Important Notice of Coverage Changes
At their meeting on February 15, 2024 the UCIP Board of Directors took action on amendments to the UCIP Bylaws Coverage Addendum to exclude PFAS related claims from all liability coverages, limit coverage provided for Contractual Liability and clarified the exclusion to plaintiff attorney’s fees in state court actions. These changes were approved to be implemented 7-1-24.
PFAS Exclusion
These chemicals are considered by the insurance marketplace to be similar to asbestos as the potential number and cost of claims is so high, that the industry is not willing to provide coverage, and is implementing absolute exclusions to all liability policies.As a result, UCIP is unable to secure reinsurance coverage that provides coverage for PFAS claims, and will need to introduce the same exclusions to the UCIP Bylaws Coverage Addendum as UCIP has in its reinsurance policies.
Contractual Liability
Contractual liability has been traditionally provided by insurers to cover indemnification agreements where their insured agrees to assume the liability of another party and to have their insurance defend and pay claims filed against the other party. Contractual liability is another area that the insurance industry has been limiting coverage for. Most insurers now exclude contractual liability, and it must be endorsed back with additional premium and limitations on limits and what contracts are covered.
This practice has always been problematic for Utah political subdivisions as statute prohibits government entities from loaning or giving credit. Agreeing to pay the claims and provide defense to another person is clearly giving them credit, so agreeing to indemnify another person in a contract is a violation of state statute. Under the statute and UCIP Interlocal Agreement, UCIP can only use its funds to pay claims and provide defense to Members.
Members are often asked to indemnify another party when the other party should be indemnifying the Member. Parties requesting unreasonable requirements in indemnification and insurance sections of contracts has continued to increase to the point that UCIP’s current best practice is to delete indemnification language or exchange indemnification provisions with language clarifying that a Member cannot indemnify or defend another party and will not assume any liability from another party. UCIP also recommends deleting any requirements for the Member to comply with specific insurance requirements for contractual liability and replace that section with language clarifying the Member is a political subdivision which self-insures.
The UCIP Board was faced with either implementing a charge and additional contribution for each contract a member enters into where they agree to indemnify another party or limit the contractual liability coverage to only that liability the Member would have without a
contract. The Board chose the latter, recognizing that for some situations, like rodeos, concerts and other events, the county can purchase a special events policy for that specific event to cover the indemnification and insurance requirements of vendors, performers and others. This strategy will create additional cost only for the specific situations it is needed, rather than Members paying increased contributions on an ongoing basis. Members can also consider involving a third party (promoter or sponsor) to carry insurance to cover any indemnification or insurance requirements.
UCIP staff will be providing assistance to Members to address these issues including sample contract language and notices to vendors and others to clarify why contract changes are necessary.
Attorney Fees in State Court
Utah statutes denounce the private attorney general doctrine as it violates the American rule of law and prohibits courts from awarding attorney fees under the doctrine in state court. Several legislators have tried to repeal the statute and failed, so they have begun including in bills references to the courts awarding attorneys fees in certain circumstances. UAC and the League have worked to remove the attorney fees provision in bills, but some have already been passed into law, and there are more every session. UCIP does intend to argue these fees are prohibited by law if the courts attempt to award them. UAC and the League often make the argument on these bills that there will be no insurance coverage for these fees, and that has been a successful strategy to have them removed from bills.
UCIP’s current rates are based on past claims, during the years when attorney’s fees in state court were not allowed. Now that attorney’s fees may be allowed, the UCIP Board was faced with either increasing rates significantly to cover this new exposure or exclude the payment of attorney fees in state court. The Board chose to exclude these fees from coverage at this time, rather than pass along large rate increases to the members.
The Board is interested in Member feedback on these issues and hopes you will contact UCIP with your concerns and ideas to address these issues.