South Coast Air Quality Management District

Approve Purchase of Excess General Liability Insurance

SYNOPSIS:

AQMD currently has a $2,000,000 self-insurance reserve for its general and automobile liability exposures. At this level, AQMD has found it difficult to meet contractual insurance requirements imposed by other entities, which commonly call for liability limits of at least $5,000,000. Approval of this request will allow AQMD's insurance broker to increase its general liability insurance limits to $5,000,000, and would provide sufficient coverage for liability exposures linked to participation in the California Fuel Cell Project and the Alternative Fuel Vehicle Loan Program.

COMMITTEE:

Administrative, January 12, 2001, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Executive Officer and AQMD's insurance broker to obtain and bind the excess general liability insurance coverage with limits of at least $5,000,000, per occurrence, with a self-insured retention of $1,000,000.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

AQMD has been self-insured for its general and automobile liability exposures since June 1, 1986. At that time, liability insurance premiums became cost-prohibitive due to hardening insurance markets. Additionally, substantial bodily injury judgments against public entities were being awarded by civil juries. A designated reserve of $2,000,000 has been identified in the annual budgets for many years for self-insurance purposes. This self-insurance program has saved AQMD a tremendous amount of money over the last fifteen years in comparison to fully insuring those exposures through the purchase of commercial insurance coverages.

However, AQMD is finding it increasingly difficult to meet contractual insurance requirements imposed by other entities, which commonly call for liability limits of at least $5,000,000. These contractual insurance requirements range from property leases for off-site air monitoring stations to Technology Advancement funding contracts for innovative air pollution control and clean fuel technology projects.

AQMD's insurance broker, Aon Risk Services, has performed an extensive search of global insurance markets for excess general liability insurance coverage of at least $5,000,000, per occurrence and in an aggregate. Insurers approached by Aon included Zurich Insurance Group, Discover Reinsurance, Lloyds of London, American Safety Insurance, Royal Insurance Company, and Aon's own Associated Public Entity Programs liability pool. The only insurer willing to provide a quote for excess liability insurance coverage of $5,000,000 with a self-insurance reserve of between $500,000 and $1,000,000 was New Hampshire Insurance Company. The quoted coverage, contained in a comprehensive broad-form policy, includes defense costs in addition to the limits of insurance. The annual premium for this coverage is $56,700.

Aon is confident that in subsequent renewals the annual premium and/or the self-insured retention level of $1,000,000 can be reduced, after establishment of an acceptable claims history.

Proposal

This action is to authorize AQMD's insurance broker to increase the general liability insurance limits to $5,000,000, to provide sufficient coverage for liability exposures linked to participation in the California Fuel Cell Project and the Alternative Fuel Vehicle Loan Program.

Resource Impacts

Sufficient funds for the premium of $56,700 exist in the District General - Insurance Account of the FY 2000-01 Budget.

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