02-14-1990 Council Agenda - Laserfiche WebLink

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Did you know? Peter Tritz How much liability coverage is enough? The Minnesota Supreme Court recently upheld the statute which sets a monetary limit on the state's liability. In Lienhard v. State of Minnesota, the plaintiff had argued that the liability limit denied him equal protection, and that the liability limit did not bear a rational relationship to a legitimate gov- ernmental purpose. (This case is sum- marized in greater detail in the Court Decisions column this month.) There is also a statutory limit of $200,000 per claimant and $600,000 per occurrence on cities' tort liability. Most cities purchase liability coverage equal to the statutory limits. However, some cities do choose to purchase higher limits. Of League of Minnesota Cities Insurance Trust (LMCIT) mem- bers, about one - quarter purchase higher limits of coverage. One of the reasons for this is a concern that the statutory limits might not stand up in court. Now that the Supreme Court has answered many of those concerns, cities are once again reviewing the question of how much liability coverage they should purchase. There are some good reasons why a city should consider higher limits of liability protection. There are also good arguments against it. Constitutional questions First, cities should keep in mind that the Court did not quite close the door entirely on questions about the consti- tutionality of liability limits. In Lienhard, the plaintiff argued among other things that the $100,000 limit on the state's liability that was then in effect was unreasonable. The Court disagreed, but specifically pointed out that the Legislature had periodically reviewed and revised the limit. A particular dollar limit that is reasonable now might not be reasonable in the future, after the effect of several years of inflation. If the Legislature were to leave the limits unchanged during many years of infla- tion, a future Court might decide that 16 the limit was no longer reasonable and throw it out on those grounds. The Court also briefly discussed whether the "rational relationship" test was the proper one to use. The court noted that if there was a "funda- mental right" involved, there could be an argument for a stricter standard. The plaintiff in Lienhard hadn't made this argument in the lower courts, so the Supreme Court declined to rule on it. The Court did comment that it had used the "rational relationship" test in considering the constitutionality of other parts of the municipal tort liability law. However, the Court seemed to leave room to consider in a future case whether or not to use a stricter stand- ard constitutional standard. In short, although the Minnesota Court has now upheld the liability limit as constitutional, that may not perma- nently and completely resolve the issue. The court could in the future decide that the limit was no longer reasonable or could decide to apply a tougher standard, which conceivably could lead to a different result. Exceptions to the liability limit statute A second point cities must keep in mind when considering how much liabil- ity coverage to purchase is that the limits don't or may not apply to certain kinds of liability. One example is liability that the city has assumed by contract. This could occur in an indemnification or "hold harmless" clause in a con- tract. The statutory limits might not apply since this liability would be based on a contract rather than on a city tort. Another example is liability under the federal civil rights laws. It seems doubtful whether a state statute can limit liability created by a federal law. See Thompson v. Village of Holes Corners, 340 NW2d 704 (Wis. 1983) for example. The liability limit statute also might not apply to torts that occur in another state. Cities near the Minnesota border might have this kind of exposure if they have mutual aid or other kinds of joint powers agreements with cities in a neighboring state. It could also arise when a city officer attends a conference or seminar in another state. The municipal tort liability limit also does not appl} to liability for illegal liquor sales under the dram shop law (M.S. 340A.801, see M.S. 466.15). Another exception is pollution claims; the liability limit for these claims is double the general municipal tort liabil- ity limit. (See M.S. 466.04, Subd. lc). Of course, the city would need also to check whether the coverage they are considering would apply to these claims. Umbrella policies often exclude pollution and liquor claims; this is also true of the excess coverage LMCIT offers. Gaps in the city's primary coverage A third reason for considering buying higher liability limits is that the city's primary coverage might not cover all of the city's exposure within the statutory limits, even if the coverage limits are set at the same level as the statute. Some insurance companies only offer coverage limits in half- million dollar increments; obviously this amount of coverage will leave a gap for the city. But there are a couple of other less obvious ways in which the underlying coverage can turn out to be inadequate. One such way is if the underlying coverage incorporates an annual aggre- gate limit in addition to a per- person or per - occurrence limit. An annual aggre- gate limit restricts the total amount the policy will pay per year, regardless of the number of claims or occurrences. If there is an annual limit, and if one claim is paid, there conceivably might not be adequate limits left under the policy to cover the city's full potential liability under the statute. Continued page 18 Page 60 6_b 89 Minnesota Cities