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ITEM 5.2 Insurance Liabiltiy Waiver40 Ot�egoF MINNESOTA < DEPARTMENT INFORMATION Request for City Council Action ORIGINATING DEPARTMENT: REQUESTOR: MEETING DATE: Administration Adam Flaherty, Finance Director November 9, 2015 PRESENTER(s): REVIEWED BY: ITEM #: Administration - Flaherty City Administrator Johnson 5.2 Insurance Liability Waiver AGENDA ITEM DETAILS RECOMMENDATION: It is recommended by staff that the City Council adopt a motion electing to not waive the monetary limits on municipal tort liability established by Minnesota Statute Section 466.04. ARE YOU SEEKING APPROVAL OF A CONTRACT? IS A PUBLIC HEARING REQUIRED? No No BACKGROUNDMUSTIFICATION: Minnesota Statute Section 466.04 references tort liability for political subdivisions. The municipal tort liability is limited to a maximum of $500,000 per claimant and $1.5 million per occurrence. These limits apply whether the claim is against the City, against the individual officer or employee, or against both. The LMCIT liability coverage provides a standard limit of $2 million per occurrence. At the City's coverage renewal each year, it must decide whether to waive or not waive the statutory limits. In the past, the City of Otsego has chosen not to waive these statutory limits on tort liability claims. The LMCIT assures coverage to the limitations set by the Statute without additional cost to the City. SUPPORTING DOCUMENTS: ATTACHED NONE -Excerpt pages from LMCIT Liability Coverage Guide -Copy of Liability Coverage Waiver Form POSSIBLE MOTION Please word motion as you would like it to appear in the minutes. -Motion that the City of Otsego elects not to waive the monetary limits on municipal tort liability established by Minnesota Statute Section 466.04 for the September 25, 2015-2016 coverage period. BUDGET INFORMATION FUNDING: BUDGETED: N/A N/A ACTION TAKEN a APPROVED AS REQUESTED ❑ DENIED ❑ TABLED ❑ OTHER (List changes) COMMENTS: RELEVANT LINKS: See summary of Liability At the city's coverage renewal each year, it must decide whether to waive or Coverage Options and the effects of choosing the not to waive the statutory limits. There is no right or wrong answer on this various coverage structure point. It's a discretionary question of city policy that each city council needs options. to decide for itself. a. Waiving the statutory limit For cities that choose to waive the statutory limits, they are waiving the protection of the statutory limits, up to the amount of coverage the city has. Someone with a claim against a city that has waived the statutory limits would be able to recover up to the LMCIT standard limit of $2 million, rather than the statutory limit of $500,000 per claimant. Because the waiver increases the exposure, the premium is roughly 3 percent higher for coverage under the waiver option. A city may choose to pay more in premium for the waiver option because the statutory liability limit only comes into play in a case where the city is in fact liable and the injured party's actual proven damages are greater than the statutory limit. Some cities as a matter of public policy may want to have more assets available to compensate their citizens for injuries caused by the city's negligence. Waiving the statutory liability limits is a way to do that. There is no increase in risk if the city waives the statutory liability limits. In other words, there is no risk for the city to end up with liability if LMCIT doesn't cover it. The LMCIT waiver form specifically says the city is waiving the statutory tort caps only to the extent of the city's coverage. That's not to say there is no risk the city's liability could exceed its coverage limits. There are certain situations in which this could happen, but the waiver doesn't increase that risk. See section n.D.3, In those cases where the city waives the statutory limit, but also purchases the Purchasing higher liability lindis. LMCIT excess liability coverage, a claimant could potentially recover more. For example, if the city has $1 million of excess coverage and chooses to waive the statutory tort caps, the claimants (whether it's one claimant or several) could then potentially recover up to $2.5 million in damages in a single occurrence. If the city carries higher excess coverage limits, the potential maximum recovery per occurrence is correspondingly higher. See section 11.D.3, Carrying LMCIT's excess coverage under the waiver option is a way to Purchasing higher liability h» iits. address an issue that some cities find troubling: the case where many people are injured in a single occurrence caused by city negligence. An example is if a city vehicle negligently ran into a school bus full of children causing multiple serious injuries. The statutory limit of $1.5 million divided 50 ways may not go far toward compensating for those injuries. Excess coverage under the waiver option makes more fiends available to compensate the victims in that kind of situation. League of Minnesota Cities Information Memo: 7/9/2015 LMCIT Liability Coverage Guide Page 6 RELEVANT LINKS: See Section II.D.3, The cost of the excess liability coverage is about 25 percent greater if the city Purchasing higher- liability hntils. waives the statutory tort caps. The cost difference is proportionally greater than the cost difference at the primary level because for a city that carries excess coverage, waiving the statutory tort caps increases both the per claimant exposure and the per occurrence exposure. b. Not waiving the statutory limit For cities that choose not to waive the statutory limits, the city's liability is limited by the statute to no more than $500,000 per claimant and $1.5 million See Section II.D.3.a, per occurrence. LMCIT's higher coverage limits would only come into play Stalaloty lindis may not apply. on those types of claims that aren't covered by the statutory limit. 3. Purchasing higher liability limits LMCIT makes available the option of carrying higher coverage limits than the basic limit of $2 million per occurrence. This coverage, called excess liability coverage, is available in $1 million increments up to a maximum of $5 million. There are several different reasons why cities should strongly consider carrying LMCIT's excess liability coverage. a. Statutory limits may not apply Minn. Stat. § 3.736. The statutory tort caps either do not or may not apply to several types of claims. Some examples include: • Claims under federal civil rights laws. These include Section 1983, the Americans with Disabilities Act, and so on. • Claims for tort liability that the city has assumed by contract. This occurs when a city agrees in a contract to defend and indemnify a private party. • Claims for actions in another state. This might occur in border cities that have mutual aid agreements with adjoining states or when a city official attends a national conference or goes to Washington to lobby. • Claims based on liquor sales. This mostly affects cities with municipal liquor stores, but it could also arise in connection with beer sales at a fire relief association fundraiser, for example. • Claims based on a "taking" theory. Suits challenging land use regulations frequently include an "inverse condemnation" claim, alleging that the regulation amounts to a "taking" of the property. League of Minnesota Cities Information Memo: 7/9/2015 LMCIT Liability Coverage Guide Page 7 0 r 0 j,E OF MINNES0TA CITIES CONNECTING & INNOVATING SINCE 1913 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: if the member does not waive the statutory tort limits, an individual claimant would be able to recover no more than $500,000 on any claim to which the statutory tort limits apply. The total all claimants would be able to recover for a single occurrence to which the statutory tort limits apply would be limited to $1,500,000, These statutory tort limits apply regardless of whether the city purchases the optional excess liability coverage, u if the member waives the statutory tort limits and does not purchase excess liability coverage, a single claimant could potentially recover up to $2,000,000 for a single occurrence. (Under this option, the tort cap liability limits are waived to the extent of the member's liability coverage limits, and the LMCIT per occurrence limit is $2 million.) 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 $2,000,000, regardless of the number of claimants. ff the member 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. Claims to which the statutory municipal tort limits do not apply are not affected by this decision. selects liability coverage limits of $ Insurance Trust (LMCIT). from the League of Minnesota Cities Check one: ❑ The member DOES NOT WAIVE the monetary limits on municipal tort liability established by Minnesota Statutes, Section 466.04. ❑ The member WAIVES the monetary limits on municipal tort liability established by Minnesota Statutes, Section 466,04 to the extent of the limits of the liability coverage obtained from LMCIT. Cate of city council/governing body meeting Signature Position 145 UNIVERSITY "E. WEST PHoNEF (651) 281-1200 FAX; (651) 281-1299 ST. PAUL, MN SS103-2044 TOLL FRM (800) 925-1122 WEB:WWW.LMC.ORG