When a municipality faces water loss, it is usually linked to an aging infrastructure. Water loss means increasing energy to pump water that never makes it to the customer. Local governments fund 95% to 98% of water and sewer infrastructure.

Deteriorating systems leave municipalities at risk. There is always a potential for liability due to federal violations and lawsuits. One way of alleviating risk is municipal insurance.

A municipal insurance company provides special coverage for the water and sewer industry. They create a commercial insurance package that fits your industry risks. This includes special events, cyber liability, business automobiles, and more.

Keep reading to learn about municipal water and sewer insurance options.

What Is Municipal Insurance?

Municipality insurance provides coverage for town and county governments. It covers loss or damage on public property and at public institutions. It also covers loss or damage by public officials.

Insurance for municipalities falls within the category of special coverage. This is because there is a high level of day-to-day loss risk.

There were several towns receiving insurance coverage denials in the 1980s. This was due to their record of submitting many claims.

When your municipality manages utilities, there is always a risk. Risks include contamination, environmental hazards, failure to supply, or an equipment breakdown.

Special municipal insurance protects you from loss. It also protects in case of a lawsuit.

Pollution Leaves Municipalities Vulnerable

Unsafe water causes more deaths in the U.S. yearly than war and violence. Toxic substances from towns, factories, and farms pollute water. Courts may find municipal water facilities liable if they provide unsafe water.

Almost 40% of Americans rely on groundwater for regular consumption. Groundwater has a high risk of contamination. Pesticides, fertilizers, landfills, and septic systems leaking into the ground affect water quality.

Wastewater includes used water from showers, toilets, and sinks in our homes. It also comes from agricultural, commercial, and industrial facilities.

Stormwater runoff is wastewater. Rainfall contains road salts, grease, chemicals, oil, and debris. Between 80% to 95% of wastewater worldwide flows back into the environment untreated.

The United States releases 850 billion gallons or more of untreated stormwater and wastewater every year. Water unsafe for human use or consumption puts a municipality at risk of a lawsuit.

Government Immunity Doesn’t Apply

Law established criteria for the application of government immunity. When municipalities act in a proprietary fashion, they must provide a duty of care. This means they have the same responsibilities as private individuals or institutions.

Proprietary fashion is when municipalities act as a traditional private enterprise. The municipality is not entitled to government immunity when operating in this manner.

A plaintiff does not need to establish a special relationship to take legal action. Court findings hold municipalities responsible for maintaining and repairing water systems. When acting in a proprietary fashion, they are liable for damages they cause.

Municipality Insurance

Realizing all areas in your water and sewer department are at risk is essential. This goes beyond property liability and zoning laws. You need protection from crimes, cyber risks, vandalism, and more.

Water and sewer centers are at risk of litigation due to daily liability. Talk to your insurance provider and request a review to ensure you have the protection you need. They will locate any areas where you are over-insured or under-insured.

General Liability

This protection covers property damage and bodily injury claims from all municipality locations. Injuries may be due to sidewalks or roadways not being properly maintained. It can also be construction activity or natural disasters.

Insurance coverage is critical if property damage or personal injuries occur. Coverage assists with the cost of litigation, medical expenses, and property repairs.

Crime Insurance

Municipalities are at risk of both external and internal crime. Crime insurance protects against theft, embezzlement, burglary, unauthorized transfer of funds, and fraud.

Municipalities must do their due diligence in ensuring they hire honorable work staff. This includes conducting background checks and screening all potential employees.

Employee dishonesty insurance provides coverage when an employee is deceitful. This includes employee theft of money, private information, company assets, or property.

Besides crime insurance, a separate cyber crime policy is advisable.

Cyber Liability

Data breaches are costly and complicated. The average cost to a business for a single cyber attack in the United States is $200,000. Cyber liability insurance protects your liability if the municipality suffers a data breach.

Cyber insurance usually covers the following expenses:

• Help with any associated legal expenses
• Protection of your computer systems and electronic data from damage and computer attacks
• Setting up a call center for consumers to receive information
• Providing credit monitoring services
• Notifying consumers about a data breach

Coverage includes the municipality's liability to third parties suffering damage from a breach. The insurance helps restore and recreate data and assists with extra expenses. It can cover the restoration of computer systems to a pre-attack level.

Wastewater Sector Risks

Water and wastewater systems rely on Information technology (IT) and operational technology (OT). A cyber breach into the systems can result in a disruption of service. This can have a trickle-down impact throughout the entire U.S. infrastructure.

A malicious attack may result in access to the facility’s IT systems. The malicious actor may steal sensitive data and disable components. They can also move within the system to gain access to other sensitive information.

Ransomware can disrupt facility operations. It may infect other operational technology systems it connects with.

Wastewater OT networks contain hundreds of diverse components. This makes it difficult to map and update the system. The result may be a misconfiguration or using components not in the network mapping.

Not maintaining custom and off-the-shelf components makes the OT system vulnerable to cyber-attacks. A successful cyber-attack may allow malicious actors to manipulate the wastewater management system.

Water Sector Risks

There is evidence that cybercriminals target desktop-sharing applications. On October 14, 2021, the federal government released the Joint Cybersecurity Advisory AA21-287A. Unauthorized access to U.S. drinking and water treatment systems led to the report.

OT system exploitation allows attackers to manipulate operating systems for water. Components not up-to-date on security patches or operating beyond end-of-life are vulnerable. This makes them at risk of attack.

Malicious actors can attempt to access IT systems. The intent is to steal sensitive data or disable network components.

Using stolen data, they may move further within the network. This allows them access to more sensitive areas.

A ransomware attack can disrupt facility operations and affect connected OT systems.

Employment Practices

This insurance protects the municipality against claims by employees alleging:

• Wrongful termination
• Harassment
• Unfair discipline
• Discrimination
• Retaliation
• Demotion
• Wrongful hiring
• Supervision
• Failure to promote
• Defamation
• Libel
• Slander
• Misrepresentation
• Disparagement
• Invasion of privacy
• Breach of implied contract.

The municipality has financial protection against any claims for which they are responsible.

Automobile Insurance

When conducting a water and sewer business, employees operate various vehicles. Public sector automobile insurance covers damages due to negligent operation of vehicles.

The insurance covers the cost of accidents. It also covers theft, vandalism, and other damage when the vehicle is not moving.

There is non-owned vehicle coverage for officials using their personal vehicles for work.

Commercial Property

Protecting the property is crucial to your operations. You need coverage if you have a small building or many buildings and locations.

Commercial property coverage includes loss from fire, storms, vandalism, theft, and explosions. If you suffer the loss of a building, it will likely disrupt services. This increases costs to the municipality.

The insurance provides protection for the building. It also covers all items inside and outside.

This includes furniture and equipment, inventory, computers, and important documents. You also have coverage for signage, fencing, and landscaping.

The cost of coverage depends on several risk factors. These include the location and construction of the building. The age of electrical wiring and plumbing impacts cost.

Other factors include the number of people who generally occupy the building. Having an active security system reduces risk.

When considering fire risk, several things affect cost. Insurance companies consider the distance to the nearest fire hydrant and station. They also determine whether the building has a fire alarm and sprinkler system.

Equipment Breakdown Insurance

This insurance covers damages from internal forces. This includes electrical shorts, mechanical breakdowns, power surges, motor burnout, or operator error.

The insurance covers computers, but not software. Complete protection for your computer systems requires cyber liability insurance.

Pollution Insurance

Your responsibilities extend beyond your physical location. They include all areas affected by your operations.

This includes while the water and sewage are in transit. You may be liable for damage at any point along the water and sewer lines.

Pollution insurance, also known as environmental insurance, provides coverage for this liability. Coverage includes emergency response costs and crisis management services.

Commercial Umbrella

Commercial umbrella insurance covers damages beyond your regular insurance coverage. This can include anything.

A consumer may fall while visiting your office. Their medical costs for injuries may exceed your standard coverage.

One of your vehicles is in an auto accident. You must pay for repairs or medical expenses of passengers in the other vehicle. Costs exceed your standard insurance coverage.

Residents may incur medical costs from consuming contaminated water. Your municipality is liable for costs, and your standard insurance isn't adequate. Umbrella insurance covers costs beyond your standard policy.

Public Officials' Professional Liability

This coverage is for damages and legal defense costs. This is for claims against employees, volunteers, elected officials, and appointed officials.

The claim is for the professional making wrongful acts while performing their duties. Actions that fall within government immunity for torts may not be clear of liability. Public officials can be liable for actions they take while performing their duties.

Several units of government fall within the special districts clause of professional liability. This includes water and sewer utilities, hospitals, and fire and EMS districts. It also includes commissions and special boards, plus parks and recreation departments.

Several potential exposures may result in legal action. This includes misstatements, misleading statements, negligence, or breach of duty. It also includes allegations of errors and commissions.

Both the public official and the municipality have coverage.

Workers’ Compensation

Municipalities are employers and must provide workers’ compensation insurance for their workers. This insurance pays the employee:

• Lost wages
• Medical bills
• Disability
• Other damages they suffer due to a work-related injury or illness

Work in the water and sewer industry has several divisions. This includes construction, reconstruction, repairs, and rehabilitation of the infrastructure. The construction segment handles the construction and maintenance of the infrastructure, including:

• Aqueducts
• Drains
• Pumping stations
• Septic systems
• Sewers
• Storage tanks
• Treatment plants
• Water mains

This requires workers from a wide range of industries. Skilled trades include technicians, electricians, construction workers, and administrative management. Each of these areas carries unique risks.

Construction Workers

Trenching and excavation work are two of the most dangerous activities in construction. Trench collapses are a frequent problem in water and sewage work. They are one of the industry's top causes of injuries and fatalities.

Working underground adds additional hazards. Care must be taken not to come into contact with natural gas lines or electrical wiring.

Workers must not cause damage to abutting properties. This can occur when equipment causes ground vibration. Another risk is that a passing motorist may strike a worker even with proper traffic control.

Underground utility project workers have a high risk of injury. They can suffer injury from a backhoe, heavy-duty truck, or excavator.

Contact your insurance carrier if your municipality handles installations or repairs. They will make sure you have sufficient workers' compensation coverage.

Electricians

Water and wastewater systems need reliable electric power to provide uninterrupted service. Every utility is vulnerable when its electrical supply incurs an interruption. In some instances, even small electric outages have a severe impact.

Assess the likelihood of a power supply disruption. What are the consequences of a disruption to your water and wastewater operations?

Consider the impact of an interruption on public health, the environment, and finances. Review the steps necessary to mitigate service disruptions.

Make sure you have an emergency response plan. This needs to include communication with the public. It must include how you will meet the demands for water if there is an electric disruption.

An electrical hazard is one of the most dangerous threats to workers. Almost 5% of workplace fatalities are from electrocution.

Make sure your workers have the proper training. Ensure you have enough insurance coverage in case of injury.

Common electrical hazards include:

• Contact with live wires, causing shock and burns
• Exposed electrical parts
• Fire due to faulty wiring
• Fires or explosions due to contact with explosive or flammable materials
• Improper grounding, sometimes due to workers removing the ground pin
• Damaged wire insulation

Electricians working in the commercial field are familiar with the risk. They know how to inspect equipment for electrical damage.

Electricians are familiar with lockout/tagout procedures. This ensures machinery is completely turned off while conducting repairs or maintenance work.

Sewer Workers

Sewer workers face daily risks. This includes a confined-space work environment and debris, bacteria, and fumes exposure. In 2018 there were 5,250 fatal work injuries to sewer workers.

Protecting employees from hazards goes beyond furnishing goggles and gloves. You need to review your procedures to prevent workplace injuries and illnesses.

Workers who handle human waste and sewage risk illness from waterborne diseases. They may suffer exposure to pathogens by skin contact, unintentional ingestion, and inhalation. They may contact pathogens by handling contaminated tools.

Illnesses include gastroenteritis, skin infections, hepatitis A, hepatitis B, Leptospirosis, and more. Workers at risk include wastewater treatment plant workers, contractors, and laboratory workers. This includes those inspecting, maintaining, repairing, or replacing:

• Sewer systems
• Septic tanks,
• Plumbers
• Irrigators
• Wastewater systems
• Water systems
• Transporters of sewage waste
• Application of biosolids to land
• Irrigation using effluent

Because of the high risk to workers, it is crucial to have a solid workers’ compensation policy. You also want an insurance company that makes reporting a claim easy and convenient.

Municipal Bond Insurance

Municipal bonds are securities. The state and local governments issue the bonds. They serve as funding for government investments and expenditures.

Bond securities include funding for water and sewer, electric and gas, transportation, and transit. Other funding includes housing and development, higher education, medical facilities, and school districts.

Municipal bonds represent 12.1% of the insurance industry's bond exposure. The municipal securities market provides a low-cost, efficient way to finance local and state projects.

There are two types of municipal bonds, general obligation, and revenue. General obligation bonds are secured by the full faith, credit, and taxing power of a government entity. These have the lowest default risk.

Repayment of a revenue bond has restrictions on a specific revenue stream. This is derived from the operation of a financed project, grants, appropriations, or a dedicated specialized tax.

Municipal bond insurance is a policy the bond issuer purchases. It provides a guarantee of repayment of the principal and interest to the bondholder in the event of a default.

This insurance enhances the bond issuer’s credit rating. It reduces the amount of interest must pay. This makes bonds attractive to potential investors.

Municipal bonds are also known as financial guaranty insurance.

How at Risk Are You?

How vulnerable is your water and sewer treatment facility? Do you question our claim that you cannot use government immunity for protection? Before you think your municipality is safe, consider the following cases and settlements:

Macaulay’s vs. Lexington County Joint Municipal Water and Sewer Commission

The Macaulay family filed a lawsuit in 2007. Their claim is that the municipality was not properly overseeing wastewater discharges.

The result was a spill by Tin Products, contaminating a 12-mile stretch of freshwater. This caused the shutdown of Caycey's water treatment plant.

The chemical spill contaminated the family's community fishing and swimming pond. The municipal water and sewer company did not admit fault. They did agree to pay the family $830,000.

A jury recommended awarding Lexington County $20 million in damages plus $1.7 million in actual damages. Tin Products has not paid any of the money to the municipality.

Elyria, Ohio vs. United States and the State of Ohio

In a consent decree on November 9, 2022, the city of Elyria agreed to complete a series of projects. The purpose is to eliminate discharging of untreated sewage into the black river.

The total cost of implementing the necessary measures is about $248 million. The municipality must also pay a civil penalty of $200,000, shared 50/50 between the U.S. and the State of Ohio.

U.S. Department of Justice and U.S. Environmental Protection Agency vs. City of Colorado Springs, Colorado

A consent decree dated October 29, 2020, requires the City of Colorado Springs to become compliant with the Clean Water Act. The city must resolve issues with its storm sewer system. This includes many changes to procedures and management of the system.

The city must also pay a $1 million federal civil penalty. The city does have an alternative way of resolving the conflict.

They can perform supplemental environmental projects. Those projects must meet state approval and have a value of $1 million.

U.S. Environmental Protection Agency vs. City of Corpus Christi

A consent decree entering September 25, 2020, requires Corpus Christi to improve its sewer system. This consists of more than 100 lift stations and over 1,100 miles of sewer lines. It is the largest sewer system in Texas.

Besides the cost of improving the sewer system, the city must pay a civil penalty of $1,136,000. The fine is to be split equally between the United States and the State of Texas.

These are just a few of the legal actions against municipalities. The impact of litigation often results in costs of several thousand dollars.

Now is the perfect time to request an insurance review and ensure your municipality has the coverage it needs.

Request an Insurance Review

Are you shopping for your first municipal insurance policy? Do you have coverage but need an insurance review?

Contact the Hummel Group. We will review your insurance needs and provide a specialized quote to fit your needs.

In addition to commercial insurance, we offer various services for businesses. We can provide quotes for employee health plans and business financial services. Ask us for guidance on plan design problems, fiduciary responsibilities, and administrative compliance.

Contact us today at 800.860.1060.