Covering the Exposures of Public Entities

The Colorado Association of School Executives endorses us and partners with us to offer a workers compensation safety dividend program for Colorado public schools. The program grants discount and dividends to participating school districts that implement safety measures, control loss ratios and minimize claims.

Our main markets for public entities are St. Paul Travelers, Hartford, Zurich (through Professional Underwriters) and Philadelphia Insurance Cos. Pinnacol Assurance is our primary workers compensation carrier.

Agents who write public entity accounts must understand the bidding process for this niche. Most of our insureds are required to seek bids periodically. Every three years is the norm, although a few invite bids every two years or five years. Most municipalities' expiration dates are Jan. 1, and public school districts' are July 1. Normally, workers compensation is bid separately from the other coverages. About 90% of our insureds provide us with a list of bid specifications. The larger the account, the more detailed its bid specs and the more likely it is to use a broker-selection process rather than a bidding free-for-all.

For broker selection, an insured sends out a request for proposals (RFP) to a number of brokers it knows, or at least believes, write public entity accounts. The request includes a series of questions about the brokers' experience, team members who will work on the account, their industry experience, their industry references, and perhaps information about related or similar programs they currently offer. Brokers interested in bidding on the account complete their respective questionnaires and return them to the insured, who reviews them and chooses two or three brokers to make oral presentations. From those candidates, the insured selects one to obtain quotes on its behalf from the appropriate markets.

I recommend the broker selection process because so few carriers write municipalities and school districts. If a public entity sent its bid specifications to every broker who expressed interest in writing its account, the brokers would all approach the same three or four markets, and the one who reached a carrier first might not necessarily be the one best qualified. It's better for the insured to choose a broker first–one who understands public entities, knows the best markets for them, and is likely to obtain complete quotes and secure the right coverages–and allow the broker to solicit quotes from carriers on its behalf.

Submitting an application for a school district or other public entity can be quite an undertaking. Agents can use ACORD forms to gather basic information, but they also must complete detailed questionnaires about the insured, its exposures and activities. For example, a municipality may have a variety of departments, such as water, sewer, fire, police, and park and recreation. For each one, I have to answer 10 to 30 questions about personnel, buildings, activities, practices, etc. Public schools are similar, except that instead of having many different departments, they're likely to have a variety of exposures, such as playgrounds, swimming pools, ROTC programs, vocational, after-school programs and outside builidng use arrangements. Applications can and should be quite detailed. Underwriters want to know not only how many students and teachers the school has, but also what programs are offered and how many students participate in each one–even how many sets of bleachers the football field has and how many people they hold.

When preparing a submission, we use our own risk survey and include photos of all the insured's buildings. The surveys help us ensure we've identified anything that might concern the carrier and have addressed it. If we encounter an exposure that we know an underwriter is going to flag, we can recommend ways to mitigate it or point out steps that already have been taken to minimize risk. The surveys also help us point out to the insurer areas in which the insured is doing well–such as implementing safety measures or maintaining low loss ratios.

Typically, it takes about 30 days to obtain a quote, although we prefer to allow 60 days, including the time spent preparing the submission. We find that the better a broker's relationship is with an insurer, and the more expertise he or she has in a niche, the more willing underwriters are to expedite the process when necessary.

How we present our proposal depends on the insured's procedures. We might meet with a finance director, city manager or school superintendent, or we might make a formal presentation to an insurance committee or school board. If we have been working with an account for many years, we may make a presentation to its board every two or three years, and otherwise just meet with the finance director. The only time we would simply drop off an information packet or sealed bid would be in the first stage of a RFP. We try to avoid such situations but sometimes cannot.

Cities need an array of coverages, including workers compensation, property, inland marine, general liability, employment practices liability, wrongful-acts coverage (formerly called "public officials liability"), auto and law-enforcement liability. Standard municipality programs exclude professional liability coverage, so municipalities with their own engineers, architects or attorneys must buy separate coverage for them.

Some carriers offer packages that encompass all the coverages most small and midsize municipalities need. We prefer to use such packages because they minimize the likelihood of coverage gaps and eliminate coverage disputes among multiple carriers. However, for accounts with real estate values exceeding $250 million, it may be better to place the property separately to get the best rates or terms.

All municipalities have pollution exposures, whether they know it or not. Underground storage tanks are an obvious exposure, but if a public entity has a swimming pool, owns a fleet of vehicles and a garage, operates a water or sewage-treatment plant, undertakes a building demolition or new construction, or acquires land, it also needs pollution liability coverage. For instance, school systems have bought land and demolished the structures to make way for new construction–only to uncover uninsured pollution problems requiring tens of millions of dollars to remediate. When an individual or private company finances the purchase of a parcel of land, the lender normally requires Phase I and Phase II environmental assessments, which would detect any pollution problems. That's often not the case, though, when a public entity buys land or acquires it through a grant or bequest. As a result, a municipality or school district may end up owning polluted land and have no coverage to respond to the exposure. We always offer pollution liability coverage to our public entity clients, but only about half of them buy it.

Another risk municipalities face, but sometimes don't insure, is employment practice liability. Employment-related claims have been widely reported, and public entities are beginning to realize how vulnerable they are to lawsuits alleging discrimination, sexual harassment, or other conduct that could trigger and EPL claim. When I started selling public entity insurance 20 years ago, EPLI wasn't even offered for municipalities. Since then, it has become a necessity. Today I wouldn't even consider offering a client a wrongful-acts (public officials liability) policy that didn't include EPLI, and I wouldn't work with a public entity that declined it.

Public entities can also have medical professional liability exposures. One of my municipality clients operates a facility where its employees go for pre-employment and post-employment physicals, drug screenings and treatment for work-related injuries. Teh physician, nurses and physical therapists are all employees of the city. Another client, a small mountain village that has trouble attracting physicians, is thinking of opening and operating a municipal medical clinic, including a pharmacy, for city employees and residents. So far, only a handful of municipalities in this state offer such medical services, but the trend seems to be catching on.

General liability limits for public entities range from $1 million to $10 million, depending on their size. Limits for law-enforcement liability often are slightly higher. Deductibles depend on the carrier, the niche and the amount of risk a public entity is willing to accept. On middle-market accounts, we increasingly see requirements for $5,000 to $10,000 property deductibles.

Colorado law grants public entities certain immunity protection for general liability and automobile claims. The state lso caps most general liability claims and automobile liability claims at $150,000 per injured person and $600,000 in any one incident, so most insureds purchase fairly low limits for these exposures. On the other hand, they buy higher limits for law-enforcement liability, public officials liability and wrongful-acts coveragebecause claims typically seen under these policies do not fall under the governmental immunity protection or the state liability caps.

Servicing the account
For municipalities and school districts, the largest and most consistent sources of claims are allegations of employment discrimination or wrongful termination. Among law enforcement agencies, claims alleging discrimination outnumber those alleging police brutality. In the past, lawsuits against law enforcement officers alleged wrongful arrest or excessive use of force. Now, though, claimants are more likely to charge that they were victims of racial profiling or were treated unfairly because they live in certain neighborhoods.

We sometimes see loss-frequency problems in regard to a public entity's fleet or its property inventory. When we do, we take steps immediately to find out what's causing the claims. If an insured can't account for computers or other property, did someone new take over inventory management? Did the lost property all come from the same department? Was it being used for some new program? In regard to vehicle accidents, what time of day and where did they occur? Was the weather a factor? Who was driving? The answers to such questions enable us to recommend appropriate action.

We have a loss-control manager on staff who offers our clients risk-management advice and a variety of tools, including assistance in implementing training programs for administrators or employees. We tell those clients who are reluctant to implement our suggestions that we may find it more difficult to obtain coverage for them in the future, and that their deductibles and premiums may increase significantly.

Public entities can make for challenging accounts. On any given day, I may hear that a city's police department wants to open its firing range to the public, that a city council decides to open a community medical clinic, or that a park district is thinking of building a rock-climbing wall. Protecting our clients from such exposures, however, gives me a lot of professional satisfaction and helps ensure a steady stream of business.

Jolene Vermeer is senior vice president of Acordia Mountain West, a Wells Fargo company based in Colorado Springs, Colo. Ms. Vermeer has been with the agency for 20 years. She handles large commercial-lines sales and also serves on the operations management team.