HomeMy WebLinkAbout5F - Statutory Municipal Tort Liability Limits
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
DISCUSSION:
CITY COUNCIL AGENDA REPORT
DECEMBER 15,2008
5F
Jerilyn Erickson, Finance Director
CONSIDER APPROVAL OF A RESOLUTION ELECTING THE NON WAIVER
OF STATUTORY MUNICIPAL TORT LIABILITY LIMITS AND DECLINING
EXCESS LIABILITY INSURANCE COVERAGE
Introduction
The City of Prior Lake participates in the League of Minnesota Cities Insurance
Trust (LMCIT) for the purpose of securing its liability, property, casualty, auto
and workers compensation insurance coverage. As a condition of insurance
policy renewal the City must annually execute an "LMCIT Liability Coverage
Waiver Form" and:
1. Determine whether to waive the statutory liability limits; and
2. Determine whether to acquire excess liability insurance coverage.
Historv
We have been insured by the LMCIT since 1987. On a business exposure
basis the City has incurred relatively few claims with the overall dollars being
fairly low. Our totalliabilitv losses during the past 22 years have amounted to a
total of $1,166,978 or an average of just over than $53,000 per year. The City
has never incurred an insurance liability eligible claim in excess of its standard
policy limits of $400,000 that is consistent with statutory tort limits.
Current Circumstances
Annually the City is asked by the LMCIT if it wishes to waive the statutory tort
limits as outlined below.
If the city does not waive the statutorY tort limits, an individual claimant
would be able to recover no more than $400,000 ($500,000 effective July 1,
2009) on any claim to which the statutory limits apply. A tort is a civil wrong
whereby an injured party may be entitled to compensation.
If the city waives the st,tutorv tort limits, a single claimant could potentially
recover up to $1,200,000 ($1,500,000 effective July 1, 2009) on a single
occurrence under our policy limits or beyond.
The bottom line is the Council must decide if it wishes to allow a higher
recovery amount if an individual was successful under a tort liability claim
against the City. The "advantage" of the waiver option, from the perspective of
a Prior Lake resident, is thlit the individual or family could be awarded a higher
judgment in a particularly egregious suit. The obvious disadvantages are that
the City's liability exposure is greater if it waives the statutory limits and the
City's liability insurance premium would increase. The cost to waive the
stlitutOry limits would be about 3~% of our base liability premium or
approximately $3,600 annually. In the past the Council has declined waiving
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the statutory monetary limits because: it increases the amount available to
award to a successful plaintiff; it encourages larger settlements; and it drives
up the City's insurance premium.
Also available to the City, as optional coverage, is what is known as excess
liability insurance that provides an additional $1,000,000 of liability inauranea
over and above our standard $1.2 million dollar policy limit on non-tort claims.
This additional coverage basically acts as an umbrella and would provide the
City additional insurance protection for claims that would be exempt from
statutory tort limits. The added cost for excess liability insurance is very
expensive and would be approximately $29,000 annually. Because of the
excessive cost, the City has not elected this insurance coverage provision in
previous years.
ISSUES:
Waiving the liability limit protection afforded the City by statute or the purchase
of excess liability insurance will increase the likelihood that claims will be made
above the normal limits. The premiums for the additional coverage will
increase insurance costs. If a claimant is successful in recovering greater
damages under the higher limits, future premium costs will escalate.
About 26% of the cities insured by LMCIT do execute the waiver and also
purchase the additional coverage. By executing the waiver, the city would be
sending a message to the public that is not consistent with today's economy or
our fiduciary responsibility. I believe that the City can make better use of the
$32,600 annually.
FINANCIAL
IMPACT:
Summarized in the table below is the increase in insurance premium costs
associated with either of the above elections:
Statutory Tort Limit Waiver
I Excess Liability Coverage
Estimated Annual Premium
Cost Increase
$3,600
$29,000
ALTERNATIVES:
The following alternatives are available to the City Council:
1. Approve the resolution Electing the Non Waiver of Statutory Municipal
Tort Liability Limits lind Declining Excess Liability Insurance Coverage.
2. Modify the resolution to incorporate the optional insurance coverage as
desired by the City Council.
RECOMMENDED
MOTION:
Alternative #1 to be adopted as part of the consent agenda. From a financial
and liability perspective, the taxpayer is better served by retaining the statutory
limits.
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Frank BoYv~anager
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4646 Dakota Street S.E.
Prior Lake, MN 55372-1714
RESOLUTION 08-xx
RESOLUTION ELECTING THE NON WAIVER OF STATUTORY
MUNICIPAL TORT LIABILITY LIMITS AND DECLINING
EXCESS LIABILITY INSURANCE COVE~GE
Motion By:
Second By:
WHEREAS, Minnesota Statutes 466.04 imposes limits on municipal tort liability; and
WHEREAS, The City of Prior Lake has the option to wliive the protection of statutorily imposed
limits on what a claimant can recover in a tort liability action: and
WHEREAS, The League of Minnesota Cities Insurance Trust offers municipalities the option to
purchase excess liability insurance; and
WHEREAS, The Prior Lake City Council has evaluated whether to waive the limit on tort liability and
whether to purchase excess liability coverage for non-tort claims; and
WHEREAS, The City of Prior Lake has exhibited historically relatively low claims experience.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, that the City of
Prior Lake hereby exercises the following elections with respect to the available LMCIT insurance
options:
The City of Prior Lake DOES NOT WAIVE the monetary limits on
X municipal tort liability established by Minnesota Statutes 466.04 effective
for 2009 policy year.
x The City of Prior Lake declines excess liability coverage effective for
2009 policy year.
PASSED AND ADOPTED THIS 15th DAY OF DECEMBER, 2008.
YES
NO
Haugen
Erickson
Hedberg
LeMair
Millar
Haugen
Erickson
Hedberg
LeMair
Millar
Frank Boyles, City Manager
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Phone 952.447.9800 / Fax 952.447.4245