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HomeMy WebLinkAbout06/17/2003, C8 - AGREEMENT WITH CALIFORNIA POLYTECHNIC (CAL POLY) UNIVERSITY FOR THE PROVISION OF LIABILITY INSURANC C' council Meet.,Dat. /7-103 j ac En as jzEpoat ®" esu CITY OF SAN LUIS OBISPO FROM: Wendy George, Assistant City Administrative Officer SUBJECT: AGREEMENT WITH CALIFORNIA POLYTECHNIC (CAL POLY) UNIVERSITY FOR THE PROVISION OF LIABILITY INSURANCE FOR THE PERFORMING ARTS CENTER CAO RECOMMENDATION Approve an agreement between the City, the Foundation for the Perfonning Arts Center (FPAC) and Cal Poly authorizing the University to include the Performing Arts Center in its liability insurance program. DISCUSSION Background In 1993, the City,FPAC and Cal Poly entered into an Operating Agreement for the Performing Arts Center (PAC) that established the Central Coast Performing Arts Center Commission. The Commission consists of representatives of the three parties, and serves to oversee the operations of the(PAC). Among it many responsibilities,the Agreement charges the Commission with obtaining liability insurance with a limit of not less than $5 million,naming Cal Poly's Trustees, the City and FPAC as "additional insureds." Since the opening of the PAC, the Commission has purchased insurance to fulfill this requirement. However, in the past several years, the combined property and liability insurance premiums for the PAC have risen significantly, with the cost going from $42,447 in 2001-02 to an anticipated $95,314 for 2003-04. This increase would have a significant impact on the PAC's budget. The Commission has already been struggling to balance the budget for the upcoming fiscal year by reducing expenditures and raising fees. Accommodating the projected cost of liability insurance would require the Commission either to further reduce expenditures, raise more fees or request additional funding from the three partners, who are bound by the Operating Agreement to make up any operational deficits. Proposed Change in Liability Insurance Coverage The Commission explored the possibility of finding a less expensive liability insurance policy on the open market, but met with no success due to the"hard"insurance market currently in place. As a result, the Commission asked Cal Poly whether the PAC could be included as part of the University's liability insurance program with the California State University Risk Management Authority (CSURMA), an insurance pool made up of the various members of the California State University system. After conferring with the administrators of CSURMA, Cal Poly has notified the Commission that the PAC can be insured for liability losses under this program, at the same coverage levels as are currently maintained. Since the PAC could be considered part of the of- 1 11 (7 � Council Agenda Report—Liability Insurance for the PAC Page 2 University, the only cost to the Commission would be $14,950 necessary to "buy down" the program's deductible from $250,000 per claim to the Commission's current deductible of$2,500 per claim. While moving the PAC's insurance from an independently held policy to Cal Poly's pool solves the Commission's budgetary concerns, it makes a technical change in the coverage that is not directly in accordance with the terms of the Operating Agreement. The Agreement requires the Commission to be the"named insured" under the liability policy with the City, FPAC and Cal Poly's trustees listed as "additional insureds". In order for the coverage to be included as part of CSURMA, Cal Poly must be the "named" insured, with the City, FPAC and the Commission included as "additional insureds". In most cases, this change would be of no significance, since the "additional insureds" have the same rights under the policy as the "named insureds". However, in an unusual set of circumstances this could be a potential problem. If one of the"additional insureds"(the City,FPAC or the Commission)were named in a claim and for some reason Cal.Poly wasnot(a highly unlikely circumstance, since Cal Poly is the "deepest pocket"), there is a small possibility that the coverage could be challenged by CSURMA's insurance carrier. CSURMA has indicated to the partner's representatives that coverage should not be an issue in the above situation. However, the partners' representatives propose a one-year agreement that states that the partners are asking Cal Poly to include the PAC in its liability insurance program simply to reduce costs for the current fiscal year,with the understanding that this coverage is intended to meet the spirit of the requirements in the Operating Agreement: This agreement, along with the argument that the Commission includes Cal Poly, should help to overcome any coverage challenge on the part of CSURMA's insurance carrier. The proposed agreement is for the current fiscal year only, but may need to be renewed in future years should insurance costs remain at the current high level. Should costs go down at some point, the Commission may wish to return to purchasing its own insurance. For this reason the partners' representatives are suggesting that it is prudent to retain the current insurance language in the Operating Agreement. FISCAL EMPACT By including the PAC's liability insurance as part of Cal Poly's liability program under CSURMA, expenditures in the PAC's budget for.2003-04 will be reduced by $60,877. Since the City is responsible for 1/6 of any operating deficit, it is in our best interest to support any opportunities to reduce operating expenditures. Attachments 1. Section 8.02. Insurance from the Operating Agreement 2. Agreement with Cal Poly g:staff/george/agenda reports/liability insurance for the PAC ATTACHMER1 Section 8 — Miscellaneous Matters 8.01. No Borrowing. The Commission shall not pledge as collateral the Center building, fixtures, or land they are situated upon for any loan, debt or contract. 8.02. Insurance. The Commission shall maintain the following types and amounts of insurance, subject to periodic adjustments to recognize inflation and changes in industry standards: 8.02.1 Liability Insurance. The Commission shall obtain and keep in force a policy or policies of public liability and property damage insurance with a single combined liability limit of not less than $5,000,000, and property damage limits of not less than $500,000 insuring against all liability of the Commission arising out of and in connection with use of occupancy of the Center. The Trustees, the City and FPAC, and any supporting auxiliary shall be named as additional insureds. The Commission shall r maintain such other policies of liability as the Board determines prudent. 8.02.2 Property Insurance — Premises. The Commission shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Center, including fixtures, equipment, and improvements to the extent of at least one hundred percent (100%) of full replacement value, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils ("all risk", as such term issued in the insurance industry). These shall include demolition, increased costs of construction, and change in building law endorsements. 8.02.3 Policy Form, Content, Insurer. All .insurance required under this Agreement shall be issued by responsible insurance companies qualified to do business in California and reasonably acceptable to the Parties. All such insurance shall be Cfr- 3 issued as primary, not blanket, policies. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to the Parties. 8.03. Termination. This Agreement shall terminate, and the relationship among the Parties shall be dissolved upon the happening of any of the following:. Agreement of all three Parties. Failure of the commission to adopt in a timely manner an Operating Budget with appropriate provision for reserves, as established by Commission policy, for a period of one year after expiration of the most recent budget. Failure of any of the parties to deliver on the obligations outlined in this Operating Agreement after having been given a reasonable period to remedy any deficiencies. Failure of the University to provide acceptable parking. 8.04. Amendment. This agreement may be amended in whole or in part, once or more often, by written agreement executed by the Trustees of The California State University, the University, the City of San Luis Obispo, and the Foundation for the Performing Arts. In the event of dissolution, Trustees will give recognition to the City's and FPAC's contributions to the Center by guaranteeing community access to the facility at a rental rate and on a schedule no less favorable than what is available to University affiliated groups, consistent with the community's expectation of fair and equitable access to and use of the Center as set forth in Section 4.01 above. ATTACHMEW2 AGREEMENT WITH CALIFORNIA POLYTECHNIC UNIVERSITY FOR PROVISION OF LIABILITY INSURANCE FOR THE PERFORMING ARTS CENTER This agreement is currently being reviewed by the University,the Foundation for the Performing Arts Center and City staff. A draft copy will be made available to the Council prior to the meeting of June 17, 2003. c o u n c i L m c m o iza n b u m_ :city of san LUIS OBispo, a0mmistuat@n &pautment —� DATE: June 17, 2003 TO: City Council Members RECEIVED 17 200J VIA: Ken Hampian, City Administrative Officer SLJUNCITY CLERK FROM: Wendy George, Assistant City Administrative Officer SUBJECT: AGENDA ITEM NO. C-8, LIABILITY INSURANCE FOR THE PERFORMING ARTS CENTER As was indicated in the agenda report for this item, staff from Cal Poly, the Foundation for the Performing Arts Center (FPAC) and the City were still working on the language of an agreement to allow the Performing Arts Center to purchase liability and property insurance through the University's insurance program at the time the agenda was published. While we are close to developing final language, some clarification is still needed as to whether the signatories should be all three partners and the Performing Arts Center(PAC) Commission or just Cal Poly and the Commission. Accordingly, staff is recommending that this item be pulled from tonight's agenda. If it is determined that the City does not need to be a direct signatory of the agreement, this item will not be returning to a future Council agenda. Instead, the City's representatives to the Commission will take action on the agreement at the next Commission meeting. cc: City Attorney FPAC Cal Poly ;2"000NCIL �CDD DIR CAO �e'FIN DIR $�yA�CAO r -FIRE CHIEF RED FILE yo nTTORNEY C?O DIR MEETING AGENDA I�LERK/ORIG ;GPOUCE CHF ❑ DET EA DS REC DIR DAT TEM # Cg a_UTIL DIR -- — �R DIR PAC Insurance-Council Memo