Public Entity Insurance Isn’t Road Salt Or Fill Dirt

What to Consider When Evaluating Public Entity Insurance Programs

During the winter I was traveling in the snowy Northeast calling on agents. Between appointments, I passed a local hardware store that prominently displayed on outdoor signage “Road Salt” and a price per pound.

I know there are individuals living in warmer climates where road salt isn’t sold, so let me provide you with a different point of reference. On another business trip in the Southwest, I passed a similar sign on the side of the road that read, “Fill Dirt — $12.”

Regardless of which example you gravitate toward, the point is we often see both as “one size fits all” or “commodity” products without much distinction of difference among choices. All road salt melts the ice and snow, and fill dirt is fill dirt — most is pretty similar.

Unfortunately, too often many buyers of public entity insurance approach the buying of their insurance like they do the buying of road salt, fill dirt and other commodity-type products for their municipality entity. Selectmen, boards of trustees and directors, school boards, superintendents and other public entity decision-makers mean well and want to do what is in the best interest of their constituents. What they lack is clarity, explanation, and education or information from their agent or broker because public entity insurance isn’t road salt or fill dirt.

If you, as the agent, are not drawing these distinctions and properly informing your clients and prospects, then your errors and omissions (E&O) insurance policy is potentially at risk. If there is an issue later, will the public entity say you did not fully explain the coverage differences relative to any pricing? Will they make a claim against your E&O policy?

When reviewing public entity insurance, it is important to consider coverage, deductibles and security.

Special Coverage

Not all coverage is the same. As the producer, if you are not conducting a full review and pointing out the differences, are you providing the best possible service to your client or prospect? Specialty programs designed for their particular niche, whether public entity or otherwise, generally have special coverages, specifically designed for the exposures those insureds face. Consider a public entity specialty program for a public entity risk and weigh that program’s position in the public entity marketplace as a factor in its evaluation.

From a coverage perspective, public entities face unique situations. For instance, municipal insureds with embedded water entities or stand-alone (non-embedded) water entities need coverage for “Failure to Supply.” Yet this is not always understood or consistent from one policy offering to another.

Many insurance companies and programs use ISO forms. Standard ISO general liability forms have an exclusion for failure to supply unless the failure is “sudden and accidental.”

If a water company or municipality intentionally shuts off the water (in an effort to repair a line break), the claim might be questioned because it is “purposeful and intended” rather than “sudden and accidental.” It is usually best to choose a general liability policy without standard ISO forms/wording for public entities with water exposures because then the policy typically will not be as limiting.

Valuation

Another coverage area to review is the valuation on emergency service vehicles (fire trucks, ambulances, rescue vehicles, etc.). Look for programs that provide valuation at either agreed value or guaranteed replacement cost, thus assuring equipment that may be worth hundreds of thousands of dollars can be replaced.

Often, standard carriers and even some specialty programs value these vehicles at actual cash value (ACV) — applying depreciation to the claim resolution. Keep this in mind when reviewing proposals because valuation differences can more than eclipse savings that public entities are receiving on the front-end pricing. All too often insureds buy on price with little or no consideration of the impact that aspects like valuation will have on the ultimate cost of their insurance.

In addition to emergency service vehicles, consider the valuation of emergency services equipment that can be sub-limited on a standard inland marine policy.

A program with “guaranteed replacement cost” literally replaces the damaged equipment and saves the insured depreciation on “jaws of life,” infrared heat detection equipment and other critical equipment. A potential small savings up front on pricing may pale if an expensive piece of equipment is replaced at a depreciated value.

Water Exposures

Water testing E&O is yet another area of focus for those entities with water-related exposures. Whether the entity in question handles water and/or wastewater, the typical general liability policy excludes, by design, professional liability.

Look for coverage for acts and/or omissions related to both water and wastewater activities (as appropriate) for the prospect or insured. This should cover bodily injury as well as property damage. Interestingly, most offerings do not afford coverage for both. If there is a testing error, ask what the cost would be for an uncovered claim?

Deductibles

In addition to coverage, consider deductible differences, especially on property, public officials’ management liability and law enforcement liability policies from program to program. The difference between a $1,000 deductible and a $5,000 deductible can quickly add up with just a few claims.

Look at the insureds’ loss history and calculate the average number of claims multiplied by the deductible difference. This calculation can be a great selling tool when presenting an insurance proposal against a lower priced, higher deductible program.

Some public entity programs offer a zero deductible option on law enforcement liability and public officials’ management liability policies, subject to underwriting and losses.

Security

We all know the rating scales of A.M. Best and other agencies, but how are we communicating the financial size category information to the insured?

Weigh the importance of financial stability when analyzing the insureds’ options. If selling against one of many public entity pools across the country, the insured may be assuming joint and several liability, and the pool may not be backed by the state guarantee fund in the event of insolvency. It is important to show the account that they may be liable for unknown and unpredictable losses from the pool.

Public entity insurance is not all the same. Considering, reviewing and communicating coverage, deductibles and security will help insulate your E&O policy — and demonstrate to your prospect or insured the value you bring as their agent or broker.

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