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Market Practices

A Brief Look at Insuring Small Municipalities

Peter Polstein | September 1, 2013

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A white cartoon man running from the words risk falling on him

While I have been retired, so to speak, since 1997, as many of you may know, I have continued to consult on a variety of situations when I am approached to do so, for whatever reason. Recently, I've done some research into insuring small municipalities, and I thought it might be a worthwhile subject to discuss in a brief fashion.

It would an impossible task, given the amount of space allocated to those of us who offer our thoughts on, to produce what I would consider a lengthy diatribe on the overall terms and conditions of this coverage. Therefore, let me simply attempt to plow through some of the more basic thoughts relative to these risks.

Looking at and Insuring the Risks

I find that almost all small towns have one distinct thing in common: They all have decent, hardworking individuals, whose dedication to their work ethic is admirable. The problem is that the majority of these municipalities simply do not have the financial resources to provide those additional amenities that larger towns or cities enjoy. In a way, this anomaly creates a potential for consulting.

Breaking down the risk into some component parts, let's start with my favorite subject: contractual liability and the mitigation of risk. Where I have been asked to assist, I start immediately reading contracts, whose very nature determines, in a wide variety of risks, that which needs insurance coverage. The variety of potential risks in municipalities runs the gamut from the norm of the town's usual risks—tax collecting, financial directorship, building department, highway maintenance, board of education—to the more esoteric risks of the fire department, emergency ambulances, playgrounds, ballparks, pools, lakes, etc. Each, though, without effective engineering, is a loss potential of enormous risk.

I live in Connecticut, where, for some ridiculous reason, in my mind, the state regulators require all municipalities to renew on July 1. With the limited number of insurers active in the underwriting of this business, you can imagine the rush to conclude negotiating risks prior to that expiration date. Therefore, the first item of advice I have to offer small municipalities is to start the renewal process earlier than you normally would, such as early February, giving insurers sufficient time to have concluded their December 31 and January 1 renewals.

Property Insurance

From a property standpoint, it's best to insure on a blanket basis all risks other than those whose values are subject to sublimits. The overall limit of insurance should never be less than a proximate maximum loss. Normally, this coverage is part of an overall package, where sublimit coverages have some automatic limits, and where reasonable negotiations with the insurer can provide increased limits that are more compatible with the risk. The one variant is usually flood and earthquake. Be careful, however, when considering sublimits relating to increased cost of construction and employee dishonesty, if the fidelity portion covers the tax and financial director, as we in Connecticut have seen very serious losses recently. If bonding on a separate basis, obviously, the same caution is needed.

What is paramount in the overall blanket—total insured valuations—is the absolute knowledge that the cost of construction is current on a square footage basis and that personal property is on either a replacement or an actual cash value basis as agreed by your insured. Remaining sublimits need to be carefully reviewed by both parties. Lastly, while recognizing that many additional areas of interest have been left, seek to have coinsurance waived if possible.

Liability Insurance

From a liability standpoint, many small municipalities segregate the overall town and board of education exposure from law enforcement and fire and emergency operations. In a couple of cases in which I was involved, law enforcement was a segment of the overall package, and fire and emergency operations were segregated. However, in some cases, law enforcement may include both local police and state, or the local police may be segregated from state, at which point the town may have no risk.

Limits always become a sticking point, as there is no such thing as "adequate" (which, many of you know, is one of my target words never to be used). What is necessary is a twofold agreement on those limits that, on the primary policy, afford the necessary underlying coverage to purchase excess limits at the most reasonable rate. Excluding the coverage that has been segregated, be careful of those risks associated with the board of education, especially where there is the potential for sports-related issues, sexual abuse and molestation, psychological counseling, employment practices and related practices liability, summer camp volunteers, etc. The list goes on and on. Very careful scrutiny is necessary with multiple questions investigating qualifications of every sort: regulatory compliance, nursing demands, maintenance, etc.

Lastly, there is the question of pollution risk, which a great many small municipalities have. These coverage issues are literally no different from any others.

Automobile Liability

This basically goes hand and hand with the same objective agreements. Be sure to include the cost factors of physical damage from a variety of perspectives.

Excess Liability

Moving on to excess liability, I am not an advocate of umbrella liability policies; I far prefer utilizing properly worded follow form excess liability covers, especially if there are layers associated with the risk. Once again, limits become the sole agreement of the insured and its representative, partially predicated on fiscal opportunity.

An Example

Beyond the "basic" coverages above, let's more closely consider covering the fire and emergency departments.

Personnel and Equipment

A limited number of insurers provide this coverage, and their coverage forms are quite different insofar as the broad-based language of their policies. To cover equipment, some will offer property insurance, and the insured and representative may wish to segregate the risk, such as pulling firehouses from the package, or simply utilize all of the other coverages. From a liability perspective, including vehicles, some insurers provide unique wording, such as taking over any personal vehicle claim of a fire or emergency department volunteer once the vehicle ignition has been set, thereby eliminating any potential claim directly against the volunteer.


Most insurers include all of the "usual" liability coverages, such as directors and officers liability, employee benefits, employment practices liability, etc. Additionally, you will find that full medical malpractice is covered as well as some rather esoteric insurance for spousal liability, unintentional release of health (Health Insurance Portability and Accountability Act) information, Good Samaritan liability, and the list goes on.


From a physical damage perspective, most insurers provide coverage on an agreed cash value basis, depending on the needs of the insured versus the attendant costs, with a substantial number of additional coverage extensions.

Excess Liability

The excess coverage is usually underwritten on a straight follow form basis with a wide variety of limits.

Workers Compensation

The municipality's primary insurer may require that all fire and emergency personnel be covered elsewhere. If that is the case, some insurers that provide the so-called segregated insurance will also provide this cover. While there is always the state fund, usually, unless there are some mitigating circumstances, the package underwriter will provide this insurance.


From a coverage standpoint, I have tried to assess some of the more important basics. Are there more to be considered? Absolutely!

Lastly, it's important to keep in mind when advising municipalities that there are insurers in these United States that offer significant assistance in risk mitigation. Some of the assistance is free; other engineering or educational courses usually carry a minimal charge. In any event, I have suggested in the strongest of terms that such clients take full advantage of these courses. There is a twofold reason. Obviously, it provides education to those who can best utilize the course, and, perhaps equally important, it shows the insurer than the town is both cognizant of the need and a willing partner in risk mitigation.

In the end, I'll leave you all with a blues verse representing how I usually feel when I finish "early" on a Connecticut July 1 small municipality renewal.

Good morning blues, blues how do you do;
Good morning blues, blues how do you do;
I'm doing all right, good morning how are you? 1

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1 Words and Music arranged by Huddie Ledbetter, recorded by Ledbelly. Copyright @ 1959 (Renewed), Folkway Music Publishers.