MUNICIPAL LIABILITY
COVERAGE OR NOT?
Risk Management and Insurance
Orientation For Municipal Officials
KENNETH J. HEINZ
J. PATRICK CHASSAING
PETER DUNNE
August 22, 2013
Municipal Officials Training Academy
WHAT'S SO SPECIAL ABOUT PUBLIC ENTITY INSURANCE AND RISK
MANAGEMENT NEEDS?
The Distinctive Legal Status of Public Entities and Elected Officials.
Public entities face essentially the same liability risks that private businesses and individuals
face, except the potential financial losses are public assets and monies. Public entities are
protected by sovereign immunity in some situations, and governmental powers are subject to
some constitutional limitations that do not restrict private businesses or individuals.
Sovereign Immunity, based on old English law and designed to protect public assets, excuses
a public entity from nearly any sort of liability. Laws do allow the sovereign immunity
defense in some situations but impose varying degrees of monetary caps in an effort to
preserve the financial integrity of a public entity while at the same time making it liable for
damages it causes to others due to negligence.
Missouri has a sovereign immunity statute (Section 537.600 RSMo), meaning there are a
significant number of loss situations where a public entity cannot be held liable for resulting
injury or property damage. In this statute there are two types of loss situations where the
public entity may be held liable but the financial compensation is capped to protect public
assets. These "waivers of sovereign immunity" are for 1) a dangerous condition of property
and 2) negligent operation of a motor vehicle. The statutory caps are adjusted annually and
insurance usually uses the caps as one of its limits of liability. The 2013 limits are
$398,638 per person and $2,657,587 per occurrence. There is no annual aggregate.
Public officials and employees have certain protection from personal liability and
lawsuits— but not under sovereign immunity. Known as either “absolute” or "qualified"
immunities, these immunities protect officials and employees acting in good faith and
within the scope of their assigned duties.
Officials acting in a legislative capacity have absolute legislative immunity and officials
acting in an administrative or executive capacity have qualified immunity. Unfortunately
the overlapping of governmental and proprietary functions leaves a very gray area for just
when you are acting legislatively or administratively, and must sometimes be left to the
courts to settle.
This is the simplest of explanations for the most basic legal status of a public entity. Newly
elected officials should review governmental and proprietary actions with legal advisors.
The Distinctive Exposures for Missouri Public Entities and Elected Officials.
The common exposure for public entities is the risk of monetary loss - be it general liability for
premises and operations, employment practices activities, ownership and use of automobiles, law
enforcement activities, medical malpractice, public officials' errors and omissions allegations, or
loss of property assets such as buildings and equipment. But there are a multitude of exposures
of a public entity to consider:
public buildings and access, transportation, security, special events, human resources,
contracts, law enforcement, recreational facilities and services, streets/road/bridges,
sidewalks, utilities, bidding and other administrative procedures, elections, acts of
governance, issuing licenses and permits, managing public funds, planning and zoning
As elected officials you must help identify and implement risk management-local governments
have a duty to identify and address risks that affect their communities.
The Inherent Risks Associated with Providing Public Services.
Risk is inherent in the delivery of all governmental services. For example, the activities of police
and firefighters obviously are dangerous and involve potential bodily injury, to others as well as
themselves. Most entities cannot manage risk by discontinuing a service. An entity cannot just
decide to stop maintaining roads or holding elections or planning for disaster recovery. The
scope of public sector services is enormous. Even a small city or village may provide a multitude
of services, such as the purchase and preservation of physical assets, managing public funds and
regulatory oversight, or public works and utilities. The general management procedures of public
entities are open to public and political scrutiny much more so than the private sector.
Geographically a public entity's footprint may include urban and rural communities, off-themain-road easements and rights of way, and multiple locations — making it the largest
landowner in the jurisdiction. Realistically, officials cannot routinely monitor all activities within
the public domain.
Public entities sometimes lack total control over their own physical environments. During
normal business hours for example entities don't restrict access to public buildings. Some public
entity services/departments operate round the clock all the time.
WHAT IS RISK AND RISK MANAGEMENT?
"Risk" can be defined as the chance of a loss. Risk is present in the delivery of all public
services, and these risks take a myriad of forms: lost or damaged property, citizen or employee
injury, and even less tangible losses, such as the loss of public confidence in your leadership.
Some risks have big impact (tornado) and some much less so (stolen office supplies). Elected
officials and entity employees are in the risk management business whether they know it or not.
"Risk Management" is the way entity officials identify risks, select and implement ways to
address those risks in an organized and coordinated fashion, and then monitor for the positive
results.
Risk Management has several basic goals:
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To protect public interest
To ensure as much as possible uninterrupted operations and services
To prevent financial, human, and other types of losses to the entity
And, when losses cannot be totally prevented, to ensure that the effect of the losses
are as minimal as possible
There are four fundamental steps to a good risk management plan:
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4.
Identify the Loss Exposure
Select Technique(s) to Handle Exposure
Implement
Monitor and Modify
STEP 1 - IDENTIFY THE LOSS EXPOSURE:
A loss exposure is the possibility of loss, financial or otherwise, whether or not a loss actually
takes place. An example of a loss exposure would be a vehicle. It is subject to loss of the actual
vehicle and bodily injury and/or property damage to your employee and third parties. You
already have the tools to help you identify most of your loss exposures — budgets and other
financial reports, asset inventories, inspections, contract clauses and terms, mutual aid
agreements, project summaries, and equipment operation manuals, to name a few. Even your
insurance provider's loss runs (detailed history of the claims for your entity) can help you spot
problem exposures. A very effective way to identify loss exposure is with the entity's personnel
— ask them what they do and how they do it.
Sources of Risk for Public Entities:
Physical Environment:
Legal Environment:
Operational Environment:
Political Environment:
Social Environment:
Economic Environment:
Cognitive Environment:
weather, acts of God
federal, state and local laws, legal precedents
day-to-day activities
legislative activity, elections
cultural composition of community, social attitudes
market trends, interest rates
absence of information, attitude of individuals toward
risk
Example: Legal Environment Source of Risk:
Federal Laws > ADA Requirements >Non-Compliance> Discrimination Lawsuit
Example: Physical Environment Sources of Risk:
El Nino > Heavy Rains and Thunderstorms >Water Over Road > Vehicle Loss
Each of these Sources of Risks produces one or more types of losses. These types of losses are
interrelated in that many accidents and claims involve several types of losses. The five basic
types of losses for public entities are:
Property Losses: Accidental loss or damage to both real and personal property.
Losses may result from a number of causes such as carelessness, natural disasters, faulty
equipment, fire and theft.
Additional Expenses: After some losses local governments must incur additional
expenses to function normally or to maintain services. Additional expenses could result from
cleanup or repair of damaged property, overtime, or hiring and training replacement personnel.
For example, if a bridge is destroyed during a storm, the local government would not only have
to pay for replacing the bridge, it would also assume costs for cleaning up any debris and for
rerouting traffic until a new bridge is built.
Loss of Income: This exposure is often overlooked. Many local governments operate
revenue-generating facilities such as recreational centers, ballfields, and festivals. If these
facilities were destroyed or damaged the jurisdiction would lose the income that they normally
generate. Local governments also receive income through taxes, charges for services, licenses
and permits, fines and other sources. Any disruption in a public entity's ability to collect this
revenue could create a financial loss. Tornados, such as the ones in Joplin, can ruin businesses
whose tax generating ability are essential to the City’s budget.
Workers Compensation: Job-related illnesses and injuries can cause not only direct
losses stemming from medical and hospital expenses but also indirect costs of replacing workers
and from decreased productivity until workers return to work or new employees are trained.
Governments are liable for workers’ compensation liability the same as an employer in the
private sector.
Liability to Others: The risk of liability claims resulting from injuries and property
damage is one of the most serious loss exposures faced by public entities. A private citizen or
company may claim a loss because of the actions of any employee or a public official.
Claims may arise out of intentional acts or unintentional negligent acts. Many public entities
are exposed to contractual liabilities since many jurisdictions contract for services and
products and enter into cooperative service agreements and mutual aid arrangements with
other local governments.
STEP 2 - SELECT TECHNIQUE(S) TO HANDLE EXPOSURE:
There are four basic techniques to manage the exposures you identified for your entity, and using
at least two, and sometimes three, is the most effective way to handle each exposure. These four
are:
Risk Avoidance: One of the primary differences between private and public sector risk
management is the ability to avoid risk. Because of regulations, public demands, or
political pressures, public entities usually do not have an option to avoid inherently
dangerous exposures. Police and fire are obvious examples of this point.
Occasionally a local government can avoid risk by deciding not to undertake a project or
activity that creates a new risk. For example, a town may decide not to build a skatepark
because of the safety and liability exposures involved. On the other hand, avoiding one
risk may create others. If the town does not build a skatepark, kids may ride skateboards
on public streets and sidewalks, endangering themselves and others. So officials should
always review the benefit of a project or activity in relation to increased risk and cost of
loss.
Risk Reduction: Risk reduction does not prevent losses from occurring — it minimizes
the impact of losses that do occur. This technique is most often used for Workers
Compensation. Rarely are officials diligent about reviewing the technique for property
and liability exposures. For example, a seasonal worker hired to mow roadsides is given
safety goggles, ear plugs, and instructions on how to use mower — but may never be told
to mow away from the road to prevent throwing trash and rocks that crack windshields.
The most effective way to employ this technique is to have officials and employees
respond to this question: Based on what you know now about the potential for loss and
circumstances of any loss that has occurred, what are you currently doing or not doing in
your day-to-day activities that, if changed, might reduce the likelihood of a loss?
Loss Control: Reduction concentrates on the potential for a loss. Control acknowledges
that losses will occur and a risk management technique is needed to contain the costs and
impact of those losses. It is essentially the effective administration of a loss exposure.
Public entities usually focus on the same loss exposure categories when employing this
technique: natural disasters, employee health and safety, and automobile liability. While
these exposures may produce severe (expensive) losses, the frequency is
comparatively low. Officials should review loss control for both high severity/low
frequency losses and low severity/high frequency losses, because both can impact an
entity's financial status.
Risk Transfer: The most used method of risk management is to transfer the risk. The
two most common ways to transfer risk are contractual transfer and buying insurance. It
is normal business practice for mortgages and other contracts to include clauses that
make one party responsible for any financial loss incurred regardless of fault. And with
the purchase of insurance, an entity transfers the uncertain risk of financial loss to the
insurance provider. Unfortunately, sometimes entities believe this transferring of risk
nullifies any need for risk management.
STEP 3 - IMPLEMENT RISK MANAGEMENT PROGRAM:
Although a combination of risk management techniques may be reviewed by entity officials,
more often than not only one technique gets implemented — buying insurance. There are several
reasons for this: sometimes reduction and control techniques require more time and perhaps
expense to implement; officials are uncertain about their understanding of the potential risk; or
they simply do not know how to implement a risk management program or where to go for
assistance. Larger entities often have access to risk managers, but it is more usual for a midmanagement employee to take on the risk management role. Effective risk management begins at
the management level. Top officials must set the tone and hold others accountable. At a
minimum, officials should establish a risk management policy statement and oversee ways in
which accountability can be maintained. In lieu of a full-time risk manager, officials should seek
information and assistance from insurance agencies and providers. The internet offers multiple
sites offering risk management tools. Other entities and entity associations will have risk
management information. Well run insurance companies often offer assistance in establishing
risk management programs.
STEP 4 - MONITOR AND MODIFY:
Once a Risk Management Plan has been determined and implemented, it should not be forgotten.
Routine and random monitoring of the risk management techniques employed will reinforce the
importance of risk management within the infrastructure, and will help officials evaluate the
cost-to-risk involved.
To effectively monitor a risk management program, officials might schedule routine meetings
with their insurance representatives (agents and provider) to review loss experience and
subsequent actions. Establishing a safety committee could be useful, but may not be productive
as a risk management technique if it does not include some personnel with insurance coverage
expertise. Reviewing incident reports, following a loss development from incident to settlement
(not just lawsuits), even reviewing the minor details with the employee or official involved
should be most helpful. Ask your entity’s various departments to assist in monitoring risk
management techniques. For example, if the city fire department does routine inspections,
officials could review those for potential building risks; public works personnel are well
informed about the maintenance required for their equipment. Make supervisors part of the risk
management team and hold them accountable for monitoring their department's cost of risk. Give
them reports on deductibles and how much of a good/bad loss experience can be attributed to
their department. Officials often do this for workers compensation, even though the average
workers compensation losses are much smaller and have less financial impact on an entity than
third party losses, i.e. losses to others caused by the actions of the entity.
Flexibility is vital to a productive Risk Management Program. There will always be exposures
that become obsolete — and new exposures will be added. Procedures and processes, along with
inherent liability risk, will change with technology. Legal precedents and new laws and
regulations may set up more or less potential for financial loss. The attitude toward risk
management may change as the results of a good risk management plan are noted, or with the
eventual turnover of new officials and employees. Even the impact of a catastrophic loss that
could have prevented will influence the modification of a poor risk management plan.
Coverages, both those available and those that become unavailable, will influence a risk
management program. Cyber exposure is a good example of a developing risk potential that is
causing many risk management programs to make significant adaptations.
Flexibility is also important to the ongoing commitment to risk management. When money is
available it is easy to implement loss prevention tools such as training and maintenance
programs. But as money tightens up it becomes even more important for officials to adhere to a
risk management plan. Instead of doing away with loss prevention tools, look at revising the
plan. As budgets tighten, the cost of loss increases in value to a claimant. An entity's risk
management program should be reviewed by officials at each coverage renewal.
INSURANCE COVERAGES
The insurance policy sets out the contractual obligations of two parties, the insured and the
insurer, in a loss-sharing arrangement. The insured pays a known (presumably affordable) sum
of money (premium) in exchange for the insurer paying unknown and potentially catastrophic
sums of money in the event of a covered loss.
In general, there are two major types of insurance coverages that might be referenced in a policy
or coverage form — liability and property. And there are two primary criteria for coverage to
apply — legal liability and insurable interest.
Liability Coverages:
A liability policy is a “third party” coverage, meaning that the financial reimbursement following
a loss is not made to either the insured or the insurer, but to a third party who has incurred bodily
injury or property damage because of the actions or inactions of the insured. The criteria for
coverage to apply is that it be a covered loss under the terms of the policy and that the insured
entity is determined to have Legal Liability for the loss. In the simplest of tests for legal liability:
1) there must be a duty of care obligation; 2) there must be negligence, or a breach of that duty of
care obligation, by the insured (official or employee); 3) there must be bodily harm or property
damage; and 4) the bodily harm and/or property damage must be a result of negligence.
Sometimes the determination of legal liability is easily discernible and sometimes it takes a court
of law to establish legal liability.
General Liability is a primary coverage and forms the foundation for other primary and minor
coverages attached to it. There can also be optional coverages associated with liability. Here is a
list of the liability coverages usually made available:
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General Liability
Employment Practices Liability
Employee Benefits Liability
Public Officials Errors and Omissions Liability
Law Enforcement Liability
Automobile Liability
Automobile Physical Damage
Auto Medical Payments
Uninsured Motorists Liability
Hired and Non-Owned Auto Liability
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Medical Malpractice
Garage Keepers Liability
Other than General Liability, the primary coverages include:
Public Officials Errors and Omissions Liability — Covers defense costs for claims alleging
negligent action or inaction, mistake, misstatement, error, negligence, inadvertence, or omission
by a covered party in the discharge of an official's or employee's duties.
Employment Practices Liability — Covers employment-related losses such as discrimination,
harassment, wrongful termination, retaliation, and other workplace torts.
Law Enforcement Liability — Coverage includes jail premises and operations. Covers any
lawfully elected, appointed or employed officer and includes discrimination, violation of civil
rights, sexual harassment, auxiliary/reserve officers, bike patrols, animal control, and canine
officers.
Automobile Liability — Covers bodily injury and property damage claims from a third party
alleging negligent operation of a motor vehicle.
Auto Physical Damage —Covers physical damage to your entity’s scheduled vehicle.
Who is Insured:
The insured is defined as the legal entity; any past, present or future elected/appointed officials
acting within the scope of their duties; past, present, and future members of boards/committees,
commissions acting within the scope of their duties; employees; and authorized volunteers.
What is the Limit of Liability:
Some liability coverages and/or losses are subject to the statutory Sovereign Immunity waivers.
The caps are most applicable to General Liability losses for the "known dangerous condition of
property" and to Automobile Liability for "negligent operation of a motor vehicle". The limit of
the coverage is controlled by the statutory capped limit in effect at the time of the occurrence.
Deductibles:
Deductibles are a risk management tool to help control losses and to keep the cost of coverage
down. When an entity opts to retain a certain portion of a potential loss there is more emphasis
within the infrastructure to control those types of losses. When a company mandates a deductible
on a line of coverage, it is asking the entity to establish a risk management plan for those kinds
of losses. When an entity does take on more of the cost of loss, the insurer can apply credits to
reduce the entity's cost of coverage.
Exclusions/Extensions/Conditions:
Exclusions, Extensions and Conditions are always a part of an insurance policy, and should be
carefully reviewed by officials. Insurance policies are written with a beginning, a middle, and an
end. Typically the beginning describes what is covered in very broad terms. In the middle, the
exclusions “take away” some significant aspects of that broad coverage. Then the extensions give
back a little and may even add some additional coverage. The conditions at the end give the
contractual terms both the insured and insurer have agreed to.
Property Coverages:
A property policy is a “first party” coverage, meaning that the financial reimbursement
following a loss is made to the insured for a covered loss. The purpose of property coverage
is to put an insured back in the same position as it was before the property loss. The criteria
for coverage to apply is that the loss be a covered loss caused by a covered peril and the
insured entity have Insurable Interest in the property covered by the policy. Sometimes
other entities also have an insurable interest in the condition of covered property, in
particular mortgagees and loss payees. An entity often has to provide a Statement of
Coverage to show the third party interest in insured property.
Property is very specific coverage — more tangible than liability. Usually covered property must
be scheduled to be covered. This means any item of property you desire covered must be listed,
described, and valued.
Like liability, property has ancillary coverages included, or which may be added. Here is a list of
typical property coverages written or available for your entity:
Buildings/Structures
Contents
Earth Movement
Flood and Water Damage
Electronic Data Processing Equipment and Media
Business Interruption
Extra Expense
Contractors' Equipment
Other Mobile Equipment
Cost of Construction (Builders Risk)
Equipment Breakdown
Debris Removal
Fine Arts/Accounts Receivable/Valuable Papers and Records
Crime (Computer Fraud, Employee Dishonesty, Forgery, Money &
Securities)
Additional property coverage extensions and options
are listed in the Coverage Highlights in the appendix.
Valuation is very important on a property policy because you do not want to under -or-over
insure your properties. So policy language should be reviewed to understand how a
property loss would be reimbursed to you. Property coverages have several different
options for loss payments in the same policy; replacement cost, actual cash value, and time
element are the most common. Your property valuation for buildings/structures/contents
may be 100% Replacement Cost with a 15% Margin Clause. The limit of coverage you put
on the schedule should be 100% of what you would need to replace the property in the
event of a covered loss. Material costs and labor are always fluctuating, so the 15% Margin
Clause pays you an additional 15% of the limit in the event of a total loss. In addition, to
help maintain values, a 5% Value Protection Guard is automatically added to the scheduled
limit of each building/structure at renewal. These provisions should not interfere with a
seasonable review by appropriate entity personnel to ensure valuations are reasonably
accurate.
Scheduled Contractors and Other Mobile Equipment losses are valued at “Actual Cash Value.”
Thus, a truck purchased in 1999 at a cost of $50,000, may only warrant a pay out at $5,000 if
subjected to a total loss in 2013. It is important for officials to review property and equipment
values at each annual renewal.
There are some property losses that are valued in terms of a time element. For example,
Service Interruption is covered starting at the time the interruption occurs and ending when
services are fully restored, but only for the hours during which the entity would have used
such services if they had been available. Extra Expense is provided only for the time the
entity cannot use scheduled premises because of a loss.
Property Perils:
The magnitude of what might cause total or partial damage to scheduled property is enormous.
And some causes of property damage are unseen and may take place over an unknown period of
time before discovery.
Basic covered perils are usually: Fire
Lightning
Explosion
Windstorm or Hail
Smoke
Aircraft
Vehicle
Riot/Civil Commotion
Vandalism
Sprinkler Leakage
Sinkhole Collapse
Volcanic Action
Falling Objects
Weight of Ice, Snow or Sleet
Water Damage
The Exclusions/Extensions/Conditions in a property policy are even more important to review to
gain a thorough understanding of what is covered. In addition to coverage exclusions, a property
policy will have types of property excluded. For example, money and precious metals are types
of property typically excluded from coverage. Property coverage extensions add, then modify
and/or restrict, some of the most desired property coverages for a public entity. In the MOPERM
Property Memorandum of Coverage, the coverage extensions are listed and then defined,
explained, modified, and/or restricted in the actual coverage document.
LOSS REPORTING/CLAIMS ADMINISTRATION:
The insurance coverage document is a contract between an insurer and insured. As with most
contracts, there are conditions and obligations assigned to each party and certain requirements to
be met by the entity in the event of an occurrence, claim or lawsuit. None of these
requirements are onerous but should be reviewed by officials.
For the insured, the most important requirements in the event of an occurrence, claim or
lawsuit are:
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Report occurrences and claims promptly to insurer.
Officials and employees should not make any commitments to pay.
Send all information available but don't delay reporting by waiting on police
reports or estimates.
A specific date of loss must be provided on claim forms.
Provide as much information as possible regarding the occurrence or claim.
Protect property from additional damage. Protect undamaged property from
becoming damaged.
When notified of an occurrence, claim or lawsuit, the insurer’s responsibilities include:
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Reviewing submitted information about the loss.
Making prompt contact with the entity representative and claimant (if applicable).
Assigning a qualified contracted field adjuster to investigate the loss circumstances.
Negotiating loss settlement according to the insurance coverage documents.
Litigation Management: The insurer typically has approved qualified law firms throughout
the state which have experience in the types of lawsuits filed against public entities. Those
firms are familiar with the various immunity defenses that may be applicable. Under the
terms of most policies of insurance, the insurer retains the right to select counsel to handle
covered lawsuits filed against member entities, as well as the right to determine how
expenses of the claim are to be managed and whether to settle the claim, and for what
amount. These policy rights are extremely important to the insurer, but can have significant
consequences to the entity.
LAWSUIT TO DO LIST
There are several actions the entity must take with respect to lawsuits brought against it:
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It is essential that the entity refer lawsuits to the insurer promptly upon receipt.
The exact date of service, the method of service (e.g., sheriff’s office deputy, or
private process server) and the individual entity employee or representative should be
noted and promptly provided to the insurer so that its assigned legal counsel will
know when an answer is due with the court. It is recommended that a call to the
insurer’s claims department be made, and the identity and address of the appropriate
individual to which the suit papers are to be delivered. While there is a growing trend
toward the use of electronic communications (email, even texting), the initial
transmittal of suit papers to an insurer should be done in writing and by certified mail
with a request that receipt of the suit papers be acknowledged. Once receipt of the suit
is acknowledged, more expedient electronic communications can be considered.
The insurer’s first step will be to make a decision about whether the claim is
covered and whether it will provide a defense.
As discussed elsewhere in this presentation, there are a variety of risks which can be
covered by insurance. Some covered losses or claims will be obvious, both to the
entity and to the insurer. Others may be less so. So, the insurer’s first step will be to
review the language of its policy. If it is satisfied it has provided coverage for a claim,
it will inform the entity that it has accepted coverage and identify the law firm to
which it is referring the litigation for defense. This is sometimes referred to a s the
insurer’s decision to provide a defense without a reservation of rights.
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The insurer’s obligations when denying coverage or defense.
If the insurer believes the claim is not covered, it is responsible to promptly notify the
insurer of its coverage denial and to identify its reasons for the denial of coverage.
This may include taking a position that the type of claim is simply not provid ed for
under the coverages in the policy(ies) it has issued to the entity. Also, it may
determine that the type of claim apparently falls within the terms of a specific
“Exclusion” set forth in the policy and will not provide indemnity (i.e., pay for the
damages), but may provide a defense to the entity with what is known as a
“reservation of rights,” meaning it is not accepting responsibility for paying any
judgment or settlement on the claim. Typically, however, if the insurer finds there is
no coverage, or that an exclusion squarely applies, it will deny coverage and refuse to
provide a defense.
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When there is a denial or reservation of rights, get the city attorney involved.
Whenever there is a denial of defense or of indemnity, it is imperative that the entity’s
general counsel (e.g., city attorney) be made aware of the denial. When an insurer
denies coverage, the insured entity may then manage the litigation as it sees fit as
long as it acts in good faith and does so without collusion. The reference to
“collusion” means improper defense of a claim or imprudent settlement with the
claimant, with an understanding that the claimant will look solely to the insurer to
collect on its judgment. State law (Section 537.065, RSMo) provides parties with
specific rights to enter into a settlement which limits recovery to certain assets or
insurance contracts, provided the settlement is not collusive. Such settlements may be
in the entity’s best interests to protect it from having to subject its own assets to
satisfaction of a judgment. If the entity’s general counsel determines the denial of
defense or coverage is inappropriate, the best course is to nonetheless keep the insurer
informed of the manner in which the case proceeds, to make and repeat demands for
defense and indemnification, and to report settlement efforts. By denying defense or
coverage, the insurer has no longer has right under the policy to control case strategy,
defense costs, or settlement, but nothing is lost by keeping it informed as things
proceed, and it may re-think its denial. An excellent case on the denial of defense and
reservation of rights is Butters v. City of Independence, 515 S.W.2d 418 (Mo. 1974).
A copy is in the handout materials. One option available to the entity and to the
insurer is to seek a declaratory judgment with regard to the issue of coverage.
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General points about coverage denials.
The decision regarding coverage must be based on the way the plaintiff has pleaded
his/its lawsuit. It is often the plaintiff’s specific strategy that his/its claim is pleaded
in such a way that at least part of the overall claim will fall within the entity’s
insurance coverage. It is not a proper basis for denial of defense that a particular
defense which is available, or that another set of facts will be established that would
take the claim outside of the coverage provided in the policy. A very recent case
involving claims based on alleged violations of the Telephone Consumer Protection
Act (47 U.S.C. §227 et seq.) was handed done by the Missouri Supreme Court in a
unanimous opinion in Columbia Casualty Company v. HIAR Holding, L.L.C., et al,
No. SC93026, Slip Op. August 13, 2013. The lengthy opinion may be found at
www.courts.mo.gov, using the link to Opinions & Minutes, then selecting the
08/13/2103 tab. It outlines the very deft strategy of the City of Independence after its
insurer denied coverage of the a class action based on TCPA claims as uninsured
because the statutorily afforded damages constituted penalties or fines. The opinion
outlines the city’s ongoing communications to the insured, its repeated demands for
defense and indemnification, and its eventual resolution of the class action via a
settlement that limited the class’s recovery to the city’s insurance coverages.
APPENDIX
COMMON INSURANCE TERMS:
Agency/Producer
A member may have an independent insurance agency
representing it for all or any part of its coverage.
A Producer is the individual who works for the
agency.
Agent of Record
Is an insurance term denoting the agency representing a
member. In the event a member wishes to change its
agency representation, there is a certain process to be
followed including timelines.
Actual Cash Value
Replacement cost of property at time of loss, less
depreciation based on age, condition, time in use, and
obsolescence.
Additional Insured
Person, business or entity, other than the member, that is
protected by the member's coverage, often in regard to a
specific interest or event.
Aggregate Limit
The maximum dollar amount of coverage in force.
Contribution
Means same as "premium".
Direct Liability Member
An entity having no agency representation for its liability
coverages
Endorsement
Form attached to a policy that adds, subtracts or modifies
coverage.
Loss Adjustment Expense
Costs involved in the investigation and settlement of a
claim.
Loss Ratio
Compares premiums paid to losses paid — helps
underwriter determine the potential cost of loss a member
might have —calculated by dividing total amount paid on
losses by the total amount of premium paid.
Memorandum of Coverage
The insured’s coverage document.
Occurrence
See definition in policy forms under "Special Words and
Meanings"
Package Account
Having both liability lines of coverage and property lines of
Coverage.
Prior Acts
Necessary for covering a claim made during a current policy
period for an event that happened before a policy was in
force.
Replacement Cost
Cost to replace without deduction for depreciation.
Reservation of Rights Letter
Notification to a member that coverage for a claim may not
apply and that determination is subject to our investigation
without waiving our right to later deny coverage.
Time Element Loss
Loss resulting from an inability to use a property for a
specific length of time.
TABLE OF PERTINENT CASES
Columbia Casualty Company v. HIAR Holding, L.L.C., et al, No. SC93026, Slip Op. August 13,
2013.
Butters v. City of Independence, 515 S.W.2d 418 (Mo. 1974)
United States Fidelity and Guaranty Company v. Housing Authority of the City of Poplar Bluff,
Missouri, 885 F. Supp. 194 (E.D. Mo. 1995), affirmed, 114 F.3d 693 (8th Cir. 1997).
Topps v. City of Country Club Hills, 272 SW3d 409 (Mo. App. E.D. 2009).
Kunzie v. City of Olivette, 184 SW3d 570 (Mo. banc 2006).
Epps v. City of Pine Lawn, 353 F.3d 588 (8th Cir. 2003).
MOPERM COVERAGES
Liability Coverage Highlights
Liability coverage that can be provided by MOPERM includes General Liability, Public
Officials Errors and Omissions Liability, Employment Practices Liability, Law Enforcement
Liability, Automobile Liability, and Physical Damage.
Liability coverage is provided on an "occurrence" basis and is divided into two parts to
recognize statutory defenses. The MOPERM Liability Coverage Form is the only one written
specifically for Missouri public entities.
1. Protects members against claims established by Missouri law. It is limited to claims
for which immunity has been waived. The waivers are (1) known dangerous
condition of property, and (2) negligent operation of a motor vehicle, the MOPERM
limits applicable to this coverage part are the Sovereign Immunity caps established by
RSMo 537.610.
2. Protects members against claims other than those established by Missouri law.
It also protects public officials and employees for all types of claims (subject
to coverage exclusions). The MOPERM limit for these claims is $2,000,000
per occurrence with NO ANNUAL AGGREGATE.
Liability coverages include:
Exposure
Premises Operations
Contractual Liability
Broad Form Property Damage
Personal Injury
Employees and Volunteers
Defense in Addition to Limits
Supplemental Defense Costs
Pay On Behalf
Duty to Defend
Boards, Commissions, and
Committees
Liquor Liability
Included/Optional
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Included
Additional Costs
Exposure
Watercraft under 26'
Special Events/Fireworks
Skateparks
Sewer Backup Legal Liability
Sewer Operations
Failure to Supply
Employment
Practices Liability
Discrimination
Violation of Civil Rights
Sexual Harassment
Wrongful Acts incl Wrongful
Termination
Employee Benefits Liability
Prior Acts Coverage
Planning and Zoning
Jail Premises/Operations
K-9 Officers
Meth Officers
Meth Mobile Response Units
Police Ride-Along Programs
Non Owned/Hired Auto
Liability
Uninsured Motorists Liability
Auto Med Pay
All Other States Minimum
Coverage Requirements
Fellow Employee Exclusion
Incidental Med Malpractice
IEP (Due Process) for
Schools
GarageKeepers
Liability
Aquatic Centers/Swimming
Pools with Diving Boards
Entity-Sponsored Day Camps
Entity-Sponsored Websites
Included/Optional
Additional Costs
Included
Included
Included
Included
Included
Included
Subject to coverage conditions
— No Additional Charge
No Additional charge
Included
Included
Included
Included
Included
Optional Coverage
Optional Coverage
Optional Coverage
Included
Included
Included
Included
Included
Additional Charge
Additional Charge
Additional Charge
Additional Charge
Included
$50,000 included
Optional Coverage
Additional Charge
Included
Included
Optional Coverage
Optional Coverage
Optional Coverage
Additional Charge
Additional Change
Additional Chafe
Included
Included
Included
As is typical with traditional liability policies available for public entities, the MOPERM
Memorandum of Coverage excludes certain exposures. These exposures may remain uninsured
or they may be covered by a separate policy purchased from commercial carriers. Such excluded
exposers include:
Aircraft
Physicians Malpractice
Airport Operations
Hospital Malpractice
Watercraft over 26'
Pollution
Workers Compensation
Nuclear Hazards
Fines, Punitive Damages or Injunctive Relief
Eminent Domain/Inverse Condemnation
Coverage Placement Requirements:
The following coverages must be placed together: General Liability, Public Officials Errors and
Omissions, and Employment Practices. If the entity has Law Enforcement or Medical
Malpractice exposures, these liability coverages are required to be placed with MOPERM.
Property Coverage Highlights:
Property coverages provided by MOPERM include Real and Personal Property, Equipment
Breakdown, Business Interruption, and Crime.
MOPERM does not have a co-insurance requirement or penalty for property values. A 15%
Margin Clause Endorsement provides for a total loss payment up to 15% more than the
scheduled value of a building or contents.
In the event of a loss, MOPERM will use the following valuation basis:
Property Damage
Time Element
Contractor Equipment
Mobile Equipment
Replacement Cost
Actual Loss Sustained
Actual Cash Value
Actual Cash Value
Equipment Breakdown coverage includes state inspection requirements.
Earthquake and Flood Damage coverages are included.
MOPERM does not provide blanket coverage. Exposures must be scheduled to
be considered covered.
A Crime Endorsement includes Employee Dishonesty including Faithful Performance, Computer
Fraud, Forgery and Alteration, and Money and Securities. The limit is $5,000 for each of the
coverages.
Full Crime coverage includes Employee Dishonesty including Faithful Performance, Computer
Fraud, Forgery and Alteration, and Money and Securities. Higher limit option and deductible
options are available.
Property coverages include:
Coverage
Deductible
Included/Optional
Buildings/Structures
Contents
Earth Movement
Flood Damage
Water Damage
Accounts Receivable
Automatic Coverage
Brands and Labels
Consequential Reduction in
Value
Contractor Equipment
Other Mobile Equipment
Cost of Construction (Builders
Risk) including Soft Costs and
Transit
Debris Removal
Decontamination Costs
Demolition and Increased Cost
of Construction
Electronic Data Processing
Equipment and Media
Errors & Omissions
Equipment Breakdown
Exhibitions, Fairs and Trade
Shows
Fine Arts
Fire Department Service Fees
Land and Water Cleanup
Misc Unnamed Locations
Per schedule
Per schedule
Fixed Dollar
Fixed Dollar
Per schedule
Per schedule
Per schedule
Per schedule
Included
Included
Included
Per schedule
Included
Included
Per schedule
Per schedule
Included
Per schedule
Per schedule
Condition
Additional charge
90-day reporting
must be scheduled
must be scheduled
Included
Included
Included
Included
Per schedule
Per schedule
Per schedule
Per schedule
Included
Included
Included
Per schedule
Included
Included
Included
Additional charge
6
Coverage
Professional Fees
Protection & Preservation of
Property — Time Element
Service Interruption
Temporary Removal
of Property
Terrorism $2,500,000 limit
Transportation
Valuable Papers
Extra Expense
Ordinary Payroll 90-days
Business Interruption
Expediting Expenses
Rental Insurance
Contingent Time Element
Impounded Water 30 days
Ingress/Egress
Deductible
Included/Optional
Condition
Included
Included
Included
Per schedule
Included
Included
Included
Per schedule
Included
Included
Per schedule
Included
Included
Included
Included
Included
Additional Charge
Additional Charge
** This explanation of MOPERM coverage and much of this seminar is based on a risk
management seminar prepared by Jenny Morrison of MOPERM. Thanks to her for letting us
use much of it.
LIST OF MUNICIPAL INSURERS OR POOLS and CONTACTS
Interested entities may contact Policy Administration Manager, Brenda Gibson. Her contact
information is brenda-gibson@moperm.com or 888-389-8198 ext 127.
or
Jenny Morrison, CISR
MOPERM Risk Management
1-888-389-8198 ext 123
jenny-morrison@moperm.com
Steve Wicker
Daniel and Henry Company
1001 Highlands Plaza Drive West, Suite 500
St. Louis, MO 63110
314-444-1937
wickers@danielhenry.com
7
Matthew Brodersen
Executive Director
3002 Falling Leaf Ct
Columbia MO 65201
(573) 817-2554
(573) 441-0515 fax
mbrodersen@mirma.org