Insurance Hell The Devil is in the

Insurance Hell … The Devil is in the Details Moderator: Presenters: Mike Forster • Judy Thomson-Torosian, Service & Sales Manager for the MML Insurance Programs Director of Risk Management Michigan Municipal League • John Thomas, Account Executive for the MML Insurance Programs

WHAT IS RISK MANAGEMENT? The process of making and implementing decisions that will minimize the adverse effects of accidental and business loss on an operation.

Standard Practice In municipal operations, risk management is often a reaction to an event … it seldom includes analysis and pre-planning.

GOAL: Meeting responsibility to taxpayers and employees

Dealing with Risk Financing Techniques – Purchase of Insurance – Risk Transfer – Retention (Self-Insurance) Control Techniques – Avoidance – Loss Control – Separation – Risk Transfer 27 5

What to look for when purchasing insurance: What coverages are included in the quote? What type of coverage form is offered? Is there an aggregate limit during the policy period? Is property coverage provided on a blanket basis? Is there a coinsurance factor on property? What services are included in the quote? Who will be providing service: claims, loss control, policy issuance and endorsements, answering questions, etc. Experience of provider Price

What coverages are included? Liability: Public Officials E&O General Liability Medical Payments Personal & Advertising Injury Property (buildings and contents) Inland Marine Crime Automobile Special Events Fireworks Liquor Liability Underground Storage Tanks Fiduciary Liability Workers’ Compensation

Why be concerned about safety? Governmental Immunity Other than for the exceptions provided in Michigan’s Governmental Tort Liability Act, a governmental agency is immune from tort liability if it is engaged in the exercise or discharge of a governmental function.

Exceptions to Ope r. o f Mo tor V on ati ol i s V ht g ehic le Defective Highways Public Building ion Funct ary ropriet P i il R Civ ce en Sew age Sys Me tem g gli Ne s ros G Red = Statutory; Green = Federal Exceptions di ca l C ar e Eve nt

Operation of a Motor Vehicle Governmental agencies shall be liable for bodily injury and property damage resulting from the negligent operation by any officer, agent, or employee of the governmental agency, of a motor vehicle of which the governmental agency is owner.

Defective Highway Each governmental agency having jurisdiction over a highway shall maintain the highway in reasonable repair so that it is reasonably safe and convenient for public travel. The duty of the state and county road commissions to repair and maintain highways … extends only to the improved portion of the highway designed for vehicular travel and does not include sidewalks, trailways, crosswalks …

Public Buildings Governmental agencies have the obligation to repair and maintain public buildings under their control when open for use by members of the public.

Civil Rights Violation Federal civil rights laws prohibit (among other things) discrimination based on race, color or national origin. They also prohibit police excessive force.

Gross Negligence Public Employees Each officer, employee, volunteer, or member of a board is immune from tort liability for injury to a person or damage to property while in the course of employment if he/she: ü Reasonably believes he or she is acting within the scope of his or her authority; and ü The governmental agency is engaged in the exercise of a governmental function; and ü The employee’s conduct does not constitute gross negligence that was the proximate cause of the injury or damages. Gross Negligence is defined as conduct so reckless as to demonstrate a substantial lack of concern for whether an injury or property damage results.

Sewage System Event Claimant must prove: ü The governmental agency was an appropriate governmental agency, ü The sewage disposal system had a defect, ü The governmental agency knew, or should have known, about the defect, ü The governmental agency failed to take reasonable steps to repair, correct or remedy the defect, and ü The defect was a substantial proximate cause of the event.

Proprietary Function The immunity of the governmental agency shall not apply to actions to recover for bodily injury or property damage arising out of the performance of a proprietary function. Proprietary Function shall mean any activity which is conducted primarily for the purpose of producing a monetary profit excluding however any activity supported by taxes. In Hyde v University of Michigan, the Michigan Supreme Court established two tests to determine whether a proprietary function exists: 1) the activity must be conducted primarily for the purpose of producing a pecuniary* profit and 2) the activity cannot be normally supported by taxes and fees. * pecuniary – monetary or financial.

Medical Care No immunity to a governmental agency or an employee or agent of a governmental agency with respect to: providing medical care or treatment to a patient, except medical care or treatment provided to a patient in a hospital owned by the Dept. of Community Health or operated by the Dept. of Corrections.

Liability Concerns What is the type of Coverage Form? Is the policy subject to Aggregate Limits? Is Legal Coverage within or outside of the Liability Limit? What is the deductible? Is there a Self-Insured Retention? How broad is the coverage? (i. e. , Back & Future Wages for Employment, Sewer Back-up, Land Use)

Liability Concerns What type of Liability Coverage Form is offered? Occurrence (Claim can be filed at any time) Claims-Made (Claim must be filed during the policy term, or no coverage)

Claims-Made to Occurrence Example 1 -1 -2010 X Claims-Made Coverage Form 12 -31 -2010 * 1 -1 -2011 Occurrence Coverage Form 12 -31 -2011 X – Claim occurs on July 6, 2010 * -- Claim is filed on April 1, 2011 Coverage Gap -- No coverage unless an Extended Reporting Coverage Gap Period is purchased (for an additional premium) purchased Extended Reporting Period has a limited time frame, usually 2 -5 years

Occurrence to Claims-Made Example 1 -1 -2010 X Occurrence Coverage Form 12 -31 -2010 * 1 -1 -2011 Claims-Made Coverage Form 12 -31 -2011 X – Claim occurs on July 6, 2010 * -- Claim is filed on April 1, 2011 No Coverage Gap – Occurrence Coverage Form provides coverage for claims that occur, regardless of when they are filed!

Is there an aggregate limit during the policy period? May apply to one line of coverage or to the entire liability policy If claims reach aggregate limit, coverage stops Per occurrence limits with no aggregate are best!

i. e. , Aggregate Limit -- $5, 000 Additional Claims: (No Coverage) $1, 000 $250, 000 $15, 000 $5, 000 Aggregate $5, 000 in Claims

Actual Claim #1 -- $5, 000 Rotted tree was scheduled to be removed Tree was not removed as scheduled Woman went for a walk during a storm Tree came down and landed on woman Woman was left as a quadriplegic Cost of Claim -- $5, 000 City’s total incurred for the 10 claims for this policy period -- $5, 022, 858. 02 If $5, 000 Aggregate Limit -- $22, 858. 02 with no coverage But there was No Aggregate and all claims paid!

Actual Claim #2 -- $10, 000 Police restrained and arrested large disturbed man Man died in custody Cost of Claim -- $10, 000 City’s total cost for the 298 Claims for this policy period -- $10, 764, 394. 29 If $10, 000 Aggregate Limit -- $764, 394. 29 with no coverage But there was No Aggregate and all claims paid!

Liability Concerns Is Legal Coverage within or outside of the Liability Limit? – Legal within the liability limit reduces the amount available to pay “Damages” (Awards)

Liability Concerns Deductibles -- A portion of a covered loss that is not paid by the insurer. These add to your cost, whenever you have a claim. Self Insured Retention -- A dollar amount specified in an insurance policy (usually a liability insurance policy) that must be paid by the insured before the insurance policy will respond to a loss. Some policies include both!

Property Concerns Is property coverage provided on a blanket basis or per location basis? Is property insured with a Coinsurance Factor? How is Property in the Open Covered? How is Boiler & Machinery Covered?

Property Concerns Is property coverage provided on a blanket basis or per location basis? A blanket limit covers all scheduled buildings and contents under one combined per occurrence limit If coverage is written per location (or per building) … this increases the chance of under-insuring a piece of property! If a building is scheduled for $500, 000, is destroyed and costs $750, 000 to replace, coverage is $500, 000. You pay the difference of $250, 000.

Property Concerns Is property insured with a Coinsurance Factor? Premium credit for agreeing to insure-to-value (80%, 90%, 100%) Formula: Did/Should x Coinsurance % Example: Building is insured for $1, 000 with a 100% Coinsurance Factor … the carrier determines that building’s replacement cost value is $2, 000 $1, 000/$2, 000 X 100% (1/2) = only ½ of the claim is actually paid … you pay the rest!

Property Concerns Property in the Open (PIO) – not a building Examples of property in the open – fences, street lights, traffic lights, playgrounds, tennis courts, barbeques, outdoor clocks, fountains Many policies require that coverage for PIO is dependent on proximity to scheduled property – i. e. , within 100 or 1, 000 feet If not scheduled … no coverage

Property Concerns Boiler & Machinery (or mechanical breakdown) – This coverage encompasses much more than just boilers and pressure vessels. It also can include refrigeration equipment, air conditioning equipment, various types of piping, turbines, engines, pumps, compressors, blowers, gearing, shafting, electric motors, generators, transformers and assorted other types of mechanical and electrical equipment. Many policies provide only a $1, 000 limit for this exposure rather than the full blanket limit!

Property Concerns Is there a limit on Glass or is it covered in total as part of the property blanket? Many carriers include a dollar limit or maximum for glass. It is better to have glass included in the property blanket limit.

Automobile Concerns Physical Damage – What are deductibles? – Are fire vehicles insured for an Agreed Amount Valuation? Michigan No-Fault Who is driving your vehicles?

Crime Concerns What can you do to protect public entity money? – Zero Balance Accounts – Check with your bank before a loss to see what they protect and what they do not – Maintain Accountability within your organization

Other Considerations Service Pools Terrorism Fiduciary Liability Pollution Workers’ Compensation (too big a topic to discuss in detail)

What service will be provided and by whom? Claims (Is it local? Do they understand MI Governmental Immunity? Are claims handled by carrier or farmed out? What percentage of their clients are public entities? ) Loss Control (The knowledge of OSHA without the fines) Policy Issuance and Endorsements Answering Questions Resolving Differences

Pools If they are 100% reinsured, they are not a Pool What is the average size of their Members? Some Pools have the potential to assess Members to pay for the claims of other Members (the MML Liability & Property Pool does not) How are sales people compensated? (The MML Pool does not pay sales commissions. Coverage suggestions are made to assist Members. )

Terrorism What is TRIA? What are the exposures?

Fiduciary Liability Once money is paid by a public entity into an Employee Retirement account, the money no longer belongs to the public entity and that account needs its own Crime coverage.

Pollution – an Exclusion This exposure needs a separate policy Assess your exposure? – – Do you have USTs or ASTs? Do you have a Sewage Treatment Plant? Is there potential for spillage into local waterways? Do you separate your storm water and sewage?

Workers’ Compensation Coverage A – Statutory Coverage that pays for an injured workers’: ü Lost Time Benefits ü Medical Expenses ü Vocational Rehabilitation ü Burial Expenses Coverage B – Employers Liability

What You Need to Know: Exclusive Remedy Consider designating a medical clinic/facility for the initial treatment of workers who are not seriously injured. In most instances, the employee should treat with the employer’s designated medical clinic/facility for the first ten days following the injury. – This ensures consistent quality of care, allows proper monitoring and controls your costs. – Contact a local clinic to set up a relationship and establish procedures

What You Need to Know: Investigate and report claims promptly Report all claims – Michigan requires all WC medical bills to be processed through a fee schedule, reducing bills to per procedure maximum.

What to Look for on a Certificate of insurance: Carrier’s Rating * Limits (How much remains? *) – if applicable, request “per event” coverage Deductibles Reputation of Named Insured * Cancellation Notice Requirements Are Medical Payments Included? * (typically not on the Cert. – you have to ask – If you are additional insured, ask for a copy of the endorsement. )

Agency Insurance Carrier Insured Policy Term & Limits Is Med. Pay Included? Certificate of Insurance Additional Insured? Certificate Holder Cancellation Notice Agent’s Signature

Questions