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Home My WebLink About5H 2018 LMCIT Insurance Non-Waiver Report 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: JANUARY 16, 2018 AGENDA #: 5H PREPARED BY: DANIELLE AMIRA, ACCOUNTANT PRESENTED BY: CATHY ERICKSON, FINANCE DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION ELECTING THE NON WAIVER OF STATUTORY MUNICIPAL TORT LIABILITY LIMITS AND DECLINING EXCESS LIABILITY INSURANCE COVERAGE DISCUSSION: Introduction The City of Prior Lake participates in the League of Minnesota Cities Insurance Trust (LMCIT) for obtaining 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. History Prior Lake has 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. Over the period from 2/01/2012 to 2/01/2017, the City’s liability losses have amounted to a total of about $386,541 or an average of about $77,308 per year. Fortunately, the City has never incurred an insurance liability eligible claim more than the MN statutory tort limits. Current Circumstances LMCIT members that obtain liability coverage from the LMCIT must decide whether to waive the statutory tort liability limits to the extent of the coverage purchased. That decision has the following effects: If the City does not waive the statutory tort limits, the City’s liability is limited by statute to no more than $500,000 per claimant and $1.5 million per occurrence for all claimants. These statutory tort limits apply regardless of whether the City purchases the optional excess liability coverage. A tort is a civil wrong whereby an injured party may be entitled to compensation. If the City waives the statutory tort limits and does not purchase excess liability coverage, a single claimant could potentially recover up to $2 million for a single occurrence. Under this option, the tort cap liability limits are waived to the extent of the member’s liability coverage limits, which for LMCIT members is $2 million per occurrence. The total all claimants (regardless of the number) would be able to recover for a single occurrence to which the statutory tort limits apply would also be limited to $2 million. The cost to waive the statutory limits would be about 3.5% of our base liability premium or approximately $3,400 annually. 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 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. Excess liability insurance provides an additional $1 million of liability insurance over and above the $2 million policy limit on non-tort claims. This additional coverage 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 would be approximately $30,000 annually if we choose not to waive tort liability limits and $37,500 if we choose to waive the limits. Because of the cost, the City has not elected this insurance coverage provision in previous years. Claims to which the statutory municipal tort limits do not apply are not affected by this decision. For coverage written or renewed on or after November 15, 2014, LMCIT’s liability coverage will provide a limit of $2 million per occurrence. The LMCIT is providing higher coverage limits than the statutory limit in order to give member cities better protection. The statutory liability limit caps the City’s liability for many types of claims but some liability claims, aren’t covered by the statutory limit, so the City’s potential liability is unlimited. The higher limit also protects against a major incident in which many people might be injured. Another reason to provide higher limits is because it is increasingly more common to see contracts require more than the statutory limit of $1.5 million. 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. In the past the Council has declined waiving the statutory monetary limits because it increases the award amount available to a successful plaintiff, it encourages larger settlements, and it drives up the City’s insurance premium. FINANCIAL IMPACT: Summarized in the table below is the increase in insurance premium costs associated with either of the above elections: Estimated Annual Premium Cost Increase Non-Waiver Waiver Primary Coverage $0 $3,400 Excess Liability Coverage $ 30,000 $37,500 Total $ 30,000 $40,900 ALTERNATIVES: The following alternatives are available to the City Council: 1. Approve the resolution as part of the consent agenda Electing the Non Waiver of Statutory Municipal Tort Liability Limits and Declining Excess Liability Insurance Coverage. 2. Remove this item from the consent agenda for additional discussion. RECOMMENDED MOTION: Alternative #1 to be adopted as part of the consent agenda. 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 18-___ 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 (LMCIT) 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: X The City of Prior Lake DOES NOT WAIVE the monetary limits on municipal tort liability established by MN Statutes 466.04 effective for the 2018policy year. X The City of Prior Lake declines excess liability coverage effective for the 2018 policy year. PASSED AND ADOPTED THIS 16th DAY OF JANUARY 2018 VOTE Briggs McGuire Thompson Braid Burkart Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ ______________________________ Frank Boyles, City Manager 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: