ITEM 3.5 Sewer Backup InsuranceOtkzo
MINNESOTA V
DEPARTMENT INFORMATION
Request for
City Council Action
ORIGINATING DEPARTMENT:
REQUESTOR:
MEETING DATE:
Finance
Adam Flaherty, Finance Director
September 28, 2015
PRESENTER(s):
REVIEWED BY:
ITEM #:
Consent Agenda
Lori Johnson, CA
3.5 Sewer Backup Insurance
AGENDA ITEM DETAILS
RECOMMENDATION:
It is recommended that the City Council approve the attached resolution establishing a reimbursement
agreement with City utility customers for property damages as the result of water -main issues or
sanitary sewer backups.
ARE YOU SEEKING APPROVAL OF A CONTRACT?
IS A PUBLIC HEARING REQUIRED?
No
No
BACKGROUND/JUSTIFICATION:
The City annually opts to purchase No -Fault Sewer Backup Coverage from the League of Minnesota
Cities Insurance Trust (LMCIT).
During 2014, the LMCIT made certain changes to the coverage of this insurance, specifically related to
weather related events and their exclusion from coverage.
As a requirement to having this insurance coverage in place, the City Council needs to have approved a
resolution outlining the reimbursement agreement with utility customers to align with that of the
insurance coverage provided by LMCIT.
SUPPORTING DOCUMENTS: X ATTACHED ❑ NONE
-Notification from Liberty Insurance (broker) and LMCIT (provider)
-Resolution 2015-52 (for approval)
POSSIBLE MOTION
Please word motion as you would like it to appear in the minutes.
Motion to approve Resolution 2015-52, establishing limited cleanup and property damage protection
for sewer backups and water main breaks for City water and sewer customers.
BUDGET INFORMATION
FUNDING: BUDGETED: X YES
Sewer Fund — Operations
Liability & Property Insurance ❑ NO
602-49450-361
❑ Not Applicable
ACTION TAKEN
❑ APPROVED AS REQUESTED ❑ DENIED ❑ TABLED ❑ OTHER (List changes)
COMMENTS:
ro01
LEAGUE of
MINNESOTA
CITIES
CONNECTING & INNOVATING
SINCE 1913
LMCIT No -Fault Sewer Back-up and Water Main Break Coverage
Date: August 17, 2015
To: Randy Hadaway, Liberty Insurance Agency
Email: RHADAWAY@RJA.COM
From: Elisabeth Rosandich
LMCIT Underwriting
651-215-4048/800-925-1122 ext. 4048
Re: City of Otsego
Renewal Period: 9/25/15 — 9125116
According to the Underwriting Criteria for LMCIT's Optional No -Fault Sewer Back -Up Coverage,
the City needs to qualify for this coverage each year. Also, in order for the City to qualify for this
coverage, a completed No Fault Sewer Back up Application must be submitted annually. I have
reviewed the City's expiring covenant along with sewer back-up claim information, if any, and I am
pleased to advise that the City of Otsego continues to meet the Underwriting Criteria necessary to
qualify for No -Fault Sewer Back -Up Coverage.
LMCIT is here to help. If we can be of any further assistance regarding the maintenance of the
City's Sewer Program, feel free to contact me directly at 651-215-4048 or at 800-925-1122 ext
4048.
Cc: Jan Kodet, LMCIT Underwriting
LEAGUE OF MINNESOTA CITIES 14S UNIVERSITY AVE. WEST PHONE: (651) 281-1200 FAx: (651) 281-1298
INSURANCE TRUST ST. PAUL, MN 55103-2044 TOLL FREE: (800) 925-1122 WEB:WWW.LMC.ORG
r2j�INES0TA
CITIES
November 13, 2014
CONNECTING & INNOVATING
SINCE 1913
To: LMCIT Members and Agents
From: Pete Tritz, LMCIT Administrator
Dan Greensweig, LMCIT Assistant Administrator
Liam Biever, LMCIT Underwriting Manager
RE: Coverage Changes to LMCIT's Optional No -Fault Sewer Backup Coverage
Your city is one of several that purchases LMCIT's optional no-fault sewer backup (NFSB) coverage,
which has been offered to cities as an additional -cost option since 2001. This coverage reimburses a
property owner for up to $10,000 (higher limits of $25,000 and $40,000 are available) of clean-up
costs and damages caused by a sewer backup or water main break, irrespective of whether the city was
negligent or legally liable for those damages.
The NFSB coverage was introduced in 2001 after being requested by several cities. The coverage is
meant to be fully funded by member cities that choose to purchase it (i.e. not subsidized by member
cities that choose not to purchase it), since the intent of the coverage is to really provide a solution for
cities that want to cover sewer backup claims or water main breaks, even if the city is not negligent.
Of course another intent of the coverage is to help reduce health hazards by encouraging prompt clean-
ups.
For 2015, there are important changes to the NFSB coverage that will effectively narrow the coverage.
The coverage has always had an exclusion for natural disasters and situations where there's been
exceptionally heavy rainfall. The revision makes the coverage more restrictive. That is, there will now
be a broader range of events that will be excluded under the NFSB coverage.
Why is LMCIT making these changes?
There are currently 77 member cities that purchase NFSB coverage, which generates about $156,000 in
annual premiums. After the heavy rains this summer, specifically the July rainstorms, over 50 claims
were submitted under the NFSB coverage, with a total cost in the range of $500,000. Accordingly, the
NFSB coverage program operated at a loss this year, with those losses being funded by LMCIT
reserves rather than through the premiums generated by this program.
Because of the way the NFSB coverage is currently written, it could expose LMCIT to an extremely
expensive total loss cost in some circumstances which the current premium rates are not adequate to
support.
What are the changes?
Following are the coverage changes that will be made for renewals on or after November 15, 2014.
These changes should reduce the loss costs under this coverage to a level the current rates can support.
If your city chooses to continue with the NFSB coverage in 2014-15, you will receive a new
endorsement with the changes outlined herein.
LEAGUE OF MINNESOTA CITIES 145 UNIVERSITY AVE. WEST PHONE: (651) 281-1200 FAx: (651) 281-1298
INSURANCE TRUST ST. PAUL, MN 53103-2044 TOLL FREE: (800) 925-1122 WEB:WWW.LMC.ORG
• Now excludes any situation declared a disaster by FEMA.
The exclusion for FEMA-declared disasters has been reworded to exclude NFSB coverage in any
weather -related 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.
Coverage language prior to the 2014-15 coverage year referred to situations where FEMA disaster
assistance was available, which created an ambiguity as to whether the assistance had to be
available to the homeowner in order for the exclusion to apply. Changes this year now exclude any
situation declared a disaster by FEMA.
• Now excludes any situation where rainfall exceeds certain amounts, which is more restrictive
than the "100 year rainfall" standard used in the previous coverage.
The exclusion for heavy rainfall events has been revised to apply to any situation in which rainfall
or precipitation exceeds the following amounts:
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.
Coverage language prior to the 2014-15 coverage year had excluded situations in which rainfall or
precipitation excided the 100-year rainfall amount for the location. LMCIT will no longer use the
100-year rainfall as an indicator for claim exclusion. It will now be based on the above amounts.
With the coverage changes taking place, will the premium rates for NFSB coverage change?
No. Rates for NFSB coverage will not change for the 2014-15 coverage year (which is based on a per
sewer connection basis).
Do we have to pass a new resolution if our city chooses to continue with the NFSB coverage?
Yes. Part of the process for putting the NFSB coverage in place is
for your city council to pass a formal resolution that makes the
NFSB protection part of the agreement between the city and the
sewer customer. The idea is that by paying their sewer bill, the
sewer user is purchasing not just sewer services but also the right to
be reimbursed for certain specified sewer backup costs and
damages. Because of the coverage changes taking place, NFSB
members will need to pass a new resolution so the contractual
obligation to provide NFSB costs to water and sewer customers
aligns with the coverage you are purchasing with LMCIT to
provide those benefits. Attached with this letter is a model
resolution that can be used.
questions about the changes
taking place for the no-fault
sewer backup coverage,
contact your underwriter at
651,281.1200 or
2 1 P a g e
CITY OF OTSEGO
COUNTY OF WRIGHT
STATE OF MINNESOTA
RESOLUTION NO: 2015-52
RESOLUTION ESTABLISHING LIMITED CLEAN UP AND
PROPERTY DAMAGE PROTECTION FOR SEWER BACK-UPS AND
WATER MAIN BREAKS FOR WATER AND SEWER CUSTOMERS
WHEREAS, the City of Otsego 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 City's sanitary sewer lines may cause the back-
up of sewage into properties that are connected to those City'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 City desires to encourage the expeditious clean-up of properties that have
encountered damage from water main breaks and sewer back-ups; and
WHERAS, the City desires to minimize the potential of expensive lawsuits arising out of water
main breaks and sanitary sewer back-up claims; and
WHEREAS, the City is a member of the League of Minnesota Cities Insurance Trust (LMCIT);
and
WHEREAS, LMCIT has offered the City 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 City is at fault.
NOW THEREFORE, BE IT RESOLVED, as follows:
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 following
conditions:
I. Sanitary Sewer Back -Ups. For Sanitary sewer back-ups:
A. The back-up must have resulted from a condition in the City'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.
C. The back-up must not have been caused by an interruption in electric power to the City's
sewer system or to any City 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 City 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 City or LMCIT will reimburse is $25,000 per building, per
year. A structure or group of structures served by a single connection to the City's sewer
system is considered a single building.
II. Water Main Breaks. For water main breaks:
A. Neither the City 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 City 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 City 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 City'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 City for the costs set
forth herein.
IV. The City retains the right, in its sole discretion, to revoke, rescind, or modify this resolution at
any time.
V. The City hereby rescinds any prior resolution providing no-fault sewer backup coverage and
water main break coverage.
ADOPTED by the Otsego City Council this 28th day of September, 2015.
ATTEST:
CITY OF OTSEGO
Jessica Stockamp, Mayor
Tami Loff, City Clerk
MOTION made by Council Member and SECONDED by Council Member
IN FAVOR:
OPPOSED: