Agenda Report
June 20, 2022
TO: Honorable Mayor and City Council
FROM: City Attorney/City Prosecutor's Department
SUBJECT: AUTHORIZATION AND APPROVAL TO RENEW PROPERTY AND
CASUAL TY INSURANCE FOR THE CITY OF PASADENA FOR FISCAL YEAR 2023
RECOMMENDATION:
It is recommended that the City Council:
1. Find that the proposed action is exempt from the California Environmental Quality Act ("CEQA") pursuant to State CEQA Guidelines Section 15378(b)(4) and (5); and
2. Authorize City staff to place and bind the City's property and casualty insurance coverages outlined in this report effective July 1, 2022, unless otherwise noted, with the total amount not to exceed $6,308, 176, for all premiums, surcharges, taxes, and fees; and
3. Grant an exemption from the competitive selection process of the Competitive Bidding and Purchasing Ordinance, Pasadena Municipal code Chapter 4.08, pursuant to Section 4.08.049(8) contracts which the City's best interests are served. The proposed insurance coverages are exempt from the competitive bidding process pursuant to the City Charter Section 1002 (F), contracts for professional or unique services.
EXECUTIVE SUMMARY:
The City of Pasadena purchases property and casualty insurance to protect the City and its operating companies against catastrophic loss and to comply with various bond covenants and agreements. Alliant Insurance Services, Inc. (Alliant) serves as the City's insurance brokerage firm. Alliant has worked closely with the City and has focused on marketing all of the insurance placements to secure the best available renewal options for the City. Overall, the premium for the citywide insurance program has increased by MEETING OF ~-0_6_/_2_0_/_Z_2 _ AGENDA ITEM NO. __ 2_0 __ _ Renewal of Citywide Insurance Program
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approximately 21 % over the prior year (from $5,206,013 to not to exceed $6,308,176).
This increase is due to various factors, such as: hardened insurance markets, social inflation, large public entity verdicts and settlements, natural disasters, cyberattacks , and public entity losses throughout the country. These factors have caused similar increases in recent years and continue to do so in the current public entity insurance market.
BACKGROUND:
Alliant worked with City staff in various departments to determine the City's exposure and total insurable values for appropriate levels of coverage. Alliant went out to market, on behalf of the City, obtaining multiple options from highly rated carriers with a broad range of coverage. All recommendations for insurance coverage and premium indications are included in the City's Recommended FY 2023 Budget. As the City's insurance broker, premiums for all renewal policies, with the exception of excess general liability, will be paid to Alliant and Alliant will distribute to the various insurance carriers. The premium for excess general liability will be paid directly to the City's risk sharing pool, Public Risk Innovation, Solutions, and Management (PRISM).
INSURANCE RENEWAL
The chart below summarizes the recommended insurance renewals and new, enhanced coverages. An explanation of the various coverage groups is included in the following section.
Renewal of Citywide Insurance Program
June 20, 2022
City of Pasadena Citywide Insurance Program At-A-Glance Coverage Proposed Existing Difference Policy Limit Deductible/ SIR Premium Premium Property: City $1,134,372 $1,003,767 13% $250,000,000 $25,000 per occurrence, $100,000 for flood (includes premium for Cyber and Pollution)
Property: Power Plant $1,000,000 $912,819 10% $250,000,000 $750,000 all other property; $1,500,000 machinery breakdown
Cyber $65,000 $36,154 80% TBD Projected increase from incumbent. This is also to market for excess cyber limits.
$2,000,000 per
Pollution Liability Underground Storage Tanks $49,394 $46,720 6% pollution condition $50,000 $3,000,000 aggregate
Crime $47,527 $44,007 8% $5,000,000 $100,000 per occurrence; includes faithful performance coverage
$5,000,000 Self-Insured Retention per
occurrence, offense or wrongful act.
Excess General Liability $3,046,000 $2,272,105 34% $25,000,000 $1,000,000 Individual member corridor deductible per occurrence, offense or
wrongful act.
Healthcare Professional Liability: Medical $32,566 $35,881 -9% $10,000,000 $1,000,000 Malpractice Terrorism - Chemical, Biological, Radiological & $88,000 $82,084 7% $10,000,00 $50,000 Power Plant at 85 E. State Street; Nuclear $25,000 all other properties
Automobile Physical Damage $271,472 $239,985 13% $10,000,000 per $25,000 schedule Statutory
$1,000,000
Excess Workers' Compensation/ Employer's $348,070 $333,649 4% Employer's Liability. $4,000,000 Self-Insured Retention Liability Maximum Limit of Indemnity Per
Occurrence
Aircraft Hull & Liability $141,993 $129,405 9% $50,000,000 None Airport Owners and Operators Liability $9,014 $5,464 65% $50,000,000 Nil Foothill Air Support T earn, Liability and D&O $12,929 $12,929 0% $1 ,000,000 D&O $20,000 D&O Pasadena Center Operating Company (PCOC) $39,229 $31,383 25% TBD TBD General, Excess, and Management Liability Foothill Workforce Development Board (FWDB) $50,000 per occurrence. September 29th $12,192 $10,602 15% $3,000,000 renewal date. Will market for higher limits. General Liability Additional oremium mav aoolv.
Old Pasadena Management District (OPMD) $50,000 per occurrence. September 29th $10,418 $9,059 15% $3,000,000 renewal date. Will market for higher limits. General Liability Additional premium may apply.
TOT AL PREMIUM (including $6,308,176 $5,206,013 21% surcharges/taxes/fees) Renewal of Citywide Insurance Program
June 20, 2022
DISCUSSION OF COVERAGE (BY GROUPS)
❖ Group 1
Crime: The proposed renewal policy has an 8% increase in premium.
Coverage provides protection to the City against theft of City monies and securities by employees of the City and for the faithful performance of duties, also known as Fidelity and Crime Policy. Policy deductible remains at $100,000 with limits of $5,000,000. Only for Faithful Performance of Duty, the policy limit is $1,000,000 with a deductible of $25,000. Alliant anticipates a second quote to come in at a lower premium for the same $5,000,000 policy limit and $100,000 deductible. Once received, Alliant will review with City staff for consideration. ❖ Group 2
General/Excess Liability: The proposed renewal policy has an estimated 34% increase in premium. Renewal policies have increased over the past several years due to several reasons, including loss history and the overall hardening of the insurance marketplace. Most importantly, the California municipal market has been hit with "nuclear" jury verdicts due to many factors, including social inflation.
The City's liability program was established to fund third party liability exposures including General Liability, Automobile Liability, Law Enforcement Liability, Public Officials Liability, and Employment Practices Liability. These policies afford coverage to the City, its various Operating Companies, Successor Agencies, Commissions, etc. , against third party liability claims for property damage and/or bodily injury. The City purchases a total of $25,000,000 in limits on a per occurrence basis and is triggered after the City's $5,000,000 self-insured retention and $1 ,000,000 corridor deductible are exhausted. ❖ Group 3
Pollution Liability/Underground Storage Tank Liability: The proposed renewal policy has an estimated 6% increase in premium. Coverage under this policy provides environmental protection to the City for the discovery of pollution related claims, arising from covered operations at covered locations, resulting from City operations for which limited or no coverage is provided under the liability policies.
The policy also covers City's Underground Storage Tanks (USTs). The City maintains multiple USTs located throughout the City to fuel City vehicles including police and fire vehicles, aircraft, City sanitation trucks and street sweepers.
The policy has a $2,000,000 per pollution condition limit, a $3,000,000 aggregate limit, and a $50,000 deductible. The policy has a retroactive date of July 1, 2013 which means that the policy will cover a pollution related claim discovered anytime from July 1, 2013 to the current policy period. Pollution Liability includes coverage for site decontamination and remediation. Coverage extends to bodily Renewal of Citywide Insurance Program
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injury claims related to asbestos. In addition, the insurance carrier provides "value-added services" to include access to their proprietary system for reporting an incident which allows for quick dispatching, 24/7, of clean-up crews, mitigating potential liabilities.
❖ Group 4
Healthcare Professional Liability Medical Malpractice: The proposed renewal policy has an approximate 9% decrease in premium with no changes in coverage. The reduction in projected COVID-19 vaccinations and the risks associated with such activity is reflected in the premium decrease . The Policy limit remains $10,000,000 and deductible remains $1,000,000.
The City operates the Pasadena Public Health Department (PPHD). PPHD conducts various outpatient clinical operations including substance use treatment, tuberculosis diagnosis and treatment, and immunization . PPHD clinicians (doctors, nurses, social workers, and counselors) evaluate patients, order laboratory tests, prescribe medication, recommend treatment plans, and provide medical treatment. Medical Malpractice insurance affords coverage for errors and omissions of the medical providers and covers the facility. ❖ Group 5
Heliport and Aircraft, including LA IMPACT Aircraft: The proposed premium variance is an estimated 74% increase. This coverage provides protection to the City for liability arising out of its public safety/police helicopter operations and for the City's leadership role on the LA IMPACT Team. The policy carries a per occurrence limit of $50,000,000 for Aircraft Hull and Liability, with an aggregate of $50,000,000. Coverages include hull physical damage for the scheduled aircraft, damage done by the City's aircraft to someone else's hangar, and emergency landing. This policy also covers liability resulting from an error by pilot. In addition, the policy provides coverage for Airport Liability with a $50,000,000 per occurrence limit. This coverage complies with the City's contract with Burbank airport. The annual premium is apportioned between the City and LA IMPACT since the policy carries hull coverage for LA IMPACT aircraft. Alliant expects to receive two quotes-one with terms as expiring and another with a higher premium but more favorable terms to the City. Alliant will review both options with City staff for consideration.
❖ Group 6
Property: Power Plant: The proposed renewal policy has an estimated 10% increase in premium. The program provides property and equipment breakdown coverage for City's power plant facilities and machinery. The policy affords coverage for risks of loss or damage, including boiler explosion, machinery breakdown for City's power plant property. Policy limits remain at $250,000,000, Renewal of Citywide Insurance Program
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with deductibles of $750,000 per occurrence for all other property damage, and $1,500,000 per occurrence for machinery breakdown of GT1, GT3, and GT5 .
Property : Citywide: The proposed renewal policy has an estimated 13% increase in premium. This Property policy is purchased by the City for the balance of City owned and leased property, as scheduled. This policy includes coverage for fine arts, valuable papers, business personal property, business income and extended business income or rental value. Policy limits remain at $250,000,000 and deductible remains at $25,000, except for Flood, which is $100,000.
Terrorism - Chemical, Biological or Biochemical, Radiological or Nuclear (CBRN):
The proposed renewal policy has an estimated 7% increase in premium. Under the City's renewal property program, in addition to the City's coverage for damage to property, the proposed terrorism coverage will provide protection covering terrorism acts for citywide property to include the Rose Bowl and Power Plant. This policy affords coverage to include the actual release, discharge or dispersal of Chemical, Biological or Biochemical, Radiological or Nuclear Material (CBRN). This broader coverage assists after a CBRN event withremoval, disposal, treatment, demolition or destruction of scheduled property and removal of debris, decontamination, in the alternative, the policy will indemnify the City for rebuilding costs. Policy limits remain at $10,000,000 with a $25,000 deductible · for all other properties and a $50,000 deductible for the Power Plant at 85 East State Street.
Automobile Physical Damage: The proposed renewal policy .has an estimated 13% increase in premium, which is reflective of higher replacement cost values over last year. Policy will afford coverage for scheduled automobiles and mobile equipment owned by the City, at replacement cost, for covered perils including earth movement and flood. The policy limit is $10,000,000 per occurrence, with a sub-limit of $5,000,000 for earth movement, flood and windstorm, and a $25,000 per loss deductible.
❖ Group 7
Cyber Policy: The proposed premium variance is an estimated 80% increase.
This line of coverage continues to experience significant changes due to market conditions and several cyber incidents targeting municipalities nationwide. The current policy limit is $1,000,000 per occurrence with a $250,000 per loss deductible. The policy provides protection related to claims arising out of technology and miscellaneous, professional services, technology product, network security, privacy and media communications . An added benefit includes the ability for the City to use its own choice of providers and vendors in the event of a breach subject to $1,000,000 limit and this is first-dollar coverage. This coverage includes breach of information contained within City databases, i.e., employee data, resident data, credit card information, etc., by City employees or Renewal of Citywide Insurance Program
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a third-party. In addition, the City maintains a fiber optic network loop throughout the City with contractual connections with NASA/JPL, Caltech and Raytheon.
The City's database is further vulnerable by employee use of laptops, tablet and smartphones. The policy covers data breach response, crisis management, extortion threats and data recovery. Alliant continues to market for higher/excess limits and the estimated premium for such limits are subject to change. ❖ Group 8
Special Liability Insurance Policies: Policies provide liability coverage to the Pasadena Center Operating Company (PCOC), Foothill Workforce Development Board (FWDB), and Old Pasa.dena Management District (OPMD). Alliant is still negotiating the renewal for PCOC, FWDB, and OPMD and has provided conservative estimates as noted on page 3. Alliant is also pursuing excess policy limits for consideration.
❖ Group 9
Excess Worker's Compensation: The proposed renewal policy has an estimated 4% increase in premium . The City currently self-funds all Workers' Compensation losses. Excess Workers' Compensation policy provides coverage above the self insured retention to protect against a major catastrophe, including terrorist attack(s), causing injuries to multiple employees (such as, the December 2, 2015 terrorist attacks at the San Bernardino Government Center). The City has a number of locations housing large concentrations of employees outside of City Hall. This policy will stop the City's loss at $4,000,000 per incident and continue to pay the statutory Workers' Compensation benefits.
ENVIRONMENTAL:
State CEQA Guidelines Section 15378 provides guidance on the types of projects to which CEQA does and does not apply. Project does not include, among others, actions such as government fiscal activities which do not involve any commitment to any specific project, or organizational and administrative activities of governments that will not result in direct or indirect physical changes in the environment, as set forth in subsections (4) and (5) thereto. Renewal of insurance falls under both these categories, therefore no environmental review is required.
COUNCIL POLICY CONSIDERATION:
This action supports the City Council's strategic planning goal to maintain fiscal responsibility and stability and to protect the City's infrastructure and collateral for bond purposes.
Renewal of Citywide Insurance Program
June 20, 2022
FISCAL IMPACT:
In accordance with the table provided in the Insurance Renewal section of this report, the cost of adopting all of the proposed actions is approximately $6,308,176 including additional surcharges, taxes and fees, for insurance renewal. Funding for the recommended action is included in the City's Recommended FY 2023 Operating Budget within various departmental budgets .
For context, in FY 2022, $1.76 million has been budgeted to departments in the General Fund as it relates to insurance premiums. For FY 2023, the amount budgeted to the General Fund will increase to approximately $1.97 million, which reflects escalating premiums. Depending on the type of insurance coverage, departments are allocated their share of premium costs on the basis of either Full-Time Equivalents, property square footage, and/or vehicles.
Prepared by:
--~~
Risk & Insurance Administrator
Concurrence:
Respectfully submitted,
Michele Beal Bagner'
City Attorney/City ro