A-2. Consider No-Fault Insurance0
CITY OF
CHANHASSEN
7700 Market Boulevard
PO Box 147
Chanhassen, MN 55317
Administration
Phone: 952.227.1100
Fax: 952.227.1110
Building Inspections
Phone: 952.227.1180
Fax: 952.227.1190
Engineering
Phone: 952.227.1160
Fax: 952.227.1170
Finance
Phone: 952.227.1140
Fax: 952.227.1110
Park & Recreation
Phone: 952.227.1120
Fax: 952.227.1110
TO: Todd Gerhardt, City Manager n n
FROM: Laurie Hokkanen, Assistant City Manageru&a
DATE: November 9, 2011 ow,
SUBJ: No Fault Sewer Back -Up / Water Main Break Insurance
BACKGROUND
No fault coverage for cities is offered only by the League of Minnesota Cities.
Premium is billed as a percentage of your general liability premium.
Coverage Maximum
Premium Percentage
City Cost Estimate
$10,000
8.5%
$3,500
$25,000
10.0%
$4,000
$40,000
12.5%
$5,000
Attached please find a fact sheet from the League of Minnesota Cities that details
the no fault insurance program. The No Fault Sewer Backup Coverage became
available November 15, 2000. Water Main Breakage coverage was added
November 15, 2009. The City believes that we have the practices in place that the
League requires in order to be eligible for the program, but coverage is not
guaranteed until the League conducts their review.
Recreation Center
2310 Coulter Boulevard
Payment to a homeowner is subject to a $250,000 aggregate limit for water main
Phone: 952.227.1400
breaks. For sewer back -ups, the limit is equal to the coverage maximum per
Fax: 952.227.1404
occurrence ($10,000/$25,000 /$40,000). The program deductible also applies, so
Planning &
the City would be responsible for the first $2,500 - $10,000 of each incident
Natural Resources
(depending on the program deductible we set for our other lines of coverage,
Phone: 952.227.1130
which has not been examined or determined yet.)
Fax: 952.227.1110
The City is currently awaiting insurance quotes for general liability coverage from
Public Works both Travelers and the League of Minnesota Cities Insurance Trust. Travelers
Phonee: : 952.227.1300
79 Park Place Insurance does not offer no fault insurance coverage, so electing no fault
Fax: 952.227.1310 insurance would require us to be insured with the League. Quotes are expected to
be available from both carriers in early to mid - December.
Senior Center
Phone: 952.227.1125 Most homeowner and business insurance policies do not cover sewer backup
Fax: 952.227.1110 unless specific sewer backup coverage is added to the policy, according to the
Web Site Insurance Information Institute (LLL }. The availability, cost, and limits of private
www.ci.chanhassen.mn.us insurance to cover losses related to sewer back -ups varies by insurance company.
Please note that the insurance carried by homeowners is two -part insurance that
not only covers sewer back -ups but sump pump overflows. Staff spoke to several
G:\Admin \LH \City Council \Consider No Fault Insurance.doc
Chanhassen is a Community for Life - Providing for Todayand Planning for Tomorrow
insurance agents in Chanhassen and found the average annual cost of adding a
sewer /sump back -up to the homeowner's policy to be $35 per $5,000 of coverage
per year.
0
A CONNECTING & INNOVATING
INNESOTA SINCE 1913
CITIES
RISK MANAGEMENT INFORMATION
OPTIONAL "NO- FAULT"
SEWER BACKUP COVERAGE
The League of Minnesota Cities Insurance Trust (LMCIT) offers property /casualty member cities
"no- fault" sewer backup coverage. This optional coverage will reimburse a property owner for
clean -up costs and damages resulting from a city sewer backup or from a city water main break,
irrespective of whether the backup was caused by city negligence.
The "no- fault" sewer backup coverage option is intended to:
Reduce health hazards by encouraging property owners to clean -up backups as quickly as
possible.
Reduce the frequency and severity of sewer backup lawsuits (i.e. property owners may be less
inclined to sue if they receive conciliatory treatment at the time of the backup).
Give cities a way to address the sticky political problems that can arise when a property owner
learns the city and LMCIT won't reimburse for sewer backup damages because the city wasn't
negligent and therefore not legally liable.
Many cities and their citizens may find this coverage option to be a helpful tool. However, it's
also important to realize it's not a complete solution to sewer backup problems, and not every
possible backup will be covered.
Which sewer backups are covered?
The "no- fault" coverage would reimburse the property owner for sewer backup damages or water
main breaks, regardless of whether the city was legally liable, if the following conditions are met:
• The backup must have resulted from a condition in the city's sewer system or lines. A backup
caused by a clog or other problem in the property owner's own line would not be covered.
• It's not a situation that is specifically excluded in the coverage.
• The coverage limit has not been exceeded.
Which situations are excluded?
The "no- fault" coverage will not apply in several "catastrophic" type situations. Specifically,
these are:
This material is provided as general information and is not a substitute for legal advice.
Consult your attorney for advice concerning specific situations.
.LEAGUE OF MINNESOTA CITIES 145 UNIVERSH'Y AVE. WEST PHONE: (651)281 -1200 FAX(651)281 -1298
INSURANCE TRUST sr. PAOL NAN 55103.2044 Too. rmi F.: (800) 925 -1122 WEB;y'.A1VWUmC.0kc;
Sewer Toolkit
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• Any event, weather - related or otherwise, for which FEMA assistance is available;
• Any interruption in the electric power supply to the city's sewer system or to any city sewer lift
station which continues for more than 72 hours; or
• Rainfall or precipitation that exceeds the amount determined by the National Weather Service
to constitute a 100 -year storm event.
What costs would be covered?
The coverage would reimburse the property owner for the cost of cleaning up the backup, and for
any damage to the property, up to the coverage limit. For purposes of the city's deductibles,
claims under the no -fault coverage are treated as liability claims, so the same per - occurrence
and /or annual deductibles will apply.
However, there are certain costs that would not be reimbursed under the no -fault coverage:
• Any costs which have been or are eligible to be covered under the property owner's own
homeowner's or other property insurance; and
• Any costs that would be eligible to be reimbursed under an NFIP flood insurance policy,
whether or not the property owner actually has NFIP coverage.
What is the coverage limit?
The basic limit is $10,000 per building per year. The city also has options to purchase additional
limits of $25,000 or $40,000 per building. For purposes of the limit, a structure or group of
structures that is served by a single connection to the city's sewer system will be considered a
single building.
Only true "no- fault" claims are counted toward the limit. Claims for damages caused by city
negligence, for which the city would be legally liable in any case, are not charged against that
limit.
What does it cost?
The premium charge is a percentage of the city's municipal liability premium:
• 8.5% for the $10,000 limit;
• 10.0% for the $25,000 limit; or
• 12.5% for the $40,000 limit.
Because the LMCIT Board's intent is that this coverage be self - supporting, charges will be
continually monitored and, if necessary, adjusted in the future.
Is every city automatically eligible?
No. To be eligible, the city must meet these underwriting criteria:
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• The city must have a policy and practice of inspecting and cleaning its sewer lines on a
reasonable schedule.
• If there are any existing problems in the city's system which have caused backups in the past
or are likely to cause backups, the city must have and be implementing a plan to address those
problems.
• The city must have a system and the ability to respond promptly to backups or other sewer
problems at any time of the day or week.
• The city must have in place an appropriate program to minimize stormwater inflow and
infiltration.
• The city must have in place a system to maintain records of routine sewer cleaning and
maintenance, and of any reported problems and responses.
When establishing these criteria, the goal of LMCIT was to focus on reasonableness rather than on
creating specific standards. The intent isn't to set an arbitrary requirement that sewers be
inspected and cleaned every six months, every three years, every five years, etc. What makes
sense in one city with some older and sometimes sagging
clay lines probably wouldn't make sense in a city with More Information
newer plastic lines, and vice versa. From the underwriting For assistance in developing sewer
standpoint, the real concern is that the city has considered policies, practices, and schedules,
its own situation and developed policies, practices, and please see the Sewer Toolkit
schedules that make sense for its own situation.
How would the "no- fault" coverage work if a sewer backup was caused by city
negligence, and where the city was legally liable for the resulting damages?
If the situation isn't one where the "no- fault" coverage applies, the city's LMCIT liability
coverage would respond just as it does now. That is, LMCIT would investigate and if necessary
defend the claim on the city's behalf, and would pay the resulting damages if in fact the city is
legally liable for those damages.
The same would be true for damages that exceed the $10,000 no -fault limit, or for a subrogation
claim against the city by the homeowner's insurance company. The city's existing LMCIT
liability would respond just as it does now.
What's the legal basis for this coverage? Wouldn't it be a gift of public funds to
pay for damages the city isn't legally liable for?
First, as noted earlier, one goal is to help reduce health hazards by encouraging prompt clean -ups.
That's clearly a public purpose and in the public interest.
Second, the law and facts surrounding most sewer backup claims are rarely so clear that the
liability issue is entirely black and white. There's virtually always a way that a claimant's attorney
can make some type of argument for city liability. Having this coverage in place should help
eliminate the need to spend public funds on litigation costs in many of these cases.
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Finally, part of the process for putting the coverage in place is for the city council to pass a formal
resolution that makes this no -fault sewer backup 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. In other words, the basis for the no -fault payments to the property owner would be
the contract between the city and the sewer user.
How do we put coverage in place?
Contact your LMCIT underwriter for an application. If the
city qualifies for coverage, we'll send the city a formal
quote, along with a model resolution. To put coverage in
place, the city council must formally pass that resolution,
and send a copy to LMCIT.
If the city decides to add this coverage, it will also be
important to make sure citizens know about it. LMCIT can
Your League Resource
Contact your LMCIT underwriter at
651- 281 -1200 or 800 - 925 -1122 for
more information about the "no-
fault" sewer backup coverage.
also provide models for a press release, newsletter article, utility bill insert, etc.
What if we decide to discontinue the coverage sometime in the future?
Make sure your agent notifies your LMCIT underwriter. In addition, it's important to let your
citizens know if and when the coverage is discontinued. The council should formally rescind the
resolution that made the no -fault sewer backup protection part of the agreement between the city
and the sewer customer.
Pete Tritz 07/11
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COMPREHENSIVE MUNICIPAL COVERAGE
No -Fault Sewer Back -up and Water Main Break Coverage Endorsement ($10,000 Limit)
Section I, Coverage A, Municipal Liability Coverage, is amended to include no -fault sewer back -up and
water main break coverage as outlined below.
1. No -fault sewer back -up coverage
a. If all of the following four conditions are met, LMCIT will pay for claims presented by the city for
sewer back -up damage to property of others which was not caused by city negligence:
(1) The sewer back -up resulted from a condition in the city's sewer system;
(2) The sewer back -up was not the result of an obstruction or other condition in sewer pipes or
lines which are not part of the city's sewer system or which are not owned or maintained by the
city; and
(3) The sewer back -up was not caused by or related to a catastrophic incident.
(4) The date of the occurrence giving rise to the claim for damages must be on or after the
retroactive date shown on this endorsement.
b. However, LMCIT will not pay for any damages or expenses:
(1) Which are or would be covered under a National Flood Insurance Program flood insurance
policy, whether or not such insurance is in effect; or
(2) For which the property owner has been reimbursed or is eligible to be reimbursed by any
homeowners' or other property insurance.
2. No -fault water main break coverage.
LMCIT will pay for claims presented by the city for water main break damage to property of others
which was not caused by city negligence. But LMCIT will not pay for any damages or expenses for
which the property owner has been or is eligible to be reimbursed by any homeowners' or other
property insurance.
3. Definitions
For purposes of this endorsement, the following definitions apply.
a. Catastrophic incident means any of the following:
(1) Any weather - related or other event for which FEMA (Federal Emergency Management
Administration) assistance is available;
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(2) Any interruption in the electric power supply to the city's sewer system or to any city sewer lift
station which continues for more than 72 hours; or
(3) Rainfall of precipitation which exceeds the amount determined by the National Weather
Service to constitute a 100 -year storm event.
b. Sewer back -up damage means damage to property, including removal and clean -up costs, resulting
from a sewer back -up.
c. Water main break damage means damage to property, including removal and clean -up costs,
resulting from the rupture of a city water main, line, or pipe.
4. Limits
a. LMCIT will not pay more than $10,000 for sewer back -up damage to any building under this
endorsement, regardless of the number of occurrences or the number of claimants. For purposes of
this limit
(1) A structure or group of structures served by a single connection to the city's sewer system is
considered a single building.
(2) If a single structure is served by more than one connection to the city's sewer system, the
portion of the structure served by each respective connection is considered a separate building.
b. LMCIT will not pay more than $10,000 for water main break damage to any claimant, regardless
of the number of occurrences or the number of properties affected.
c. LMCIT will not pay more than $250,000 for water main break damage 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 $10,000.
(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.
5. Deductibles
The amount LMCIT pays for sewer back -up damages or water main break damage under this
endorsement is subject to the Municipal Liability Deductible shown in the Municipal Liability
Declarations or the General Annual Aggregate Deductible if any shown in the Common Coverage
Declarations.
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For purposes of the Municipal Liability Deductible, all claims for sewer back -up damages which are
covered under this endorsement, which occur within a 72 hour period, and which result from or are
related to the same condition or conditions in the city's sewer system are deemed to be a single
occurrence; and water main break damage which is covered under this endorsement and which occurs
during any period of 72 consecutive hours is deemed to be a single occurrence.
6. Retroactive Date
The retroactive date for this endorsement is
All other terms and conditions remain unchanged.
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COMPREHENSIVE MUNICIPAL COVERAGE
No -Fault Sewer Back -up and Water Main Break Coverage Endorsement ($25,000 Limit)
Section I, Coverage A, Municipal Liability Coverage, is amended to include no -fault sewer back -up and
water main break coverage as outlined below.
1. No -fault sewer back -up coverage
a. If all of the following four conditions are met, LMCIT will pay for claims presented by the city for
sewer back -up damage to property of others which was not caused by city negligence:
(1) The sewer back -up resulted from a condition in the city's sewer system;
(2) The sewer back -up was not the result of an obstruction or other condition in sewer pipes or
lines which are not part of the city's sewer system or which are not owned or maintained by the
city; and
(3) The sewer back -up was not caused by or related to a catastrophic incident.
(4) The date of the occurrence giving rise to the claim for damages must be on or after the
retroactive date shown on this endorsement.
b. However, LMCIT will not pay for any damages or expenses:
(1) Which are or would be covered under a National Flood Insurance Program flood insurance
policy, whether or not such insurance is in effect; or
(2) For which the property owner has been reimbursed or is eligible to be reimbursed by any
homeowners' or other property insurance.
2. No -fault water main break coverage.
LMCIT will pay for claims presented by the city for water main break damage to property of others
which was not caused by city negligence. But LMCIT will not pay for any damages or expenses for
which the property owner has been or is eligible to be reimbursed by any homeowners' or other
property insurance.
3. Definitions
For purposes of this endorsement, the following definitions apply.
a. Catastrophic incident means any of the following:
(1) Any weather - related or other event for which FEMA (Federal Emergency Management
Administration) assistance is available;
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(2) Any interruption in the electric power supply to the city's sewer system or to any city sewer lift
station which continues for more than 72 hours; or
(3) Rainfall of precipitation which exceeds the amount determined by the National Weather
Service to constitute a 100 -year storm event.
b. Sewer back -up damage means damage to property, including removal and clean-up costs, resulting
from a sewer back -up.
c. Water main break damage means damage to property, including removal and clean -up costs,
resulting from the rupture of a city water main, line, or pipe.
4. Limits
a. LMCIT will not pay more than $25,000. for sewer back -up damage to any building under this
endorsement, regardless of the number of occurrences or the number of claimants. For purposes of
this limit
(1) A structure or group of structures served by a single connection to the city's sewer system is
considered a single building.
(2) If a single structure is served by more than one connection to the city's sewer system, the
portion of the structure served by each respective connection is considered a separate building.
b. LMCIT will not pay more than $25,000 for water main break damage to any claimant, regardless
of the number of occurrences or the number of properties affected.
c. LMCIT will not pay more than $250,000 for water main break damage 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.
5. Deductibles
The amount LMCIT pays for sewer back -up damages or water main break damage under this
endorsement is subject to the Municipal Liability Deductible shown in the Municipal Liability
Declarations or the General Annual Aggregate Deductible if any shown in the Common Coverage
Declarations.
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For purposes of the Municipal Liability Deductible, all claims for sewer back -up damages which are
covered under this endorsement, which occur within a 72 hour period, and which result from or are
related to the same condition or conditions in the city's sewer system are deemed to be a single
occurrence; and water main break damage which is covered under this endorsement and which occurs
during any period of 72 consecutive hours is deemed to be a single occurrence.
6. Retroactive Date
The retroactive date for this endorsement is
All other terms and conditions remain unchanged.
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COMPREHENSIVE MUNICIPAL COVERAGE
No -Fault Sewer Back -up and Water Main Break Coverage Endorsement ($40,000 Limit)
Section I, Coverage A, Municipal Liability Coverage, is amended to include no -fault sewer back -up and
water main break coverage as outlined below.
1. No -fault sewer back -up coverage
a. If all of the following four conditions are met, LMCIT will pay for claims presented by the city for
sewer back -up damage to property of others which was not caused by city negligence:
(1) The sewer back -up resulted from a condition in the city's sewer system;
(2) The sewer back -up was not the result of an obstruction or other condition in sewer pipes or
lines which are not part of the city's sewer system or which are not owned or maintained by the
city; and
(3) The sewer back -up was not caused by or related to a catastrophic incident.
(4) The date of the occurrence giving rise to the claim for damages must be on or after the
retroactive date shown on this endorsement.
b. However, LMCIT will not pay for any damages or expenses:
(1) Which are or would be covered under a National Flood Insurance Program flood insurance
policy, whether or not such insurance is in effect; or
(2) For which the property owner has been reimbursed or is eligible to be reimbursed by any
homeowners' or other property insurance.
2. No -fault water main break coverage.
LMCIT will pay for claims presented by the city for water main break damage to property of others
which was not caused by city negligence. But LMCIT will not pay for any damages or expenses for
which the property owner has been or is eligible to be reimbursed by any homeowners' or other
property insurance.
3. Definitions
For purposes of this endorsement, the following definitions apply.
a. Catastrophic incident means any of the following:
(1) Any weather - related or other event for which FEMA (Federal Emergency Management
Administration) assistance is available;
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(2) Any interruption in the electric power supply to the city's sewer system or to any city sewer lift
station which continues for more than 72 hours; or
(3) Rainfall of precipitation which exceeds the amount determined by the National Weather
Service to constitute a 100 -year storm event.
b. Sewer back -up damage means damage to property, including removal and clean -up costs, resulting
from a sewer back -up.
c. Water main break damage means damage to property, including removal and clean -up costs,
resulting from the rupture of a city water main, line, or pipe.
4. Limits
a. LMCIT will not pay more than $40,000. for sewer back -up damage to any building under this
endorsement, regardless of the number of occurrences or the number of claimants. For purposes of
this limit
(1) A structure or group of structures served by a single connection to the city's sewer system is
considered a single building.
(2) If a single structure is served by more than one connection to the city's sewer system, the
portion of the structure served by each respective connection is considered a separate building.
b. LMCIT will not pay more than $40,000 for water main break damage to any claimant, regardless
of the number of occurrences or the number of properties affected.
c. LMCIT will not pay more than $250,000 for water main break damage 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 $40,000.
(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.
5. Deductibles
The amount LMCIT pays for sewer back -up damages or water main break damage under this
endorsement is subject to the Municipal Liability Deductible shown in the Municipal Liability
Declarations or the General Annual Aggregate Deductible if any shown in the Common Coverage
Declarations.
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For purposes of the Municipal Liability Deductible, all claims for sewer back -up damages which are
covered under this endorsement, which occur within a 72 hour period, and which result from or are
related to the same condition or conditions in the city's sewer system are deemed to be a single
occurrence; and water main break damage which is covered under this endorsement and which occurs
during any period of 72 consecutive hours is deemed to be a single occurrence.
6. Retroactive Date
The retroactive date for this endorsement is
All other terms and conditions remain unchanged.
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