suits and would defend all
of the parties being sued. A single defense attorney would be named to defend
all of the parties, and LMCIT would be responsible for any covered damages
that were awarded, regardless of which defendants were actually found liable.
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To defend that same action by relying on the various cities' individual
coverages would be immensely more complicated,particularly if different
insurers were involved. Each city would report the action to its own respective
liability carrier,who would then assign a defense attorney to defend the case.
Each of those defense attorneys would in turn do two things. First, they would
try to defend the case against the plaintiff. Second, they would try to show
that if there was any negligence and liability, it belongs to one of the other
defendants. This increases the cost of defending the case in several ways.
Another reason LMCIT requires that cities take special steps to put coverage
into place for joint powers is because there is the potential for conflict among
the defendants, even if all the cities were LMCIT members. Each city may
have an interest in making sure that any liability is charged against the other
cities'policies to protect its own loss experience and dividend distribution.
Putting all of the liability coverage for all defendants in one coverage
document eliminates this problem among the defendants.
1. Definition
Minn.Stat.§47.59. A joint powers entity is an operating entity created by two or more
governmental units entering into an agreement as provided by statute for the
joint exercise of governmental powers. The agreement is deemed to create a
joint powers entity if it establishes a board with the effective power to do any
of the following, regardless of what the specific consent of the constituent
governmental units may also require:
• To receive and expend funds.
• To enter contracts.
• To hire employees.
• To purchase or otherwise acquire and hold real or personal property.
• To sue or be sued.
LMC information memo, In evaluating whether a joint powers agreement actually creates a joint powers
Intergovernmental
Cooperative Agreements. entity, it is important to review what the agreement actually does,not just
what it is called. For example, most mutual aid agreements simply say that
each city agrees to provide specified assistance to the other under specified
circumstances. This situation does not usually involve a joint managing board
with the kinds of powers to enter into contracts,hire employees, and so on.
Thus, it would not be considered a joint powers entity for coverage purposes
(keep in mind, though,that LMCIT has reviewed joint powers agreements that
were titled mutual aid agreements,but which actually did create a joint
powers entity).
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In situations that involve a pure mutual aid agreement or other type of
agreement that does not create a joint powers entity, the city does not need to
take any special action in order to have coverage for liability claims arising
out of activities under these kinds of agreements. The city's LMCIT liability
coverage will cover claims arising from activities pursuant to that agreement.
2. Obtaining coverage
There are two ways in which LMCIT can provide coverage for a joint powers
entity and its members.
• The usual practice is for LMCIT to issue a separate liability coverage
document to the joint powers entity. This coverage document includes as
covered parties the entity itself; its officers and employees; the political
subdivisions who are members of the joint powers entity; and the officers
and employees of those political subdivisions. The idea is to get all of the
liability coverage for the entity's activities in one place, so that everyone
who might be sued as a result of the entity's activities is covered in the
same place.
• The second less common option is to add the coverage for the joint entity
to one of the individual city's coverages. This might make sense, for
example, if the relationship between the member cities is such that one
city is in a position to effectively control the joint entity's activities and
decision-making. If the member cities prefer, LMCIT can provide the
coverage this way,by naming the joint powers entity as a covered party on
one of the constituent city's policies.
It is important to understand that if the joint powers entity formed by City A
and City B is named as a covered party on City A's coverage, City B and City
B's officers and employees also become covered parties under City A's
coverage, assuming that the act or omission giving rise to the claim is related
to the joint powers agreement. In addition, City A's insurance will provide
coverage for the joint entity itself and its board members and employees.
Thus, any claims will affect City A's experience, deductibles, and ultimately,
its premium.
It would not make sense to add the joint entity to both member cities'
coverages. That would result in duplicate coverage and create the potential for
the kind of conflicts among defendants that members of a joint powers entity
should try to avoid.
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3. Coverage limits
Reimer v.City of A 2005 federal court decision,Reimer v. City of Crookston, created a concern
Crookston,421 F.3d 673,
(8th Circ.,Aug.30,2005). that liability arising from a joint powers entity's activities could exceed the
then statutory tort cap of$1 million. In that case, the Court said a claimant
could make a claim against each political subdivision that was a member of
the joint powers entity, for damages caused by the joint powers entity's
activities. The Court also ruled that a claimant could"stack"the statutory
liability limits of each member, effectively multiplying the statutory tort caps
by the number of members in the joint powers entity.
In response to Reimer, the League of Minnesota Cities, in cooperation with
other local government organizations, was successful in getting the state
legislature to address the concerns caused by this decision. The state
Minn.Stat.§471.59. legislature amended the joint powers law by adding two provisions.
• The amendment provides that a governmental unit is liable for the acts or
omissions of another governmental unit in a joint venture or joint
enterprise only if it has so agreed in writing.
• The amendment provides that governmental units operating together under
the Joint Powers Act, and any joint boards created thereunder, are a single
governmental unit. The total liability for the governmental units and any
joint board may not exceed the limits on liability for a single
governmental unit.
The joint powers amendment became effective on May 25, 2006. The risk of
liability for the activities of a joint powers entity is now no greater than the
risk of liability for a single political subdivision acting alone. A city,however,
will still be separately liable for its own independent acts or omissions that are
not related to the actions of the joint powers entity.
In addition to these provisions,part of the legislation that addressed the"limit
stacking"problem like that exhibited in Reimer was to amend the municipal
Minn.Stat.§466.04. tort law to increase the tort caps, which today stands at$500,000 per claimant
and$1.5 million per occurrence.
It is important to keep in mind that there is still a risk of liability above the tort
caps because some types of claims are not governed by the statutory liability
limits, such as a federal civil rights claim. For this reason, LMCIT's liability
See Section ILD,Coverage coverage provides a higher limit of$2 million per occurrence for both a joint
limits and Section II.D.3, powers entity and an individual city. There could still be the risk of liability
Purchasing higher liability above this limit, which is why it's important for one city or a number of cities
limits.
cooperating together as a joint powers entity to consider carrying the LMCIT
excess liability coverage.
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4. Overlooked joint powers entities
There have been a few instances where cities have inadvertently overlooked a
joint powers entity of which they were members, and were left without
coverage when the joint powers entity's activities led to claims against the
joint powers entity and its member cities. To address this, LMCIT members
have the right to have a limited amount of retroactive coverage issued to any
joint powers entity of which the city is a member and which does not already
have coverage in its own name. This coverage carries the same retroactive
date and the same inception date as the city's own coverage. It will then
protect the joint powers entity, its member political subdivisions, and their
respective officers and employees for claims arising from the joint entity's
activities, including claims that have already been made at the time the
coverage is actually issued. In effect, this provision lets cities put in place,
after the fact, the kind of coverage that should have been in place originally
for the joint powers entity's activities.
There are two important limitations on the retroactive coverage.
• Retroactive coverage for joint powers entity liability carries a $200,000
annual aggregate limit, including defense costs. By contrast, standard
See Section II.D,Coverage LMCIT coverage provides a$2 million per occurrence limit for most
limits.
claims,regardless of the number of claims per year. And for most claims,
that$2 million per occurrence limit applies only to damages; defense costs
are in addition to the limit.
• The premium for the retroactive joint powers entity liability coverage is
substantially higher than LMCIT's standard rates for many joint powers
exposures. The premium for the retroactive coverage is the greater of
LMCIT's standard rates or$5,000.
J. Land use and special risk litigation
Litigation relating to a city's land use regulation decisions, development and
redevelopment activities, franchising, city enterprise operations, or debt
obligations can be very expensive. For a city that's hit with this kind of
litigation, the legal costs can be a significant financial burden. For this reason,
LMCIT has created a specialized approach to cover these types of litigation.
Compared to conventional liability insurance, a key difference of the LMCIT
coverage is that litigation relating to these types of special litigation risks is
covered regardless of whether the litigation includes a claim for damages.
1. Coverage terms
LMCIT provides coverage for five broad classes of land use and special risk
litigation, which is known as Coverage D in the LMCIT liability coverage
document.
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• Land use regulation. Any litigation relating to the city's regulation of the
use of land or real property or the application or interpretation of a land
use, zoning, subdivision, or similar ordinance or regulation.
• Development. Any litigation relating to the city's participation in or
financing of any housing, development, or redevelopment project.
• Franchising. Any litigation relating to the granting,refusal, interpretation,
or enforcement of any franchise, ordinance,permit, license, or other
mechanism through which the city authorizes or regulates parties other
than the city, with regard to the provision of telecommunications,
electricity, gas,heat, sewage treatment or refuse collection within the city.
• Enterprise operations. Any litigation relating to a city's authority to
engage in enterprise operations. "Enterprise operation"means any
arrangement under which the city offers goods or services for a fee, such
as utilities, telecommunications services, or similar things.
• City debt obligations. Any litigation relating to bonds,notes, financing
certificates, lease-purchase agreements, or other similar debt instruments
or financial obligations proposed, guaranteed, approved, issued, or entered
into by the city.
Under the land use and special risk litigation coverage, the following types of
litigation are excluded.
• Physical takings. Litigation that seeks only compensation or other relief
for an actual or alleged physical occupation, invasion, or use of property
by the city.
• Special assessments. Litigation that seeks only reduction or invalidation of
a special assessment.
• Negligent inspection. Litigation that seeks only compensation for damages
based on the city's actual or alleged negligent inspection or enforcement
of the state building code or the state plumbing, electrical, fire, or similar
state codes.
• Contractual obligations. Litigation that seeks only amounts owed pursuant
to the explicit terms of any contractual obligation, including but not
limited to any city debt obligations.
• Ordinary land use enforcement. Litigation which was initiated by the city
to enforce a land use regulation, and which does not involve a challenge to
the constitutionality or interpretation of the regulation.
• Criminal prosecution. Criminal prosecutions by the city.
• Other covered parties. Litigation brought by LMCIT or the city against
any other covered party.
• City bankruptcy. Litigation that arises from or is related to the actual,
pending, or threatened bankruptcy of the city.
• Pollution. Litigation that makes only a pollution claim.
The land use and special risk litigation coverage applies to the following types
of litigation costs.
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• Costs for legal counsel selected jointly by the city and LMCIT to represent
the city.
• Necessary legal fees for counsel to represent the city which the city incurs
prior to reporting the litigation to LMCIT (these fees are covered at 50
percent).
• Necessary litigation expenses other than legal fees.
• Most damages the city is required to pay.
• Supplementary payments, including up to $200,000 of statutory attorney's
fees.
Most money damages that might be awarded against the city are covered as
well. This specifically includes two types of damages that are frequently
excluded under conventional liability insurance policies:
• Awards of attorney's fees in federal civil rights or state human rights
actions.
• "Temporary taking"damages; inverse condemnation damages awarded for
the claimant's loss of use of property prior to the time that a land use
regulation has been ruled by a court to be unconstitutional as a"taking" of
property.
The following types of monetary damages that might be awarded against the
city are not covered:
• Exemplary or punitive damages or attorney's fees awarded against a city
officer or employee,unless he or she was acting within his/her duties and
not guilty of malfeasance, willful neglect of duty, or bad faith.
• Fines or penalties.
• The cost of complying with an injunction or similar order.
• Repayment of any taxes, assessments, fees, or other charges that the city
wrongfully collected, or any interest on that repayment.
• Amounts paid for the permanent acquisition of property or property rights,
or for the right to permanently enforce a land use regulation or restriction.
• Amounts owed pursuant to the explicit terms of any contractual
obligation, including but not limited to city debt obligations.
• With respect to any litigation relating to city debt obligations, any profit,
advantage or remuneration to which the covered party was not legally
entitled.
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2. Coverage limits, co-pays and deductibles
See Section II.D,Coverage There is a$1 million annual aggregate limit for land use and special risk
limits.
litigation claims. Coverage for litigation costs is based on a sliding scale and
Lana Use Incentive also based on whether members participate in the land use incentive program.
Program. (Please note, for litigation between LMCIT members,the coverage pays only
one-half of the percentages described below, subject to a$500,000
maximum.)
Coverage for members participating Coverage for members not
in land use incentive program participating in land use incentive
program
• 100% of first$25,000 • 85%of first$250,000
• 85% of next $225,000 • 60%of amounts above
• 60% of amounts above $250,000
$250,000 • 50%of necessary legal fees
• 50% of necessary legal fees members incur prior to
members incur prior to reporting litigation to LMCIT
reporting litigation to LMCIT • $1 million annual aggregate
• $1 million annual aggregate limit
limit
If the city's liability coverage is written with a deductible, the deductible is
applied to the percentage of the costs that would otherwise be paid by
LMCIT. The city's co-pay amounts (that is, the percentages of litigation costs
and damages for which the city is responsible, as outlined above) do not count
toward satisfying the city's deductible.
For example, if the litigation costs on a case are $75,000, and the city carries a
$10,000 deductible,the city's share of the$75,000 is determined as follows:
Members participating in Members not
land use incentive participating in land use
program incentive program
LMCIT's share $57,500 (100%of the first $53,750 (85%of the first
$25,000 plus 85%of the $250,000, less the
next$225,000, less the $10,000 deductible)
$10,000 deductible)
City's share $17,500 (15%of the $21,250 (15%of the first
amount in excess of $250,000,plus the
$25,000,plus the $10,000 $10,000 deductible)
deductible)
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In calculating whether the aggregate limit has been met, city co-payments are
not included,but city deductible obligations are. For example, for a city that
qualifies for the land use incentive, in order to exhaust the $1 million
aggregate limit a city would have to incur total litigation costs of$1,556,250.
For a city that does not qualify for the incentive, a city would have to incur
total litigation costs of$1,562,500 in order to exhaust the $1 million aggregate
limit. In either case, if the city's coverage was subject to a$25,000 deductible,
the maximum amount LMCIT would actually pay would be $975,000.
3. Litigation procedures
Coverage for land use and special risk litigation is triggered when the
litigation is first filed or served on the city. Litigation counsel is selected by
mutual agreement between the city and LMCIT. Decisions on settlement and
strategy are also made by mutual agreement, in consultation with the attorney
the city and LMCIT have agreed to retain.
a. When to report litigation
Coverage for land use regulation, development, franchising, enterprise
authority, or city debt obligation disputes is triggered when the litigation is
first filed or served on the city. Cities should report the litigation to LMCIT
immediately upon filing or being served with the summons and complaint that
formally commences the litigation.
If the city is the plaintiff, the matter should be reported to LMCIT before the
litigation is commenced, or as soon as the city becomes aware its ordinance's
constitutionality or interpretation is being challenged. Litigation must be
reported to LMCIT no later than one year after the litigation commences in
order for coverage to apply.
Even if there is the likelihood of litigation, LMCIT encourages cities to report
it before the litigation is formally commenced. While general legal advice
from the city attorney is not normally considered part of the litigation costs, it
is possible the city could incur some litigation-related costs in anticipation of
the litigation. If the city incurs litigation costs before reporting the actual or
anticipated litigation to LMCIT, those costs will be reimbursed at 50 percent.
b. Selection of counsel
Litigation counsel is selected by mutual agreement between the city and
LMCIT. If in some unusual circumstance an agreement cannot be met,
LMCIT will give the city a list of five qualified attorneys who are experienced
in that type of litigation. The city then can select any of the five.
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Except in very unusual circumstances, the city's own city attorney will not be
appointed to represent the city in the covered litigation. LMCIT takes this
approach because the city attorney has often been intimately involved in
providing legal advice to the city about how to handle the particular land use
situation. If the city attorney was selected to represent the city in the litigation,
it is conceivable the attorney could become involved in having to defend his
or her own recommendations, and to some degree the city might lose the
benefit of an independent, detached evaluation of the strengths and weakness
of the case.
c. Litigation management and strategy
Decisions on settlement and strategy are made by mutual agreement of the
city and LMCIT, in consultation with the attorney the city and LMCIT have
agreed to retain. Neither LMCIT nor the city has the authority to agree to a
settlement without the other's consent.
This collaborative decision-making process reflects the particular nature of
this type of litigation. Unlike the tort claims that conventional insurance
policies are designed to cover, the issues in this kind of litigation are often not
just a matter of whether and how much money damages the city owes. The
real issues at stake may be questions like whether or not a permit is issued, a
financing package approved or a franchise granted—things which involve
local policy issues and which may require legislative or other official action
by the city council.
At the same time, it's important to keep in mind the funds used to pay
LMCIT's share of the costs are really the joint property of all LMCIT member
cities. Those other member cities are entitled to know that their funds aren't
being wasted on frivolous disputes or in pointlessly prolonging litigation in
which the city has little chance of prevailing. Involving both the city and
LMCIT in the decision-making process is a means of trying to balance those
potentially competing interests. The cost-sharing provisions are incorporated
in the coverage for much the same reason.
K. Liquor liability
When alcohol is sold,whether by the city or some other entity, there should
LMC information memo,
Liquor Licensing and be liquor liability(dram shop) coverage in place. The greatest possibility for
Regulation. liability is sale of alcohol to an obviously intoxicated person. Illegal sales can
also include after-hours sales, sales to minors, and furnishing alcohol to
minors. Even if the sale of alcohol is not involved,Minnesota law still
Comparison of Dram Shop
and Social Host Liquor provides liability for persons who illegally furnish alcoholic beverages.
Liability.
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In addition to specific alcohol-related liability,there is also potential liability
for negligence related to the use of alcohol. There could be possible injury or
damage if a city or group did not provide adequate maintenance, supervision,
or security when alcohol is used.
1. LMCIT coverage for city-related liquor liability
See Section II.C.2,Risks The LMCIT liability coverage contains an exclusion for liquor liability,but
that must be specifically
underwritten. optional coverage can be provided under a separate, standalone covenant. The
coverage is available for off-sale municipal liquor stores, on-sale municipal
Contact your LMCIT
underwriter for an liquor stores, and special event liquor or beer sales by an organization that is
application to obtain a quote an instrumentality of a member city, including cities that do not operate a
for liquor liability coverage.
651.281.1200 municipal liquor store.
800.925.1122.
a. Eligibility
Find a pre-approved vendor Members are required to demonstrate annual server training has been
in the LMCIT Alcohol
Awareness Brochure, completed as a condition of coverage. The training must be obtained by a
training vendor pre-approved by LMCIT.
b. Coverage limits and deductibles
See Section II.D.3, Cities can choose limits of either$500,000 per occurrence/$500,000 annual
Purchasing higher liability
limits. aggregate or$1 million per occurrence/$1 million annual aggregate. Higher
limits can also be provided through the LMCIT excess liability coverage.
For cities that carry the LMCIT excess liability coverage,the excess coverage
does not automatically apply to liquor liability. The excess coverage can on
request be endorsed to apply to liquor liability for an additional charge.
c. Coverage terms
The LMCIT liquor liability coverage provides coverage for the liquor liability
exposure. Coverage is on an occurrence basis. The city and the city's officers,
employees, and volunteers are all covered parties.
Each individual premises at which liquor sales are conducted must be
specifically scheduled on the declarations page or by endorsement in order for
coverage to apply. Similarly,the coverage will not apply to any liquor,beer,
or wine sales at city-sponsored special events unless that event has been
specifically scheduled. This includes both sales by an organization such as a
fire relief association under a temporary license or sales by the municipal
liquor store at a temporary off-premises location.
LMCIT Liability Rating Rates are based on the gross receipts of the municipal liquor store or licensee.
System. There is a simple 10 percent debit that applies if the city has had a liquor
liability claim within the past five years.
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If the renewal date of the city's municipal liability coverage is different from
the inception date of the liquor liability coverage, the initial liquor liability
coverage can be issued for a short term to coordinate the renewal dates.
d. Selecting limits
There's no easy or infallible rule for deciding how much coverage is adequate
for a municipal liquor store. No matter what coverage limits the city buys, it's
possible to imagine a situation in which it won't be enough. Ultimately the
city council needs to exercise its own judgment in deciding how much
coverage to carry and pay for. LMCIT recommends that any city with a
municipal liquor store carry limits of at least$500,000,but cities should
strongly consider higher limits of$1 million or more.
While LMCIT can't give the city a definite answer for how much is enough,
cities should note that if it has a municipal liquor store, it must meet the same
statutory financial responsibility requirements as a private liquor licensee. In
Minn.Stat.§340A.603. general,the statute requires liquor sellers to have the following liquor liability
insurance limits. LMCIT's liquor liability coverage meets these requirements.
Minn.Stat.§340A.409. • $50,000 of coverage because of bodily injury to any one person in any one
occurrence;
• $100,000 because of bodily injury to two or more persons in any one
occurrence;
• $10,000 because of injury to or destruction of property of others in any
one occurrence;
• $50,000 for loss of means of support of any one person in any one
occurrence;
• $100,000 for loss of means of support of two or more persons in any one
occurrence;
• $50,000 for other pecuniary loss of any one person in any one occurrence;
and
• $100,000 for other pecuniary loss of two or more persons in any one
occurrence.
If the insurance policy includes an annual aggregate policy limit,that annual
limit must be at least $300,000. The statutes do allow a liquor seller to post a
surety bond with the same limits or to self-insure by depositing at least
$100,000 with the state treasurer,but these options are seldom used.
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Minn.Stat.§466.15. The limits noted above are the minimum limits the city must have,but they
are not the limits on how much the city can be sued for or held liability for. If
the city's liability on a liquor liability claim exceeds its coverage, the city is
still on the hook for the excess. Ultimately, it will come from the city's
general fund or from the city's taxpayers.
This is an important difference between a municipal liquor store and a private
liquor vendor. If a private liquor seller is found liable for damages that exceed
his or her insurance and assets, the seller can declare bankruptcy and that's
pretty much the end of the matter. The injured party simply doesn't recover
the excess damages.
A private liquor licensee might decide the reasonable thing to do is to
incorporate the business, keep minimal assets in the corporation, and
minimize premium costs by buying minimum insurance limits. The private
licensee would simply hand over the keys and walk away if liability should
exceed the insurance. Effectively, it's the injured party that bears the risk that
the private licensee's insurance limits aren't enough.
The city doesn't have that option. The taxpayers bear the risk if the city's
liquor liability coverage limits aren't enough to cover its liability. Thus, a
coverage limit that might seem a reasonable business decision for a private
licensee may be very inadequate for a city with a municipal liquor store.
2. Coverage for other groups' or individuals' liquor
liability
The city should consider a number of coverage-related issues in those cases
See Section IILT,Special
events. when beer and liquor sales take place at a special event where the city does
not sponsor it but the event is held on city property, and also when the city
contracts with an alcohol vendor.
a. Require liquor liability coverage for special events not
sponsored by the city
Minn.Stat.§340A.409. Even though Minnesota statutes state that the liquor liability insurance
See Section VIII of the requirements do not apply to licensees who establish by affidavit any one of
LMC information memo, the following, cities should still strongly consider requiring the vendor or
Park and Recreation Loss
Control Guide,for more individual to obtain coverage.
specific loss control
recommendations for
special events.
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• They are on-sale 3.2 percent malt liquor licensees with sales of less than
$25,000 in the preceding year.
• They are off-sale 3.2 percent malt liquor licensees with sales of less than
$50,000 in the preceding year.
• They are on-sale wine licensees with sales of less than$25,000 in the
preceding year.
• They are temporary wine licensees.
• They are wholesalers who donate to an organization for a wine tasting
Minn.Stat.§340A.418 and
Mum.Stat.§340A.419. conducted under Minn. Stat. §§ 340A.418 or 340A.419.
When thinking about the insurance requirement for liquor or beer sales and
whether to require it if an event is held on city property,the city will want to
consider:
• As a matter of public policy, it is arguably desirable to have coverage
available to make sure that an injured party is compensated if an illegal
beer or wine sale caused the injury.
• It's not just the organization running the beer garden that can be sued. The
individuals who actually tend the bar and sell the beer could also be sued
as individuals.
Private individuals holding In addition to making sure liability coverage is in effect, the city should also
a special event on city
property can obtain general consider making a couple other coverage provisions. First, make sure the
liability and/or liquor liquor liability coverage applies to the city premises location. Most companies
liability coverage through
the Tenant user Liability require a vendor to notify them if alcohol will be sold somewhere other than
Insurance Program its normal place of operation. Second,the city should have general liability
(TULIP). coverage itself and require groups that are using city facilities to have general
liability coverage. If an organized group does not have liability coverage,
there is a greater risk to the city of being the target of a negligence claim or
See Section III.T,Special lawsuit.
events.
b. Transfer risk if the city contracts with an alcohol vendor
If the city contracts with an alcohol vendor,the liability should rest with the
vendor and therefore the agreement should have a hold harmless and
indemnification provision. This provision would ensure the vendor would
defend and pay for any claim against the city related to the sale of alcohol by
the vendor.
If a community group serves the alcohol in a social host setting, cities may
require a representative to sign a hold harmless and indemnification provision.
In an organized group, such as a nonprofit corporation, a representative can
bind the group for the indemnification. If it is not an organized group but a
group such as a wedding reception or snowmobile club, a representative
cannot bind the individuals in the group to a hold harmless provision if an
individual was injured.
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LMCIT Contract Review
Service. Cities should talk to their city attorney when developing written agreements
Chris Smith,LMCIT Risk and contracts. LMCIT will review defense and indemnification provisions
Management Attorney:
csmith@lmc.org or free of charge in order to help protect the city's interests.
651.281.1269.
If the city hires an alcohol vendor or allows a vendor to sell alcohol on city
premises, another protection would be to have the city be named as an
additional insured on the vendor's liquor liability insurance policy. The city
should also consider being named as an additional insured on a general
liability insurance policy of a group serving alcohol on city premises. This
means the city would be covered automatically under the other party's policy
and would not depend upon any interpretation of language in any agreement.
If the city requires this, it should follow up by requiring a certificate of
insurance that shows the city was actually named as an additional insured.
There have been cases where a party agreed to do this but never contacted its
insurance company.
Generally, cities do not require the additional insured status if their only
contact with the alcohol sales is that they license the seller. The city's risk is
remote in that type of situation.
L. Medical payments
Many cities carry premises medical coverage. Premises medical coverage
See Section IILU,
Volunteers. provides a relatively small amount of coverage for medical expenses to
anyone whom may be injured by a condition on city-owned property. This is
no-fault coverage which means the injured person receives the benefit without
having to show the injury resulted from the city's negligence. The coverage
limits are $2,500 per person and $10,000 per occurrence. Essentially it is
meant to cover medical costs that an individual might otherwise be
responsible for under the deductible on his or her health coverage.
Some question whether there is a valid purpose for cities to pay these funds in
situations when the city is not legally liable. Others argue the payments
provide a simple and inexpensive way to possibly head off what might turn
into a more expensive liability claim. LMCIT therefore gives the city the
option to delete this coverage if it's not wanted.
M. Open meeting law and bankruptcy lawsuits
Coverage for open meeting law(OML) and bankruptcy lawsuits is
automatically issued to any member that has LMCIT liability coverage. It is
called defense cost reimbursement coverage and provides defense protection
Minn.Stat.§ 13D. to city officials that may be accused of violating the OML or to city officials
involved in a city bankruptcy lawsuit.
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The reason LMCIT provides this coverage is because it recognizes that
defending an OML charge can cost a city official a lot of money, that many
OML violations are inadvertent and some may even occur on an attorney's
advice, and that it's easy to make an accusation of an OML violation which
can then force a city official to expend significant sums on defense regardless
of the merits of the allegation.
Defense costs are often the most significant financial consequence of OML
Minn.Stat.§13D.06. lawsuits. The statutory penalty of$300 might be relatively minor,but defense
costs can easily run to thousands of dollars. And those costs are incurred
whether or not the official is ultimately found to have violated the law.
Sometimes, too,the threat of litigation could be used as a tactic to intimidate
or coerce councilmembers in some cases. LMCIT assumes that most
councilmembers try in good faith to comply with the law,but sometimes even
best faith efforts are not enough to head off an OML lawsuit.
One might ask why public funds should be used to pay for someone who
actually violated the OML and whether that encourages city officials to
violate the law. The law clearly defines penalties for violating the law. A
Minn.Stat.§13D.06violation carries a$300 civil penalty; potential loss of office for repeated
violations; and possibly an order to pay the plaintiff's attorneys' fees if the
court finds the individual intended to violate the law. If a city official has to
pay the defense costs, the real monetary penalty to the individual can be many
times greater than the penalty the legislature provides in the statute. The
amount of defense costs may not have much relation to how serious the
violation was.
See Section II.C.1,Liability Regarding the city bankruptcy exposure, claims which arise from or relate to a
not covered.
city bankruptcy is excluded from the LMCIT liability coverage. The goal of
this is that in the unlikely event that a city declared bankruptcy,the exclusion
would avoid a situation where the city's creditors could turn the city's LMCIT
liability coverage into an additional asset in the bankruptcy by using this kind
of backdoor approach.
At the same time, though, LMCIT wants to make sure individual city officials
have some protection in these circumstances. Therefore,the defense cost
reimbursement coverage provides defense costs to city officials for these
types of claims. It's important to note,however,that coverage is excluded for
independent contractors' activities related to a city bankruptcy and that are
representing the city as a member of a committee,board, or commission.
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1. Covered parties
Any elected or appointed official or employee of the city is covered. Excluded
from the coverage,unless specifically named in the coverage document, are
officials or employees of a utilities commission,port authority,HRA, EDA,
redevelopment authority, municipal power or gas agency, hospital or nursing
home board, airport commission, or joint powers board.
2. Coverage limits and terms
The most LMCIT will reimburse any one city official for defense costs
commenced during the coverage term is $50,000, regardless of the number of
suits or the number of actual alleged violations. It covers defense costs
incurred by the city official in defending two types of lawsuits:
• An OML lawsuit.
• A lawsuit against a city official that arises from the actual,pending, or
threatened bankruptcy of the city.
There is also an aggregate limit of$250,000. This is the most LMCIT will pay
for defense costs for all the city's officials for lawsuits commenced within the
coverage term.
The coverage protects a city official who is accused of attending not only an
illegal meeting of the city council but the meeting of some other board or
commission as well. For example, suppose a city official is accused of
violating the OML at a meeting of a joint powers board the official serves on.
The city's OML coverage would apply to that charge,but it would not pay for
defending the other members of the board. Unless the joint powers board has
OML coverage itself,the other members would only be covered if their own
cities have OML defense coverage.
This coverage will not cover any legal costs the city might incur if the city
itself were somehow made a party to the OML or city bankruptcy litigation;
unless, of course, it was part of a suit that included a covered claim for
damages. It will also not reimburse to the official any fine or penalty for
violating the OML or any award that orders the city official to pay for the
opposing party's attorney's fees in an OML lawsuit.
The coverage is triggered when an OML or city bankruptcy lawsuit is served
on the city official. If a lawsuit is filed during the term of the agreement, the
city official needs to immediately notify LMCIT of the litigation. The city
official retains the ability to select a lawyer of his or her choosing.
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The defense cost reimbursement coverage does not pay the legal costs on the
city official's behalf. Instead, LMCIT will reimburse the city official for
defense costs to a maximum of$50,000 after the official has incurred those
costs. The city official remains responsible for paying the defense attorney, as
well as any costs beyond the $50,000 limit.
The city official retains control of the litigation and decides, among other
things,what attorney to hire,whether to settle or compromise the litigation,
and whether to appeal.
N. Police
The basic LMCIT liability coverage contains no general exclusions for claims
arising out of law enforcement activities,but there are three specific situations
where coverage is excluded.
First, there is an exclusion for damages arising out of detention facilities
intended and regularly used for confinement of persons for periods in excess
of 30 days. Contact LMCIT if the city is involved in this type of operation.
See Section II.C.2,Risks Second, if the city is involved in a joint powers police or task force operation,
that must be specifically
underwritten and Section it's very important coverage is specifically addressed for that operation. The
111.1,Joint powers entities. LMCIT liability coverage contains an exclusion for claims arising out of the
activities of a joint powers entity but coverage can be provided.
See Section III.D, Third, an officer acting outside of his or her capacity as a city employee is not
Employees'activities in
outside organizations and a covered party for purposes of the LMCIT liability coverage.
LMC information memo,
Police Department
Management and Liability
Issues,Section IV.B,Off-
duty employment
(moonlighting).
0. Pollution
See Section II.C.1,Liability There is a broad exclusion in the LMCIT liability coverage for any pollution
not covered.
claims,but there are a few limited exceptions.
A pollution claim includes any claims for damages arising out of the actual,
alleged, or threatened existence, discharge, dispersal, seepage,migration,
release or escape of pollutants. Pollutants are defined as any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,vapor, soot,
fumes, acids, alkalis, chemicals and waste. Waste includes materials to be
recycled,reconditioned or reclaimed.
See Section ILD.1,LMCIT The LMCIT liability coverage includes an exception for"limited
primary liability limits. contamination liability claims."There is a$3 million annual aggregate for the
following types of claims:
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• Any claim for damages arising out of pesticide or herbicide application
operations.
• Any claim for damages which resulted from a sudden occurrence which
took place on or after the city's retroactive date and prior to the expiration
date of the city's coverage, and which was caused by an actual, alleged, or
threatened discharge, dispersal,release, or escape of pollutants; or arises
from the accidental rupture, backup, or overflow of the city's sanitary
sewer, storm sewer, or water supply systems.
• Any lead claim or asbestos claim,unless the actual, alleged, or threatened
discharge, dispersal,release, escape,use, distribution, or handling of lead
or asbestos took place at or from any landfill, dump, or other site or
location presently or formerly used by or for the city or others for the
handling, storage, disposal,processing or treatment of pollutants.
• Any excavation and dredging claim.
• Any mold claim.
• Any organic pathogen claim.
• Any claim for damages arising out of heat, smoke, or fumes from a hostile
fire or controlled burn. A hostile fire is a fire which becomes
uncontrollable or breaks out from where it was intended to be.
The term sudden occurrence means an accident or a related series of accidents
where the release of pollutants may have resulted and for which begin and end
within 72 hours. In the case of a related series of accidents,the sudden
occurrence is considered to have taken place when the first accident took
place. The only exception is if the city's sanitary sewer backs up into a
building. Each incident is considered to be a separate sudden occurrence.
P. Public official's liability
There is no general exclusion in the LMCIT liability coverage for acts or
errors and omission of public officials.
Q. Separate city boards and commissions
Statutes and some charters allow cities to create independent administrative
boards to manage certain city operations. Utility commissions and hospital
boards are common examples. Other statutes allow cities to create separate
public corporations for certain purposes, such as a port authority, HRA, and
EDA. The statutes generally give these boards and authorities full power to
manage the activities for which they are responsible, including the authority to
purchase the appropriate liability,property, and other coverages needed for
those activities.
If the city has one or more of the following, it needs to ensure there is
adequate coverage for the board's or commission's activities:
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• Gas, electrical, or steam utilities commission.
• Port authority, HRA, EDA, municipal redevelopment authority, or similar
agency.
• Municipal power or gas agency.
• Airport board or commission.
• Hospital, nursing home, or medical clinic board or commission.
Different types of boards and commissions pose different kinds of coverage
issues and problems. Here are some of the issues, questions, and problems that
arise with some of the more common types of independent city boards and
commissions.
1. Port authority, HRA, or EDA
An HRA, EDA, and port authority are legally separate political subdivisions.
These are not covered automatically under the city's LMCIT liability
coverage. This is true even if the councilmembers themselves also make up
the board of the political subdivision. Unless the city has specifically
indicated these entities are to be covered, a claim against one of these political
subdivisions would not be covered. The city would also not be covered for
claims against the city which arise from the activities of these entities.
LMCIT offers two ways to provide coverage for the activities of an HRA,
EDA, or port authority. One is having the EDA, HRA, or port authority
named as an additional covered party on the city's coverage. The other is to
have separate coverage issued to the EDA, HRA, or port authority in its own
name.
a. Additional covered party on city's coverage
Cities choosing this approach should keep in mind that since these entities are
separate political subdivisions,theoretically a claimant could collect up to the
Minn.Stat.§466.04. $1.5 million statutory liability limit from both the city and the EDA, HRA, or
port authority if both were involved in a single claim. Since the LMCIT
See Section II.D.1,LMCIT liability coverage limits are $2 million per occurrence regardless of the
primary liability limits.
number of defendants, there is some additional protection but there is a
possibility that the combined liability of the city and the entity could exceed
See Section II.D.3, the limit. One way to address this risk is to obtain the LMCIT excess liability
Purchasing higher liability
limits. coverage.
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b. Separate coverage
Under this option, LMCIT will automatically name the city as a covered party
on the entity's policy, and the city's coverage will be endorsed to make the
city's coverage apply as excess over the entity's coverage. This effectively
makes the entity's coverage primary for both the city and the entity while at
the same time making the city's coverage available as excess in case the
combined liability exceeds the limits of the entity's coverage.
If an HRA, EDA, or port authority decides to purchase coverage from a
private insurer, the city and the entity need to review a number of questions to
assure adequate coverage. Remember, LMCIT does not automatically provide
coverage to the city for claims arising from these entities' activities.
Following are some of the key questions to consider.
• What type of coverage is being provided to the city and the board?
• Is the coverage as broad as provided by LMCIT?
• Is public officials' errors and omissions coverage included?
• Does it cover employment-related liability?
• Does it cover defense costs on litigation related to land use regulation or
development which don't involve damage claims?
• Is the city named as an additional insured on the entity's board or
commission policy? If the city isn't covered under the entity's policy and
hasn't added coverage under the city's own LMCIT coverage, there's no
coverage anywhere if the city gets sued because of some activities of the
HRA, EDA, or port authority. LMCIT can add coverage for this risk.
The LMCIT liability coverage is designed to provide as much coverage as
possible under one covenant, and to effectively coordinate coverages to
eliminate most of the potential gaps in coverage. If the city needs to address a
coverage gap that's left by an HRA, EDA, or port authority's private
insurance, contact LMCIT. In most cases LMCIT should be able to fill such
gaps, though there may be a premium charge to do so.
2. Gas, electrical, or steam utility commission
Gas, electrical, or steam utility commissions or agencies are not covered
automatically under the city's LMCIT liability coverage. This is true even if
the councilmembers also serve as the utilities commission. Unless the city has
specifically indicated these entities are to be covered, a claim against one of
these entities would not be covered. The city would also not be covered for
claims arising from the activities of these entities.
In most cases LMCIT can provide the needed coverage for these entities'
activities either by adding the board or authority onto the city's policy or by
issuing separate coverage to the board or authority itself.
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a. Additional covered party on city's coverage
Unlike an HRA, EDA or port authority, a utilities commission is normally not
a separate political subdivision or separate corporation. Thus,there normally
is not the same problem with diluting limits that arises if a city HRA, EDA or
port authority is added as a covered party under the city's LMCIT coverage.
However, there are very few utilities commissions created under city charters
See Section III.Q.I.a, which are in fact separate political subdivisions. For these few cases, the
Additional covered party on coverage issues are the same as those that arise with an HRA, EDA or port
city's coverage.
authority.
b. Separate coverage
If separate LMCIT coverage is issued to a utilities commission for the utilities
operations, that covenant responds to claims arising out of the utilities
operations, regardless of whether the claim names the city,the commission, or
any city or commission officers or employees as defendants.
If the utilities commission chooses to purchase coverage separately from a
private insurer,the city and the utilities commission need to carefully review
the arrangements to assure adequate coverage. Remember that LMCIT does
not automatically provide coverage to the city for these activities. If the
utilities commission purchases separate private insurance,the city can't just
assume the city's LMCIT liability coverage will protect the city and fill any
gaps that the utilities commission's insurance leaves. Here are some important
questions to consider about separate private insurance.
• What type of coverage is being provided?
• Is the coverage as broad as provided by LMCIT?
• Is public officials' errors and omissions coverage included?
• Does it cover employment-related liability?
• Does it cover claims for failure to supply utilities?
• Does the carrier understand the city and the utilities commission aren't
two separate legal entities?
One possible way the city could clarify the last question is by having the
private carrier issue the coverage in the name of, for example, "City of
Mosquito Heights, dba Mosquito Heights Utilities Commission."Another
solution might be for the carrier to simply name the city as a covered party.
The important thing is to make sure that the carrier is covering the liability
arising from the utilities operations.
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If the private carrier won't agree to cover everyone who might be the target of
a claim arising from the utilities commission's activities, or if the utilities
commission's private insurance leaves other gaps, contact LMCIT. In most
cases LMCIT should be able to fill such gaps, though there may be a premium
charge to do so.
3. Airport board or commission
The city's basic LMCIT liability coverage does not cover claims for bodily
injury,property damage, or personal injury arising from airport operations.
However, for most city airports,the city's LMCIT liability coverage can be
endorsed to cover this airport liability exposure. The cost is typically
comparable to purchasing airport liability coverage from a private specialty
insurer.
See Section 111.A,Airports. The city's LMCIT liability coverage does cover other types of liability claims
that might arise from airport operations including claims other than bodily
injury,property damage, or personal injury. This is true whether the airport is
managed by a separate board or directly by the council. If the city decides to
cover these kinds of airport liability exposures through LMCIT, members of
the airport board or commission will be automatically covered. The airport
board will be covered for claims related to errors and omissions and
employment-related liability; these boards do not have to be specially listed as
a covered party.
See Section 111.1,Joint Airports are often set up as a joint powers entity which the city runs in
powers entities.
cooperation with one or more other cities and/or counties. The city's LMCIT
liability coverage will not automatically cover claims—either bodily injury,
property damage,personal injury, or errors and omissions claims - arising
from the operations of a joint powers airport. However, a joint powers board
or entity with at least one city member is itself eligible to purchase liability
See Section 111.x,Airports. coverage through LMCIT, including the LMCIT airport liability coverage.
If the city chooses to purchase airport liability coverage from a private
specialty carrier, it's important to review that insurance coverage carefully.
Remember that the basic LMCIT coverage will not cover any bodily injury,
property damage, or personal injury claims relating to airport operations. In
other words, if the private insurance doesn't cover them,the city doesn't have
any coverage. This is true regardless of whom that claim is brought against,
whether it be against the airport board, the city, the city council, or any
individual officer or employee.
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4. Hospital, nursing home, or medical clinic board or
commission
Specialty liability coverage is needed for city hospital,nursing home, or clinic
operations, since LMCIT does not provide or offer the professional
malpractice coverages that hospitals,nursing homes, and clinics need. The
city's LMCIT liability coverage excludes coverage for bodily injury,property
damage, or personal injury arising out of hospital, nursing home or clinic
operations. The professional liability of physicians, nurses,pharmacists, and
dentists is also excluded.
The city's LMCIT liability coverage does, however, cover other types of
liability claims that might arise from city hospital, nursing home, or clinic
operations. This is true whether the hospital,nursing home, or clinic is
managed by a separate board or directly by the council. If there is a separate
managing board, the members of that city board are automatically covered
parties under the city's liability coverage. These boards do not need to be
specifically named as covered parties in the declarations. One very important
exposure LMCIT covers is employment-related liability claims arising from
these activities.
5. Municipal power or gas agency
Minn.Stat.§453.52. The statutes provide that a municipal power agency or municipal gas agency
is legally a separate political subdivision and municipal corporation created by
agreement between or among two or more cities. Thus,these organizations
have some characteristics both of political subdivisions and of joint powers
entities.
Any city that participates in a municipal power or gas agency should make
sure the agency does have appropriate liability coverage. The city's own
LMC information memo, LMCIT liability coverage does not cover claims arising from the activities of
LMCIT Eligibility a municipal power or gas agency. As a special purpose political subdivision, a
Requirements. municipal power or gas agency is eligible to become a member of LMCIT and
obtain coverage.
R. Sewer backups
Liability coverage for sewer backups is a standard feature of the LMCIT
liability coverage. There are no specific exclusions for claims arising out of
sewer backups for which the city is negligent in causing.
See Section iii.R.2,No- The LMCIT liability coverage for sewer backups should not be confused with
fault sewer backup
coverage.
LMCIT's no-fault sewer backup coverage. The standard LMCIT liability
coverage responds when the city is negligent,while the no-fault sewer backup
coverage provides coverage for a property owner irrespective of whether the
backup was caused by city negligence.
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1. Coverage limits and deductibles
A mandatory deductible of$2,500 per occurrence applies to all liability
Sanitary Sewer Incentive claims for sanitary sewer backups unless the city participates in LMCIT's
Program. sanitary sewer incentive program. Cities already using a higher deductible on
their liability coverage are not affected by this. Those cities using an
aggregate deductible approach for coverage are impacted in the event the
aggregate limit is reached and the maintenance deductible is less than$2,500.
See Section III.R.2,No- Members that purchase the LMCIT no-fault sewer backup coverage are
fault sewer backup
coverage. automatically considered to meet the criteria to avoid the mandatory minimum
deductible.
Download the sanitary To qualify for the incentive, cities must complete a sanitary sewer system
sewer system questionnaire,
located on the last page of questionnaire and return it to LMCIT. If the information provided confirms
LMC information memo, that a city meets the criteria, it will not be subject to the higher mandatory
Sanitary Sewer Incentive
Program:Qualifications deductible. A city may certify they meet the criteria either at the time of
and Maintaining Immunity. renewal or midterm. If qualification occurs midterm, LMCIT will issue an
endorsement removing the minimum deductible.
Cheryl Brennan,Loss For assistance in determining compliance or developing the required sewer
Control Field Services
Manager inspection and maintenance programs, contact the city's loss control field
cbrennan@lmc.org consultant or the loss control field services manager and use LMCIT's
651-215-4079
sanitary sewer toolkit containing model forms and suggested policies to meet
LMC information memo, the criteria.
Sanitary Sewer Toolkit:A
Guide for Maintenance
Policies and Procedures.
2. No-fault sewer backup coverage
As an option, no-fault sewer backup coverage is available for members that
meet certain underwriting criteria. The optional coverage comes with an
additional charge and will reimburse a property owner for cleanup costs and
damages resulting from a city sewer backup or from a city water main break,
irrespective of whether the backup was caused by city negligence.
The no-fault sewer backup coverage option is intended to:
• Reduce health hazards by encouraging property owners to cleanup
backups as quickly as possible.
• Reduce the frequency and severity of sewer backup lawsuits (i.e.,property
owners may be less inclined to sue if they receive conciliatory treatment at
the time of the backup).
• Give cities a way to address the sticky political problems that can arise
when a property owner learns the city and LMCIT won't reimburse for
sewer backup damages because the city wasn't negligent and therefore not
legally liable.
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Many cities and their citizens may find this coverage option to be a helpful
tool. However, it's also important to realize it's not a complete solution to
sewer backup problems, and not every possible backup will be covered.
One may wonder whether it is considered a gift of public funds to pay for
damages the city isn't legally liable for. The legal basis for this coverage is
that it helps reduce health hazards by encouraging prompt cleanups. That's
clearly a public purpose and in the public interest.
Also,the law and facts surrounding most sewer backup claims are rarely
clear. There's virtually always a way that a claimant's attorney can make
some type of argument for city liability. Having this coverage in place should
help eliminate the need to spend public funds on litigation costs in many of
these cases.
a. Coverage terms
The no-fault coverage will reimburse the property owner for sewer backup
damages or water main breaks, regardless of whether the city was legally
liable, if the following conditions are met:
• The sewer backup resulted from a condition in the city's sewer system.
• The sewer backup was not the result of an obstruction or other condition
in sewer pipes or lines which are not part of the city's sewer system or
which are not owned or maintained by the city.
• The water main break damage to property of others was not caused by city
negligence.
• The sewer backup or water main break was not caused by or related to an
excluded incident.
• The date of the occurrence giving rise to the claim for sewer backup or
water main damages must be on or after the retroactive date shown on the
city's endorsement.
The no-fault coverage will not pay for any damages or expenses which are or
LMC information memo, would be covered under a National Flood Insurance Program(NFIP) flood
National Flood Insurance insurance policy, whether or not such insurance is in effect; or for any costs
Program.
which the property owner has been reimbursed or is eligible to be reimbursed
by any homeowners' or other property insurance.
Following are other incidents that are specifically excluded under the no-fault
coverage:
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• Any weather-related or other event which has been declared by the
42 U.S.C.§§5121-5206. President of the United States to be a major disaster pursuant to the
Stafford Act.
• Any interruption in the electric power supply to the city's sewer system or
to any city sewer lift station which continues for more than 72 hours.
• Rainfall or precipitation which exceeds any of the following amounts:
2.0 inches in a 1 hour period; or
2.5 inches in a 3 hour period; or
3.0 inches in a 6 hour period; or
3.5 inches in a 12 hour period; or
4.0 inches in a 24 hour period; or
4.5 inches in a 72 hour period; or
5.5 inches in a 168 hour period.
b. Coverage limits
The basic limit for sewer backups is $10,000 per building per year,regardless
of the number of occurrences or the number of claimants. The city also has
options to purchase higher limits of$25,000 or$40,000 per building. For
purposes of the limit, a structure or group of structures that is served by a
single connection to the city's sewer system is considered a single building.
Only true no-fault claims are counted toward the limit. Claims for damages
See Section III.R,Sewer caused by city negligence, for which the city would be legally liable in any
backups. case and for which would be covered under the standard LMCIT liability
coverage, are not charged against that limit.
The basic limit for water main breaks is $10,000 to any claimant, with the
option to purchase higher limits of$25,000 or$40,000 per building. LMCIT
will not pay more than$250,000 for water main break damage resulting from
any single occurrence. All water main breaks which occur during any period
of 72 consecutive hours is deemed to result from a single occurrence.
c. Premium costs
The no-fault sewer backup premium charge is based on a per sewer
connection basis as follow.
$10,000 limit $1.79 per connection manual rate
$25,000 limit $2.11 per connection manual rate
$40,000 limit $2.63 per connection manual rate
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LMC information memo, The coverage also includes an experience-rating component. Members that
Experience Rating in
LMCIT's Liability and have incurred no losses under this coverage within a three-year rating period
Workers'Compensation receive a 10 percent credit. Members that have incurred losses within the
Premiums.
rating period at a per-connection frequency that is higher than the LMCIT
LMCIT Liability Rating program average receive a 10 percent debit.
System.
d. Eligibility
To be eligible for the no-fault sewer backup coverage,the city must meet
these underwriting criteria:
• The city must have a policy and practice of inspecting and cleaning its
sewer lines on a reasonable schedule.
• If there are any existing problems in the city's system which have caused
backups in the past or are likely to cause backups, the city must have and
be implementing a plan to address those problems.
• The city must have a system and the ability to respond promptly to
backups or other sewer problems at any time of the day or week.
• The city must have in place an appropriate program to minimize storm
water inflow and infiltration.
• The city must have in place a system to maintain records of routine sewer
cleaning and maintenance, and of any reported problems and responses.
For assistance in developing The goal of these criteria is to focus on reasonableness rather than on creating
sewer policies,practices,
and schedules,please see specific standards. The intent isn't to set an arbitrary requirement that sewers
the Sanitary Sewer Toolkit: be inspected and cleaned every six months, every three years, or every five
A Guide for Maintenance
Policies and Procedures. years. What makes sense in one city with some older and sometimes sagging
clay lines probably wouldn't make sense in a city with newer plastic lines, and
vice versa. From LMCIT's standpoint, the real concern is that the city has
considered its own situation and developed policies, practices, and schedules
that make sense for its own situation.
e. Applying for no-fault sewer backup coverage
Cities interested in applying for the no-fault sewer backup coverage should
first contact LMCIT. If the city qualifies for coverage, LMCIT will send the
city a formal quote. If the city decides to purchase the coverage,the city
council must then pass a formal resolution making the no-fault sewer backup
protection part of the agreement between the city and the sewer customer.
Once LMCIT receives a copy of the resolution, coverage can be bound.
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LMCIT requires a resolution because the coverage is really a contract between
the city and the sewer user. In other words, the basis for the no-fault payments
to the property owner would be the contract between the city and the sewer
user. The idea is that by paying their sewer bill,the sewer user is purchasing
not just sewer services but also the right to be reimbursed for certain specified
sewer backup costs and damages.
f. Discontinuing no-fault sewer backup coverage
If the city decides to discontinue coverage sometime in the future, make sure
the city or its agent notifies LMCIT. The council should also formally rescind
the resolution that made the no-fault sewer backup protection part of the
agreement between the city and the sewer customer. The city should also
notify its sewer users that the coverage was discontinued.
S. Skate parks
The LMCIT liability coverage applies to claims arising out of skate park
operations. However, due to the various types of skate park configurations and
the various exposures presented by them, coverage is only provided if certain
loss control practices are in place. The coverage and premium charge will also
vary based on the type of skate park facility, which is for coverage purposes
identified as either a tier 1 or tier 2 skate park.
1. Tier 1 skate parks
Tier 1 skate parks have features 48 inches or less in height,pyramids 6 feet or
less in height, and bowls 6 feet or less in depth. No additional premium is
charged for this type of skate park.
LMCIT requires the following loss control practices for tier 1 parks:
See LMC information . Skaters must wear personal protective equipment such as a helmet,
memo,Park and Recreation
Loss Control Guide for flexible wrist guards or gloves, elbow and knee pads, and proper shoes.
more loss control • Facility rules and safety guidelines must be posted in a conspicuous
recommendations.
location.
• Periodic security inspections must be conducted by city personnel (law
enforcement,park and recreation supervisor, etc.)to ensure skate park
rules are being observed.
• Any skate park feature, including bowls or pyramids, that are 48 inches or
higher must have a safety guardrail on the back or corner to help prevent
falls.
• Skaters must be prohibited from bringing in their own ramps,handrails, or
other structures that could be used to perform stunts.
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• There must be documentation of a formal maintenance program for the
skate park. The frequency of maintenance inspections will depend upon
the hours of operation, facility use and park features.
• Maintenance and inspection documentation must show that the structural
integrity of each feature and the skate park overall is inspected frequently.
• All skate park features must be in fixed positions (not portable).
• An accident report must be completed by a city employee upon report of
any accident or injury occurring at the facility.
• Competitions must be restricted to only those sponsoring organizations
that are able to provide separate insurance coverage and a contract holding
the city harmless and indemnified.
2. Tier 2 skate parks
Tier 2 skate parks have features greater than 48 inches in height,pyramids
greater than 6 feet in height, and bowls greater than 6 feet in depth.
Tier 2 skate parks that comply with LMCIT's loss control practices are
charged a premium of$500 to $1,000 per feature or structure with a minimum
premium of$2,500 and a maximum premium of$7,500. A city that has not
implemented the loss control guidelines for tier 2 skate parks are charged a
premium of$1,000 to $2,000 per feature with a minimum premium of$5,000
and a maximum premium of$15,000.
In order to be eligible for the lower premium charge on tier 2 skate parks,
LMCIT requires all tier 1 practices as well as the following:
See LMC information • Fencing and/or other appropriate security measures must be in place to
memo,Park and Recreation
Loss Control Guide for control access to the park when it is not in operation.
more joss control • Adequate, on-site supervision of the park must be present during all park
recommendations.
operating hours.
• Waivers of liability must be signed by park users if they are age 18 or
older. For park users under age 18, waivers must be signed by the user's
parent or legal guardian.
• An accident report must be completed by a city employee assigned to the
skate park following any accident or injury occurring at the facility.
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T. Special events
See Section IILK,Liquor Many Minnesota communities either sponsor or let others use city property
liability,for more
information about city- for different kinds of special events, such as community festivals, weddings,
related liquor liability and walkathons, dances, fundraisers, ski races, and centennial celebrations.
individuals and groups that
serve or sell alcohol on city
property.
The LMCIT liability coverage does not have a general exclusion for special
events that are sponsored by the city,but there are exclusions that apply for
specific types of events or activities. The two questions that are addressed in
this section are what kinds of activities are and are not covered and which
individuals and organizations are and are not covered.
See Section VIII of the There are a different set of questions to ask when the city allows a private
LMC information memo,
Park and Recreation Loss party to hold an event on city property where there is no city involvement.
Control Guide,for more The question becomes whether the city should require private groups to have
specific loss control
recommendations for insurance and whether insurance should only be required from certain groups
special events• depending on its criteria.
1. Events sponsored by the city
a. Coverage terms
The LMCIT liability coverage applies to the city's activities in connection
with a special event unless that particular activity itself is excluded. The most
important exclusions to be aware of are these:
See Section II.C,Liability • Motor vehicle races, stunts, demolition derbies, and so on.
exclusions.
• Motorized amusement rides, such as carnival type rides.
• Rodeos.
• Stunting activities or events that involve a significant risk of serious injury
to the participant,performer, or others, such as high-wire acts,base or
bungee jumping, skydiving, circus type acts, and acts involving dangerous
animals.
See Section III.K,Liquor • Liquor and beer sales, although LMCIT may be able to provide coverage.
liability and Section In.G,
Fireworks. displays,• Fireworks althou h LMCIT may be able to provide coverage.
In some cases LMCIT can provide coverage for exposures related to fireworks
displays and liquor and beer sales. For the other excluded activities,there are
two basic ways to handle the liability exposure:
• Purchase specialty liability coverage from an insurer who specializes in
that type of risk.
• Hire an independent contractor to conduct that particular operation.
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See Section 11TH, When hiring an independent contractor the city should require that the
Independent contractors.
contractor agree in the contract to hold the city harmless and indemnify the
LMC information memo, city for liability arising out of the activity.
Making and Managing City
Contracts,Section IV.A,
Defense and
indemnification.
The contract should also require the contractor to carry appropriate types and
limits of liability coverage, and to name the city as an additional insured on
that insurance policy. Using a contractor to run some of these riskier activities
has another advantage besides solving the liability coverage question. It also
means,hopefully,the city has experienced professionals involved who know
how to run these operations safely.
LMCIT Contract Review
Service. Cities should talk to their city attorney when developing written agreements
Chris Smith,LMCIT Risk and contracts. LMCIT will review defense and indemnification provisions
Management Attomey:
csmith@lmc.org or free of charge in order to help protect the city's interests.
651.281.1269.
b. Covered parties
For events that are run and sponsored by the city, LMCIT covers not only the
city itself but also the city's officers, employees, and individual volunteers
see Section IILQ,Separate and volunteer organizations acting on behalf of the city. There is also
city boards and coverage for city boards, commission, and committees,but there are some
commissions. exceptions.
See Section III.U, If a volunteer organization like the Lion's Club were to provide volunteer
Volunteers.
assistance to the city in putting on a festival, LMCIT's coverage would cover
both the individuals and the organization for any claims arising out of their
activities as city volunteers. This assumes, of course,that the particular claim
isn't one of the types that are excluded(e.g., a claim arising out of running a
demolition derby).
What can get confusing is determining whether a particular individual
volunteer or volunteer organization is acting on behalf of the city. In many
cases,the organization itself is really the entity that is in charge of putting on
the event. A fairly common approach is to form a nonprofit festival
corporation whose only function is to operate an annual festival. This kind of
organization will obviously rely heavily on volunteers,but these volunteers
would not be acting on behalf of the city. Rather, they would presumably be
acting on behalf of the organization that is actually sponsoring, organizing,
and operating the festival. Since these people are not acting on behalf of the
city, the LMCIT coverage would not provide them any protection.
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In many cities, of course, those community-minded people who tend to get
involved in city government are the same ones who tend to be willing to
donate their time to a civic organization putting on a community festival. One
problem is that it sometimes can get very difficult to determine on whose
behalf the individual is acting at a particular time.
One suggestion for dealing with this problem is for the city council simply to
pass a resolution declaring the festival to be a city function and the
organization putting it on to be city volunteers. The idea is that this is a way to
bring the whole event under the city's liability coverage,but it's not that
simple.
From the standpoint of LMCIT coverage,the real question is whether this is,
in fact, a city event or merely in the name. Certainly, a resolution declaring
the council's intent would be one element in making that determination,but
simply saying it doesn't make it so. Other factors to look at include:
• How the decisions relating to the special event are actually made and by
whom.
• How and in whose name contracts are let.
• How the funds are handled. If the money from the event is run through the
city treasury and disbursed by city check with council approval, it looks
more like a city operation. If another group has its own bank account in
which it places and expends money, it doesn't really look like a city
operation.
Even with an event organized and run by a private group,the city will often
have some sort of role. For example:
• Thegroup may conduct some activities in a city park or use city streets.
• City police may be involved in traffic or crowd control.
• The city recreation department might be responsible for organizing some
recreational activities as part of a festival organized by a community
group.
Where the city has this kind of involvement in a privately-sponsored event,
the LMCIT coverage will apply to suits and claims against the city,the city's
officers and employees, and the city's volunteers, if those claims arise out of
acts on behalf of the city.
LMCIT's Tenant User LMCIT would not provide any protection for the organization or the
Liability Insurance Program
(TULIP)provides access to individuals responsible for organizing a privately-sponsored event, even if
low-cost liability coveragethose individuals or organizations were sued because of something the city
for the city's"tenant users".
did. If LMCIT ended up covering some city liability which arose out of some
negligent action of the private group, LMCIT would very likely try to recover
those damages from that group and/or the responsible individuals.
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c. Planning considerations
See Section VIII of the It can be very confusing to try and sort out who is and who is not responsible
LMC information memo,
Park and Recreation Loss for an event after an injury has occurred or damage has been done. The time
Control Guide,for more to address these questions is in advance. Here are some things to keep in mind
specific loss control
recommendations for when the event is in the planning stage.
special events.
(1) Think about who is running the show
If the event is truly a city-sponsored event, it should be run like a city event
with the council ultimately in charge. On the other hand, if a private group is
going to organize and run the event, make sure they understand how and
where the city's liability coverage does and doesn't apply. If they use city
facilities, encourage them to obtain liability insurance of their own and to
name the city as an additional insured as a condition of using the city
facilities.
(2) Think about hazardous activities
Liquor and beer sales,motor vehicle events, rodeos,rides, and fireworks are
the major examples of hazardous activities. If any proposed activity seems to
involve any particular kind of hazard, it's always best to speak with LMCIT
or the city's insurance agent about liability coverage in advance. Regardless
of who is sponsoring the event, ask these key questions:
• Is there adequate liability coverage for the event?
• Does that liability coverage protect everyone who might get sued as a
result of the event?
(3) Contact LMCIT
Cheryl Brennan,Loss
Control Field Services LMCIT will help the city and its insurance agent try to identify any potential
Manager coverage problems. The LMCIT loss control staff can help review plans for
cbrennan@lmc.org
651.215-4079. the event and offer suggestions for ways to avoid or minimize risks. LMCIT's
attorneys can review draft contracts or permits and offer suggestions on
LMCIT Contract Review
Service. wording indemnification and hold-harmless agreements.
Chris Smith,LMCIT Risk
Management Attomey:
csmith@lmc.org or
651.281.1269.
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2. Events sponsored by private groups
See Section VIII of the Many cities allow groups to use its facilities for a variety of difference
LMC information memo,
Park and Recreation Loss purposes such as weddings, meetings, and athletic events. There are a number
Control Guide,for more of question to consider when determining whether the city should require
specific loss control
recommendations for private groups to have insurance for their event.
special events.
a. Insurance requirements
There are three different ways to handle insurance requirements for private
groups using city facilities.
(1) Don't require anyone to have insurance
If the city doesn't require insurance coverage from private groups using its
facilities, the city can still have rules and conditions to reduce risks. For
example:
See Section 111 K,Liquor • Prohibit riskier activities such as the sale of alcohol.
liability.
• Require renter to provide maintenance and security during their event.
• Have individuals sign waivers for particularly dangerous activities such as
rock climbing.
• Have organizations sign indemnification agreements to shift the liability to
them.
LMCIT Contract Review
Service. Cities should talk to their city attorney when developing written agreements
Chris Smith,LMCIT Risk and contracts. LMCIT will review defense and indemnification provisions
Management Attorney:
csmith@lmc.org or free of charge in order to help protect the city's interests.
651.281.1269.
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(2) Require all to have insurance
Private individuals holding If all private groups are required to have insurance,the city should be named
a special event on city
property can obtain general as an additional insured on the renter's coverage certificate. In addition,the
liability and/orliquor agreement between the private group and the city should defend and
liability coverage through
the Tenant user Liability indemnify the city for any third party claims. This is the best way to transfer
Insurance Program risksto the private groups and its insurance company.
(TULIP).
(3) Require some to have insurance
LMCIT's Tenant User When the cost to obtain insurance coverage is too burdensome for the private
Liability Insurance Program
(TULIP)provides access to group renting the city's facility, the city can have pre-established criteria as to
low-cost liability coverage the types of organizations or events where insurance will be required.
for the city's"tenant users".
It is important to establish the criteria ahead oftime and to treat the
organizations fairly and consistently based upon those criteria. If the city
doesn't do that, there could be allegations of unequal or discriminatory
treatment. Questions to ask when establishingcriteria include:
See Section VIII of the
• What type of organization is holding the event? For example,require
LMC information memo, insurance for public or for-profit organizations.
Park and Recreation Loss . What type of event is being held? For example, require insurance for
Control Guide,for more
specific loss control riskier activities such as street fairs, casino shows, or karate meets.
recommendations for
special events. • Is there an admission charge for the event?
• Will children be participating in the event?
• Is the event open or not open to the public?
• How many people are participating in the event?For example, require
insurance if there are more than 50 people.
• When will the event be held? For example,require insurance for Friday
and Saturday night events.
• What is the length of the event?
• What types of risks are involved?Are there any security issues?
• Are there any risks not covered by the city's liability insurance? For
example,rodeos and motor vehicle races are not covered by the city's
LMCIT coverage. Require insurance for these types of activities.
• Will there be alcohol at the event? For example, require liquor liability
insurance if alcohol will be sold or require general liability insurance if
alcohol will be given away.
• Are there any vehicles involved?Will parking be an issue?
Will there be any valuable materials left on city property for a period of time?
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3. Coverage limits
If a private group doesn't have coverage and a claim occurred,the city's
liability coverage will apply to the city's activities in connection with that
event unless that particular activity is excluded(e.g., motor vehicle races,
rodeos, and fireworks displays).
The reason cities may want to consider requiring private groups to purchase
private insurance is to assure the city will be protected from claims arising
from an event held on city property. When private insurance is purchased,the
private group is named as the primary insured and the city is the additional
insured. For example, if a claim were filed for property damage during the
private group's event, the claim would be submitted to the private insurance
company,not to LMCIT. The claim would therefore not affect the city's loss
experience rating,premium rates, dividend amounts, etc.
It is common for cities to require one set amount of insurance coverage for all
See Section III.K,Liquor parties, such as $1 million. LMCIT recommends a minimum of$500,000 for
liability. liquor liability, but$1 million is even better. The city can vary the amount
required depending upon the type of organization, event, or the criteria
established by the city. For example,the city may determine that insurance is
not required for a meeting with ten people because there is a probable chance
there won't be much risk involved. The city may though require insurance for
a wedding reception with alcohol and 100 people.
Private individuals holding Private groups may be personally responsible for paying claims for bodily
a special event on city
property can obtain general injury or property damage during their event or activity. Private groups have
liability and/or liquor the option of purchasing insurance through their homeowner's insurance
liability coverage through
the Tenant user Liability (although the policy may be limited and not all claims may be covered), a
Insurance Program private insurance carrier, or the Tenant User Liability Insurance Program
(TULIP). (TULIP).
TULIP helps individuals and groups - called tenant users -protect themselves
and their guests at events held at city-owned facilities. LMCIT member cities
automatically are eligible to offer TULIP to tenant users, at no cost to the city.
TULIP provides private individuals and groups with access to low-cost
liability coverage, including liquor liability coverage, of$1 million for special
events held at city facilities. The coverage automatically lists the city as an
additional insured.
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4. Rental agreements for use of city facilities
It is important the city has an application procedure established so they know
See Section VIII of the
LMC information memo, what type of event will be taking place. If the city has criteria for insurance
Park and Recreation Loss requirements, they'll need to know whether the group meets the criteria. The
Control Guide,for more
specific loss control city also may have restrictions against events that are excluded from the city's
recommendations for liability insurance coverage, such as rodeos. Having forms and procedures
special events.
supports consistent and fair treatment of all groups that apply.
LMC information memo, It is common in rental agreements to have indemnification agreements where
LMCIT Model Community
Center Rental Documents. the organization agrees to"hold the city harmless and defend and indemnify
the city against any claims related to its use of the city's facilities."These can
be used to reinforce the insurance requirements but also can be used when a
city does not require insurance. It is important to note that formal
organizations will be able to hold the city harmless for damage to the
organization's property but they do not have the ability to waive claims from
individual members of their group. The defense and indemnification provision
means the organization will handle any third party claims. Organizations that
have insurance and assets are going to be able to cover this indemnification
agreement.
LMCIT Contract Review
Service. Cities should talk to their city attorney when developing written agreements
Chris Smith,LMCIT Risk and contracts. LMCIT will review defense and indemnification provisions
Management Attorney:
csmith@lmc.org or free of charge in order to help protect the city's interests.
651.281.1269.
U. Volunteers
Minn.Stat.§466. City volunteers are protected against tort liability in the same manner as the
city's officers and paid employees. The tort liability act protects the city
volunteer in two important ways:
• The statute limits the volunteer's maximum liability. The state tort caps
are $500,000 per claimant and$1.5 million per occurrence.
• The statute requires the city to defend and indemnify volunteers against
claims for damages when the volunteer was acting in the performance of
his or her duties as a city volunteer.
The second provision provides an important protection for volunteers. It
essentially means that when a person is performing duties as a city volunteer,
the risk of tort liability rests with the city, not the volunteer. The only
exception to this duty to defend and indemnify a volunteer is if the volunteer's
actions constituted malfeasance, willful neglect of duty, or bad faith. The
statutes don't require a city to protect an individual from consequences of his
or her own intentional wrongdoing.
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See Section II.A,Covered For members of LMCIT, volunteers and volunteer organizations are covered
parties.
parties under the city's LMCIT liability coverage, as long as they are acting
on behalf of the city and volunteering under the city's direction and control.
LMCIT coverage responds to claims whether brought against the city, the
volunteer, or both.
It's important to keep in mind that not every volunteer who performs a
community service is a city volunteer. Individuals often volunteer in
connection with a project sponsored by a private organization or other
governmental unit. One example is the Minnesota Department of
Transportation's Adopt a Highway Program. These individuals perform a
community service on their own, without city sponsorship or request.
LMCIT coverage also includes the cost to defend a claim against a volunteer,
even if the claim accuses the volunteer of an action that would constitute
malfeasance,willful neglect of duty, or bad faith. LMCIT would not cover the
damages awarded against the volunteer,however, if it is determined that the
volunteer's action did constitute malfeasance,neglect of duty, or bad faith.
IV. Filing a liability claim
LMCIT Claims Resources. Liability claims can be submitted to LMCIT using any one of the following
See LMC information formats that is most convenient for the city:
memo,Liability Claim
Procedures.
Submit a claim online. • Online: Members with a username and password can submit claims
online. To obtain a username and password, contact LMCIT.
Claim Forms. • Email: Submit a property claim using an LMCIT form or ACORD form
Email:claims@lmc.org
by email.
Fax:651.281.1297 or • Fax
888.234.7839
Mail: 145 University Ave • Mail
W,St.Paul MN 55103-2044
Phone:651.281.1200 or • Phone
800.925.1122
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