Protecting Your Public Entity Clients

Would you say your local government faces more or less risk than a private business? Because governments are created to support their citizens, the public sector faces more risks than private sector companies and organizations. Governments assume a higher level of responsibility and risk for activities deemed to be for the common good.

The risk is greatest for municipalities, towns and cities that provide educational, recreational, public safety and infrastructure services through different departments.

Public entities have a lot on their plates, especially when it comes to protecting their properties and people. They protect public dollars and need financial safeguards in place. Keeping employees and stakeholders safe is a full-time job.

Comparing private and public sector risks

A private company’s risk for damage to its property is limited to the locations it owns or controls, plus its property in transit. That’s also the case for single-purpose governmental districts. But a general-purpose municipality bears all of that risk to its own property, plus the risk of damage to most of its roads. The risk is as wide as the community itself.

If damage forces a private company to close temporarily, the company can use business income insurance or business interruption insurance to cover some of its lost income, plus the extra expenses it incurs to get up and running again.

A municipality can never choose to suspend its vital operations. The public relies on the government for commerce to continue. A municipality must provide public safety and transportation unless physically prevented from doing so. To that end, a municipality must be prepared to fund the extra expenses needed (e.g., overtime payments, equipment rentals) to maintain safety and accessibility. Loss of income is generally not a major factor.

When it comes to liability risk for injury or damage to others, a private company’s exposure is limited to the premises and operations it controls, plus any injury or damage caused by the products it sells or the work it performs.

Local governments rarely sell anything, although some provide water service. Or they provide fee-based services, like tree-trimming. This means local governments usually have a negligible level of risk for liability arising from products and completed works.

But municipalities do face major premises and operations risks. They can be liable for what happens on municipally owned property. They also risk negligence in designing, maintaining, or regulating roads or other infrastructure.

Accessibility

Several other features of local governments complicate their ability to manage risk compared to private sector organizations.

For one thing, private companies are generally free to restrict individuals from entering their premises. (However, businesses open to the public cannot discriminate on the basis of race or other legally protected characteristics.)

In contrast, municipalities must walk a fine line. They are liable for monitoring access to public facilities, especially those serving children, yet they’re also expected to be open and welcoming. For example, in some states, municipalities cannot prohibit nonresidents from using public parks.

The general expectation of open access is compounded by volunteers and volunteer organizations carrying out community functions. These include sports leagues, senior groups, parent-teacher organizations, scouting organizations, park volunteers, and other groups and individuals.

The presence of volunteers complicates municipal risk management, as it usually involves allowing people who are not fully vetted to access public resources. For example, they may be given keys to buildings that are normally locked, equipment that’s normally restricted, or access to areas typically controlled by municipal staff.

Management liability

Finally, public bodies bear as much management and cyber liability risk as private companies. However, they have little if any ability to manage these exposures.

Besides their liability to shareholders, directors and officers assume no management or fiduciary liability for any undertaking, such as employee benefits or ownership plans. An exception would be if it’s adopted as part of a business strategy that presumably can provide a return on the risk.

When it comes to cyber liability, private companies are generally free to determine what information they will collect and retain, and how they will use it to earn money. That may involve leveraging it for their own marketing, sharing it with business partners or selling it outright.

In contrast, every penny a municipality collects in taxes, fines or fees is held as a public trust for which the custodians are fully liable. Also, municipalities hold or have access to vast amounts of data on residents: their names, addresses, real estate records, vehicle records, animal licenses, property tax records, traffic citations, payment histories, methods of payment, complaints they’ve made, complaints made against them, and school and recreation records.

Municipalities don’t have much choice about the information they access, collect and store. Most of it is essential to municipal functions, which are public by nature. Nor can they do anything with their data to benefit them financially, even to defray the cost of protecting it.

Insurance

The market for municipal insurance accounts is varied. Several major insurers write stand-alone policies for governmental units.

Some common features include:

• High aggregate limits for general liability insurance, as municipalities are frequently drawn into bodily injury and property damage claims, especially those involving catastrophic damages or injuries.

• Law enforcement liability coverage, a unique exposure for governments that employ armed police to protect the public. Recent news reports have shown that governments can be liable for police conduct that is either too aggressive or derelict in enforcing the law.

• Expansive cyber liability coverage. Cyber Defense Magazine notes that municipalities are particularly vulnerable to cyberattacks due to limited resources, inadequate staff training, outdated technology, and lack of awareness of the latest cyber threats. 

Beyond these coverages, local governments need commercial auto, workers’ compensation, commercial crime and other coverages to an extent appropriate for their operations. If anything, they have a stronger mandate to acquire coverage, because they conduct their business in the open and cannot hide the fact that a risk is left uninsured.

Public entities face a wide range of exposures you might not expect based on experience with your more traditional commercial accounts. Ensure they are covered for all events that could come knocking on their doors.

This content is for informational purposes only, should not be considered professional, financial, medical or legal advice, and no representations or warranties are made regarding its accuracy, timeliness or currency. With all information, consult with appropriate licensed professionals to determine if implementing any recommendations would be in accordance with applicable laws and regulations or to obtain advice with respect to any particular issue or problem.

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