FYI:

-Mike Hammond

Liability Limits Increased

In 2006, Government Entities Mutual, Inc. (GEM) began its fourth year of reinsuring MVRMA's liability coverage document. GEM is a mutual insurance company licensed under the captive insurance statutes of Washington, D.C. to write reinsurance. It is considered an association sponsored captive of the National Public Entity Insurance program and is capitalized by the surplus contributions of its 18 members. MVRMA was one of the 12 Founding Members of GEM in 2003. GEM reinsures MVRMA's coverage document excess MVRMA's $1 million self-insured retention.

The 2006 reinsurance renewal premium from GEM was based on an increase of 2.4% in payroll exposures and a decrease of 0.8% in vehicle exposures. The GEM premium, for the $1 million layer it retained, reflected an 11.2% reduction in liability (other than auto) and a 6.5% reduction in automobile liability. Overall, the GEM premium for its layer was reduced by 9.4%.

GEM’s rating for the liability layer ($1M X $1M) is based on an actuarial loss rate and scheduled rating process for each member. MVRMA’s premium reduction for 2006 can be attributed, in large part, to its overall favorable loss experience.

For 2006, GEM was able to retrocede liability coverage, excess $2 million, to American Re. Using this approach, GEM will issue the full limits of liability coverage in the member reinsurance agreement. Since each member will have only one agreement, problems associated with multiple agreements and the reporting of claims to multiple carriers will be eliminated. This arrangement duplicates the 2003 agreement, which was not possible in the two previous years, because GEM was unable to secure a retrocessionaire for the additional limits.

American Re is an A rated company with strong security. It is considered one of the premier public entity liability insurers. MVRMA’s liability coverage had been placed with American Re in the past, but until recently, its pricing had become uncompetitive.

GEM and its partner American Re afforded MVRMA the opportunity to increase its total liability limits for 2006 from $7 million to $10 million per occurrence. This increased liability limit will provide additional security for MVRMA's members.

If MVRMA had selected comparable limits to last year, the 2006 liability insurance premium would have increased approximately 6%. With the added liability limits, the total premium is approximately 15% greater than last year, but still less than the amount projected in the 2006 budget.

MVRMA's relationship with GEM has allowed it to obtain increased liability limits at very competitive pricing for its members.

Crime Coverage

National Union Fire Insurance Co. (AIG), an A++ rated insurer, has provided MVRMA's crime coverage for several years. Driver Alliant Insurance Services, Inc. (DAIS), MVRMA's insurance broker, was able to obtain very favorable pricing and enhanced terms and conditions for the 2006 renewal. DAIS was able to negotiate a slight reduction in premium, and limits remain unchanged from expiring. Additionally, National Union agreed to add the crime coverage for MVRMA staff and officers at no additional cost. Previously, we placed the association coverage separately with another insurer.

DAIS was able to persuade National Union not to require new applications from each member for this year's renewal, an announcement that was well-received by everyone. National Union also agreed to delete the bonded employee exclusion contained in the previous crime policy.

For 2006, the crime policy includes treasurers or tax collectors as employees, adds faithful performance of duty for governmental employees and deletes the bonded employee exclusion contained in the previous policy. As you can see, the current crime policy, which provides a limit of $1 million per occurrence for employee theft, generally negates the need for separate surety bonds and could result in further savings for our members.

DAIS secured very favorable renewals with enhanced coverage for MVRMA.

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Counselors' Comments

 - Dinsmore & Shohl

Forced by the Sixth Circuit to address an issue which the Court tried to duck in 1998, on December 21, 2005, the Ohio Supreme Court in McNamara, et al. v. City of Rittman, 1 Ohio St. 3d 243 (2005) ruled that Ohio "landowners have a property interest in the groundwater underlying their land and that governmental interference with that right can constitute and unconstitutional taking." In so holding, the Supreme Court opens the door for individuals to file claims against municipal governments whose activities in any way diminish the quantity or quality of water which is held or flows beneath a landowner's real estate.

In Rittman, the city had purchased a tract of land for the purpose of drilling three wells to serve the City's water needs. Plaintiffs claimed the City's operation lowered the aquifer below their real estate, causing water shortages and poor quality water. In a companion case, in order to extend its sewer lines, the City of Columbus dug a deep trench near the plaintiff's property. To keep water out of the trench during construction, groundwater was pumped from under the plaintiff's property, which allegedly caused the plaintiff's wells to go dry. Both plaintiffs filed claims in Federal Court alleging such actions constituted unreasonable use of their groundwater, and that the governmental entities are thus liable for an unconstitutional "taking" of plaintiffs' property. Because the issue of whether landowners in Ohio have a property right in groundwater had never been specifically addressed, the Sixth Circuit certified the question to the Ohio Supreme Court.

Historically, Ohio law provided landowners had absolute ownership of groundwater beneath their property, finding "such waters to be regarded as part of the land itself, to be enjoyed absolutely by the proprietor within whose territory it lies." Frasier v. Brown 12 Ohio St. 294 (1861). Under Frasier, any owner of property was entitled to use all the groundwater he could, without regard to how that use effected neighboring landowners. A hundred years later, in Cline v. Am. Aggregates Corp., 15 Ohio St. 3d. 384 (1984), the Court modified Frasier and held that each landowner has property rights with respect to groundwater, and therefore adopted a "reasonable use" doctrine. "Through Cline, a property owner has a remedy against another property owner with land overlying a common aquifer, if the other landowner's use of the water unreasonably diminishes his water supply."

In the current litigation, the municipalities argued that although Cline established that property owners have the right to reasonable use of the groundwater beneath their property, they have no ownership right in the water itself, thus the government cannot be liable for "taking" something not owned. In rejecting the City's argument, the Ohio Supreme Court noted "groundwater rights are knowable and protectible" and "the well-being of Ohio homeowners, the stability of Ohio's economy and the reliability of real estate transfers require the protection of groundwater rights." The Rittman Court thus held "the title to property includes the right to use the groundwater beneath that property," and under Section 19, Article 1 of the Ohio Constitution, "any taking, whether it be physical or merely deprives the owner of an intangible interest appurtenant to the premises, entitles the owner to compensation."

Based on the Supreme Court's decision in Rittman, municipalities in Ohio must now carefully consider what impact their construction activities and/or use of municipal water systems may have on the groundwater beneath the real estate of all other individual property owners.

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The Claims File

- Craig Blair

In 2005, the total number of claims reported was 345, which is up slightly from 2004, but is consistent with the previous five year average. We can expect another 15-20 claims against this loss year. There are already nine lawsuits filed against 2005, which is about double what would be expected. Severity (which is the amount paid plus open reserves), not frequency, is used to evaluate any loss year, and 2005 is dramatically higher than the five year average. It has the sixth highest 12 month incurred figure in MVRMA's 17 year history.

In all, 23 lawsuits were filed against MVRMA members in 2005, which is significantly more than expected. Again, severity (monetary value) is the important factor, and other than those filed against 2005, the lawsuits appear consistent with the norm.

Last year, our attorneys were successful in getting 15 lawsuits dismissed, and while we settled four, none were of any major significance. Historically, 65% of MVRMA's lawsuits are dismissed, but the 2005 results were slightly higher.

Subrogation, filing for reimbursement against third parties who damage city property, is one of MVRMA's value added services. Please call or refer to the Subrogation Policy in the MVRMA Handbook if you have questions. The chart below shows the history of MVRMA's subrogation activity:

1996-2004                        57                                  $2,142

2005                                  48                                  $2,734

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Loss Control Lowdown

-Starr Markworth

It's time again for my annual SPEC visits. Unfortunately, not everyone in our cities is familiar with SPEC, and the idea of being evaluated can be rather intimidating.

The SPEC (Safety Performance Evaluation Checklist) program was developed as a tool to be used by our member cities and MVRMA staff to determine what safety and loss control areas require improvement. The criteria for SPEC were established using insurance and loss control industry "best practices" that have been proven to reduce risk exposures.

Each year I schedule a site visit with every member city where I, hopefully, have an opportunity to meet with each department manager. Being able to meet with the individual departments generally provides the most accurate response and documentation for each standard. It's also a perfect time to educate our cities about the many member services available from MVRMA.

In 2005, five communities scored 100% compliance, while most of the others scored in the 80-90% range. We applaud our members' dedication to safety and loss control and annually present an award to the city with the highest percentage of SPEC compliance (Pinnacle Award) and the city with the most improved percentage of SPEC compliance (Ascension Award).

In order to support members in complying with the SPEC program, a SPEC Standards and Commentary document has been developed. It defines the purpose for each standard and provides methods by which a member can achieve compliance. To obtain a complete copy of the SPEC standards, please contact the MVRMA office.

I would be happy to meet with any city for a pre-SPEC conference in advance of the formal SPEC evaluation.

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Brokers Beat

In the October issue of Risky Business, we discussed our Special Liability Insurance Program (SLIP) and our Special Property Insurance Program (SPIP). Both of these programs provide excellent liability and property coverage for organizations that are not eligible for MVRMA coverage. In this issue, we will discuss our Special Events Program which provides liability coverage for specific events.

Although the Special Events Program can cover a number of different types of events, we would like to confine our comments to Tenant/User events. The typical Tenant/User event is a wedding that is being held on city property, such as a park or community building. Typically, the city will ask the event holder for a liability certificate of insurance naming the city an additional insured. For weddings, the event holder will normally be an individual and use the liability portion of his Homeowners policy to respond to the city's insurance/certificate requirements.

But, a number of problems may surface when using the Homeowners policy as a means of protecting the city's liability for these kinds of special events. Homeowners' underwriters are often reluctant to add municipal entities as additional insureds, and when confronted with the specific knowledge of insuring a large celebration, they get nervous. In addition, the Homeowners policy does not always respond properly to the liquor liability exposure at these events. Often times, the Homeowners policy is unable to meet other insurance requirements of the city, such as $1,000,000 limits and "primary" provisions.

In other situations, the event holder simply does not have Homeowners insurance.

The Special Event policy will pick up liability coverage for the wedding in the name of the individual or event holder, include the city as an additional insured and provide $1,000,000 limits, primary provisions and an option for liquor liability, if necessary. The typical premium charge for a wedding of fewer than 100 guests is $84 for a single day, with an additional charge for liquor liability of $60. Typically, these charges are passed on to the event holder. The liability coverage under the Special Events policy has no deductible, includes Products coverage for food and will be primary to the city's liability coverage with MVRMA. The coverage is easily arranged with Driver Alliant, which has the authority to underwrite and bind routine events such as weddings.

There are numerous other events and situations that can be covered under the Special Events policy, and we will focus on those situations in future issues.

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Are Cell Phones Safe?

As of December 2005, more than 200 million people in the United States were using cell phones. They're used at home, at the office and even on the treadmill. At this point, we don't know how we ever got along without them. But are they safe?

There is no link between use of cell phones and the risk of developing a brain tumor, according to a new study published in the journal Neurology.

Danish researchers questioned 427 people with brain tumors and 822 without brain tumors about cell phone use. There was no increased risk for brain tumors found despite frequency of use or number of years of use. For a portion of the participants, researchers studied cell phone records and compared those to actual participant recall to ensure that people who had brain tumors did not exaggerate or minimize past cell phone usage.

Additionally, brain tumors were not found more frequently on the side of the head where the phone was usually held.

The study was supported by the European Commission Fifth Framework Program, International Union Against Cancer, International Epidemiology Institute and the Danish Cancer Society. It did not look at regular or heavy cell phone use for 10 years or more.

Perhaps a more important question is "What about when driving - are cell phones safe?" There have been conflicting studies, but most appear to indicate talking on a cell phone while driving, even with a hands-free device, should be avoided. The greatest danger to drivers who use cell phones is the distraction cause by the conversation.

Many employers have cell phone policies. Some require hands-free devices only, while others ban completely the use of cell phones while operating a company vehicle. Does your city have a cell phone policy? If so, it would behoove you to know what that policy is.

But, whether on company time or your own, we strongly encourage you to pull over rather than make a phone call while driving. Your safety, as well as that of your passengers and others on the road, should be your first priority.

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From the Board Room

At the December 19, 2005 Quarterly Board Meeting, the following actions were taken:

- Approved revisions to the SPEC program which include: 1. Making the effective date for the revisions January 2007; 2. Instituting the "improvement plan" when members have a loss to premium ratio exceeding 60% and an average SPEC compliance for the last three years that is less than 80%; 3. Requiring the improvement plan, which includes quarterly visits from MVRMA, for a period of two years

- Approved the 2006 liability renewal option that provides coverage of $9M excess MVRMA's $1M self insured retention

- Approved the 2006 crime coverage renewal with National Union Fire Insurance Co. (AIG)

- Approved the 2006 Final Budget and Objectives/Work Plan

- Approved the selection of Clark Schaefer Hackett Co. to provide auditing services to MVRMA for the next five years

- Approved the agreement with Carol Riggle to provide assistance with the GAAP conversion and trial balance for the 2005 financial audit

- Increased the investment target for Bond Tech to a maximum of $8M

- Elected the following slate of officers for 2006: President - Sue Knight, Troy; Vice President - Tom Reilly, West Carrollton; Treasurer - Mark Schlagheck, Centerville; Secretary - Julie Trick, Vandalia

- Approved the following dates for MVRMA's 2006 Quarterly Board Meetings: Monday, March 20; Monday, June 19; Monday, September 25; Monday, December 18

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