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Exhibit 1 - Agenda Information SheetCity of Denton _____________________________________________________________________________________ AGENDA INFORMATION SHEET DEPARTMENT: Procurement and Compliance ACM: David Gaines DATE: January 5, 2021 SUBJECT Consider adoption of an ordinance ratifying the expenditure of funds by the City Manager and the Purchasing Agent for the purchase of excess liability insurance coverage for the City of Denton, and authorizing the expenditure of additional funds for such purpose, through the City’s sole broker of record, Lockton Companies, LLC,; and providing an effective date (File 7595 – awarded to Argo Group International Holdings Ltd. for a three (3) year not-to-exceed amount of $906,981.00). INFORMATION/BACKGROUND The City of Denton’s current expiring excess liability insurance policy includes all liability exposures (general, auto, public officials, law enforcement, and employment practices) through Argo Group International Holdings, Ltd. (Argo). This policy was secured effective December 31, 2019, through the marketing efforts of our broker of record at the time, McGriff, Seibels, & Williams (McGriff). The City has a $500,000 per occurrence Self-Insured Retention (SIR) under this policy, with insurance coverage up to $5,000,000 on all liability exposures. Although the City is self-funded for our liability exposures and relies on the immunities and damage caps contained in the Texas Tort Claims Act (TTCA), there are several areas that do not fall under the TTCA. Therefore, the City has potentially unlimited liability: • Law Enforcement Liability – the City potentially has no limits for liability claims alleging violations of Civil Rights due to police activity. These claims could stem from charges of wrongful arrest/detention, unlawful search and seizure, deprivation of Civil Rights, and excessive force. • Electric Utility Operations – by definition, the operation of a public utility by a municipality, in this case, the operations of Denton Municipal Electric (DME), are considered to be proprietary functions and are excluded from any immunities or damage caps provided under the TTCA. Any operation of DME that resulted in property damage, injury, or death could have the potential for a claim with unlimited liability. • Employment Practices Liability – in many cases, these types of claims contain an allegation that the Civil Rights of an employee or a prospective employee were violated, so no limit on liability applies. Examples of these types of claims could include discrimination, harassment, violations of the Americans with Disabilities Act (ADA), or the Family Medical Leave Act (FMLA). Although these claims are not commonplace, the City has settled employment-related claims in the past. City Hall 215 E. McKinney Street Denton, Texas www.cityofdenton.com Because of these exposures, the City has purchased the excess liability policy to provide an added layer of protection to our self-funded program. The excess insurance marketplace has gone through some major changes over the past few years; we are very fortunate that we could maintain a lower SIR of $500,000. Given the complexities of this insurance product solicitation as described in greater detail below, the City utilized the services of our sole broker of record, Lockton, to assist us in procuring this coverage. Lockton was appointed the broker of record for the City of Denton on August 6, 2020, and information about the City’s current programs was provided to Lockton to begin their review shortly afterward. The request for the general liability exposures and applications was made on October 7, with final applications submitted on November 11. Underwriting for such insurance coverage typically takes a minimum of thirty days; despite the strict time constraints due to the delay in providing required information to Lockton and the expiration of the current coverage on December 31, 2020, Lockton was able to get the current quote faster than would normally be expected. While Lockton has access to markets all over the world, there are specific Public Entity insurance markets that Lockton does not have access to. In order to access these markets, Lockton works with an intermediary named CRC. CRC has a specific Public Entity division and has worked for the City of Denton for the past two years, alongside Denton’s prior retail broker(s). Public entities are difficult for insurance carriers to insure due to large property and liability limits placed in small geographical areas. As carriers have left the public sector market due to losses, the remaining carriers have had to make some changes to their limits and deductible structures to maintain feasibility in the market. The firming pricing landscape of 2019 gave way to a new reality in 2020, as insurance markets reduced capacity, tightened terms, and delivered some of the steepest premium increases on record. Already struggling with unsustainable loss activity, the market was also forced to confront challenges associated with COVID-19, a rolling shutdown of the global economy, historically low interest rates, natural catastrophes, and civil strife. Renewals in the second quarter of 2020 saw some of the largest pricing increases since 2003, led by umbrella/excess liability, directors’ and officers’ liability, property, and commercial auto. This trend is likely to continue through 2022, although the rate of increase should begin to moderate by late 2021. Any prediction, however, is clouded by ongoing uncertainty. For the excess liability coverage, Lockton received the last required completed application on November 16. CRC advised that in 2019, they approached 12 markets as part of the renewal solicitation. Argo won the business with Berkley providing a competitive option; the other ten markets were either not competitive or declined. As part of the strategy for 2020, CRC approached Berkley again to gauge their interest as well as Argo as the incumbent; however, Berkley was not able to meet the quote deadline based on when they received the final applications. CRC did not approach the previous ten markets from 2019 as the market has only hardened over the last 12 months, and if these markets were not competitive in 2019, they would not be competitive in 2020. As a result, Lockton received a favorable quote from Argo, the incumbent, to renew the City’s expiring policy. Based on the evaluation of the proposal, both staff and our broker of record, Lockton, recommend the purchase of excess liability insurance through Lockton from the Argo Group with the $500,000 SIR for an annual premium of $237,897.00. Argo is an A-rated carrier by AM Best with a financial strength rating of XIV ($1.5 billion to $2 billion). PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS) On December 16, 2019, the City Council awarded a contract for Excess Liability Insurance to McGriff, Seibels & Williams with coverage placed with Argo Group International Holdings Ltd. RECOMMENDATION Award a contract with Argo Group International Holdings Ltd., for the purchase of excess liability insurance coverage for the City of Denton, in a three (3) year not-to-exceed amount of $906,981. PRINCIPAL PLACE OF BUSINESS Lockton Companies, LLC Kansas City, MO Argo Group International Holdings Ltd San Antonio, TX ESTIMATED SCHEDULE OF PROJECT Services under this contract will begin on December 31, 2020. FISCAL INFORMATION These services will be funded from the Risk Retention Fund. Requisitions will be entered on an as-needed basis. The budgeted amount for this item is $906,981. EXHIBITS Exhibit 1: Agenda Information Sheet Exhibit 2: Argo Group Proposal for Excess General Liability Exhibit 3: Broker Recommendation Letter Exhibit 4: LLC Members Exhibit 5: Ordinance Respectfully submitted: Lori Hewell, 940-349-7100 Purchasing Manager For information concerning this acquisition, contact: Deby Skawinski, 940-349-7810. Legal point of contact: Marcella Lunn at 940-349-8333.