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HomeMy WebLinkAbout2013-03-20 PACKET 04.T.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # I;� DATE 3/20/2013 � � PREPARED BY CITY CLERK CARON STRANSKY ORIGINATING DEPARTMENT STAFF AUTHOR ***�********************��********************�* COUNCIL ACTION REQUEST To not waive the tort liability limits. STAFF RECOMMENDATION: Recommends that the City Council not waive the statutory tort limits where 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 which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would be limited to $1.5 million. BUDGET IMPLICATION ADVISORY COMMISSION ACTION N/A SUPPORTING DOCUMENTS: � MEMO/LETTER: City Clerk Caron Stransky dated March 15, 2013 ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: � OTHER: Memo from LMCIT ADMINISTRATORS COMMENTS �-( l / ` ity Administrator Date *�********************************�************* COUNCIL ACTION TAKEN: ❑ APPROVED ❑ DENIED ❑ OTHER CITY OF � MINNESOTA COTTAGE GROVE MEMO To: From: Date: Subject: Honorable Mayor and City Council Members Caron Stransky, City Clerk March 6, 2013 TORT LIABILITYLIMITS Cities obtaining liability insurance coverage from the League of Minnesota Cities Insurance Trust (LMCIT) must decide annuallv whether to waive the statutory tort liability limits to the extent of the coverage purchased. The decision to waive or not to waive statutory limits has the following effect: Option 1: If the City does not waive the statutory tort liability 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, which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply, would be limited to $1.5 million. These statutory tort limits would apply regardless of whether or not the City purchases optional excess liability coverage. Option 2: If the City waives the statutory tort limits and does not purchase excess liability coverage, a single claimant could potentially recover up to $1.5 million on a single occurrence. The total to which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to $1.5 million, regardless of the number of claimants. In 1986, the City passed Ordinance No. 457 establishing a Self-Insurance Fund to provide self- insurance against liability of the City and its officers, employees, agents and servants in lieu of purchasing excess liability insurance. The Self Insurance Fund is devoted for: (1) Payment of insurance losses; (2) Costs of defense and investigation; (3) Premiums and deductible amounts when commercial insurance is purchased for a risk; (4) Costs of loss control activities; and (5) Any other costs customarily borne by commercial insurers under conventional insurance policies. Since its inception, the Self-Insurance Fund has grown from the initial deposit into the Fund in 1986 of $25,000 to an estimated fund balance for year ending 2012 totaling $2,279,529. The League of Minnesota Cities Insurance Trust prepared the attached memo on LMCIT Liability Options and specifically discusses statutory limits on municipal tort liability. For your information, attached is a Risk Management Memo prepared by the LMCIT entitled "LMCIT Liability Coverage Options for Liability Limits, Coverage Limits, and Waivers" dated February 2012, which gives cities several options for structuring their liability coverage. The memo discusses the options and identifies some issues to consider in deciding which of the options best meets the City's needs. Please convey any questions or concerns you may have on this topic to City Attorney Heine. :_ •uu_►�_ •► The Insurance Broker, Wells Fargo Insurance Services, recommends that the City Council select Option 1 and do not waive the monetary limits on tort liability. /cs /Attachment . � j_,EAGU� oF MI NN ESOTA CITIES CON N�CTI I�1G & I I�1I�10VATII�IG SING�E 1913 RISK MANAGEMENT INFORMATION LMCIT LIABILITY COVERAGE OPTIONS Liability Limits, Coverage Limits, and Waivers LMCIT gives cities several options for structuring their liability coverage. The city can choose either to waive or not to waive the monetary limits the statutes provide; and the city can select from among several liability coverage limits. This memo discusses these options and identifies some issues to consider in deciding which of the options best meets the city's needs. Statutory Limits on Municipal Tort Liability The statirtes limit a city's toi�t liability to a maximum of $500,000 per claimant and $1,500,000 per occurrence. These limits apply whether the claim is against the city, against the individual officer or employee, or against both. Coverage Limits for LMCIT's Basic Primary Liability Coverage LMCIT's liability coverage provides a limit of $1,500,000 per occurrence, matching the per- occurrence pat�t of the statutory municipal tort liability limit. Beside the overall coverage limit of $1,500,000 per occurrence, there are also annual aggregate limits (that is, limits on the total amount of coverage for the year regardless of the number of claims), for certain specific risks. Aggregate limits apply to the following: * Includes sudden and accidental releases of pollutants; herbicide and pesticide application; sewer ruptures, overflows and backups; and lead and asbestos claims. Dredging or exca�ation claims are subject to a$250,000 sublimit. These limits apply to both damages and defense costs. ** Coverage is provided on a sliding scale percentage basis, which is based on participation in LMCIT's online land use training. Coverage applies to both damages and litigation costs. More Information For more information about land use litigation coverage, please see the memo LMCIT Covera�e for Litisation Relatin� to Land Use. LEAGU�, OF MINNESOTA CITIES iasuNiveRSiTVAVe.wFST er�oNe.(651?28�-120o Fnx:tGS�>281-1298 I NSU RANCE TRUST ST. PAUL, A4N SS103-2044 TOLL FREE: (80O) �2S-� �22 4VE6: WWW.LMC.ORC If the Statute Limits our Liability, Why Purchase Higher Coverage Limits? There are several different reasons why cities should strongly consider carrying higher limits of liability coverage. The Statutory Tort Limits Either po Not or May Not Apply to Several Types of Claims Some examples include: • Claims under federal civil rights laws. These include Section 1983, the Americans with Disabilities Act, etc. • Claims foi° tort liability that the city has assumed by contr�act. This occurs when a city agrees in a contract to defend and indemnify a private party. • Claims fo�^ actions in anothe�° state. This might occur in border cities that have mutual aid agreements with adjoining states, or when a city official attends a national conference or goes to Washington to lobby, etc. • Claims based on liquo�° sales. This mostly affects cities with municipal liquor stores, but it could also arise in connection with beer sales at a fire relief association fund-raiser, for example. • Clai�ns based on a"takrng" theory. Suits challenging land use regulations frequently include an "inverse condemnation" claim, alleging that the regulation amounts to a"taking" of the propei�ty. LMCIT's Primary Liability Coverage has Annual Limits on Coverage for a few Specific Risks The table on page one lists the liability risks to which aggregate coverage limits apply. If the city has a loss or claiin in one of these areas, there might not be enough limits remaining to cover the city's full exposure if there is a second loss of the same sort during the year. Excess liability coverage gives the city additional protection against this risk as well. However, there are a couple impoi�tant restrictions on how the excess coverage applies to rislcs that are subject to aggregate limits: The excess coverage does not apply to three risks: failure to szrpply utilities; inold; and "li�nited pollution " claims if either� the pollutant release oi�� the damage is below groirnd or� irt a body of water; and The excess coverage does not auton�atically apply to liquor liabrlity unless the city specifically requests it. The City may be Required by Contract to Carry Higher Coverage Limits Occasionally, a contract might include a requirement the city carry more than $1,500,000 of coverage liinits. Carrying excess coverage is a way to meet these requirements. (There's also another option 2 for cities in this situation. LMCIT can issue an endorsement to increase the city's coverage litnit only for claims relating to that particular contract. There's a small charge for these "laser" endorsements.) There may be more than One Political Subdivision Covered Under the City's Coverage An IIRA, EDA, or port authority is itself a separate political subdivision. If the city EDA, for example, is named as a covered party on the city's coverage and a claim were made that involved both the city and the EDA, theoretically the claimant might be able to recover up to $1,500,000 from both the city and the EDA, since there are two political subdivisions involved. Excess coverage is one way to provide enough coverage limits to address this situation. Another solution is for the HRA, EDA, or poi�t authority to carry separate liability coverage in its own name. This issue of multiple covered pai�ties can also arise is if the city has agreed by contract to name another entity as a covered party, or to defend and indemnify another entity. Cities Sometimes Carry Higher Coverage Limits Because of a Concern the Courts Might Overturn the Statutory Liability Limits However, those limits have now been tested and upheld several times in Minnesota. While it's always possible that a future court might decide to throw out the statutory limits, this is now less of a concern. Available Excess Liability Coverage Limits Excess coverage is available in $1 million increments, up to a maximuin of $5 million. Does the Optional Excess Coverage Apply to All Types of Claims? No. The excess liability coverage does not apply to the following types of claims: certain limited pollution claims; mold claims; claims for failure to supply utilities; auto no-fault claims; uninsured I underinsured motorist claims; workers' compensation, disability, or unemployment claims; or claims under the medical payments coverage. Who Needs Excess Liability Coverage? If anything, excess liability coverage is even more impoi�tant to a small city rather than to a large city. If a city ends up with more liability than it has coverage, the city will have to either draw on existing funds or go to its taxpayers to pay that judgment. A large city faced with, say, a million dollars of liability over and above what its LMCIT coverage pays might be able to spread that $1 million cost over several thousand taxpayers. The small city by contrast might be dividing that same $1 million cost among only a couple hundred taxpayers. $1 million divided among 5,000 taxpayers is $200 apiece — annoying but probably at least manageable for most taxpayers. $1 million divided among 200 taxpayers is $5,000 apiece — enough to be a real problem for many. What's the Effect of Waiving the Per Claimant Statutory Liability Limit? If the city chooses the "waiver" option, the city and LMCIT no longer can use the statutory limit of $500,000 per claimant as a defense. Because the waiver increases the exposure, the premium is roughly 3% higher for coverage under the waiver option. If the city waives the statutory limit, an individual claimant could therefore recover up to $1,500,000 in damages on a claim. Of course, the individual would still have to prove to the court or jury that s/he really does have that amount of damages. Also, the statutory limit of $1,500,000 per occurrence would still apply; that would limit the individual's recovery to a lesser amount if there were multiple claimants. Why Would the City Choose to Pay More to Get Waiver Coverage? The statutory liability limit only comes into play in a case where • The city is in fact liable. • The injured party's actual proven damages are greater than the statutor limit. Very literally, applying the statutory liability limit means an in'ured art won't be full com ensated fot� his/her Highlight The waiver option coverage does not give the city better protection. The benefit is to the injured party. J P Y Y p actual, proven damages that were caused by city negligence. Some cities as a matter of public policy may want to have more assets available to compensate their citizens for injuries caused by the city's negligence. Waiving the statutory liability limits is a way to do that. Other cities may feel that the appropriate policy is to minimize the expenditure of the taxpayers' funds by talcing full advantage of evet•y protection the legislature has decided to provide. There's no right or wrong answer on this point. It's a discretionary question of city policy that each city council needs to decide for itself. For claims the statutory toi�t liability limits don't apply to, it doesn't affect how the city's coverage or rislc on those claims. Waiving the statutory tort limits has no effect on claims the statutory limits don't apply to. Effects of Waiving the Statutory Limits if there is Excess Coverage If the city has $1 million of excess coverage and chooses to waive the statutory tort limits, the claimants (whether it's one claimant or sevet•al) 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. Carrying excess coverage under the waiver option is a way to address an issue that some cities find troubling: the case where many people are injured in a single occurrence caused by city negligence. Suppose, for example, that a city vehicle negligently runs into a school bus full of lcids, causing multiple serious injuries. $1,500,000 divided 50 ways may not go far toward compensating for those � injuries. Excess coverage under the waiver option malces more funds available to compensate the victims in that kind of situation. The cost of the excess liability coverage is about 25% greater if the city waives the statutory tort limits. The cost difference is proportionally greater than the cost difference at the primary level because for a city that carries excess coverage, waiving the statutory tort limits increases both the per- claimant exposure and the per-occurrence exposure. Waiving Statutory Tort Liability Limits: Increase in Risk? There is no increase in risk for the city to end up with liability if LMCIT doesn't cover it. The waiver form specifically says the city is waiving the statutory tort liability limits only to the extent of the city's coverage. Of course, that's not to say there is no risk the city's liability could exceed its coverage limits. We listed earlier a number of ways that could happen to any city. But the waiver doesn't increase that rislc. Can we Waive the Statutory Tort Limits for the Primary Coverage but not for the Excess Coverage? No. If the city decides to waive the statutory tort limits, that waiver applies to the full extent of the coverage limits the city has. The city cannot pai�tially waive the statutory limits. Is there a Simple way to Summarize the Options? It's not necessarily simple, but the table on the following page is a shoi�thand summary of what the effect would be of the various coverage structure options in different circumstances. 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