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HomeMy WebLinkAbout5 Liability Insurance Policies Agenda Item # .44' TRUCKEE DONNER Public Utility District Memorandum To: Board of Directors From: Mary Chapman, Administrative Services Manager Date: April 12, 2007 SUBJECT: Consideration of renewing the District's property and liability insurance policies 1. WHY THIS ITEM IS BEFORE THE BOARD The District's property and liability insurance covers 5/1/06 to 5/1/07. It is time to approve the District's insurance renewal for the period covering 5/1/07 through 5/1/08. 2. HISTORY For the last several years we have been using Marsh Risk and Insurance Services to arrange for our insurance renewals. Keith Grand is the client executive that oversees this process for the District. Information about Marsh Risk& Insurance Services and Keith's bio are on the last pages of the attached proposal. 3. NEW INFORMATION Included in your packet are three different documents. The first one is the Renewal Insurance Program. The second one is a letter from Keith regarding their request to increase their brokerage fee. The third document is a new Client Service Agreement reflecting the proposed brokerage fee increases. Keith and his staff have put together a proposal for the renewal policies. The proposal includes a lot of information. Page 3 of the proposal provides a premium summary comparing the 2006-07 premiums of $332,525 to the proposed premiums for 2007-08 in the amount of $351,203.50. This is an increase of $18,678.50 primarily due to increased property values and a $5,000 increase in Marsh's brokerage fee. Page 4 begins the listing of the various renewal policies along with a description of the coverage limits. The majority of the property premium increase as well as the increase in difference-in- conditions (earthquake) relates to the increase in the value of the District administration building. We had been insuring the building for $5,000,000 for several years. We knew we needed to increase the values so we obtained a rough estimate of what it would take to rebuild the building. We were surprised that the value was closer to $13,000,000. As I stated above, Marsh is proposing to increase their brokerage fee from $35,000 to $40,000 for the 2007-08 insurance year. Several years ago, the District went from paying the broker on a commission basis to a flat fee. The brokerage fee has not increased from the original $35,000 for all of the years we have been using Marsh as our broker. They are also proposing to increase their fee to $45,000 in 2008-09 and $50,000 in 2009-10. Marsh generally charges $50,000 to service clients of our size but they are proposing to gradually increase their fee over the next three years to reach the $50,000 fee. Since Keith will be at the meeting to make the presentation, he will discuss this proposed change with you. Finally, Keith has presented a new Client Services Agreement that reflects their responsibilities as brokers, the scope of services included, a list of additional services available that are not included and their new service fee. As I said Keith Grand will be attending the board meeting to make the annual presentation to the Board and answer your questions. There are additional insurance options that Keith can explain when he makes his presentation. 4. RECOMMENDATION I recommend that the Board take the following action: A) Approve the renewal of the property and liability insurance policies including brokerage fee of $40,000 for the 5/1/07 through 5/1/08 period as presented in the amount of $351,203.50 subject to modification due to additional approved options. B) Approve the new Client Service Agreement By and Between Marsh Risk & Insurance Services and Truckee Donner Public Utility District. MARSH �, Ray �z< r1a a �E N w E��M- � �' � � •. d s � s�k% 6 II��; ��ed Al � 3 AMC— RENEWALIn, d INSURANCE PROGRAM May 1, 2007 to May 1, 2008 Presented April 18, 2007 Marsh Home Office, 1166 Avenue of the Americas,New York,NY 10036 Marsh San Francisco, 1 California Street,San Francisco,CA 94111 Section 1 Premium Summary Section 2 Renewal Proposal Section 3 Transparency Documents Section 4 Authorization to Bind COVERAGE PAGE 06-07 07-08 EXPIRING RENEWAL PREMIUM PREMIUM Property(including Flood) 4 $69,005.00 $89,620.00 (a) Boiler&Machinery 5 Included in prop- Included in prop- erty erty General Liability 6 $83,991.00 $75,788.00 Automobile 7 $46,527.00 $38,596.00 Crime 8 $2,397.00 $2,398.00 Umbrella Liability 9 $34,689.00 $35,353.00 Pollution(including taxes &fees) 10 $10,000.00 $10,312.50 TRIA coverage (including taxes and fees) See Options See Options Difference In Conditions(DIC) - Earth- 11 $36,129.00 $48,083.00 (b) quake(including taxes and fees) Public Officials Bond 12 $250.00 No Charge (c) Public Officials(D&OIEPLI) 13, 14 $14,537.00 $11,053.00 Employee Benefits Liability 15 Included in GL Included in GL Optional Coverages 16 N/A See Page 16 Marsh Brokerage Fee $35,000.00 $40,000.00 (d) Program Premium $332,525.00 $351,203.50 (a) Value increased 36cle,premium increased 30°10,a rate decrease. (b) Value increased 3351c,premium increased 33°Io, no rate increase. (c) Two year premium paid in 06-07, no charge second year. (d) See separate letter on broker fee. This proposal is not intended to describe all coverages provided or available or all of their exclusions, conditions or limitations It is designed to give you an outline of your insurance/risk management program, but it does not amend, alter, or extend the coverages afforded by the policies described herein. **PREMIUM FINANCING AVAILABLE UPON REQUEST ACE AMERICAN INS CO (A+ XV) POLICY LIMIT (TOTAL INSURED VALUE): $44,128,129 COVERED PROPERTY - VALUES Real &Personal Property including Substations Included Tanks, Wells, Water Equipment Included Contractors Equipment Owned Included Mobile Equipment—Owned Included Computer Equipment—Hardware and Re-creation of Media Included SUBLL 11TS Motor Cargo Sub-limit $25,000 Flood Sublimit(Except Zones A and V—no coverage) $5,000,000 Extra Expense Sub-limit $1,500,000 Business Interruption Sub-limit $1,000,000 Perils In- All Risk of Direct Physical Loss or Damage, Business Interruption and Extra Expense sured: Coverage Excludes:Earthquake, Time Element Coverages(except Business Interruption and Extra Ex- pense, which are included) Valuation: Replacement Cost except Contractors Equipment that is older than five(5)years and substations older than 25 years, not rewound-actual cash value will apply. Deduetble: Property Damage and Extra Expense: $1,000 Per Occurrence. Flood: 2%of Total Insurable Value at time of loss subject to$25,000 minimum A. ADDITIONAL POLICY BENEFITS COVERAGE LIMIT PROVIDED Accounts Receivable Coverage............................................................................................ $ 100,000 Contingent Power Line Movement Expense Reimbursement $50 per line, $500 maximum Contractors Equipment—Rented or Leased(short term/90 days or less)......................... $ 50,000 Computer Equipment— Used in the field(owned, rented or leased).................................. $ 50,000 Debris Removal................................................25%of Liability for Physical Damage Loss Demolition and Increased Cost of Construction.................................................................. $ 100,000 Fire &Police Department Service Charge.......................................................................... $ 25,000 Hazardous Substances or Contaminants(to a covered loss at your location)..................... $ 25,000 Miscellaneous Unnamed Locations..................................................................................... $ 250,000 Newly Acquired Buildings &Personal Property.............................................................. $ 1,000,000 Builders Risk/Course of Construction(completed project not to exceed).......................... $ 500,000 PropertyIn Transit.............................................................................................................. $ 250,000 Tools owned by Employees(Any one tool$500/$5,000 any one loss)............................... $ 5,000 Valuable Papers Coverage.................................................................................................. $ 100,000 Water Damage Due To Back—Up, Sewers And Drains........................................................ $ 25,000 FineArts Coverage.............................................................................................................. $ 25,000 TerrorismCoverage............................................................................................................. $ Included ACE AMERICAN INS CO (A+XV) COVERF..D PROPERTY LIMIT ACE AMF.RICAN INS CO(A+XV) Blanket Property Damage Limit Included Generation Facilities Excluded Perils Insured: Provides sudden and accidental breakdown coverage to scheduled properties. Comprehensive Coverage: Including transformers, switchgear and electrical distribution equip- ment, as well as emergency generators,pumps, motors, boilers and air conditioning equipment Sublimits: Expediting Expenses: $125,000 $125,000 Extra Expense Deductible: Combined, All Coverages $10,000 Except Transformers $2.50 per KVA, $50,000 Minimum Except ICEIGenerator Units $30.00 per horsepower,$50,000 minimum Losses are calculated on Repair or Replacement Cost except Actual Cash Valuation will apply on equipment 5 years of age or older and on transformers over 25 years of age which have not been rewound. w 1 • i 6 ► � 1 P ST PAuL/TRAVELERS (A+XV) COMMERCIAL GENERAL LIABILITY LIMIT OF LIABILITY Bodily Injury, Property Damage $ 1,000,000 per occurrence $ 6,000,000 annual aggregate. Personal Injury $ 1,000,000 per occurrence Advertising Injury $ 1,000,000 per occurrence Products and Completed Work $ 1,000,000 per occurrence $ 6,000,000 annual aggregate Fire Legal Liability $ 500,000 per occurrence Pollution Coverage for Pesticide,Herbicide Application Employee Benefit Plans Administration Liability $1,000,000 each Wrongful Act $3,000,000 Total Limit Failure to Supply(when loss results from accidental $ 1,000,000 per occurrence loss to tangible property owned/used by the Insured). Employee Benefits Liability - $1,000 Ded. $ 1,000,000 per wrongful act $ 3,000,000 total limit COVERAGE INCLUDED: _:• Blanket Contractual ❖ Failure to Supply when loss results from accidental damage to utility generating or distributing equipment owned or used by insured. Employees and Volunteers as Insureds Host Liquor Law Liability Incidental Medical Malpractice Pesticide or Herbicide application ❖ Non-Owned watercraft less than 75 feet long. ❖ Owned watercraft less than 25 feet long EXCLUSIONS Pollution Liability �3 Nuclear Energy Liability Care, Custody or Control of Property •3 Uninsu red—Underinsured Motorist Liability •'r Mold, Bacteria, Other Fungi �• Mobile Equipment Subject to Compulsory Financial Responsibility Laws r f ST PAUUTRAVELERS (A+ XV) VEHICLES COVERED: Any owned, rented, leased or borrowed auto. It includes hired, non—owned, newly acquired, replacement and temporary substitute autos, but does not in- clude autos owned by your employees or members of their households, bor- rowed private passenger type autos, or autos where coverage has been reduced or limited on the auto schedule. COVERAGE LIMIT OF LIABILITY Bodily Injury and $ 1,000,000 CSL each accident Property Damage Liability Uninsured/Underinsured Motorist Coverage $ 1,000,000 Bodily Injury each accident Uninsured/Underinsured Property Damage $ 1,000,000 Property Damage each accident Medical Payments $ 1,000 perperson Physical Damage Coverage Deductible Comprehensive $ 1,000 per claim ❖ Collision $ 1,000 per claim ADDITIONAL POLICY BENEFITS •t• Fleet Automatic applicable •:• Employees as Insureds Blanket Additional Insured Rental Reimbursement-30 days Non—Owned and Hired Automobile Liability F / S1 PAUL/TRAVELERS (A+ XV) COVERAGE BLANKET LIMIT Employee Theft $500,000 Forgery or Alteration $500,000 Theft of Money and Securities Loss Inside Your Building $500,000 Loss Outside Your Building $500,000 Computer Fraud &Funds Protection $500,000 Deductible $ 5,000 tli y � Y ST PAUL/TRAVELERS (A+ XV) This insurance provides liability insurance protection for your business in excess of the below listed primary insurance. LIMIT OF LIABILITY $ 11,000,000 Each Occurrence $ 11,000,000 Annual Aggregate $ 10,000 Self—Insured Retention SCHEDULE OF UNDERLYING PRIMARY INSURANCE, Commercial General Liability(Bodily Injury, Property $ 1,000,000 Per Occurrence Damage, Personal injury) $ 6,000,000 Annual Aggregate • Products, Completed Operations $ 1,000,000 Per Occurrence $ 2,000,000 Annual Aggregate Advertising Injury $ 1,000,000 Per Occurrence Employee Benefit $ 1,000,000 Automobile Liability Bodily Injury and Property Damage $ 1,000,000 Combined Employers Liability ❖ Bodily Injury By Accident $ 1,000,000 Each Accident Bodily Injury By Disease $ 1,000,000 Policy Limit ❖ Bodily Injury By Disease $ 1,000,000 Each Employee EXCLUSIONS •3 Pollution Liability Nuclear Energy Liability • Asbestos and Electromagnetic field • Failure to Supply Services Health Care Professional Services •:* Injury to Volunteer Firefighters :• Mold, Fungi or Other Bacteria ❖ Property Damage Change and Intellectual Property *:• Public Use of Property •:• Unsolicited Communication • fill CHUBB CUSTOM INSURANCE COMPANY (A++ XV) 1. POLLUTION LIABILITY—CLAIMS MADE Pollution Liability: This policy will pay on behalf of amounts any protected person is legally required to pay as damages for bodily injury, property damage or Clean-up Costs resulting from Pollution Conditions. Discovery Period: 14 days from incident Reporting period: 30 days from discovery of incident Covered Pollution Condition means: the discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant, including, but not limited to smoke, vapors, soot,fumes, acids, alkalis, toxic chemicals, medical waste and waste materials into or upon land, or any structure on land, the atmosphere or any watercourse or body of water, excluding groundwater. $1,000,000 Each Incident/$1,000,000 Annual Aggregate $10,000 ded. Pollution cleanup costs means any reasonable and necessary expenses, including legal expenses incurred by you for pollution work. Subject to: 1) Receipt and satisfactory review of an original, signed TRIA statement(should the insured decline terrorism coverage)prior to binding. 2) A current balance sheet and audited financials of the insured for the past year. r f e LANDMARK AMERICAN INSURANCE COMPANY — .NON-ADMITTED (A XI) Insurance Summary Company: Landmark American Insurance Company—Non-Admitted Coverage: Property - Difference In Conditions —Earthquake Limit of Liability $5,000,000 per occurrence/annual aggregate $1,000,000 per occurrence sub-limit for Extra Expense Deductible: $25,000 - All Other Perils Except 5% Of Values At Time And Place Of Loss, subject to $25,000 mini- mum Valuation: Replacement Cost except Actual Loss Sustained as respects Extra Expense Coverages. Building, Contents, EDP, Extra Expense, Fences Perils: Difference in Conditions Including Earthquake Terrorism coverage offered at additional premium Remarks: Based on total insured values of$45,128,129 Exclusions: Exclusion and limited additional coverage for Fungus. Exclusion and limited additional coverage for Electronic Data Pathogenic or Poisonous Biological or Chemical Material Terrorism Exclusion r f Fidelity and Deposit Company (A X V) Public Officials Bond COVERAGE FORM(S)FORMING LIMIT OF NO. PART OF THIS POLICY INSURANCE 1. Public Officials Bond $25,000 This bond covers Mary Lynne Chapman of Truckee, CA for$25,000 in the capacity of Treasurer of Truckee Donner Public Utility District. Note: The District's $500,000 limit of Crime Insurance applies to Mary Lynne Chapman, as treasurer, in excess of this treasurer Bond Limit of$25,000. This bond was required by the Crime Insurer as underlying coverage. W a ! f r St Paul/Travelers (A+ XV) Claims Made Coverage Limit Total Limit $ 2,000,000 Each Wrongful Act Limit $ 1,000,000 Retro Date 5/1/02 Deductible Each Wrongful Act-Loss &Loss Expense $ 10,000 The following exclusions apply: Excluded Boards and Commissions: Airport Joint Power Authority Hospitals School Health Clinics Gas Utility Transit Authority Hospitals Housing Authority Health Care Facilities Blood Banks Port Authority Health Clinics Rehabilitation Facilities Features &Benefits Coverage Agreement This agreement is designed to cover damages (other than bodily injury,personal injury, advertising injury or property dam- age) any protected person is legally required to pay for covered loss that results from the conduct of duties by or for a public entity and is caused by a wrongful act.Wrongful act is defined as any act,error or omission. However,wrongful employment practice offenses are not covered. Who is Protected Public Entity Employees(including employees of the entity's boards) Elected or Appointed Officials Estates,Heirs,Legal Representatives or Assigns Board Members Volunteer Workers Other ♦ Pay on behalf of basis,(Deductible Options Only). ♦ Duty to defend claims and suits even if allegations are groundless,false,or fraudulent(Deductible Options Only). ♦ Punitive damages covered up to full policy limits,if allowed by law. ♦ No exclusion for Architects,Engineers or Lawyers. ♦ Automatic Limited Reporting Period of 60 days after agreement is cancelled or not renewed. ♦ Health care professional services and law enforcement duties exclusions apply. ♦ Taking of private property for public use(eminent domain),diminution in value,and inverse condemnation are excluded. Typical claims made against protected persons include: ♦ Failure to properly zone ♦ Violation of civil rights ♦ Wrongful denial of permit ♦ Improper procedures/management 1111 1 loom St Paul/Travelers (A+ XV) Claims Made Coverage Limit Limit $5,000,000 Wrongful Employment Practice Offense Limit $5,000,000 Date 5/l/02 IMPORTANT CONDITIONS TO NOTE: Defense expenses are within the limits of coverage. Our Right to Settle Claims Without Your Written Consent Endorsement applies(Deductible Option Only) Deductible Each Wrongful Employment Practice Offense(Loss&loss expense) $10,000 Features &Benefits Coverage Agreement This agreement is designed to cover damages (other than bodily injury or property damage) any protected person is le- gally required to pay for covered employment injury to employees or independent contractors that results from a wrongful employment practice offense first committed after the retroactive date. Wrongful employment practice of- fense is defined to include discrimination, termination, harassment, retaliation, discipline, hiring, supervision, demo- tion,promotion, defamation, libel, slander, and invasion of privacy. Who is Protected Public Entity Employees(including employees of the entity's boards) Elected or Appointed Officials Volunteer Workers Board Members Other ♦ Pay on behalf of basis(Deductible Options Only). ♦ Duty to defend claims and suits even if allegations are groundless,false, or fraudulent(Deductible Options Only). ♦ Punitive damages covered up to full policy limits, if allowed by law. ♦ Administrative proceedings conducted by governmental agencies in which damages are sought are included in the definition of suit. ♦ Defense costs erode the limit of liability, subject to state exceptions (see Important Notice on preceding page). ♦ Right,but no duty, to defend any protected person in an administrative proceeding, which does not seek damages. Defense costs for these proceedings are in addition to the limit of liability. ♦ Damages include attorneys' fees of the person bringing the claim if the protected person is legally required to pay them under the law, which was violated. ♦ Declaratory, injunctive or other non-monetary relief costs are excluded. i ST PAU (TRAVELERS A+ XV) Claims Made Coverage Limit Total Limit $2,000,000 Each Wrongful Act Limit $1,000,000 Retro Date 5/1/02 Deductible Each Wrongful Act-Loss&Loss Expense $10,000 The following exclusions apply: Excluded Boards and Commissions: Airport Joint Power Authority Hospitals School Health Clinics Gas Utility Transit Authority Hospitals Housing Authority Health Care Facilities Blood Banks Port Authority Health Clinics Rehabilitation Facilities Features &Benefits Coverage Agreement This agreement is designed to cover damages(other than bodily injury,personal injury, advertising injury or property damage)any protected person is legally required to pay for covered loss that results from the conduct of duties by or for a public entity and is caused by a wrongful act.Wrongful act is defined as any act,error or omission. However, wrongful employment practice offenses are not covered. Who is Protected Public Entity Employees (including employees of the entity's boards) Elected or Appointed Officials Estates,Heirs,Legal Representatives or Assigns Board Members Volunteer Workers Other ♦ Pay on behalf of basis, (Deductible Options Only). ♦ Duty to defend claims and suits even if allegations are groundless,false, or fraudulent(Deductible Options Only). ♦ Punitive damages covered up to full policy limits, if allowed by law. ♦ No exclusion for Architects,Engineers or Lawyers. ♦ Automatic Limited Reporting Period of 60 days after agreement is cancelled or not renewed. ♦ Health care professional services and law enforcement duties exclusions apply. ♦ Taking of private property for public use (eminent domain), diminution in value,and inverse condemnation are excluded. Typical claims made against protected persons include: ♦ Failure to properly zone ♦ Violation of civil rights ♦ Wrongful denial of permit ♦ Improper procedures/management r � r ADDITIONAL PREMIUM TERRORISM Property/Boiler&Machinery/Inland Marine/Flood..................................... TRIA....$1,325 ............................................................................................all including TRIA.....$3,091 GeneralLiability..........................................................................................................$1,074 Public Entity Management Liability D&O $96 Employment Practices Liability......................................................................................$140 Umbrella/Excess.............................................................................................................$254 DIC(Quake) (Plus Taxes &Fees).............................................................................$12,000 Pollution (plus Taxes &Fees)........................................................................................$300 FLOOD Increase limit to$IOM from$5M on Property insurance ................................................ $0 DIC (EARTHQUAKE) Increase limit to$ from$5M on Earthquake coverage ......................................... $ About Marsh Marsh,the world's leading risk and insurance services firm,has nearly 30,000 employees and annual revenues ex- ceeding$5 billion.We provide global risk management,risk consulting, insurance broking,financial solutions, and insurance program management services for businesses,public entities,associations,professional services organi- zations, and private clients in over 100 countries. Business Reforms Marsh is implementing a series of significant reforms to its business model that will ensure that the best interests of its clients are served and that every transaction is executed in accordance with the highest professional and ethical standards. The following reforms have been initiated: • Marsh has permanently eliminated the practice of receiving any form of contingent compensation from in- surers. • All revenue streams will be 100 percent transparent to clients.Each client will receive a full accounting of all revenue earned by Marsh, including fees,retail commission, wholesale commission and premium fi- nance compensation, if any. • Marsh will insist that insurance companies show commission rates on all policies. • Marsh will seek consistent commission rates so that insureds are better able to compare costs of alternative proposals. • Marsh will provide transparency to its clients regarding its negotiations with insurers on their behalf. San Francisco Office San Francisco is home to the second largest office of Marsh in the United States—the third largest in the world,after New York and London—making us an influential voice in our firm.Located in the heart of the San Francisco Finan- cial District, at 1 California Street, we have been in continuous operation for 89 years, since 1916. Staffed by approximately 700 employees, we provide a comprehensive array of insurance brokerage and risk manage- ment consulting services to Fortune 500 and 1000 companies,regional businesses and public entities. Public Entity Practice Within Marsh,the Public Entity practice has been operational as a specialized practice since 1988,now representing more than 1,500 public entities in the U.S. and Canada. In addition,the practice represents approximately 90 intergov- ernmental pools and hundreds of public entities throughout the rest of the world. These clients are handled by a net- work of 250 public entity specialists throughout Marsh,all available to contribute their expertise to any Marsh col- league or client. The range of public entity clients encompasses, as of recent count,98 utilities, 289 cities, 176 coun- ties, 37 housing authorities, 10 Native American tribes,90 pools, 50 ports,28 states, 328 school clients and 53 transit districts. Marsh's San Francisco office is home to the largest concentration of public entity specialists in the firm. MARSH An MAC Company PUBLIC ENTITY PRACTICE WEST ZONE KEITH GRAND Keith Grand is a public entity insurance and risk management specialist in the San Francisco Marsh office and is a veteran of 40 years in the insurance and risk management business. Responsibilities include account management, contract and insurance review, marketing of insurance programs. Current activities include brokerage and risk management services for a range of clients, including a California pool of school districts, several water and electric utilities, a state-wide court system pool and various other California public entities, such as counties and special districts. Keith came to Marsh from another major brokerage firm. His background includes extensive public entity risk management experience as Risk Manager for Alameda County and, following that, City and County of San Francisco. Prior experience includes risk management for a multinational, publicly-traded corporation and commercial lines underwriting superintendent for a major national insurer. His scope of risk manage- ment experience includes airports, ports, public transit, electric and water utilities, Owner Controlled Insur- ance Programs, fine arts museums, State legislative activities, formation of pools, as well as the full gamut of operations of cities, counties and special districts, including internal budgeting, accounting and procedural practices. Keith earned a BA from the University of Maine, and holds the professional designations of Chartered Prop- erty and Casualty Underwriter (CPCU) and Associate in Risk Management(ARM). Prior affiliations include memberships in RIMS, PARMA, PRIMA and numerous occasions as speaker and panelist at industry meet- ings. CHRISTINA LIOPE, ARM Christina Liope is a Client Advisor with the Public Entity Practice of Marsh in San Francisco. Before joining Marsh in June of 2005, Christina had over 17 years of Insurance Industry experience with brokers as well as carriers. Christina has handled public entity accounts such as the County of Alameda, County of Kern, State of Ne- vada and Washoe County and is currently handling FAIRA. She has also handled various Private Sector ac- counts such as Rio Tinto, AMB Property Management, SSR Realty, Rohm & Hass, Fine Host, The Chroni- cle, Planned Parenthood, West Marine and the Rreef Fund. Christina has obtained her ARM designation and is working on her last CPCU in order to obtain her CPCU designation. Keith Grand MARSH Vice President Marsh Risk&Insurance Services One California Street San Francisco,CA 94111 California Insurance License#0437153 415 743 7571 Fax 415 743 8037 Keith.Grand@marsh.com www.marsh.com April 12, 2007 Mary Chapman Administrative Services Manager Truckee Donner Public Utility District 11570 Donner Pass Road Truckee, CA 96160 Subject: Marsh Compensation Dear Mary: I'd like to open a discussion with you concerning the Marsh brokerage compensation on the District's account. As you may know, compensation has been on a flat fee basis for the six years Marsh has been the broker, and probably for some time prior to that, when our team was formerly at Aon. Throughout this period, annual compensation has been a flat fee of$35,000, Over the years, several factors have been at work, discussed below,to prompt us to discuss a modest increase in compensation: 1. corporate streamlining to improve efficiencies in account handling 2. maintaining the District's insurance to simplify structure, secure financially sound insurers,minimize premium increases in hard markets and maximize savings in soft markets 3. measuring fee compensation against standard commission benchmarks Account Efficiencies Given the effects of inflation over a number of years,Marsh has adopted a policy of not pursuing new business that does not provide a minimum annual compensation of$50,000. The cost of procurement and the ramp-up time to fully integrate a new account is such that a lower revenue essentially costs us money to put such an account on the books. However, with existing accounts,where procurement and integration costs are not a factor, Marsh generally would like to centralize the handling of smaller accounts into regional service centers. These centers have been operating for several years, are fully staffed with experienced insurance professionals, and provide valuable service to existing clients. However, it is not my desire to have the District considered as a candidate for handling at a service center - [�J Marsh&McLennan Companies MARSH Page 2 April 12, 2007 Mary Chapman Truckee Donner Public Utility District Maintaining the District's Program During the several years I've been handling the District's insurance program, we have made a number of improvements in the structure and pricing of your account. Recall the earlier years when the District's insurance was largely provided by the Rural Electric program. This involved a complex network of intermediaries between the District and insurers that added cost and built in inefficiencies. With aggressive marketing, we were able to place your program into a package designed for utilities,that provided better integration of coverage, financially-strong insurers and reduced prices, which we feel is currently the best place the District's program could be. According to our records,the District's premium history reflects this recent improvement in program design: 02/03 $371,649 03/04 $363,816 04/05 $412,370 05/06 $403,437 06/07 $334,575 Over the last three years of the restructured program, the District has benefited by a cumulative premium savings of$77,793 Commission Benchmark Broker compensation is usually on a fee basis, commission or a combination. In the current marketplace,typical commission rates on accounts comparable to the District are an average of 15%. Using this commission yardstick against the last three years of my tenure on your account, compensation would have been as follows: 04/05 $61,856 05/06 $60,511 06/07 $50,186 Looking at the Consumer Price Index since 2000,the $35,000 then equates to $46,600 today. MARSH Page 3 April 12, 2007 Mary Chapman Truckee Donner Public Utility District Proposed Fee Increase I respectfully request that the District consider a graduated fee increase over the next three years to get Marsh closer to what a commission benchmark would provide, as follows: 07/08 $40,000 08/09 $45,000 09/10 $50,000 This is not intended to lock the District into a three-year commitment to amounts or to Marsh, but would be an expression of mutual understanding that these are the desired targets, to be approached gradually over time. Our typical Client Service Agreement would still be on an annual basis, in sync with the Board's annual approval of the District's insurance program, and each year of continued service would be subject to mutual agreement at each anniversary. This would leave each party the flexibility to react to changes in circumstances over that same period. We value our relationship with you, staff and the District and would very much like to continue to build on that relationship indefinitely. I would appreciate your consideration of this request and would be happy to discuss any questions or concerns you may have. Best regards, 4,1&�w Keith Grand Vice President Encl Marsh Standard Client Services Agreement Client Service Agreement By and Between Marsh Risk & Insurance Services and Truckee Donner Public Utility District AGREEMENT, effective May 1, 2007 (the "Effective Date"), between Marsh Risk & Insurance Services ("Marsh"), and Truckee Donner Public Utility District ("Client"). It is agreed as follows: 1. Services. Marsh is hereby engaged to act as the Client's risk management advisor and consultant and insurance broker, as applicable, and shall provide the Client with the services set forth on Appendix A (the "Services") in accordance with the terms set forth herein. Appendix A may be amended from time to time by written agreement of the parties. The additional services set forth in Section 4 of Appendix A are available for additional compensation and subject to the negotiation of separate agreements. 2. Comnensation. (a) Marsh shall be compensated for providing the Services to the Client as set forth on Appendix B. Appendix B may be amended from time to time by written agreement of the parties. (b) If there is a significant change in the Client's operations or exposures that affects the nature and scope of its insurance program and/or service needs, Marsh and the Client both agree to renegotiate Marsh's compensation in good faith as appropriate. 3. Term and Termination. (a) The term of this Agreement shall commence on the Effective Date and shall terminate one (1) year thereafter (the "Contract Year"). The Contract Year may be extended by mutual written agreement of the parties. (b) Notwithstanding the term, either party may terminate this Agreement upon 90 days' prior written notice to the other party. If this Agreement is terminated, Marsh will assist the Client in arranging a smooth transition process, subject to receipt by Marsh of all amounts due Marsh from the Client. However, Marsh's obligation and the obligation of its affiliates (including, if applicable, Marsh's U.K. affiliates) to 1 Marsh CSA Template—Version 1.2.0 provide Services to the Client will cease upon the effective date of termination, unless otherwise agreed in writing. (c) In the event of termination by the Client prior to expiration, Marsh's annual compensation set forth on Appendix B for the current Contract Year will be deemed earned in accordance with the following schedule, for Services performed through the termination date: 60% at commencement of the current Contract Year; 75% after four months; and 100% after seven months. (d) In the event of a termination by Marsh prior to expiration, Marsh's annual compensation will be deemed earned on a pro-rata basis. 4. Authorization. Marsh shall be authorized to represent and assist the Client in all discussions and transactions with insurers relating to the lines of insurance listed on Appendix A when acting as the Client's insurance broker, provided that Marsh shall not place any insurance on behalf of the Client unless so authorized by the Client in writing. Notwithstanding the foregoing, at all times during the performance of this Agreement Marsh shall be an independent contractor and shall not be an employee of Client. 5. Other Terms and Conditions. The Standard Terms and Conditions set forth in Appendix C shall apply to the Services performed by Marsh under this Agreement. 6. Governing Law, This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to its conflicts of law provisions. 7. Miscellaneous, This Agreement, together with all appendices attached hereto, contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all written or oral prior agreements, understandings and negotiations with respect to such matters. This Agreement may be modified or otherwise amended and the observance of any term of this Agreement may be waived, only if such modification, amendment or waiver is in writing and signed by the parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties' respective successors. Neither party shall have any liability for any failure or delay in performance of its obligations under this Agreement because of 2 Marsh CSA Template—Version 1.2.0 circumstances beyond its reasonable control, including, without limitation, acts of God, fires, floods, earthquakes, acts of war or terrorism, civil disturbances, sabotage, accidents, unusually severe weather, governmental actions, power failures, computer/network viruses that are not preventable through generally available retail products, catastrophic hardware failures or attacks on its server. Marsh Risk & Insurance Services By: Date: Keith Grand Vice President Accepted and agreed: Truckee Donner Public Utility District By: Date: 3 Marsh CSA Template—Version 1.2.0 Appendix A Scope of Services 1. Marsh will act as the Client's risk management advisor and consultant and insurance broker, as applicable, with respect to the following lines of insurance (effective dates noted in parenthesis): (a) Property (05/01/2007) (b) Casualty (05/01/2007) (c) Surety (05/01/2007) (d) Directors and Officers (05/01/2007) (e) Difference in Conditions (05/01/2007) (f) Pollution Legal (05/01/2007) 2. As respects the lines of insurance in Section 1, above, Marsh shall provide the following services: (a) Work with the Client to assess the Client's risk exposures; (b) Work with the Client to design and develop the Client's insurance program; (c) Assist with documentation and other steps to obtain commitments for and implement the Client's insurance program upon the Client's instructions; (d) Keep the Client informed of significant changes and or trends in the insurance marketplace and provide the Client with annual information on market trends; (e) Assist the Client in identifying insurers. Solicit quotes from insurers selected by the Client for the placement of Client's insurance program in accordance with the Client's instructions. (f) Conduct a Renewal Strategy Meeting in advance of each placement. (g) Negotiate on the Client's behalf with insurers and keep the Client informed of significant developments in the negotiations; (h) Assist the Client with the evaluation of options received from the insurance market; (i) Use best efforts to place insurance on behalf of the Client as directed by the Client and secure the Client's approval prior to requesting insurers to bind coverage; (j) Follow up with insurance carriers for timely issuance of policies and endorsements; (k) Promptly respond to Client's questions related to coverage placed by Marsh or the placement process; (1) Deliver binders on or before the effective date of coverage being placed, subject to placement; A-1 Marsh CSA Template—Version 1.2.0 (m)Process or facilitate the processing and delivery of certificates or memoranda of insurance and auto identification cards with respect to insurance policies placed by Marsh, as requested by the Client; (n) Review policies and endorsements for conformity to agreed terms and coverages; (o) Provide coverage summaries for all new placements and updates on changes to existing policies; (p) Review premium and exposure audits, rating adjustments, dividend calculations and loss data; (q) Assist the Client in establishing claims reporting procedures to insurers, (r) Monitor published financial information of the Client's current insurers and alert the Client when the status of one or more of such insurers falls below Marsh's minimum financial guidelines. Insurers with whom the Client's risks have been placed will be deemed acceptable to the Client, in the absence of contrary instructions from the Client; (s) Provide the Client with detailed invoices, except in the case of direct billing by insurers. Remit premiums to insurers and taxes and fees to the relevant authorities on a timely basis, following receipt thereof from the Client. (t) Assist the Client with initial reporting of claims to Insurers as follows: • Notify insurers of claims, provided that the Client's Marsh claims representative is informed in writing by the Client of the claim, with details of the claim, and Marsh has placed the applicable policies or the Marsh claims representative has been provided written notice by the Client of the applicable carrier and policies. (u) Upon the Client's request, review Client's contracts with respect to insurance and risk management related issues. Sections 2(e), (g), (i), (j), (1), (m), (s), and (t) will only apply with respect to placements for which Marsh is acting as the Client's insurance broker. 3. Whenever the Marsh client executive is informed in writing by the Client that a claim has been notified to the primary carrier, Marsh will notify all applicable excess carriers of the claim, unless the Client gives the Marsh client executive contrary instructions in writing, provided that Marsh has placed the applicable excess policies or the Marsh client executive has received written notice from the Client of the applicable carrier and policies. If Marsh is instructed not to provide notice to any excess carrier, Marsh shall have no responsibility for any consequences arising out of the failure to give notice. 4. Additional Services are available for separate compensation and shall be agreed upon in advance and addressed by amendment to this agreement or by separate agreement (in certain cases with affiliates of Marsh). Such additional services include, but are not limited to: A-2 Marsh CSA Template—Version 1.2.0 • Actuarial analysis of Workers' Compensation, General Liability, and Automobile Liability claims, or other lines of insurance; • Consulting relating to workers' compensation cost containment, including behavioral risk management, absence management, cumulative injury management, financial diagnostics and custom cost containment solutions; • Business interruption and other claim valuation services offered by Kroll's Forensic Accounting practice; • Environmental risk consulting services; • Operations and assets consulting services, including business continuity management, supply chain risk management, loss control and engineering support services and strategic risk assessments; • Claims services other than those specified in Section 2 above, including catastrophic claims support, mass tort claims support, claims management services, special claims advocacy services and archival research; • Services in connection with loss portfolio transfers and alternative risk financing, including placements made in connection with such services; • Captive insurance company feasibility studies; • Establishment and administration of captive insurers; • Placement of non-recurring insurance, including, but not limited to: - "one-time" placements for construction projects, - "one-time" placements for marine/cargo risks, - "one-time" placements for surety, - Placements for specific financial risks, such as trade credit, - Placements involving significant quantitative or actuarial analysis or modeling, - Placement of risks with financial institutions other than insurance carriers, and - Placements of risks not customarily accepted by insurers; • Employee benefits services; • Pension plan consulting; • Compensation consulting; • Executive deferred compensation services; • Risk management claims information systems, including STARS and TrendTracker software programs, and related services; • Enterprise Risk Management consulting; • Strategic Risk Assessment; • Provision of Marsh personnel on an out-sourced basis; • Intellectual Property Consulting; • Security Consulting; • Insurance-related mergers and acquisition due diligence services and transactional solutions; • Placement and servicing of owner controlled insurance programs; and A-3 Marsh CSA Template—Version 1.2.0 • Interactive on-line client services. A-4 Marsh CSA Template—Version 1.2.0 Appendix B Compensation As compensation for providing the Services, the Client shall pay Marsh an annual fee of $40,000.00. The annual fee shall be paid by the Client on May 1, 2007. Prior to each placement by Marsh for the Client, Marsh shall disclose to the Client and obtain the Client's approval of any commissions to be collected by Marsh or its affiliates with respect to such placement. Marsh shall credit any retail commissions collected by Marsh or its affiliates against remaining installments of the annual fee (except as provided below) and, to the extent in excess of the remaining installments, refund previously paid installments of the annual fee. In the event such retail commissions for a Contract year exceed the annual fee for that year, then excess retail commissions shall be returned to the Client if permitted by law. Otherwise, excess retail commissions shall be carried forward and applied against Marsh's annual compensation for subsequent years if permitted by law. Any wholesale commissions collected by Marsh or its affiliates will not be credited against the annual fee. In addition to the compensation set forth above, Marsh's foreign offices and affiliates shall be entitled to receive commissions on foreign local placements made on behalf of the Client or its foreign subsidiaries, which shall be in addition to and not be credited against the annual fee. Marsh shall disclose to the Client and obtain the Client's approval of such commissions prior to placement. Marsh may make such disclosure to and obtain such approval from the Client's local operating management. In the event (i) the Client elects to obtain insurance for a particular line of coverage from a foreign insurer and that insurer is domiciled in a country not part of the Client's insurance program with respect to such line of coverage as of the commencement date of this Agreement and (ii) the resources and services of a foreign Marsh affiliate are necessary or appropriate for such placement, Marsh and the Client shall negotiate additional compensation for such services and/or modification to Marsh's compensation in good faith. Any commissions collected by Marsh or its affiliates shall be considered fully earned at the time of placement, including if an insurance policy placed by Marsh or its affiliates for the Client or its foreign subsidiaries is terminated by the Client or its foreign subsidiaries prior to expiration unless such policy is replaced by another policy placed by Marsh or its affiliates for the Client or its foreign subsidiaries during the term of this Agreement. B-1 Marsh CSA Template—Version 1.2.0 Appendix C Standard Terms and Conditions These Standard Terms and Conditions are part of the attached Client Service Agreement between Truckee Donner Public Utility District (the "Client") and Marsh Risk & Insurance Services ("Marsh"). 1. Taxes and Fees. In certain cases, insurance placements that Marsh makes on the Client's behalf may require the payment of insurance premium taxes (including U.S. federal excise taxes), sales taxes, use taxes, surplus or excess lines and similar taxes and/or fees to federal, state or foreign regulators, boards or associations. The Client agrees to pay such taxes and fees, whenever assessed. To the extent practical, such taxes and fees will be identified by Marsh on invoices covering such placements. Any such taxes and fees collected by Marsh will be promptly remitted by Marsh to the appropriate authorities. 2. Client Responsibilities. The Client shall be solely responsible for the accuracy and completeness of information and other documents furnished to Marsh and/or insurers by the Client and the Client shall sign any required application for insurance. The Client recognizes and agrees that all insurance coverages placed in connection with this Agreement and all Services, evaluations, reports and recommendations provided by Marsh hereunder are based on data and information furnished by the Client. Marsh will be under no obligation to investigate or verify the completeness or accuracy of any such data or information, nor will Marsh have any liability for any errors, deficiencies or omissions in any Services, evaluations, reports or recommendations provided to, or any insurance coverages placed on behalf of, the Client that are based on such inaccurate or incomplete data or information. The Client understands that the failure to provide all necessary information to an insurer, whether intentional or by error, could result in the impairment or voiding of coverage. The Client will review all policies, endorsements and program agreements delivered to it by Marsh and will advise Marsh of anything which the Client believes is not in accordance with the negotiated coverage and terms within thirty days following receipt. 3. Intermediaries. (a) When in Marsh's professional judgment it is necessary or appropriate and subject to the Client's prior approval, Marsh may utilize the C-1 Marsh CSA Template—Version 1.2.0 services of other intermediaries, including wholesale brokers, to assist in the marketing of the Client's insurance. Such intermediaries may be affiliates of Marsh. (b) Wholesale brokers may represent insurers or act as managing general agents. Prior to utilizing a wholesale broker in connection with a placement for the Client, Marsh shall disclose to the Client the compensation received or to be received by Marsh and its affiliates in connection with the wholesale placement, any interests of Marsh and its affiliates in the wholesale broker, any contractual agreements between Marsh and its affiliates, on the one hand, and the wholesale broker, on the other, and alternatives to using the wholesale broker. (c) Marsh shall disclose to the Client the compensation of any Marsh affiliated intermediaries utilized in connection with the Client's placements, and obtain the Client's consent to such compensation, prior to the binding of coverage. Marsh shall disclose to the Client the compensation of any non-Marsh affiliated intermediaries utilized in connection with the Client's placements to the extent known by Marsh. 4. Other Revenue. (a) If the Client requests assistance with obtaining premium financing in connection with the Client's placements and Marsh provides such assistance, Marsh may receive compensation from the finance company that provides premium financing to the Client. Marsh shall provide to the Client information relating to Marsh's and its affiliates' arrangements with and interests in the premium finance companies to be considered by the Client and the compensation that Marsh and its affiliates would receive from finance companies with respect to the Client's placements. (b) Marsh earns and retains interest income on premium payments held by Marsh on behalf of insurers during the period between receipt of such payments from clients and the time such payments are remitted to the applicable insurer, where permitted by applicable law. Marsh will advise the Client annually of the aggregate income Marsh earns on the investment of funds held for all insurers for all clients. 5. Confidentiality. (a) Confidential Information. The Client may provide Marsh with certain proprietary and confidential information ("Confidential Information") in connection with the Services provided by Marsh under this Agreement. Neither Marsh nor any of its employees or agents directly or indirectly shall disclose to any third C-2 Marsh CSA Template—Version 1.2.0 party or use any Confidential Information furnished by or on behalf of Client for any purpose except in furtherance of the Services and in furtherance of other insurance brokerage, risk consulting, risk financing, risk transfer, employees benefits or other insurance-related services rendered by Marsh to Client, which may include in the normal course of business the release to insurers and other financial institutions of Confidential Information relevant to the underwriting and/or evaluation of Client's risks and the processing of its claims, provided that such insurers and financial institutions are informed of the confidential nature of such information. Marsh shall take all steps reasonably required to maintain the confidentiality of Confidential Information in Marsh's possession. The transmission of Confidential Information via electronic data transmission networks which provide for the security of users' data shall be deemed consistent with Marsh's obligations hereunder unless such use is contrary to Client's express instructions. (b) Exceptions. The restrictions and agreements set forth above shall not apply to any Confidential Information: (i) which at the time disclosed to or obtained by Marsh is in the public domain; (ii) which becomes part of the public domain through no act, omission or fault of Marsh; (iii) which Marsh's records demonstrate was developed independently by Marsh or was received by Marsh from a third party which Marsh had no reason to believe had any confidentiality or fiduciary obligation to the Client with respect to such information; (iv) which is required to be disclosed by law, including, without limitation, pursuant to the terms of a subpoena or other similar document; provided, however, Marsh shall, to the extent practical, give prior timely notice of such disclosure to the Client to permit the Client to seek a protective order, and, absent the entry of such protective order, Marsh shall disclose only such Confidential Information that Marsh is advised by its counsel must be disclosed by law; or (v) following the lapse of two years after disclosure of such information to Marsh. (c) Return of Confidential Information. As between the Client and Marsh, Confidential Information shall be the sole and exclusive property of the Client. Upon the Client's request, all documents and records in Marsh's possession containing Confidential Information shall be returned to the Client; provided, however, that Marsh may retain copies of documents that may contain Confidential Information which are necessary for the conduct and proper record keeping of Marsh's business in accordance with standard operating procedures or applicable law. C-3 Marsh CSA Template—Version 1.2.0 (d) Remedy. It is understood and agreed that money damages would not be a sufficient remedy for any breach of these confidentiality provisions and the Client shall be entitled to injunctive relief as a remedy for such breach, without prejudice to any other rights or remedies available to the Client under applicable law. 6. Record Retention. Files (other than core documents, as defined in Marsh's record retention policy, including insurance policies, which are permanently retained) will not be retained for more than five years after the expiration of a particular policy's term. 7. Disclaimers• Limitation of Liability. (a) Marsh does not speak for any insurer, is not bound to utilize any particular insurer and does not have the authority to make binding commitments on behalf of any insurer, except under special circumstance which Marsh shall always endeavor to make known to the Client. Marsh shall not be responsible for the solvency of any insurer or its ability or willingness to pay claims, return premiums or other financial obligations. Marsh does not guarantee or make any representation or warranty that insurance can be placed on terms acceptable to the Client. (b) If Marsh has taken over any existing program or policies implemented by another broker, Marsh will not assume any responsibility for the adequacy or effectiveness of those programs or policies or any acts or omissions occurring prior to Marsh's engagement. Within 45 days, Marsh will have completed a review of such programs and policies and will make recommendations it believes are necessary. (c) Any loss control services and/or surveys performed by Marsh under this Agreement are advisory in nature. Such services are limited in scope and do not constitute a safety inspection as provided by a safety engineering service. Marsh does not claim to find or include every loss potential, hazard, statutory or code violation or violation of good practice. All surveys and reports are based upon conditions observed and information supplied by the Client. Marsh does not expressly or impliedly guarantee or warrant in any way the safety of any site or operation or that the Client or any of its sites or operations is in compliance with federal, state or local laws, codes, statutes, ordinances or recommendations. In any event, Marsh's liability if any, relating to or arising out of loss control services performed by it for the C-4 Marsh CSA Template—Version 1.2.0 Client shall not exceed the total compensation paid to Marsh under this Agreement. C-5 Marsh CSA Template—Version 1.2.0