HomeMy WebLinkAbout2002-05-21; Municipal Water District; 530; Property, Boiler And Machinery InsuranceCARLSBAD MUNICIPAL WATER DISTRICT AGENDA BILL&
AB# 530
CITY MGR + DEPT. RM
CITY ATTY. &@ MTG. 5/21/02
DEPT. HD: e m: PROPERTY, AND BOILER AND MACHINERY
INSURANCE
Adopt Resolution No. 1151 authorizing the expenditure of $79,092 for Property, and Boiler
and Machinery Insurance.
I ITEM EXPLANATION:
On October 5, 1993, Council and the Carlsbad Municipal Water District (CMWD) Board
approved the placement of the City's and CMWD's property insurance with the Public Entity
Property Insurance Program, a program developed by the Robert F. Driver Company (now
Driver-Alliant), for public agencies. The cost is allocated to departments based on claims,
experience and department size.
The premium to renew the property insurance at our current deductible of $5,000 for the period
May 15,2002 through May 15,2003 (coverage was bound pending Council and Board action)
is $1 10,799. This is an increase of nearly $52,000 or 88% over the premium paid last year.
This is due to an overall increase in property values and a continued hardening of the property
insurance market, particularly as a result of the tragedies of September 11, 2001.
Prior to the September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon
the insurance market was already adjusting rates upward. Several forces were at work creating
this upward rate adjustment:
J Interest income from investments was negligible due to the low interest rates and poor
returns of the financial markets.
J Social inflation continued to increase the cost of claims, Le., costs to repair property
losses, legal expenses and labor costs were all increasing.
J The number of catastrophe claims (hurricanes, tornados, etc.) which were below
average in the mid-1990s increased in the last few years, adding pressure to increase
insurance rates.
J Mold claims are the new and unexpected claim type which the industry had not
contemplated in rate or loss reserves. This caused rate increases for both property and
liability coverages.
The terrorist attacks of September 11, 2001 added significant new factors which dramatically
worsen the insurance market. These factors and resulting impacts to the market are listed
below.
J Insured losses from this catastrophe are estimated at $40 billion to $75 billion.
Page 2 of AB #530 (CMWD)
J Prior to the September 11 disaster the largest single loss to the insurance market was
Hurricane Andrew, which officially totaled $16.5 billion. Not only do the losses
associated with September 11 dwarf that figure, but they have had the distinction of
concurrently impacting multiple sectors of the insurance market, a scenario the industry had previously deemed unlikely.
J A large component of the losses are property losses, which require payment in a
relatively short time frame. This means many insurance companies have immediate
cash needs.
J The loss of asset value in the financial markets has reduced insurance company surplus
to the extent that insurance companies were invested in equities. This was further
reduced as a result of the slow down of business and loss of earnings stemming from
the attacks of September 11, 2001. The capacity (the amount of available insurance) in
the insurance industry has been significantly reduced as well. Many insurance
companies are able to accept a smaller limit of liability than was previously their
maximum, and new coverage restrictions have emerged.
In addition to the increase in premium the renewal contains several changes in coverage.
Those applicable to City property include exclusions for corrosion, terrorism, asbestos, mold,
fungus, dry rot, wet rot and bacteria. In addition, ensuing pollution coverage is restricted to
specific perils, the trained animal coverage is reduced to $25,000, and the fine arts coverage is
reduced to $2,5000,000. The significance of each of these is highlighted below.
Corrosion: This is really wear and tear which is not currently covered. The exclusion simply
makes this clear.
Terrorism: Although coverage is now excluded, the ability to buy it back is being investigated
by Driver-Alliant. A determination on the availability and cost of this coverage will not be known
for an estimated one to two months.
Asbestos: There are very few locations with any asbestos. The hazards of this material are an
issue only when it is disturbed, such as during floor removal or roof replacement. Staff is aware
of these few sites and the steps necessary to mitigate the hazards during any construction
activity.
Mold, funaus. drv rot, wet rot and bacteria: These are exposures the property insurance market
never intended to cover. This exclusion makes clear that coverage will not apply. The losses
associated with them can be significant and a determination on the availability and cost of this
coverage from another source is in progress.
Ensuina pollution: This restriction to specific perils is really aimed at the mold issue. Under our
current coverage, for example, "dampness" is not now excluded. As a result, coverage for mold
was available because it could be claimed to be the result of dampness. The ensuing pollution
coverage is now for specified perils to ensure the coverage is applied as intended. These
include the common property perils such as fire, lightning, smoke, vandalism, accidental
discharge from fire protective systems, and others.
Trained Animals: The cost to replace a police canine is within the new coverage limit of
$25,000.
Fine Arts: The City has not assumed coverage for art work in values approximating this
amount, Most exhibits require the purchase of separate fine arts coverage or coverage is
provided by the artist.
Page 3 of AB #530 (CMWD)
Our coverage was marketed with the following results:
Affiliated Facton, Mutual: Not accepting new business from public entities at this time.
Facton, Mutual Global: Requires 80% of property value in non-combustible buildings.
St. Paul Companies: Declined to provide a quote at this time.
Zurich Insurance Group: No quote was received in time for the renewal. Travelers Insurance: Quote was essentially the same as that recommended by staff
except a $100,000 deductible is required.
In the past and based on the City’s low loss history, reductions in the premium for an increased
deductible have been insignificant. As a result, the City’s deductible has remained at $5,000,
the required deductible when the City joined the program as a member of PARSAC (Public
Agency Risk Sharing Authority of California).
Now, the premium will change significantly with an increase in risk retention. The optional
deductions and respective premiums are listed below.
$ 5,000 deductible: $1 10,799 premium
$10,000 deductible: $ 98,771 premium
$25,000 deductible: $79.092 premium*
$50,000 deductible: $ 68,212 premium*
*The deductible for the boiler and machinery portion of our coverage would remain at $10,000. No premium reductions were available for an increase in the deductible for this coverage.
Raising our deductible to $10,000 results in a savings of 11%. However, raising it to the
$25,000 level results in a 30% decrease in our premium without an unacceptable increase in
loss exposure. There have been only 3 covered losses in the past twelve (12) years. Two at
approximately the $10,000 level and 1 totaled $120,000. This is an average of one covered
loss every 4 years. At the $25,000 deductible recommended by staff, the City immediately
saves the equivalent of 3 losses at the $10,000 level. Doubling this deductible, our loss
exposure, to $50,000 results in an additional savings of only 10%.
FISCAL IMPACT:
The property and boiler and machinery insurance premium is $79,092. Sufficient funds are
available in the Insurance Premium Account.
EXHIBITS:
1. Resolution No. 1151
2. Public Entity Property Insurance Program Summary of Coverage and Limits
3. Public Entity Property Insurance Program Boiler and Machinery Program
1
2
3
4
5
6
7
a
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
RESOLUTION NO. 1151
A RESOLUTION OF THE BOARD OF DIRECTORS OF
THE CARLSBAD MUNICIPAL WATER DISTRICT,
AUTHORIZING THE RENEWAL OF PROPERTY, AND
BOILER AND MACHINERY INSURANCE THROUGH THE
PUBLIC ENTITY PROPERTY INSURANCE PROGRAM
WHEREAS, the Carlsbad Municipal Water District has previously maintained
property and boiler and machinery insurance for assets; and
WHEREAS, the Carlsbad Municipal Water District has received quotations for
the continuation of coverage; and
WHEREAS, upon evaluation of the quotations for both property and boiler and
machinery insurance, the Carlsbad Municipal Water District desires to renew its insurance
through the Driver-Alliant company.
NOW, THEREFORE, be it resolved by the Board of Directors of the Carlsbad Municipal Water
District, as follows:
1. That the above recitations are true and correct.
2. That the renewal of property and boiler and machinery insurance through
Driver-Alliant is hereby approved.
PASSED AND ADOPTED THIS 21'' DAY OF MAY ,2002,
BY THE FOLLOWING VOTE TO WIT:
AYES: Board Members Lewis, Kulchin, Finnila, Nygaard, Hall
NOES: None A
ABSENT: None
ABSTAIN: None
ATTEST:
EXHIBIT 1
driverralllant INSURANCE SERVICES California Lic# OC36861 INTEGRATED INSLJRANCE R FINANCIAL SERVICES
PUBLIC ENTITY PROPERTY INSURANCE PROGRAM (PEPIP)
PROPERTY INSURANCE
PRELIMINARY PREMIUM INDICATION
NAMED INSURED: Public Entity Property Insurance Program including:
CITY OF CARLSBAD
(See Section 3 for complete Named Insured)
EFFECTIVE DATE: May 15,2002 to May 15,2003
INSURANCE CARRIERS: See Section 2
TOTAL INSURED
VALUES: $ 105,506,344
LOCATIONS: See Section 10
COVERAGES AND LIMITS:
$ 500,000,000 Loss Limit per occurrence for Real Property, Personal Property, Rental Income, Business Interruption, Ordinary Payroll and Extra Expense subject to the following sublimits:
$ No coverage Individual Flood - Per Occurrence
$ 389,500,000 Program Flood - Per Occurrence & Annual Aggregate - shared with other members in this Declaration
$ No coverage Earthquake Shock - Per Occurrence & Annual Aggregate
$ 100,000,000 Combined Business Interruption, Extra Expense, Rental Income and Tax Interruption
$ 10,000,000 Miscellaneous Unnamed Locations and automatic acquisition as respects new and existing members (Does not apply to Earthquake)
CITY OF CARLSBAD
PROPERTY INDICATION
COVERAGES AND LIMITS: (continued)
$ 10,000,000 Landscaping, tees, sand traps, greens and athletic fields
$ 10,000,000 Errors & Omissions
$ 10,000,000 Course of Construction (including new for total project values up to $10,000,000)
$ 500,000 Money & Securities
$ 2,500,000 Unscheduled Fine Arts ($25,000 each Sublimit for Furs, Jewelery, Precious Metals, and Stores)
$ 10,000 Accidental Contamination
$ 500,000 Unscheduled tunnels, bridges, dams catwalks (except those not for public use), roadways, highways, streets, sidewalks, culverts, street lights and traffic signals
Note: Coverage is limited to non-FEMA\OES declared emergencies and excludes damage caused by earthquake
$ 10,000,000 Demolition and Increased Cost of Construction due to the enforcement of building codes applying at the time of loss and up to 12 months after the loss date
$ 5,000,000 Transit
$ 1,000,000 Animals, $25,000 per Animal
$ 1,000,000 Watercraft under 27 feet
$ 500,000 Newly Acquired Vehicles (current members with auto coverage only)
$ 2,500,000 Replacement power extra expense at scheduled utility locations
$ 2,500,000 Off premises Service Interruption including Extra Expense resulting from a covered peril at non-owned/operated locations
$ 250,000 Contingent Business Interruption resulting from a covered peril at non-owned/operated power generating facilities; limit is per membedper occurrence
2
CITY OF CARLSBAD
PROPERTY INDICATION
. .-
COVERAGES AND LIMITS: (continued)
$ 5,000,000 Per occurrence and in the aggregate:
vehicles, contractors equipment and fine arts
Earthquake shock on licensed vehicles, unlicensed
combined for all insureddmembers combined that do not purchase optional coverage: Earthquake Shock
DEDUCTIBLES:
ALL RISK:
noOD:
EARTHQUAKE:
AUTO COLLJSION:
AUTO COMPRFHENSIVE:
SERVICEINTERRUTION:
UNSCHEDULEDTUNNELS,
CATWALKS (EXCEPT
BRIDGES, DAMS,
THOSE NOT FOR PUBLIC
USE), ROADWAYS,
HIGHWAYS, STREETS,
SIDEWALKS, CULVERTS,
STREET LIGHTS AND
TRAFFIC SIGNAIS
MJSCELLANEOUS:
VALUATION.
ALL PROPERTY:
BusINFSs INTERRUTION:
$5,000
Flood Zone A Only: $250,000 Deductible for losses and/or property valued under $5,000,000. 2% Deductible for losses and/or property valued over $5,000,000. This change is still under negotiation.
All Other Locations $100,000
No coverage
10% of Values / $100,000 Minimum on historic buildings that have yet to be "retrofitted" for earthquake
$5,000
$5,000
24 hour waiting period all perils
$500,000 per occurrence
Not applicable
Repair or Replace and Agreed Amount
(for vehicles, see Section 5)
Actual Loss Sustained
3
CITY OF CARLSBAD
PROPERTY INDICATION
EXPECTEDCHANGES:
CANCELLATION
DRlVER SIGNATURE SERVICES:
ESTIMATEDPRE":
BROKER
Please see the attached list
90 Day Notice except 10 Days for Non-Payment
2001-2002 2002-2003 Total Renewal Available Available Available
12 13 25
$104,025
DRIVER ALLIANT INSURANCE SERVICES Newport Beach, California
Martin S. Heflin Rick Steddom
First Vice President Vice President
PEPP Program Manager
Diane McMullens Account Administrator
For a complete listing of your terms, exclusions and conditions, please refer to your policy
THIS IS JUST A PROPOSAL. PLEASE SEE THE POLICY FOR COMPLETE TERMS CONDITIONS AND EXCLUSIONS
*Analyzing insurers' ~ver-~ll prfomnce md financial smngth is a task that requires rpcialized rkillr and in-depth techricul understanding of all aspects of insurance
company finances and operations. insurance brokerages such as DRIVER ALLIANT INSURANCE SERVICES typically rely upon rating agencies for this type of
mark& analysis. Both A.M. Best and Standard and Poor have been industry leaders in this area for many decades, Utilizing a
combination of quantitative and qualitative analysis of the information available in formulating their ratings
.A.M. Best has nn extensive database of nearly 6.W LifeMealth, Properly Casualty and lnrsrnationnl companies. You can visit them at www.amberl.com
. F~~ infomation regarding inoux~~. financial strength ratings visit Standard and Poor's website 81 www.rwndardandwon.com
. T~ learn more about companies doing businerr in Cdifornia. visit the Cnlifornir Depnnmnt of lnrurancc website 1 www.in~urall~e.~~.eov
4
EXHIBIT 2
driVetralfi&Mlt INSURANCE SERVICES California Lie# OC36861 INTEGRATED INSURANCE & FINANCIAL SERVICES
PUBLIC ENTITY PROPERTY INSURANCE PROGRAM (PEPIP) BOILER & MACHINERY PREMIUM INDICATION
NAMED INSURED: CITY OF CARLSBAD
POLICY TERM: May 15,2002 to May 15,2003
INSURANCE CARRIER. CNA Insurance Company
BEST’S GUIDE RATING Abooled), Excellent, Financial Size Category 15, Policyholder
surplus greater than $2,000,000,000
STANDARD AND POOR’S A-
RATING:
CALIFORNIA STATUS: Admitted
COVERAGE:
LIMITS:
SUBLIMITS:
EXQEDITING EXPENSE
HAZARDOUS SUBSTANCE
AMMONIA CONTAMINATION
WATER DAMAGE
CONSEQUENTIAL DAMAGE
Comprehensive Coverage including Production Machinery,
Public Utility Equipment, Digestors, Business Interruption,
Extra Expense and Bond Revenue Payments, Loss Adjustment
Agreement, Defense Outside Limits, Errors in Description,
Earthquake Resultant Damage, Ammonia Contamination,
Water Damage, Hazardous Substance Clean-up, Expediting
Expense, Consequential Damage, Electronic computer or
Electronic data processing equipmpt
$50,000,000 Combined Limit - Properly Damage & Business
InterruptionRxtra Expense (including Bond
Revenue Interest Payments for locations where
the income is reported)
$10,000,000
$ 1,000,000
$10,000,000
$10,000,000
$10,000,000
Driver Alllant Insurance Services, Inc.
an Allionr Kewurrw Grmp ron~pnrg,
4041 MaL;i\rthur Blvd., Ste. 300, Newport Beach, CA 92658-251 1 P.O. Box 6450. Newport Beach. CA 92658.6450
Phone (949) 756-0271 Fax (949) 756-2713 - w.driveralliant.com
.*“, ,,
PUBLIC ENTITY PROPERTY INSURANCE PROGRAM (I'EPIP)
BOEER & MACHINERY PREMIUM INDICATION MAY 15,2002 TO MAY 15,2003
CITY OF CARLSBAD
SUBLIMITS: (continued)
DEMOLITION COST AND
INCREASED COST OF
CONSTRUCTION
ERRORS & OIVIISSIONS
BUILoINGORDINAhCECOVERAGES
SERVICE INTERRUPTION
EARTHQUAKE RESULTANT
DAMAGE
ELECTRONIC DATA
PROCESSING MEDIA
LOCATIONS:
NEWLY ACQUIRED
LOCATIONS:
VALUATION:
NOTICE OF CANCELLATION:
EXCLUSIONS:
(INCLUDING, BUT NOT LIMITD TO:)
$ 1,000,000
$10,000,000
$ 1,000,000
$10,000,000
$ 2,000,000 each incident
$ 2,000,000 eachmember
$ 2,000,000 aggregate
Coverage applies only to locations covered for Earthquake.
$ 2,000,000
Omnibus Location Wording
Must be reported to canier within 365 Days
Repair or Replacement except Actual Loss sustained for all
Time Element coverages
60 days except 10 days for non-payment of premium
Nuclear Hazard War and Military Action Fire or explosion outside the object that occurs at the same
time as the accident Water (fire extinguishing)
Lightning (fire extinguishing)
Flood
Testing
Lack of power, light, heat, steam or refiigeration A delay in or interruption of any business activity
2
PUBLIC ENTITY PROPERTY INSURANCE PROGRAM (PEPIP)
BOILER & MACHINERY PREMIUM INDICATION MAY 15,2002 TO MAY 15,2003
CITY OF CARLSBAD
EXCLUSIONS: (continued) 0
0
0
OBJECTS EXCLUDED:
PROPERTY DAMAGE
DEDUCTIBLES:
ELECTRONIC DATA PROCESSING MEDIA
Explosion, except for steam or centrifugal explosion
Explosion of gas or unconsumed fuel from furnace of the
Freeze or Wind
boiler
Electronic Date Recognition Clause (Y2K)
Bonus and penalties of a Power Sales Agreement
Exclusion
Insulating or refractory material Non metallic vessel unless meets ASME standards
Catalyst Buried vessel or piping
Furnace, oven, stove, incinerator, pot kiln
Structure, cabinet or compartment containing the object
Vehicle, aircraft, self-propelled equipment or floating
vessel
Elevator escalator, crane, hoist, ladle or bucket, power
shovel, dragline, escalator scale or conveyor but not excluding any boiler, fired vessel, unfired vessel normally
subject to vacuum or internal pressure other than the
weight of contents
Object manufactured by you for sale
Machine or apparatus used for research, diagnosis,
medication, surgical, therapeutic, dental or pathological
purposes Felt, wire screen, die, extrusion plate and swing hammer
$5,000 All objects over 200 HP, 1,000 KWKVMAhPS, or
Boilers over 5,000 Sq. Ft. heating surface
$50,000 All objects over 350 HP, 2,500 KWKVAlMS, or
Boilers over 10,000 Sq. Ft. heating surface
$250,000 All objects over 750 HP, 10,000 WKVAlMS,
or Boilers over 75,000 Sq. Ft. heating surface
$375,000 All objects over 25,000 HP, 25,000 WKVAlMS,
or Boilers over 250,000 Sq. Ft. heating surface
$2,500 All other insured objects
$5,000
CONSEQUENTIAL DAMAGE: $5,000
3
1 PUBLIC ENTITY PROPERTY INSURANCE PROGRAM (PEPIP)
BOILER & MACHINERY PREMIUM INDICATION
MAY 15,2002 TO MAY 15,2003
CITY OF CARLSBAD
TIME ELEMENT DEDUCTIBLES: 24 Hours on All Objects except: 5X 100% Daily value All objects over 750 HP, 10,000
KWKVNAMPS or 10,000 Sq. Ft. heating surface;
Treatment Facilities, Utilities;
30 days for Bond Revenue interest payments
~ 5X 100% Daily value All objects at Wastewater
TOTAL INSURED VALUES: $ 94,843,800
ANNUAL PREMIUM: $ 6,774
BROKER Driver Alliant Insurance Services P. 0. Box 6450
Newport Beach, CA 92660-6450
W. Jefiey Mann
Vice President
Rick Steddom
Vice President
Michel Maciel
Account Administrator
REFER TO YOUR POLICY FOR A COMPLETE LISTllvG OF TENS, EXCLUSIONSAND CONDITIONS
THIS IS JUST A PROPOSAL. PLEASE SEE THE POLICY FOR COMPLETE TERMS CONDITIONS AND EXCLUSIONS
'Analyzing insurers' over-all performance and financial strength is a task that requires specialized skills and in-depth technical understanding of all aspects of
insurance company finances and operations.
Insurance brokerages such as DRIVER ALLIANT INSURANCE SERVICES typically rely upon rating agencies for this type
of market analysis. Both A.M. Best and Standard and Poor have been industry leaders in this area for many decades, utilizing
a combination of quantitative and qualitative analysis of the information available in formulating their ratings
-For additional information regarding insurer financial strength ratings visit Standard and Poor's website at www.standardandooors.com
-A.M. Best has an extensive database of nearly 6,MN) LifdHealth, Raperty Casualty and International companies. You can visit them at www.ambest.com
-To leam more about companies doing business in California, visit the California Depamnent of hsurance website at www.insurance.caaov
4