HomeMy WebLinkAbout5C - Municipal Tort Liability Limits
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
DISCUSSION:
CITY COUNCIL AGENDA REPORT
DECEMBER 3, 2007
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 Iiabilitv losses during the past 21 years have
amounted to a total of $1,137,928 or an average of just over than $54,000 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 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 were 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
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'Y2% of our base liability premium or approximately $3,560.00 annually.
www.cityofpriorlake.com
Phone 952.447.9800 / Fax 952.447.4245
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 approximately $37,910 annually. Because of the
excessive cost, the City has not elected this insurance coverage provision in
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:
~~~t~~Qn' Tort Limit Waiver
!;~~~~~mbi.~..~.!~.!~9.Qy.~r~ e
Annual Premium Cost Incr
.. mmmmm~.~..,.?~Q.......
$~?!~1Qm
The LMCIT underwrites virtually all municipality insurance needs in the metro
seven county area. According to the League, the majority of cities, (75%), do
not waive the municipal tort liability monetary limits and most (74%) 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.
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.
4646 Dakota Street S.E.
Prior Lake, MN 55372-1714
RESOLUTION 07 -xx
RESOLUTION ELECTING THE NON WAIVER OF STATUTORY
MUNICIPAL TORT LIABILITY LIMITS AND DECLINING
EXCESS LIABILITY INSURANCE COVERAGE
Motion By:
Second By:
WHEREAS, The City of Prior Lake has the option of waiving the monetary limits on municipal tort
liability by Minnesota Statutes 466.04; and
WHEREAS, The League of Minnesota Cities Insurance Trust offers the additional insurance
coverage of excess liability insurance; and
WHEREAS, The Prior Lake City Council has evaluated the benefits of these optional insurance
coverages in addition to their cost impacts; 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 2008 policy year.
X The City of Prior Lake declines excess liability coverage effective for
2008 policy year.
PASSED AND ADOPTED THIS 3RD DAY OF DECEMBER, 2007.
YES
NO
Haugen
Erickson
Hedberg
LeMair
Millar
Haugen
Erickson
Hedberg
LeMair
Millar
Frank Boyles, City Manager
www.cityofpriorlake.com
Phone 952.447.9800 / Fax 952.447.4245