Exhibit 1- Agenda Information SheetCity of Denton
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AGENDA INFORMATION SHEET
DEPARTMENT: Procurement and Compliance
ACM: David Gaines
DATE: January 25, 2022
SUBJECT
Consider adoption of an ordinance of the City of Denton, a Texas home-rule municipal corporation,
ratifying the expenditure of funds by the City Manager for the purchase of excess workers’ compensation,
packaged general liability, and automobile physical damage insurance coverage for the City of Denton
through the City’s broker of record, Texas Series of Lockton Companies, LLC; and providing an effective
date (File 7902 – awarded to Safety National Casualty Corporation, in the two (2) year not-to-exceed
amount of $1,523,000.00).
INFORMATION/BACKGROUND
The City of Denton currently has separate insurance policies to provide coverage for excess workers’
compensation and liability exposures (general, auto liability, public officials, law enforcement, and
employment practices).
The City of Denton’s current expiring excess general liability insurance policy includes all liability
exposures through Argonaut Insurance Company (Argo) with a $500,000 per occurrence self-insured
retention (SIR) under this policy and coverage up to $5,000,000 on all liability exposures. Funding has been
added to the not-to-exceed amount to accommodate a year-over-year price increase of 30%. The current
policy will expire on December 31, 2021. 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
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Denton, Texas
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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.
Because of these exposures, the City has purchased excess liability coverage to provide an added layer of
protection to our self-funded program.
The City of Denton currently has an excess workers’ compensation insurance policy through Midwest
Employers Casualty Company (MECC) that will expire on December 31, 2021. The City’s expiring policy
has a $1,000,000 per occurrence SIR and insurance coverage up to the statutory benefit levels under
workers’ compensation. Although the City is self-funded for our workers’ compensation exposures, the
City is still liable for all reasonable and necessary medical expenses, indemnity benefits, impairment
benefits, and other related expenses if an employee is injured on the job while in the course and scope of
employment, and since there is no cap on the potential costs of a workers’ compensation claim, the City
has purchased the excess policy to provide an added layer of protection to our self-funded program.
In August 2021, during a claims reporting process, it was discovered that the City’s general property policy
only provides automobile liability coverage and does not provide coverage for automobile physical damage
for vehicles with values over $100,000. Commercial automobile liability insurance provides coverage for
bodily injury and property damage caused to others by City vehicles, whereas commercial automobile
physical damage insurance provides coverage for City vehicles that sustain damage from vehicle accidents,
the negligence of an uninsured or underinsured motorist, damage caused by weather, and other non-collision
causes. Upon the discovery of the gap in coverage, Risk Management staff immediately began working
with the City’s broker of record, Lockton Companies, LLC (Lockton), to obtain auto physical damage
coverage for the City’s fleet vehicles with values over $100,000.
Given the complexities of this insurance product solicitation, as described in greater detail below and given
that Chapter 252.024 of the Texas Local Government Code provides that such products are exempt from
the requirements of competitive bidding, the City utilized the services of our broker of record, Lockton, to
assist us in procuring these coverages without going through the Request for Proposal (RFP) process.
State of the Market
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 and 2020 gave way to a new reality in 2021, 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, low interest rates, natural catastrophes such as
Winter Storm Uri, and civil strife.
Renewals in the second quarter of 2020 saw some of the largest pricing increases since 2003, led by cyber,
umbrella/excess liability, directors and officer’s liability, property, and commercial auto. This trend is likely
to continue through 2023. Any prediction, however, is clouded by ongoing uncertainty.
In September 2021, Lockton learned Argonaut Insurance Company (Argo), the incumbent carrier of the
City’s excess general liability coverage, would be non-renewing the Denton program at the end of the policy
term due to Argo’s inability to obtain reinsurance over their book of business. Argo’s exit from the market
resulted in even greater lost capacity in the market, driving significant price increases in the back half of
2021 and is expected to continue into 2022.
Through their public sector partner CRC, Lockton approached 10 markets as part of the solicitation for
excess general liability coverage with a new insurer, 12 markets as part of the solicitation for excess
workers’ compensation coverage, and four (4) markets to solicit the automobile physical damage coverage.
Only one insurer, Safety National, provided a quote to extend general liability coverage to the City;
however, Safety National’s proposal requires the City to also place the excess workers’ compensation
coverage with Safety National as a packaged policy. The other nine (9) markets that were solicited for
general liability coverage declined to quote.
Safety National also provided a competitive quote for the automobile physical damage coverage; the other
markets were either not competitive or declined to quote.
As a result, Lockton received a favorable quote from Safety National to replace the City’s expiring excess
workers’ compensation and general liability policies and add automobile physical damage coverage in a
packaged casualty program.
Based on the evaluation of the proposal, both staff and our broker of record, Lockton, recommend the
purchase of excess workers’ compensation, general liability, and automotive physical damage insurance
through Lockton from Safety National with the below SIRs:
Line of Coverage SIR/Deductible Annual Premium
Excess Workers’ Compensation $1,000,000 $183,573
Packaged General Liability $500,000 $341,509
(including applicable taxes and fees)
Auto Physical Damage $50,000 – units $100k - $599,999
$100,000 – units <$600k
$137,068
2021/22 Total: $662,150
Safety National is an A++ (Superior) rated carrier by AM Best with a financial strength rating of XV (greater
than $2 trillion) and a Standard and Poor’s rating of A+. Safety National is a member of the Tokio Marine
Group. With nearly $200 billion in assets, Tokio Marine is among the top ten insurance groups in the world,
and its companies are among the highest-rated.
RECOMMENDATION
Award a contract with Safety National Casualty Corporation, for the purchase of excess workers’
compensation, packaged general liability, and automobile physical damage insurance coverage for the City
of Denton through the City’s broker of record, Texas Series of Lockton Companies, LLC, in a two (2) year
not-to-exceed amount of $1,523,000.
PRINCIPAL PLACE OF BUSINESS
Lockton Companies, LLC
Kansas City, MO
Safety National Casualty Corporation
St. Louis, MO
ESTIMATED SCHEDULE OF PROJECT
Services under this contract will begin on December 31, 2021. This is a two (2) year contract.
FISCAL INFORMATION
These services will be funded from Risk Retention Operating Funds.
EXHIBITS
Exhibit 1: Agenda Information Sheet
Exhibit 2: Safety National Insurance Proposal
Exhibit 3: Package Quote Summary
Exhibit 4: Broker Recommendation Letter
Exhibit 5: LLC Members
Exhibit 6: 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.