Fort Smith Board hears debate on insurance for $300 million of city assets

The Fort Smith Board of Directors on Tuesday (Jan. 26) moved closer to a decision on whether to continue with Travelers Insurance for vehicle and property coverage on the city’s more than $300 million in assets or switch to coverage through the Arkansas Municipal League (AML).

Most of the insurance discussion centered on a Q&A with AML Executive Director Don Zimmerman, who worked to quell concerns about coverage limitations under the Municipal League’s plan, which had previously been raised by Brown Hiller Clark (BHC), the city’s consulting firm.

“We’re not here to try and make money on you,” Zimmerman said. “We’re here to give you the coverage you need, and in our view, the customer is always right.”

Zimmerman added that while he believed Travelers was “a good program for individuals and businesses,” the AML’s goal was to ensure their municipalities had the insurance they needed and were not overpaying or underinsured.

Eighty percent of cities in Arkansas are involved with the AML’s insurance offerings in some way, whether through vehicle or property coverage or both. Zimmerman fielded 50 minutes worth of questions, easing some Board member fears on issues like bodily injury coverage and transferring coverage to vehicles across state lines.

BHC Executive Vice President Scott Clark was on-hand to reiterate his major concerns with the AML proposal, seizing first on one of the program’s major benefits — a current annual savings of approximately $309,000 in premiums.

“I know premiums are attractive, but premiums don’t pay the claim,” Clark said. “And I’ll be the first to admit that whenever there’s a claim it all reverts back to a contract. What’s the wording in the contract? Until we’re comfortable with the answers to every one of these questions, then the city shouldn’t go forward with this. There’s a lot of ambiguity here.”

Clark then proceeded to list out his concerns, including one example involving payment on a building claim in which the language states that AML’s program “shall not exceed either the actual cash value (ACV), the limits stated on the enumeration schedule, or 25% of the program’s available funds at the time of settlement.”

“Thirty million (dollars) in the plan, 25% of that or the lesser of ACV plan amount or actual enumeration schedule, and that’s not necessarily the ACV that you declare,” Clark said, pointing out “the lesser is what goes through.”

“And they have a $30 million fund balance. Okay? We’ve got $300 million in assets here.”

To this point, Zimmerman countered with an example of his own, noting that if a tornado “wipes out” Fort Smith resulting in significant damage that goes beyond the scope of the AML’s fund balance, the League’s reinsurance program through Alliant would kick in with damages of up to $500 million, more than adequate coverage for the city’s aforementioned $300 million in assets.

Zimmerman also said the city would only be out the cost of its deductible on an asset before AML coverage kicked in, and that would cover up to $100,000 in damages before Alliant’s reinsurance program would take over.

Still, Clark was unfazed, noting that “the personal use issue” with regard to city-owned vehicles is “just tremendous.”

“One of my co-workers lived next door to a city employee with kids, a wife, and they went places in that city-owned vehicle all the time. They haven’t had a fault accident, (but) insurance always follows the vehicle. … So if there’s a bodily injury incurred, there is no coverage under the AML program for that injured employee or their family because the scope of coverage is not there at the time of the accident.”

Clark continued: “What about delivery transport? We’ve got detainees riding in police cars; transit using vehicles; we’ve got inmates going from city jails to county jails; we have bodies being transported in vehicles; there’s an exclusion for that. So until we get answers to every one of these questions in writing, I suggest the city doesn’t move forward. But if you can get comfortable with that, so be it.”

The Board asked AML to address all of Clark’s concerns in writing and ordered a final presentation for the Feb. 9 study session. That will give City Directors enough time to review and reach a final decision at the Feb. 16 regular meeting in time for the city’s March 1 renewal deadline.