HomeMy WebLinkAbout9(C) No Fault Sewer Backup Agenda Report
4646 Dakota Street SE
Prior Lake, MN 55372
CITY COUNCIL AGENDA REPORT
MEETING DATE: MAY 20, 2019
AGENDA #: 9C
PREPARED BY: CATHY ERICKSON, FINANCE DIRECTOR
PRESENTED BY: CATHY ERICKSON, FINANCE DIRECTOR
MICHAEL PLANTE, CITY MANAGER
AGENDA ITEM: CONSIDER APPROVAL OF TWO RESOLUTIONS:
1) TO ESTABLISH LIMITED CLEAN UP AND PROPERTY DAMAGE
PROTECTION FOR SEWER BACK-UPS AND WATER MAIN BREAKS
FOR WATER AND SEWER CUSTOMERS AND
2) TO APPROVE HANDLING AND PAYMENT OF THE FOUR GREEN
HEIGHTS TRAIL SEWER BACKUP/WATERMAIN BREAK CLAIMS
GOAL AREA
AND
OBJECTIVE:
High-Value City Services
1. Establish financial stability for all funds.
DISCUSSION: Introduction
The purpose of this agenda item is to consider approval of two resolutions
as follows:
1. To establish limited clean up and property damage protection for
sewer backups and water main breaks for water and sewer
customers. (This is referred to as no-fault sewer backup up and
water main coverage.) and
2. To approve handling the four Green Heights Trail sewer
backup/water main break claims in a manner that would be
consistent with the NFSB insurance coverage moving forward.
History
The City of Prior Lake participates in the League of Minnesota Cities
Insurance Trust (LMCIT) for securing insurance coverage. Liability
coverage for sewer backups is a standard feature of the LMCIT liability
coverage. There are no specific exclusions for claims arising out of sewer
backups for which the city is negligent in causing.
LMCIT offers no-fault sewer backup (NFSB) coverage as an extra cost
option to those cities who want to provide coverage to property owners
irrespective of whether the backup was caused by city negligence. At the
March 4, 2019 work session, the LMCIT presented an overview of NFSB
and water main break coverage to the City Council. City Manager Plante
also provided a status of the Green Heights Trail water main break and
impact on property owners. As a reminder, On the night of 2/3/2019 a
watermain broke on Green Heights Trail. It flooded the street and created
a sinkhole. The water inundated the lift station so the lift station could not
keep up with the water flow. Four area homes had flooded basements.
The Council directed staff to 1) apply for the NFSB coverage and 2) to
utilize LMCIT staff to determine what the coverage amounts would
have been for the affected Green Heights Trail property owners if the
city had the NFSB coverage in place at the date of the water main
break/sewer backup occurrence on February 3).
Current Circumstances
As directed by the Council, the City has applied for NFSB coverage. It
is available to LMCIT members that meet certain underwriting criteria. The
optional coverage comes with an additional charge and will reimburse a
property owner for cleanup costs and damages resulting from a city sewer
backup or from a city water main break, irrespective of whether the backup
was caused by city negligence.
The no-fault sewer backup coverage option is intended to:
• Reduce health hazards by encouraging property owners to cleanup
backups as quickly as possible.
• Reduce the frequency and severity of sewer backup lawsuits (property
owners may be less inclined to sue if they receive conciliatory treatment at
the time of the backup).
• Give cities a way to address problems that can arise when a property
owner learns the city and LMCIT won’t reimburse for sewer backup
damages because the city wasn’t negligent and therefore not legally liable.
The legal basis for this coverage is that it helps reduce health hazards by
encouraging prompt cleanups. This is clearly a public purpose and in the
public interest. Additionally, the law and facts surrounding most sewer
backup claims are rarely clear. There’s virtually always a way that a
claimant’s attorney can make some type of argument for city liability.
Having this coverage in place should help eliminate the need to spend
public funds on litigation costs in many of these cases.
Coverage Information:
Limits available:
• $10,000, $25,000 and $40,000
• Limit for NFSB coverage is per building per year, regardless of the
number of occurrences or the number of claimants
• Limit for water main break coverage is per claimant
Exclusions do apply:
• Any event where FEMA assistance is available
• Interruption in city electric supply is more than 72 hours
• Rainfall limitations as stated in the LMCIT NFSB coverage
endorsement
Premium Information:
• Per-connection cost
• Deductible
o Large deductible credit will apply, if any
• Experience rating component based on three years of experience
o No losses – 10% credit
o Loss frequency higher than program average – 10% debit
o Frequency average is roughly 1 sewer loss per 9,000 sewer
connections
o Prior Lake has 9,069 sewer connections as of the April 1,
2019 billing.
• Charge is in addition to the municipal liability premium associated
with the sewer connection exposure ($12,170 for the 2019 policy
year)
• The estimated annual premium for the limit options is shown in the
table below:
Deductible Information:
• Coverage is provided by endorsement to the municipal liability
coverage
• Municipal liability deductible applies for NFSB
• $25,000 per occurrence/$50,000 annual aggregate/$1,000
maintenance deductible
• No-Fault coverage counts toward the aggregate deductible
As directed by the Council, staff is preparing the claim cost for
affected Green Heights Trail property owners. The City is working with
the LMCIT to calculate the cost of coverage for the four affected Green
Heights Trail property owners if the city had the NFSB coverage in place at
the date of the water main break/sewer backup occurrence on February 3.
The LMCIT claims adjuster is waiting on final information from two of the
affected properties. At the $25,000 coverage limit level, the city cost is
estimated to be $80,000. The total final cost will not exceed $100,000.
Staff is specifically requesting the Council’s direction regarding 1)
Decision to purchase the NFSB insurance and 2) Decision to pay the
outstanding property damage claims at the proposed NFSB coverage
limit proposed.
To bind coverage, the city council must formally pass a resolution
and send a signed copy to LMCIT (see resolution #1). To make claim
payments on the four affected Green Heights Trl properties, in an
amount as if the city had the NFSB coverage in place at the date of
the occurrence, the city council must formally pass a resolution (see
resolution #2)
ISSUES: Many cities and their citizens may find this coverage option to be a helpful
tool. However, it’s also important to realize it’s not a complete solution to
sewer backup problems, and not every possible backup will be covered.
Additionally, a resident’s homeowners’ insurance is primary, and the LMCIT
NFSB insurance coverage is secondary.
Exclusions do apply, as noted in the Discussion section above. Staff plans
to continue to advise citizens on what steps to take in the event of a sewer
emergency through information posted on the city website and wavelength
Limit
Estimated annual
premium
10,000$ 8,950
25,000$ $10,550
40,000$ $13,150
publication. The website and communications will be updated to explain
the new NFSB coverage proposed tonight.
FINANCIAL
IMPACT:
NFSB Coverage Cost:
Staff is proposing the $25,000 limit option for the NFSB insurance.
The annual cost to the City for this coverage is comprised of two
components:
1. Premium: The premium for the three coverage options is shown in
the table below. This cost will increase as the city adds new
properties/sewer connections. At full build out, the estimated total
premium (in future dollars) is also shown in the table. The program
is experience rated, so the cost may decrease, or increase based
on a rolling three years of experience as discussed above.
2. Deductible: This will vary by year. The city has a $25,000 per
occurrence/$50,000 annual aggregate deductible, so any NFSB
claim cost would be applied against the deductible.
For reference, the 2019 policy year quote for the City’s property/casualty
insurance coverage, not including the NFSB coverage is $207,002. (This
includes general liability, property, automobile and bond insurance.)
The annual premium and any NFSB/watermain break deductible would be
charged to the Sewer Fund. The cost would be incorporated in the annual
sewer utility rate. The proposed annual cost per property owner/sewer
connection is estimated at $1.16 for 2019 for the $25,000 coverage limit.
Claim cost for four affected Green Heights Trl properties:
As noted above, the LMCIT claims adjuster is waiting on final information
from some of the affected properties. At the $25,000 coverage limit level,
the city cost is estimated to be $80,000. The final claim payments will be
brought back to the City Council as part of the Claims Listing agenda item
when paid. The funding source for the payments is the Sewer Fund
balance. The expenditures will be coded to 604-49450.00-53610.00.
ALTERNATIVES: 1. Motion and a second to approve Resolution 1 establishing limited
clean up and property damage protection for sewer backups and
water main breaks for water and sewer customers
2. Motion and a second to approve Resolution 2 authorizing the
handling of the four Green Heights Trail sewer backup/water main
break claims in a manner that would be consistent with the NFSB
insurance coverage.
3. Motion and a second to table one or both resolutions and provide
staff with direction.
RECOMMENDED
MOTION:
Alternative #1.
ATTACHMENTS: 1. Council Resolution 1 – Consider a resolution to establish limited
clean up and property damage protection for sewer backups and
water main breaks for water and sewer customers
2. Council Resolution 2 – Consider a resolution to approve handling
the four Green Heights Trail sewer backup/water main break
claims in a manner that would be consistent with the NFSB
insurance coverage.
Resolution #
RESOLUTION ESTABLISHING LIMITED CLEAN UP AND
PROPERTY DAMAGE PROTECTION FOR SEWER BACK-UPS AND
WATER MAIN BREAKS FOR WATER AND SEWER CUSTOMERS
WHEREAS, Prior Lake provides water and sanitary sewer services to property within its
jurisdiction; and
WHEREAS, water main breaks may cause water to enter into property causing damage; and
WHEREAS, blockages or other conditions in the Governmental Unit’s sanitary sewer lines may
cause the back-up of sewage into properties that are connected to those Governmental Unit’s
sanitary lines; and
WHEREAS, water main breaks and sewer back-ups pose a public health and safety concern; and
WHEREAS, it may be difficult to determine the exact cause and responsibility for a water main
break or sanitary sewer back-ups and
WHEREAS, the Governmental Unit desires to encourage the expeditious clean-up of properties
that have encountered damage from water main breaks and sewer back-ups; and
WHERAS, the Governmental Unit desires to minimize the potential of expensive lawsuits arising
out of water main breaks and sanitary sewer back-up claims; and
WHEREAS, the Governmental Unit is a member of the League of Minnesota Cities Insurance
Trust (LMCIT); and
WHEREAS, LMCIT has offered the Governmental Unit limited “no fault” sewer coverage and
water main break coverage (No-Fault Coverage) that will reimburse users of the water and sewer
system for certain clean-up costs and property damage regardless of whether the Governmental
Unit is at fault.
NOW THEREFORE, BE IT RESOLVED, as follows:
The Governmental Unit, will reimburse water and sanitary sewer customers for up to $25,000 of
clean-up costs and property damages caused by a water main break or sanitary sewer back-up,
regardless of whether the Governmental Unit is negligent or otherwise legally liable for damages,
subject to the following conditions:
I. Sanitary Sewer Back-Ups. For Sanitary sewer back-ups:
A. The back-up must have resulted from a condition in the Governmental Unit’s sanitary
sewer system or lines, and not from a condition in a private line.
B. The back-up must not have been caused by any catastrophic weather or other event which
has been declared by the President of the United States to be a major disaster pursuant to
42 U.S.C. §§ 5121-5206, commonly known as the Stafford Act.
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C. The back-up must not have been caused by an interruption in electric power to the
Governmental Unit’s sewer system or to any Governmental Unit lift station, which
continues for more than 72 hours.
D. The back-up must not have been caused by an amount of precipitation equivalent to rainfall
amounts which exceed:
• 2.0 inches in a 1-hour period; or
• 2.5 inches in a 3-hour period; or
• 3.0 inches in a 6-hour period; or
• 3.5 inches in a 12-hour period; or
• 4.0 inches in a 24-hour period; or
• 4.5 inches in a 72-hour period; or
• 5.5 inches in a 168-hour period.
E. Neither the Governmental Unit nor LMCIT will reimburse any costs which have been or
are eligible to be covered under a property owner’s own homeowners’ or other property
insurance, or which would be eligible to be reimbursed under a National Flood Insurance
Protection (NFIP) policy, whether or not the property owner actually has NFIP Coverage.
F. The maximum amount that the Governmental Unit or LMCIT will reimburse is $25,000
per building, per year. A structure or group of structures served by a single connection to
the Governmental Unit’s sewer system is considered a single building.
II. Water Main Breaks. For water main breaks:
A. Neither the Governmental Unit nor LMCIT will reimburse any costs which have been or
are eligible to be covered under a property owner’s own homeowners’ or other property
insurance
B. The maximum amount that the Governmental Unit or LMCIT will reimburse is $25,000 to
any claimant, regardless of the number of occurrences or the number of properties affected.
C. Neither the Governmental Unit nor LMCIT will pay more than $250,000 for water main
break damages resulting from any single occurrence. All water main break damage which
occurs during any period of 72 consecutive hours is deemed to result from a single
occurrence. If the total water main break damage for all claimants in a single occurrence
exceeds $250,000, the reimbursement to each claimant will be calculated as follows:
1. A preliminary reimbursement figure is established for each claimant, equal to the
lesser of the claimant’s actual damages or $25,000.
2. The sum of the preliminary reimbursement figures for all claimants will be
calculated.
3. Each claimant will be paid a percentage of his or her preliminary reimbursement
figure, equal to the percentage calculated by dividing $250,000 by the sum of all
claimants’ preliminary reimbursement figures.
III. The Governmental Unit’s determination to make these payments is contingent on and
expressly limited to the extent that No-Fault Coverage is in force and available to reimburse the
Governmental Unit for the costs set forth herein.
IV. The Governmental Unit retains the right, in its sole discretion, to revoke, rescind, or modify
this resolution at any time.
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V. The Governmental Unit hereby rescinds any prior resolution providing no-fault sewer backup
coverage and water main break coverage.
IN WITNESS WHEREOF, the Governmental Unit, by action of its governing body, caused this
Resolution to be approved on the 20th of May, 2019.
City of Prior Lake
By: _________________________________
Its _______________________
And: _______________________________
Its _____________________
4646 Dakota Street SE
Prior Lake, MN 55372
RESOLUTION 19-___
Motion By: Second By:
WHEREAS, The City of Prior Lake participates in the League of Minnesota Cities Insurance
Trust (LMCIT) for securing insurance coverage.
WHEREAS, Effective May 20, the City Council approved the addition of no-fault sewer backup
and watermain break coverage as defined in Resolution 19-xxx. In summary, the
City will reimburse water and sanitary sewer customers for up to $25,000 of clean-
up costs and property damages caused by a water main break or sanitary sewer
back-up, regardless of whether the City is negligent or otherwise legally liable for
damages, subject to the conditions defined in Resolution 19-xxx.
WHEREAS, The City Council directed staff to handle the four Green Heights Trail sewer
backup/water main break claims in a manner that would be consistent with the no-
fault sewer backup and watermain break coverage had it been in place on the date
of the claim occurrence of February 3, 2019.
WHEREAS, The City is utilizing a League of Minnesota Insurance Trust claims adjuster to
calculate the claim cost for the four Green Heights Trail affected properties (3770
GreenHeights Trl/PID 250940010, 3780 Green Heights Trl/PID 250940020, 3800
Green Heightsw Trl/PID 250940030 and 16500 Inguadona Beach Circle/PID
250950150).
WHEREAS, The City Council approves payment of the claim cost as determined by the LMCIT
claims adjuster in an amount not to exceed $25,000 per claim for the four Green
Heights Trail affected properties. The final claim payments will be brought back to
the City Council as part of the Claims Listing agenda report.
WHEREAS, The funding source for the payments is the Sewer Fund balance. The
expenditures will be coded to 604-49450.00-53610.00
NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE,
MINNESOTA as follows:
1. The recitals set forth above are incorporated herein.
2. The City Council approves payment of the claim cost as determined by the LMCIT
claims adjuster in an amount not to exceed $25,000 per claim for the four Green Heights
Trail affected properties. The final claim payments will be brought back to the City
Council as part of the Claims Listing agenda report.
3.
Passed and adopted by the Prior Lake City Council this 20th day of May2019.
VOTE Briggs Thompson Burkart Braid Erickson
Aye ☐ ☐ ☐ ☐ ☐
Nay ☐ ☐ ☐ ☐ ☐
Abstain ☐ ☐ ☐ ☐ ☐
http://splash/teams/am/October 4 2010/05 20 2019/No Fault Sewer Backup Resolution 2.docx 2
Absent ☐ ☐ ☐ ☐ ☐
______________________________
Michael Plante, City Manager