TO: John C. Phillips, City Manager

SUBJECT: Garage Keepers and Garage Liability Insurance DATE: October 16, 2002

The City’s insurance consultant, Jerry Butts, recommended the purchase of garage keeper liability and garage liability insurance. However, City Council has raised the question of whether this insurance is necessary and if a hold-harmless agreement can be developed to protect the City in lieu of purchasing additional insurance coverage.

Public Works has provided the number of billable hours for outside agencies during the past 12 months:

Outside Agency	Billable Hours (1)
Project NOW	374
Village of Andalusia	11
Rock Island-Milan School District	0
Rock Island Housing Authority	137
Bi-State Regional commission	0

(1) Billable Hour charges vary by repair: heavy equipment repair ($44/hr), vehicle repair ($35/hr), heavy equipment preventive maintenance ($27/hr), and vehicle preventive maintenance ($22/hr).

A. Garage keeper liability insurance protects the City against any damage to outside agency vehicles while in our possession and includes a $500/$1,000 deductible.

Fleet Services is presently storing agency vehicles outside the garage. The only concerns are agency vehicles being repaired inside the garage that may be damaged by fire or negligent action of an employee. The Personnel Department has explored this insurance option and believes it may not be necessary to purchase the garage keeper liability provided all outside agencies consent to a hold harmless agreement.

If the outside agencies agree to sign a hold harmless agreement, the City will not have any liability for vehicles in our possession. Public Works is asking outside agencies if they are willing to assume this risk in order to maintain the present hourly rates. If all agencies do not agree to the waiver, it will be necessary to reconsider options. The council can elect to: continue the status quo (no insurance protection), discontinue repair of outside agency vehicles, or purchase garage keeper liability insurance (annual premium $2,894/$1,928) depending on the deductible selected.

B. Garage liability insurance protects the City against any lawsuits or claims based on faulty repair by a mechanic.

Personnel continues to recommend the purchase of the garage liability insurance because it only takes one mechanical mistake and the City will likely face a large dollar lawsuit. The council has two options if it plans to continue providing garage service for outside agencies:

1) Pay the $1,459 premium. The city will receive coverage to $1 million dollars (with no deductible) and can receive an endorsement to our umbrella coverage for an additional $4 million which provides total protection of $5 million; or

2) Pay the $263 premium. The City will be responsible for a $100,000 deductible (self-insured retention) and this amount would be credited towards the $300,000 aggregate. After the deductible is met, the City would have excess insurance coverage to $1 million with an additional $4 million umbrella for a total of $5 million in protection.

Overview

The City Attorney has reviewed this issue and opined that an exculpatory agreement (indemnification or hold harmless agreement) might be enforceable between the City and the property owners of the vehicles garaged and repaired by the City. However, a contract where a party contracts to indemnify another party for its negligence toward third parties is void as contrary to public policy. In a case where personal injury was caused by a faulty mechanical repair, the exculpatory agreement would be void.

Based on the City Attorney’s opinion, third party liability cannot be contracted away by an exculpatory agreement signed by an outside agency. Purchasing garage liability insurance will provide a defense against any claims arising out of a faulty garage repair activity and will be covered by the policy and defended by an attorney paid by the carrier.

Recommendation: The City Council agrees to pay the $263 premium for garage liability insurance to provide protection against any third party claims and have Public Works explore getting signed exculpatory agreements with outside agencies before considering any further action on the garage keeper liability insurance.

Submitted By: John Thorson, Personnel Director/Assistant

Approved By: John C. Phillips, City Manager