3 reasons why public power utilities buy excess casualty insurance

Based on post by George Z. Adkins, Managing Director & Power Generation Practice Leader, Wortham Power Gen Insurance

Public power utilities may want to evaluate the financial protection provided by excess casualty or umbrella insurance policies. When evaluating insurance coverage options, public power utilities should consider three key items.

  1. Tort Immunity Statutes Have Gaps in Liability

While many states maintain tort immunity statutes (and/or gross negligence requirement/financial caps) to limit lawsuit liability exposure for municipal entities, there may be gaps in these statutes that leave public power utilities at risk or financially vulnerable.

Examples of tort immunity statute gaps may include:

  • Damages arising from motor vehicle negligence;
  • Damages from previously noted dangerous conditions on utility premises;
  • Damages arising from proprietary/ministerial functions, 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; and
  • Defense/legal costs.
  1. Caps on Damages Can be High
    For claims not protected by tort immunity, some states provide financial caps and prohibitions on damages (e.g., no punitive damages or pre-judgment interest). These caps can still be large and financially painful, especially for smaller public power utilities.

Specific examples of caps on damages provided by tort immunity statutes that may 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. Several judgments could be paid for one occurrence.
  • Florida: Claimant can file with legislature to recover damages in excess of cap ($200K per claimant/$300K per occurrence).
  1. State Protections Do Not Always Apply to Municipalities
    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, municipally-owned utilities not regulated by state commissions (e.g., AL, CA, CT, IA, MA, NY, TX) are not protected by this clause. Therefore, municipal utilities in these states can be held liable if proven to have deviated from an ordinary standard of care.

Insurance Claims Paid Outside of Tort Protection
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 include:

  • 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