6. CONSIDER APPROVAL OF REVISED INDEMNIFICATION
PROVISIONS IN ACCESS AGREEMENTS FOR DISTRICT PROJECTS ALONG THE CARMEL RIVER
Staff Contact: Larry Hampson Cost
Estimate: N/A
General Counsel Approval: Yes
Committee Recommendation:
The Administrative Committee reviewed this item on March 10, 2004 and
recommended ________________.
CEQA
Compliance: N/A
SUMMARY: Since 1984, MPWMD has carried out restoration projects in the channel of the Carmel River. Prior to conducting such activities, MPWMD enters into an agreement with each property owner within a project area that allows MPWMD access to the property for project construction and maintenance. Currently, MPWMD indemnifies these riverfront property owners against potential losses that could occur as a result of District actions. Starting in 1993, the indemnification provided for each project has been limited to the value of the estimated construction cost, which has ranged from $80,000 to $300,000 for various projects.
During negotiations for access agreements, some property owners have requested a higher indemnification limit, citing the potential cost of settling claims should damages occur from MPWMD-sponsored work. In cases where MPWMD and property owners have not been able to agree on an indemnification limit, MPWMD has been prevented from carrying out the restoration projects.
Since 1995, MPWMD has maintained insurance through the Special District Risk Management Authority (SDRMA) that includes a general liability policy with a $10,000,000 limit. District staff has met with Dennis Timoney, SDRMA Claims/Loss Prevention Manager, to discuss how indemnification for District projects along the Carmel River could best be provided. Based on Mr. Timoney’s recommendation, staff proposes that MPWMD provide coverage under the District’s general liability insurance by naming riverfront property owners who participate in restoration projects as additional insureds.
Exhibit 6-A is a sample right-of-entry agreement for District-sponsored Carmel River projects that includes the proposed indemnification language in italics. This sample agreement has been reviewed and approved by Mr. Timoney of SDRMA and the District’s General Counsel.
RECOMMENDATION: District staff recommends changing the District’s indemnification policy for District projects along the Carmel River such that owners of property where project construction would occur would be covered by the District’s liability insurance policy. Those property owners will be named as additional insureds under the District’s insurance policy, as shown in Exhibit 6-A.
BACKGROUND: Since 1984, MPWMD has carried out channel restoration and erosion protection projects on properties along the Carmel River with the permission of each property owner within a project area. Prior to 1993, MPWMD had no standard policy for granting indemnification to property owners against claims and losses that could arise out of District actions. In some cases, project agreements were silent on this issue. In others, MPWMD agreed to indemnify the property owner but set no limit on the amount of indemnification that MPWMD would provide.
In 1993, the Board of Directors directed staff to limit the amount of indemnification granted for each project in order to reduce the District’s potential liability. The indemnification limit was set equal to the estimated construction cost for each project. For individual properties, this limit was determined by estimating the project construction cost and then assigning a limit for each property owner based on their property’s proportion of the total project length. This method has resulted in some properties with relatively short river frontage being assigned an indemnification limit as low as a few thousand dollars.
Typically, MPWMD negotiates with each property owner for a ten-year agreement to allow the District to construct and maintain a project. Obtaining an agreement with each property owner is a critical step in the planning process for a restoration project. Normally, MPWMD will not proceed with permit applications and final design documents until access agreements to complete work are secured for all properties within a project area.
Some riverfront property owners have expressed concern about their potential liability for damages that could occur as a result of MPWMD-sponsored work. During negotiations in 1997 for the Red Rock Restoration Project, staff was unable to successfully negotiate for access with two key property owners who requested indemnification limits that MPWMD could not agree to. As a result, the project required significant revision to exclude about 1,000 lineal feet of the project. To date, no restoration work has occurred in the excluded portion, which still has not fully recovered from the erosion damage that had caused it to be part of the originally proposed project. For repairs to the Valley Hills Restoration Project, MPWMD suspended planning in 2002 after one of the property owners requested an indemnification limit of $2,000,000.
Since 1995, MPWMD has maintained insurance through the Special District Risk Management Authority (SDRMA) that includes a general liability policy with a $10,000,000 limit. SDRMA has confirmed with District staff that riverfront property owners can be covered under MPWMD’s general liability policy. SDRMA suggested that for each project, MPWMD annually send a list of property owners in District-sponsored project areas, who would then be added as additional insureds under the District’s policy. Currently, MPWMD is not charged for the first five insurance certificates in any one year naming additional insureds (all covered riverfront property owners would be listed on one certificate). Should MPWMD exceed the five-certificate limit, the cost for each additional certificate is estimated to be $200 to $300.
The effect of naming property owners as additional insureds would be to provide general liability coverage to riverfront property owners as a group. If claims are made against MPWMD and/or riverfront property owners alleging damage from District-sponsored actions, SDRMA would provide up to $10,000,000 to defend MPWMD and riverfront property owners and to pay claims, if necessary.
The advantages to MPWMD of including riverfront property owners under the District’s policy include:
1. Standardization of indemnification limits among property owners.
2. Provision of additional coverage to property owners who are concerned about the potential cost of litigation and claims that could arise out of District actions in the Carmel River.
It should be noted that MPWMD has not paid damages for any claims arising out of District-sponsored projects in the Carmel River. SDRMA successfully defended the District against a claim by a group of Mission Fields homeowners following the 1995 floods.
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