1998-1999 Insurance Program

The Corporate Services Committee recommends the adoption of the following report (March 19, 1998) from the Chief Financial Officer and Treasurer:

Purpose:

To report on the development of an insurance program for the City of Toronto for the period January 1, 1998, to May 1, 1999. It is critical that the recommended program be approved since the current liability insurance coverages for each of the former municipalities in the discussed areas of coverage can not be extended past May 1, 1998.

Source of Funds:

The proposed liability insurance program to date has a total cost of $2,981,700.00 ($2,772,500.00 premium plus $209,200.00 PST) not including proposed reserve funding of $325,000.00 for Environmental Impairment Issues. Funds have been requested in the various 1998 Operating Budgets for these costs. This amount is approximately $3,868,149.6 or 54 percent less than the combined premiums paid in 1997.

There have been other costs incurred since the beginning of the year in the nature of bridging or transition policies and other necessary extensions, and these are identified in Schedule A. These cover new programs or extensions of existing policies which have been made necessary as a result of the creation of the new City. The transition policies total $1,784,831.22 ($1,662,692.02 plus $122,139.20 PST) of one time costs. The other policies extended total $545,867.94 ($515,787.14 plus $30,080.80 PST) for the period January 1, 1998, to January 1, 1999. [1997 costs were $821,099.40 ($772,773.00 plus $48,326.40 PST] resulting in savings of $275,231.46, or 33.5 percent.)

In total, to date, the insurance program premiums including PST amount to $5,312,399.16 (1997 total costs were $7,653,306.04 resulting in savings to date of $2,340,906.88, or 30.5 percent.) Excluding one time transition costs and the Environmental Impairment Costs, the consolidated insurance program will result in savings of $4,125,738.10 or 53.9 percent to date. The balance of the program yet to be reported on totaled $1,883,740.00 in 1997 premium costs.

Recommendations:

It is recommended that:

(1) the insurance program proposed for Comprehensive General Liability, Automobile, Garage Automobile, Medical Malpractice, Excess Public Officials Errors and Omissions Liability and Excess and Umbrella Liability be approved for the period May 1, 1998, to May 1, 1999, at a cost of $2,981,700.00;

(2) the insurance commitments which were made from January 1, 1998 in the amount of $2,330,699.16 to the present to ensure adequate coverage for the City as identified in Schedule A be ratified; and

(3) an equivalent amount paid for Environmental Impairment Liability coverage in the approximate amount of $325,000.00 be set aside annually in a reserve fund to cover the cost of environmental engineering studies or future litigation costs and that staff review further options for coverage and report as required.

Background:

In September, 1997, Finance staff recognized the need to develop a comprehensive insurance program for the City of Toronto effective as soon as possible after January 1, 1998 which would incorporate components of all of the existing policies and coverages. Submissions were accepted from those firms which were providing insurance consulting services to the existing municipalities.

In November, 1997 J & H Marsh & McLennan, Limited were appointed as insurance consultants and broker of record to develop a comprehensive insurance program and ensure that appropriate coverages were in place for existing and new activities as of January 1, 1998.

Discussion:

Paragraphs 3 and 50 of Section 207 of the Municipal Act require the Council of a municipality to contract insurance coverage for the municipality and its employees. Coverage is extended to the majority of the municipal operations including the Library and Police Services Board, but excludes the Toronto Transit Commission as examples. To this end, staff from the former municipalities and J & H Marsh and McLennan have been meeting to develop an appropriate insurance program for the City. This report covers only the Comprehensive General Liability, Automobile, Garage Automobile and Medical Malpractice program including excess coverage as well as excess Public Officials Errors & Omissions Liability Coverage. A further report on property, boiler and machinery and other associated coverages as well as accidental death and business travel will follow shortly.

Other components of the insurance program have had to be placed in advance of this report as coverage had expired on several of the policies or new requirements were imposed as a result of the amalgamation of the former municipalities. These policies are identified in Schedule A. Schedule B outlines the status of all the coverages for the City; while Schedule C provides information on the 1997 former policies.

The components of the insurance program are identified as follows:

(1) Comprehensive General Liability:

This policy is for coverage of liability against the municipality arising out of bodily injury or property damage to third parties caused by the city operations or facilities. The liability coverage is in the amount of $5,000,000.00 with a self insured retention amount of $500,000.00

This coverage is for a one year period from May 1, 1998 to May 1, 1999, at a total cost of $2,008,800.00. The 1997 comparative cost was $4,645,416.96. However the difference in cost for this coverage and those which follow are also due in part to a change in the self insured retention levels which are higher than those carried in 1997 in the majority of the former municipalities but which is considered appropriate given the size of the City.

The insurer for this component is Liberty International Canada.

(2) Medical Malpractice:

This coverage is in respect of liability arising out of bodily injury to third parties caused by the city's medical personnel.

The coverage is for $5,000,000.00 with a self insured retention amount of $500,000.00 for a one year period from May 1, 1998 to May 1, 1999 at a total cost of $118,800.00.

The comparative cost for 1997 which was applicable for two of the former municipalities was $202,878.00.

The insurer for this component is Liberty International Canada.

(3) Automobile and Garage Automobile:

This coverage is in respect of liability arising out of bodily injury or property damage to third parties arising out of the operation of the City's approximately 5,550 licenced vehicles including physical damage to such vehicles and accident benefits to injured employees.

The second component is for liability arising out of bodily injury or property damage to third parties arising out of the operation of parking garages.

Coverage is for $5,000,000.00 with a $50,000.00 retention for direct damage and third party liability for all vehicles except fire, ambulance and police, which have a $250,000.00 retention for third party liability.

The period of coverage is one year from May 1, 1998, to May 1, 1999, at a total cost of $441,000.00. The comparative 1997 total was $1,429,601.68.

The insurer for this component is Liberty International Canada.

(4) Umbrella and Excess Liability:

This coverage provides an excess layer of protection in the amount of $95,000,000.00 which is excess of the primary $5,000,000.00 coverage provided in the Comprehensive General Liability, Medical Malpractice, Automobile and Garage Automobile policies described above. In addition, the excess coverage is applicable to the Public Officials Errors and Omissions primary policy which was placed for a one year period commencing January 1, 1998. Details of this coverage are provided in Schedule A.

The period of coverage is one year from May 1, 1998 to May 1, 1999, at a total cost of $413,100.00. The 1997 premium cost was $554,310.00, however, only three of the former municipalities previously sought this form of coverage.

The insurers for this program are Reliance Insurance Company, Scottish & York/Sovereign Insurance Company, Gerling Global Insurance Company and Royal Insurance Company.

In total the 1998-1999 insurance premiums are $3,850,506.64 including taxes or 56 percent less than the combined premiums paid by the municipalities in 1997 for the above noted policies. Of these cost reductions 40.3 percent of the savings are a result of increased self insured retentions while 59.7 percent are the result of greater purchasing power and consolidation of policies. The former municipalities had various self insurance or deductible amounts ranging from $10,000.00 to $500,000.00 and for 1998 - 1999, the recommended self insured amounts are:

Comprehensive General Liability $500,000.00

Medical Malpractice $500,000.00

Automobile/Garage Automobile $ 50,000.00/$250,000.00

These limits are recommended as a result of a comprehensive financial analysis on the capability of the City to carry increased self retention amounts and the potential impact on the City of claims exceeding certain limits. In addition, the analysis includes a study of various amounts and the cost/benefits impact of the alternatives. It is proposed that the $500,000.00 level is the most appropriate amount as it offers savings to the City over the 1997 amounts paid and will provide a comfort level to the insurers for the upcoming year.

Environmental Impairment Liability:

Staff have reviewed an insurance program for Environmental Impairment Liability (EIL) coverage. At this point we are not prepared to recommend that the City enter into such a program and we will be allowing various coverages for the former municipalities to lapse.

A more comprehensive analysis of the information for EIL coverage after a City-wide examination of locations is required. In the meantime it is recommended that the premiums paid by the former municipalities in the approximate amount of $325,000.00 be set aside in a reserve fund to improve loss prevention efforts or as a means of funding future litigation costs associated with such claims.

Conclusion:

It is recommended that the insurance program for Comprehensive General Liability, Automobile, Garage Automobile and Medical Malpractice, Excess Public Officials Errors and Omissions Liability and Umbrella and Excess Liability coverage as described above be approved. It is also recommended that the costs incurred to date to ensure continued coverage be approved for payment. Details are provided in Schedule A.

Finally it is recommended that EIL funding in the approximate amount of $325,000.00 be set aside in a reserve fund to fund studies or provide a source of funding for litigation expenses in claims in this area.

Contact Name:

Report prepared by: Glenn Kippen

Telephone: 778-2063

Facsimile: 778-0109

E-Mail: gkippen@borough.eastyork.on.ca

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Schedule `A'

Insurance Coverages in Effect From January 1, 1998

(1) Crime Coverage

Crime coverage ceased as of December 31, 1997, with the amalgamation of the seven municipalities.

This coverage is for loss of money, securities or other property due to employee dishonesty or loss of money and securities due to theft.

Details are as follows:

Insurance Company: Protection Mutual Company

Coverage period: January 1, 1998, to January 1, 1999

Limit of Insurance: $25,000,000.00

Deductible: $10,000.00

Cost: $84,510.00 ($78,250.00 plus $6,260.00 PST)

1997 Cost: $112,004.64 ($103,708.00 plus $8,296.64 PST)

Note: Credits have been provided for previous policies which were cancelled as at January 1, 1998.

(2) Owned Aircraft Hull and Liability Insurance Coverage

Aircraft Hull and Liability coverage was required as of January 1, 1998, with expiration of the previous policy which had been in the name of Metropolitan Toronto.

This coverage relates to liability arising out of bodily injury or property damage to third parties arising out of the use of owned aircraft, as well as loss due to physical damage of the aircraft itself.

Details are as follows:

Insurance Company: British Aviation Insurance Co. Ltd.

Coverage period: January 1, 1998, to January 1, 1999

Limit of liability coverage: $10,000,000.00 (combined)

Deductible: $1,000.00 for hull damage

Cost: $2,980.80 ($2,760.00 plus $220.80 PST)

1997 Cost: $3,504.60 ($3,245.00 plus $259.60 PST)

(3) Consolidated Public Officials Errors and Omissions Liability Coverage

As of January 1, 1998, we were required to provide errors and omission coverage for the new City Officials.

Coverage is extended for wrongful acts committed by the City's elected or appointed officials, members of commissions, boards, etc., lawyers, architects, engineers, or accountants, etc.

Details are as follows:

Insurance Company: Liberty International.

Primary Liability

Coverage period: January 1, 1998, to January 1, 1999.

Limit of Coverage: $5,000,000.00.

Deductible: $100,000.00.

Cost: $318,600.00 ($295,000.00 plus $23,600.00 PST).

1997 Total Cost: $536,897.16 ($497,127.00 plus $39,770.16 PST).

(4) Marine Hull and Machinery Coverage

Coverage is provided from January 1, 1998 for physical damage to the marine fleet of both the former Metropolitan Toronto and City of Toronto.

Details are as follows:

Insurance Company: 11 different companies with various interests.

Coverage period: January 1, 1998, to January 1, 1999.

Limit of coverage: Fleet value-$21,164,500.00.

Deductibles: Various between $5,000.00 and $15,000.00 depending on the vessel.

Cost: $88,943.85.

1997 Cost: $117,644.00.

(5) Protection and Indemnity

As of February 20, 1998, this coverage was renewed for a further year. Coverage relates to the marine fleet for the former Metropolitan Toronto and City of Toronto.

Details are as follows:

Insurance Company: Shipowners' Mutual.

Coverage period: February 20, 1998, to February 20, 1999.

Limit of coverage: $500,000,000.00.

Deductible: $1,000.00 to $5,000.00.

Cost: $50,833.29.

1997 Cost: $51,049.00.

(6) Extension of Former Metropolitan Toronto Coverages (Transition Policy)

A significant part of the insurance program for the former Metropolitan Toronto expired on December 31, 1997. It was necessary to extend the existing policies for Comprehensive General Liability, Medical Malpractice, Automobile and Umbrella and Excess Liability to May 1, 1998, which is the expected date for the implementation of the new insurance program.

Details of the program are as follows:

Insurance Companies: Liberty Mutual Insurance Co.

Scottish & York Insurance Co.

American Home Assurance Co.

Reliance Insurance Co.

CIGNA Insurance Co. of Canada

Coverage period: January 1, 1998, to May 1, 1998.

Limit of coverage: Extension of the existing policies.

Deductibles: Extension of existing conditions as at December 31, 1997.

Cost: $607,216.66 ($566,704.00 plus $40,508.66 PST).

(7) Excess Public Officials, Liability Errors & Omissions (Transition Policy)

This coverage relates to Item number 3 and provides additional liability limits in excess of the above noted Public Officials Errors and Omissions primary coverage.

Coverage period: January 1, 1998, to May 1, 1998.

Limit of coverage: $95,000,000.00.

Cost: $29,274.48 ($27,106.00 plus $2,168.48 PST).

(8) New Exposures Coverage (Transition Policy)

As of January 1, 1998, there were certain activities of the former municipalities which were not covered as part of the new city. As an example, any vehicle acquired in the name of the City of Toronto required coverage under a new insurance policy.

Details are as follows:

Insurance Company: Liberty Mutual Insurance Co.

Scottish & York Insurance Co.

American Home Assurance Co.

Reliance Insurance Co.

CIGNA Insurance Co. Of Canada

At various excess levels

Coverage period: January 1, 1998, to May 1, 1998.

Limit of coverage: Extension of existing coverages to the assets and activities of the new City to the former Metropolitan Toronto limits as described above.

Deductibles: Various.

Cost: $5,859.00 ($5,425.00 plus $434.00 PST).

(9) City of Scarborough-Excess Limits of Liability (Transition Policy)

As of January 1, 1998, the former City of Scarborough coverage for liability purposes was less than that of the other municipalities. This coverage increased their coverage by $40,000,000.00.

Details are as follows:

Coverage period: January 1,1998, to May 1, 1998.

Limit of coverage: $40,000,000.00 of excess liability coverage.

Cost: $1,620.00 ($1,500.00 plus $120.00 PST).

(10) Difference in Conditions Coverage-Property (Transition Policy)

This policy is intended to raise the coverage for all of the former municipalities to the level of the City of North York for property and business interruption if there were some policies which were more restrictive. It is also a means of ensuring that coverage would be extended in certain situations where coverage may have been deficient or questioned as to responsibility.

Details are as follows:

Coverage period: January 1, 1998, to May 1, 1998

Limit of coverage: Transitional coverage to former City of North York limits.

Cost: $8,999.64 ($8,333.00 plus $666.64 PST).

(11) Bridging Coverage-Liability (Transition Policy)

This policy provides coverage in the former municipalities where differences in conditions or in limits may have existed. This would ensure that any claim that may have been rejected because of an uncertainty of coverage or ownership of the claim will be honoured by the insurer.

Details are as follows:

Coverage period: January 1, to May 1, 1998.

Limit of coverage: Increase in limits and conditions.

Cost: $5,859.00 ($5,425.00 plus $434.00 PST).

(12) Extension of Property, Boiler and Machinery and User Group Coverages (Transition Policy).

The policies from the former municipalities for purposes of property, boiler and machinery and user groups have different expiration dates. In order to protect the assets of the City, we have extended the expiration dates to May 1, 1998.

Details are as follows:

Coverage period: Various starting dates to May 1, 1998.

Limits of coverage: Extension of existing policies.

Cost: $25,067.40 ($23,211.00 plus $1,856.40 PST).

(13) OMEX Extension of Coverage (Transition Policy)

At December 31, 1997, the municipalities were faced with the need to identify any potential claims which would occur under each of their municipal errors and omissions policies. OMEX, the insurer for the former Borough of East York and the cities of Toronto, York and Etobicoke provided an extension of the reporting period to January 31, 1998. The cost was $1,100,935.04 ($1,024,988.02 plus $75,947.02 PST)

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Schedule `B'

Insurance Premiums Comparison

(PST not included)

(A copy of Schedule `C' entitled "1997 Insurance Policies - Former Municipalities" was forwarded to all Members of Council with the March 30, 1998, agenda of the Corporate Services Committee and a copy thereof is also on file in the office of the City Clerk.)