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Home My WebLink About5C - Municipal Liability Limits ~/NNESO'\'I" TING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: DECEMBER 2, 2002 5C RALPH TESCHNER, 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 the enclosed "LMCIT Liability Coverage Waiver Form" and: 1. Determine whether it wishes to waive the statutory liability limits and 2. Determine if it wishes to acquire excess liability insurance coverage. History 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 aggregate liability losses during the past 15 years have amounted to a total of $315,926 or an average of less than $20,000 per year. The City has never incurred an insurance liability eligible claim in excess of its standard policy limits of $300,000 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 $300,000 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 statutory tort limits, a single claimant could potentially recover up to $1,000,000 on a single occurrence. The bottom line is the Council must decide if it wishes to allow a higher recovery amount if an individual were successful under a tort liability claim against the City. H: \lnsurance\Lmcitwaiver. doc 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER The "advantage" of the waiver option, from the perspective of a Prior Lake resident, is that the individual or family could be awarded a higher settlement in a particularly egregious suit. The obvious disadvantages are that the City would incur higher liability exposure if it was to waive the statutory limits plus our liability insurance premium would increase. The cost would be about 3 Yz% of our base liability premium or approximately $4,000.00 annually. In the past the council has declined waiving the statutory monetary limits because it would just encourage larger settlements and drive up our insurance premium costs which our taxpayers ultimately pay. 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 insurance over and above our standard one 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 in excess of $25,000 annually. Because of the excessive cost, the City has not elected this insurance coverage ... . provISIOn III prevIous years. ISSUES: Acceptance of the higher tort limit or acquisition of excess liability insurance will increase the likelihood that claims will be made above the normal limits. The premiums for the additional coverage will increase our costs. Moreover if a claimant is successful in recovering greater damages under the higher limits, future premium costs will escalate. FINANCIAL IMPACT: Summarized in the table below is the increase in insurance premium costs associated with either of the above elections: ~......................................................................................................!.....Au.o.iiaLp.ieiiiiiin:i...co.st..Iu.cr.eas.e....! r...Siatuio.ry..To.ri..Lin:iit"WaI~.er...r...........................................$.~i";"6oo............................................, r...Exce.s.s..LIa"biliiy..Co~erai~e.............~...........................................$.2{OOO...........................................1 ~....................................................................................................................................................................................................................... The LMCIT underwrites virtually all the city insurance needs in the metro seven county area. According to the League, the majority of cities, (65%), do not waive the municipal tort liability monetary limits and most (69%) decline the excess liability coverage as well. ALTERNATIVES: The following alternatives are available to the City Council: 1. Approve Resolution Electing The Non Waiver of Statutory Municipal Tort Liability Limits and Declining Excess Liability Insurance Coverage. 2. Modify the resolution to incorporate the optional insurance coverage as desired by the City Council. H: \Insurance\Lmcitwai veT. doc RECOMMENDED MOTION: REVIEWED BY: Attachments: H: \lnsurance\Lmcitwaiver.doc 1. ResolutI lecting the Non Waiver of Statutory Municipal Tort Liability Limits and Declining Excess Liability Insurance Coverage 2. LMCIT Liability Coverage - Waiver Form MOTION BY: WHEREAS, WHEREAS, WHEREAS, WHEREAS, /f)5 RESOLUTION 02- RESOLUTION ELECTING THE NON WAIVER OF STATUTORY MUNICIPAL TORT LIABILITY LIMITS AND DECLINING EXCESS LIABILITY INSURANCE COVERAGE OP SECOND BY: Jl- The City of Prior Lake has the option of waiving the monetary limits on municipal tort liability by Minnesota Statutes 466.04; and The League of Minnesota Cities Insurance Trust offers the additional insurance coverage of excess liability insurance; and The Prior Lake City Council has evaluated the benefits of these optional insurance coverages in addition to their cost impacts; and 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: X x The City of Prior Lake DOES NOT WAIVE the monetary limits on municipal tort liability established by Minnesota Statutes 466.04 effective for 2003 policy year. The City of Prior Lake declines excess liability coverage effective for 2003 policy year. Passed and adopted this 2nd day of December, 2002. {Seal} Haugen LeMair Petersen Zieska Vacant YES ~ Haugen LeMair Petersen Zieska Vacant NO City Manager City of Prior Lake 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER H: \lnsurance\Lmcitwaivenesolution.doc LMCIT LIABILITY COVERAGE - WAIVER FORM Cities obtaining liability coverage from the League of Minnesota Cities Insurance Trust must decide whether or not to waive the statutory tort liability limits to the extent of the coverage purchased. The decision to waive or not to waive the statutory limits has the following effects: If the city does not waive the statutory tort limits, an individual claimant would be able to recover no more than $300,000.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 $1,000,000. These statutory tort limits would apply regardless of whether or not the city purchases the optional excess liability coverage. If the city waives the statutory tort limits and does not purchase excess liability coverage, a single claimant could potentially recover up to $1,000,000. on a single occurrence. The total which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to $1,000,000., regardless of the number of claimants. If the city 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 which all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to the amount of coverage purchased, regardless of the number of claimants. Claims to which the statutory municipal tort limits do not apply are not affected by this decision. This decision must be made by the city council. Cities purchasing coverage must complete and return this form to LMCIT before the effective date of the coverage. For further information, contact LMCIT. You may also wish to discuss these issues with your city attorney. The City of Prior Lake accepts liability coverage limits of $ 1,000,000 Milmesota Cities Insurance Trust (LMCIT). from the League of Check one: ~ The city DOES NOT WAIVE the monetary limits on municipal tort liability established by Minnesota Statutes 466.04. The city WAIVES the monetary limits on tort liability established by Minnesota Statutes 466.04, to the extent of the limits of the liability coverage obtained from LMCIT. Date of city council meeting Signature Ralph Teschner Position Finance Director Return this completedform to LMCIT, 145 University Ave. w., St. Paul, MN. 55103-2044 Page I of I