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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: