Report to Mayor and City Council
Tuesday, June 21, 2016
Consent
SUBJECT:
Title
CONSIDER RENEWAL OF COMMERICAL GENERAL LIABILITY, EXCESS WORKER'S COMPENSATION, CRIME, VOLUNTEER AND PROPERTY INSURANCE POLICIES FOR FY 2016/17 (CITY COUNCIL)
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I. SUMMARY
Presented for Council’s consideration is the annual renewal of the following insurance policies: 1) Commercial General Liability Insurance [Municipal General, Public Officials Errors and Omissions, and Automobile Liability]; 2) Excess Workers’ Compensation Insurance; 3) Property Insurance; 4) Volunteer Insurance and 5) Crime Insurance. These renewals are for FY 2016/17. The overall annual insurance cost total is $663,858.00 reflects an increase of $261,898.00 from FY 2015/16 insurance cost of $401,960.00, while providing the same level of coverage.
II. RECOMMENDATION
Recommendation
TAKE the following actions:
1. APPROVE Great American Insurance Group to provide $10 million primary coverage, including terrorism, for the city’s Commercial General Liability Insurance for Municipal General, Public Officials Errors and Omissions, and Automobile Liability for FY 2016/17, at an overall cost of $495,920.00.
2. APPROVE Arch Insurance Company and Great American Insurance Group to provide coverage for the city’s Excess Workers’ Compensation Insurance for FY 2016/17, at an overall cost of $91,190.00.
3. APPROVE Affiliated FM Insurance Company to provide coverage for the city’s Property Insurance, including terrorism, for FY 2016/17, at an overall cost of $70,857.00.
4. APPROVE The Hartford Company to provide coverage for the city’s volunteers for FY 2016/17, at an overall cost of $340.00.
5. APPROVE Zurich American Insurance Company to provide Crime coverage for FY 2016/17 at an overall cost of $5,551.
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III. ALTERNATIVES
1. DO NOT APPROVE the policies. However, if Council chooses not to approve, critical insurance coverage will expire and the city will have 100% exposure for liability claims, injuries arising out of catastrophic events, workers’ compensation claims, and property damage.
2. TAKE another action the City Council deems appropriate.
IV. BACKGROUND
Human Resources/Risk Management is currently soliciting quotes from consultants and will select one to evaluate the feasibility of the City joining a risk-sharing pool. In addition, the consultant will make a recommendation as to the cost-effectiveness of joining a risk-sharing pool vs. continuing with stand-alone commercial insurance. We are requesting that the consultant evaluate five risk-sharing pools and rank them one (1) to five (5).
However, until the risk-sharing pool study is completed, which can take up to six (6) months, the City must purchase commercial insurance for fiscal year 2016/17.
The City works with an insurance broker to solicit renewal quotations for our insurance coverages. In addition to approaching the insurance markets on behalf of the City, Keenan also provides risk management and loss control services.
For this year’s marketing, Keenan approached twenty carriers for one or more insurance coverages. Staff recommends that the city remain with the incumbent insurance carriers for property insurance, excess workers’ compensation insurance, volunteer insurance and crime insurance. Staff recommends a new liability insurance carrier. Staff received Keenan’s Renewal Proposal on May 26, 2016.
The city has three types of major insurance coverage: 1) Commercial General Liability [Municipal General, Public Officials Errors and Omissions, and Automobile Liability]; 2) Excess Workers’ Compensation, and 3) Property.
The city’s Commercial General Liability, Excess Workers’ Compensation and Property policies will expire on June 30, 2016.
Liability Insurance
The Liability renewal quote was challenging this year due to multiple employment practice claims that were newly filed or aggressively developed during FY 2015/16. These types of claims can be expensive. Consequently, the overall annual cost of liability insurance was negatively impacted.
The city carries $10 million in Commercial General Liability insurance. This insurance provides the city coverage for claims from the general public regarding damage or injuries, such as claims for trip and falls, as well as claims filed against its public officials for conduct while performing public official duties.
Coverage also applies to acts of vandalism, malicious mischief, general tort claims and auto liability coverage for all city employees driving city vehicles. Staff is recommending a policy that provides the same coverage and limits for FY 2016/17.
GREAT AMERICAN is staff’s recommended insurer with a quote for primary coverage of $10 million, with a self-insured retention (SIR) of $250,000.00 per claim. GREAT AMERICAN has a Best Rating of A+ XIII with excellent financial strength, operating performance and a strong ability to meet its ongoing obligations to policyholders.
GREAT AMERICAN’s proposed policy for Employment Practices Liability includes coverage as part of the Public Errors and Omissions coverage and broadly defines “Employment Practices Liability” to include wrongful termination liability, discrimination claims, employment-related invasion of privacy, and defamation or wrongful infliction of emotional distress.
Also included with this liability insurance is Terrorism coverage and Claims Expense Reimbursement which provides 100% coverage for defense fees and costs exceeding the SIR or deductible up to the limits of liability under the policy.
GREAT AMERICAN’s overall annual cost is $495,920.00 which represents an increase of $256,135 from last year’s overall annual cost of $239,785.00.
Excess Workers’ Compensation Insurance
This excess policy is required because it protects the city from catastrophic employee injuries or illness in the Self-Insured Workers’ Compensation Program. Another provision of this policy is that the Employer’s Liability Limit gives the city an additional $1 million over and above the Statutory Limit for lawsuits against the city by other interested parties for an injury to an employee.
Arch Insurance Company is the city’s incumbent carrier and staff’s recommended insurer with a $25,000,000.00 coverage limit because it protects the city from a single major claim (e.g., claims related to a major industrial accident) or multiple injuries (e.g., earthquake) beyond its SIR (deductible) of $750,000.00. Our insurance broker recommended including GREAT AMERICAN so that the self-insured retention remains at $750,000.00, otherwise it would increase to $1,000,000.00. Arch Insurance Company and GREAT AMERICAN’s overall annual cost is $91,190.00, which is the same as FY 2015/16.
Property Insurance
The city has historically purchased property insurance which provides coverage on a replacement cost basis (“new for old”). This insurance covers all city buildings and contents (including parks), City Hall office equipment, electronic data processing hardware and software, licensed vehicles, city-owned heavy equipment (e.g., forklifts, generators, etc.), valuable papers, inventory and exhibitions (fine arts), boiler and machinery (pools). Also, there is coverage for Business Interruption and Certified Acts of Terrorism as provided by the Terrorism Risk Insurance Reauthorization Act of 2007.
The city will maintain its Extra Expense provision in the recommended policy which will provide coverage for relocation expenses of city offices in case a single building or all buildings must be evacuated because of a major occurrence, criminal act or hazardous condition. Extra Expense includes the rental of temporary office(s), installation of phone lines, computer hookups and any other associated expenses required to enable the city to immediately continue with its daily business.
Affiliated FM Insurance Company is the city’s incumbent insurance carrier and staff’s recommended carrier for FY 2016/17. This policy also has a “Blanket Earnings and Expense Endorsement” which provides coverage for actual loss of earnings and extra expense that result from necessary suspension of operations caused by direct physical loss of, or damage to property. Affiliated FM Insurance Company’s annual overall cost is $70,857.00 which represents a $242.00 increase from last year’s annual overall cost of $70,615.00.
Volunteer Insurance
Volunteers provide a valuable service to the city. Consequently, we now provide Blanket Accident Insurance for Volunteers. The Hartford Company is the city’s incumbent carrier and staff’s recommended insurer with a quote for coverage of $10,000. The annual overall cost is $340.00, which is the same as last FY 2015/16.
Crime Insurance
In the past, Crime Insurance was purchased each year in November. Risk Management decided to bring the Crime Insurance in line with our other annual insurance purchases that start each year on July 1st. Crime Insurance covers employee theft, robbery, computer and identity fraud as well as other types of fraud, inside and outside the premises. Zurich’s annual overall cost is $5,551.00, which represents a $2,250.00 increase from last year’s annual overall cost of $3,301.00. The $3,301.00 cost represents a partial year from November 24, 2015 to June 30, 2016. This change was completed so that Crime Insurance coverage would start on July 1, 2016 like our other insurances.
V. FISCAL IMPACT
The total increase in the annual insurance renewal cost is $261,898.00. Funding for the city’s insurance policies is included in the proposed FY 2016/17 General Fund Budget.
VI. EXHIBITS
1. Renewal Proposal for FY 2016/17. (pgs. 6-34)
Prepared by: Ed Holton, Sr. Risk Management Analyst