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Home My WebLink About8.3 Procure Earthquake Property Insurance �y CITY OF DUBLIN AGENDA STATEMENT 1-19-30 CITY COUNCIL MEETING DATE: December 11 , 1989 SUBJECT Procurement of Earthquake (Difference In Conditions) Property Insurance Coverage - Civic Center (Report Prepared By Paul S . Rankin) EXHIBITS ATTACHED o Excerpt from Lease Agreement (Section 5 . 4) o Coverage Proposal RECOMMENDATION 1-IRAG-0 nsider FINANCIAL STATEMENT: Funds were not budgeted for this expense . The cost of the coverage would be between $25 , 488 and $38 , 880 , depending on the level of coverage selected . A budget transfer from the Contingent Reserve would be necessary if the City Council chooses to purchase coverage . DESCRIPTION The financing of the Civic Center involves a lease arrangement between Dublin Information , Inc . (DII ) and the City of Dublin . The financing agencies typically require property insurance to be carried . Since the investor is relying on the City to continue making lease payments , it is important that the building be protected in case of loss or damage . Staff has worked with the City ' s current insurance provider to add the Civic Center to our basic property insurance policy . This policy carries a $5 ,000 deductible , however , it does not cover earthquake damage . Earthquake coverage is only offered under a separate coverage . Type of Coverage The lease agreement requires the City to carry earthquake coverage in the event that it is available at a reasonable cost . The coverage offered is "Difference In Conditions (DIC) Coverage" which includes Flood , as well as , Earthquake losses . The deductible under the earthquake portion is 5% of the loss. The first layer of coverage would only cover $5 million of damage. Cost The base cost of the coverage is $23 , 600 . In addition , ABAG PLAN currently assesses an 8% surcharge on all property insurance . The current quotation expires on December 17 , 1989. The broker has indicated that it may be possible to purchase coverage which extends to $10 million in coverage . The additional cost would be between $12 , 000 and $13 , 000, plus the applicable surcharge between $960 and $1 ,040. It is important to compare the cost of this coverage to other forms of property insurance . The cost of basic property insurance is equivalent to approximately 7 . 2 cents for each $100 of coverage . The cost of earthquake coverage alone equates to 51 cents for each $100 of coverage . Both comparisons include the ABAG PLAN surcharge. In addition to being a substantially higher cost , the policy is substantially different in terms of coverage limits and deductibles . Lease Agreement Terms The lease agreement was drafted in a manner which would not force the City to purchase coverage if the cost was not reasonable . At the time the lease documents were drafted , Staff was concerned with a mandated expenditure , which would become an added cost of financing the project . Under this proposal , the cost of comprehensive property coverage including earthquake coverage would escalate from $6 , 650 to $32 , 138 for the year . Adding the additional exposures would inflate the cost of this item by 383%. The approved 1989-90 budget did not include funding for earthquake coverage . Recommendation Staff believes that the premium compared to the basic property insurance results in an unreasonable cost . Therefore , the terms of the lease agreement would allow the City Council to decline coverage. If the City Council directs Staff to obtain the coverage , a budget transfer would be necessary . -------------------------------------------------------------------------- COPIES TO : ITEM NO . 8!�t_I EXCq,cZTT ; Ame,r J ed k R,e ,� J se. 'r,,,-A As 0 mac'�r.k�19 SS g�{ -B9 - D� �,.. T,�F �+�o ,o ="t . a,A C�4, .f Du61�^ in connection with any remodeling, a tions, modifications, improvements, repairs, renewals or replacements made by the City pursuant to this Section; provided that if any .. such lien is established and the City shall first notify or cause to be notified the Corporation of the City's intention to do so, the City may in good faith contest any lien filed or established against the Project, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the Corporation. The Corporation will cooperate fully in any such contest, upon the request and at the expense of the City. SECTION 5.3. Public Liability and Property Damage Insurance. The City shall maintain or cause to be maintained, following the Completion Date and continuing thereafter throughout the Term of this Lease Agreement, but only if and to the extent available at reasonable cost from reputable insurers, a standard comprehensive general insurance policy or policies in protection of the Corporation, City, and their respective members, officers, agents and employees. . Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Project. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event (subject to a deductible of not to exceed $250,000), and in a minimum amount of $150,000 (subject to a deductible of not to exceed $75,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks, subject to a deductible of not to exceed $250,000. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City, and may be maintained in whole or in part in the form of self- insurance by the City, subject to the provisions of Section 5.7. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. SECTION 5.4. Fire and Extended Coverage Insurance. The City shall procure and maintain, or cause to be procured and maintained, following the Completion Date and continuing thereafter throughout the Term of this Lease Agreement, insurance against loss or damage to the Facilities by fire and lightning, with extended coverage and vandalism and malicious mischief insurance, and earthquake insurance (but as to earthquake insurance, only in the event and to the extent such insurance is available at reasonable cost from reputable insurers). Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount at least equal to the lesser of(a) the aggregate principal amount of the Outstanding Certificates, or (b) the replacement cost of the Facilities. Such insurance may be subject to deductible clauses of not to exceed $100,000 for any one loss, and such earthquake insurance may be subject to a deductible clause of not to exceed ten percent (10%) of said replacement cost for any one loss. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the City and may be maintained in whole or in part in the form of self-insurance by the City, subject to the provisions of Section 5.7. The Net Proceeds of such insurance shall be applied as provided in Section 6.2. Y SECTION 5.5. Rental Interruption Insurance. The City shall procure, and maintain, or cause to be procured and maintained, following the Completion Date and continuing thereafter throughout the Term of this Lease Agreement, rental interruption P��eos� CITY OF DUBLIN Coverage: Difference in Conditions including Flood and Earthquake Limits:* $5,000,000 per occurrence and in the aggregate as respects to flood and earthquake. Deductible: $25,000 per occurrence except 5% as respects earthquake. Premiuu $23,600 annual - payable within 20 days of effective date. Carrier: RLI - 1988 Best Rating A- VII Quote Expiration: 12/17/89 *Optional $5,000,000 xs $5,000,000 limit should be available for approxi- mately $12,000 - $13,000. Z; 0 d dnO2iJ SSSOH %t P1•3 = 0 E; e L T T i