Purchase of Excess Casualty Insurance Still Prudent Choice for Public Power Utilities

April 2017

While many states maintain TORT immunity statutes (and/or Gross Negligence Requirement/Financial Caps) to limit lawsuit liability exposure for municipal entities, such statutes do not provide 100% full proof protection.  Public power utilities should evaluate the financial protection provided by the purchase of Excess Casualty (Umbrella) insurance policies.

Gaps in TORT Immunity
Following are examples of TORT immunity Gaps as determined by the Judiciary:

  • Damages arising from motor vehicle negligence,
  • Damages from dangerous conditions on Utility premises, where previous notice has been given,
  • Damages arising from proprietary/ministerial functions (those performed in capacity as a business) such as performing work under a contract and making an operating decision intended to save money,
  • Damages resulting from an activity in which the utility DOES NOT have statutory immunity,
  • Defense/Legal costs (amounts vary by state).

Financial Caps/Prohibitions
For claims not protected by TORT immunity, some states provide financial caps and prohibitions (e.g., no punitive damages or pre-judgment interest) on damages.  Unfortunately, the need for Excess Casualty (Umbrella) insurance is still in play as these caps can be large enough to be painful financially.

Gross Negligence versus Deviate from Standard of Care
In states where public utilities commissions regulate rates, TORT protection can extend from the “limitations of liability” clause of state statutes. Usually, claimants in these states need to prove gross negligence or willful/wanton/intentional conduct. However, several state commissions (NY, AL, TX, IA, CT, MA, CA) do not regulate municipally-owned utilities. Therefore, municipal utilities in these states can be held liable if proven to have deviated only from an ordinary standard of care.

Examples of TORT Caps
The following are specific examples of caps on damages provided by TORT immunity statutes that are notably high and place a municipal utility at financial risk:

  • Nebraska–Caps on damages against “political subdivisions” are $1M per claimant and $5M per occurrence.
  • Missouri–Caps are $300K per claimant and $2M per occurrence.
  • Iowa–No caps on punitive damages.
  • Alabama–$100K cap for claims of property damage only applies per judgment.  Therefore, several judgments could be paid for one occurrence.
  • Florida–Claimant can file with legislature to recover damages in excess of caps ($200K per claimant/$300K per occurrence).

Examples of Insurance Claims Paid Outside of TORT Protection
The following are instances in which a municipal entity with sufficient Excess Casualty (Umbrella) coverage received an insurance payment for an incident not covered by TORT protection statutes:

  • Fire from fallen transmission pole; $800K paid
  • Contractor electrocuted by contact; multiple fatalities; $675k paid
  • Gas leak/Explosion from cast iron pipe, $6.5M paid
  • Gas Leak/Explosion leveled home; fatality; $3.2M paid
  • Gas Leak/flash fire/explosion, 1 fatality and 1 severe injury; $900K paid

Note for JAAs
The ability of Joint Action/Operating Agencies to utilize TORT immunity statutes to limit financial exposure from negligence claims has not been tested, to our knowledge.

For More Information
To evaluate the liability exposure of your utility and learn about the financial protection of Excess Casualty insurance, contact:
George Z. Adkins
Managing Director & Power Generation Practice Leader
Dir: 713/346-1295      Fax: 713/521-8295     Cell: 281/935-7586
LinkedIn Author Page Link


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