THE GAME OF RISK Understanding Your Legal Liability October 23, 2012

1. THE GAME OF RISK Understanding Your Legal Liability October 23, 2012 Presented by Chad R. Donnahoo 674 Merrimon Ave. Suite 210 Asheville, NC 28804 (828) 378.0064 Fax (828) 398.2795 Chad@csedlaw.com 2012 NC ACCBO Fall Conference Greensboro, NC

2. State Law Actions Against Community Colleges • The State of North Carolina and its official agencies are entitled to sovereign immunity (i.e., "the king can do no wrong"). This means that the State is protected from suit unless it has consented to being sued or has waived its sovereign immunity. Local governments and schools boards, on the other hand, are entitled to governmental immunity. Governmental immunity is similar to sovereign immunity but has some unique aspects. In at least one Supreme Court decision dealing with workers' compensation, community colleges were described as having "sovereign" immunity. However, G.S. 115D-24 refers to the ability of community colleges to waive "governmental immunity" through the purchase of insurance. Courts often use the terms interchangeably. • However, for negligence claims against community colleges with damages up to one million dollars ($1,000,000), the General Assembly has statutorily waived community colleges' governmental immunity and those claims are subject to the State Torts Claims Act. For claims over one million dollars ($1,000,000), community colleges retain immunity if it is applicable and not otherwise waived. • The First One Million Dollars - Community Colleges and the State Tort Claims Act • For the first one million dollars ($1,000,000), community colleges are subject to the State Tort Claims Act ("Act"). The Act allows an individual to hold a community college liable for claims consisting of: • [n]egligence on the part of an officer, employee, involuntary servant or agent of the State while acting within the scope of his office, employment, service, agency or authority, which was the proximate cause of the injury, and that there was no contributory negligence on the part of the claimant or the person in whose behalf the claim is asserted… • N.C.G.S. § 143-291(a). The Act waives a community college's governmental immunity for negligence including claims for willful, wanton and reckless conduct. The maximum recovery an individual can receive under the Act is one million dollars. • In most cases, the North Carolina Industrial Commission has jurisdiction over claims subject to the Act and the Attorney General's Office represents the community college before the Industrial Commission. Under the applicable statute, the community college is liable for the first one hundred fifty thousand dollars ($150,000) and the State is liable for the remainder up to one million dollars ($1,000,000); however, if the Director of the Budget (i.e., the Governor) determines that the community college has the resources to pay the full claim past $150,000, the Director may, in his/her discretion, require the agency to pay the claim up to one million dollars. N.C.G.S. § 143-299.4. • Above One Million Dollars - Community Colleges and "Governmental" Immunity • For negligence claims with damages exceeding one million dollars ($1,000,000), community colleges are entitled to governmental immunity if it is applicable and has not been waived through the purchase of insurance. • A. Is Governmental Immunity Applicable? • 1. Governmental v. Proprietary Functions • Governmental immunity only applies to governmental functions and not • proprietary functions. A basic definition of proprietary functions is when a • governmental entity is performing a function not historically provided by • the government that could be provided by a private business or corporation.

3. 2. Contracts and Constitutional Claims Governmental immunity does not apply to breach of contract (State v. Smith, 289 N.C. 303 (1976)) or actions brought for violations of the state/federal constitution and/or federal regulations. See Corum v. University of North Carolina, 330 N.C. 761 (1992). B. Has The Governmental Entity Waived Immunity Through Insurance? Pursuant to N.C.G.S. § 115D-24, "[g]overnmental immunity shall be deemed to have been waived by the act of obtaining liability insurance, but only to the extent that the board [of trustees] is indemnified for the negligence or torts of its agents and employees and only as to claims arising after the procurement of liability insurance and while such insurance is in force.“ *************************************************************************** State Law Actions Against Community College Employees In Their Individual Capacities The NC Defense of State Employees Act (N.C.G.S. § 143-300.3) provides for the defense, representation and indemnification of state employees who are acting within the course and scope of their assigned duties and are sued in their individual capacities, whether criminally or civilly. Under the Act, the NC Attorney General has the sole discretion to decide whether to defend the employee. An employee must request representation. The Attorney General may refuse to defend the employee if: a) the act or omission is not within the scope and course of employment (e.g., sexual harassment); b) the employee committed fraud, corruption or acted with actual malice; c) there would be a conflict of interest with the State; or d) it would not be in the best interests of the State. Due to limited resources, the Attorney General's Office does not directly provide representation to community college employees and has directed community colleges to provide for the defense of their employees and agents at their own expense. Generally, community colleges provide that defense by purchasing insurance coverage for their employees and agents. Just like in the State Tort Claims Act, community colleges are liable for the first one hundred fifty thousand dollars ($150,000) and the State is liable for the remainder of the judgment or settlement amount; however, if the Director of the Budget determines that the community college has the resources to pay the full judgment or settlement amount past $150,000, the Director may, in his/her discretion, require the agency to pay the claim. N.C.G.S. § 143-300.6. If the community college has a commercial liability insurance policy covering its employees, that policy may cover any part or all of the college's liability. In addition, the State has purchased excess liability coverage (which includes community college employees) pursuant to the Act. Coverage limits are $10 million per individual, $10 million per occurrence and $25 million annual aggregate. Exclusions include, but are not limited to: fraud, corruption or actual malice, sexual assault, other criminal acts, immoral acts and automobiles. This policy is in excess of any liability insurance policy that a community college has purchased to cover its obligations under the Act.

5. Assure? Ensure? Insure??? Eileen Townsend

6. Liability Insurance Protection • General Liability/Commercial General Liability (CGL) • Professional/Educators’ Legal Liability • Directors’ and Officers’ Legal Liability • Automobile Liability • Workers’ Compensation • Personal Liability • Excess Liability

7. How Much Liability Insurance is Enough? Liability v. Immunity $1 Million $ 2 Million More?

8. Differences in Coverage • Commercial or GGL • Negligent Acts (Torts) • Professional/Educators’/Directors’ and Officers’ Legal Liability • Wrongful Acts (Actual or Alleged)

9. Coverage Excluded? Sexual Misconduct Intentional Acts Employment Practices Law Enforcement Dishonest Acts Pollution Claims Under Other Types of Coverage Previous Claims/Tail Claims Terrorism

10. Defense Costs • Are Defense Costs Covered? • Up to the Limit of Liability • In Addition to the Limit of Liability

11. Specialized Programs In Community Colleges • Medical • Cosmetology • Motorcycles • Trucking • Fire Towers • Aviation

12. Automobile Insurance • Bodily Injury and Property Damage • Comprehensive and Collision • Hired and Non Owned Autos • Automobile Insurance Follows the Vehicle

13. Workers’ Compensation • NCGS 97 – Workers’ Compensation Act • Covers all employees • Injury by Accident • Lost Time Wages /Indemnity Payments • Medical Payments

14. Property Insurance Building and Contents v. Boiler Insurance • “All Perils” Coverage • Replacement Cost Basis • Flood and Earthquake • Business Interruption/Extra Expense • Increased Cost of Construction • How Much Do you Purchase? • What are your Deductibles?

15. Self Insure? Risk Retention? Immunity? High Deductibles?

16. The Cost of Insurance • Premium • Coverage, Limits, Deductibles, Costs • Losses • Quotes/Comparisons • Agents/Brokers • NC School Insurance Fund

17. Proof of Insurance • Vendors • Contractors • Service Providers

18. Waivers and Hold Harmless Agreements Signed by Parent or Guardian Mutual Aid Agreements

19. Early College High Schools Community College & School Boards of Education Memorandum of Agreement Joint Responsibility Board of Education Community College Employees Agents

20. Your Insurance Contract • READ IT!! Covered! Covered

21. Thank You Eileen Townsend, CPCU, AU Chief of Insurance Department of Public Instruction 919-807-3522 eileen.townsend@dpi.nc.gov