Specialty insurance company says municipal liability reforms needed to avoid crisis

Costs in the municipal liability insurance market in Ontario have been escalating substantially over the past few years, and reforms are needed now to avoid an insurance crisis, Frank Cowan Company says.

The Princeton, Ont.-based specialty insurance company, which offers coverage to municipalities, says it’s concerned that high liability costs and other trends over the past five years are making the municipal liability insurance market unsustainable.

In an effort to spark reforms, the company has formed an internal working group and is looking to form a group involving all stakeholders (including municipalities themselves) to limit municipal liability exposure.

As part of its public appeal, the company has made a submission to the Law Commission of Ontario, an independent organization that researches and makes recommendations on legal reforms, asking that it undertake a review of municipal liability exposures.

Municipal liability claims have a “long tail nature,” meaning that an incident may occur in one policy year but the claims may not be presented until several years later and can take several more to settle, the company says. That makes predicting future costs more difficult, it says.

In its submission to the Law Commission, the company also noted that municipalities “have no specific mechanisms available to help protect them from the application of Joint and Several liability, which results in the deepest pocket funding claim settlements and judgments.”

“This means that every road, facility, sidewalk, etc. must be kept in a state of perfect condition, not only for reasonable use, but for every circumstance, which is an expansive duty of care,” the company wrote.

Frank Cowan says that in the past two years, it has paid out about $94 million for settlements or judgments for large claims against municipalities. About a quarter of that represents payments as a result of the application of Joint and Several liability, it says.

Recent court cases have been another reason municipal claims costs have been increasing, Frank Cowan says. Damage awards have been escalating, and more complex cases have meant that legal costs have also been driven up, it says.

For example, the company points to recent court decisions involving auto collisions where municipalities were deemed partially liable, even though the drivers arguably weren’t exercising ordinary care.

“The current situation is not sustainable,” the company wrote in its background materials on the issue. “As the costs of claims increase at a faster rate than premiums, some insurance companies will simply walk away from this business sector.”

Only five property and casualty insurers are in the niche market, but several others have entered the market then exited it after reassessing the high risks involved, the company also noted.

“These relatively short-lived participants cause market turbulence and uncertainty for municipalities, especially those that chose to place their insurance with these carriers,” the company wrote.

The company offers several possible solutions to reforming the system, including capping awards, setting up a provincial fund to help with large claims payments, using tribunals to streamline the court system, structured settlements to provide awards over time and full or partial immunities for municipalities.

In a blog post on its website, Frank Cowan says that it will be communicating updates and progress on its efforts to limit liability exposure. Its submission to the Law Commission of Ontario and background on municipal liability and claims issues are available on its website.