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HomeMy WebLinkAbout5D NonWaive Municipal Tort Liability Limits o � PRip� ti � U tr� 4646 Dakota Street SE ', �INNE5 Prior Lake, MN 55372 � CITY COUNCIL AGENDA REPORT MEETING DATE: DECEMBER 9, 2013 AGENDA #: 5D PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR PRESENTED BY: JERILYN ERICKSON AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION ELECTING THE NON WAIVER OF STATUTORY MUNICIPAL TORT LIABILITY LIMITS AND DECLINING EXCESS LIABILITY INSURANCE COVERAGE DISCUSStON: 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, automobile 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. Hi StON 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 total liabilitv losses during the past 27 years have amounted to a total of $1,479,000 or an average of less than $55,000 per year. The City has never incurred an insurance liability eligible claim in excess of its standard policy limits of $500,000 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 citv does not waive the statutorv tort limits, an individual claimant would be able to recover no more than $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 citv waives the statutorv tort limits, a single claimant could potentially recover up to $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 that the individual or family could be awarded a higher judgment in a particularly egregious suit. The obvious disadvantage is 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 statutory limits would be about 3.5% of our base liability premium or approximately $3,065 annually. In the past the Council has declined waiving 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. About 18% of the cities insured by LMCIT have chosen to waive the statutory tort limits. 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 $1.5 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 $30,003 annually if we choose not to waive tort liability limits and $36,123 if we choose to waive the limits. Because of the 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. The majority of cities elect the non-waiver of statutory municipal tort liability limits. About 28% of the cities insured by LMCIT 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. FINANCIAL Summarized in the table below is the increase in insurance premium IMPACT: costs associated with either of the above elections: Estimated Annual Premium Cost Increase Non-Waiver Waiver Prima Covera e $0 $3,065 Excess Liabilit Covera e $ 30,003 $36,123 Total $ 30,003 $39,188 ALTERNATIVES: The following alternatives are available to the City Council: 1. Approve the 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. RECOMMENDED Alternative #1 to be adopted as part of the consent agenda. From a MOTION: financial and liability perspective, the taxpayer is better served by retaining the statutory limits. O � PRlp� � � U t,y 4646 Dakota Street SE �INNES�� Prior Lake, MN 55372 RESOLUTION 13-xxx A RESOLUTION ELECTING THE NON WAIVER OF STATUTORY MUNICIPAL TORT LIABILITY LIMITS AND DECLINING EXCESS LIABILITY INSURANCE COVERAGE 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 waive 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 historically exhibited relatively low claims experience. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA 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 municipal tort X liability established by Minnesota Statutes 466.04 effective for the 2014 policy year. The City of Prior Lake declines excess liability coverage effective for the X 2014 policy year. PASSED AND ADOPTED THIS 9th DAY OF DECEMBER, 2013. YES NO Hedber Hedber Keene Keene McGuire McGuire Morton Morton Souku Souku Frank Boyles, City Manager