Date: December 2018
In response to increasing constituent demands, shrinking resources and state and federal mandates, public entities have increasingly looked to the joint exercise of powers as a method of efficiently and effectively delivering services. When public entities consolidate and transfer duties to a joint powers entity (JPE) pursuant to Minnesota Statutes, Section 471.59, the new entity becomes a separate and distinct legal entity with all the privileges, obligations and risks of its creating members. Therefore, the operations of the JPE and actions of the JPE’s board and employees expose the entity to its own potential liability for claims and lawsuits. MCIT members often inquire of MCIT on the need for coverage.
As a separate and distinct (from its creating members) legal entity, the JPE needs its own liability coverage to protect the entity, the JPE’s board and when appropriate, the employees of the new entity. Forming member elected officials or employees on the JPE’s board are covered by their entity’s liability coverage, but only for their individual actions. The entity’s coverage does not extend to the elected officials when a claim is made against the JPE’s board as a whole or against the JPE.
Like all entities requesting membership, the JPE must complete a risk assessment and provide MCIT copies of governing documents, such as the joint powers agreement and bylaws. Using this information, MCIT evaluates eligibility for membership.
The cost of coverage for the new JPE will depend on its size and operations. The cost of coverage/contribution is based on factors such as number of employees and board members, amount of property owned and the entity’s published budget.
As a member of MCIT, the JPE is provided the same coverage as all other public entities that participate in the Trust. MCIT’s coverage is designed to address exposures unique to public entities. This includes coverage for open meeting and data practices violations, employment claims and excessive force claims.
When creating a JPE, it is imperative that the JPE operate independently of its forming members. The public entities that formed the JPE should safeguard from influencing or controlling the JPE. This autonomy further demonstrates the need that the new JPE have its own liability coverage.
The need for liability coverage only applies when public entities choose to consolidate and transfer activities/functions/services to a new entity. Separate coverage is not necessary when public entities enter into a joint powers agreement to deliver or provide a service or product when the decision making remains with the individual parties to the agreement.
For additional information about the need for coverage when engaged in the joint exercise of powers, members should contact their MCIT risk management consultant toll-free at 1.866.547.6516.