EQUIPMENT SHARING – ARE YOU AWARE OF THE LIABILITY AND LEGAL ISSUES?

The State of Ohio and its agencies have developed and proposed a number of initiatives designed to encourage local governments to share services. The shared services concept is not new. Local governments have long "shared" services, personnel and equipment. But informal and formal shared services programs often do not take into account potential liability issues. Coverage for liability or property damage may not even be discussed in the context of a shared services arrangement.

In 2016, the Ohio legislature enacted R.C. §2711.44 and §2743.31. R.C. §2743.31 provides that if a state agency enters into a "shared equipment service agreement" with a political subdivision, the borrowing state agency may assume potential liability for personal injury or property damage arising out of the use of lender's equipment. Similarly, R.C. §2744.11 provides that a borrowing political subdivision may assume liability while using the equipment of a state agency or political subdivision.

Example: City A has a fire department and one of its fire engines will be out of service for repairs for three months. Fire District B has an extra fire engine that is not being used and is agreeable to lending it to City A. City A and Fire District B may agree that City A assumes all liability for personal injury and property damage arising out of the use of Fire District B's fire engine for those three months.

Using the above example, what if neither City A nor Fire District B provided notice to liability or property coverage carriers that they had entered into an agreement for the fire engine to be used on a temporary basis by City A? What if the fire engine, while being operated by City A, is damaged? What if the fire engine is in an accident causing injuries? Which entity's coverage will apply?

LIABILITY AND PROPERTY COVERAGE ISSUES
RAISED BY A SHARED SERVICES AGREEMENT

As should be clear from the questions posed above, entering into an agreement that contains an assumption of liability does not necessarily resolve the issue of who pays if there is a damage or personal injury claim arising out of the use of borrowed equipment. Liability and property coverage must also be addressed when entering into an equipment sharing agreement.

Below are suggested steps that members should take when entering into an equipment sharing agreement:

  1. When acting as a borrower in the shared services context, contact your broker and inform him/her that your entity has entered into a shared services agreement.
  2. If acting as a lender, confirm that the borrowing entity has notified its liability carrier. The borrower may not have the same type or level of coverages that you may have through PEP or OTARMA. Some political subdivisions have no liability coverages at all or may have only limited self-insured coverages.
  3. A lending entity should request that it be listed as an "additional insured" on the borrower's liability and property damage coverage. In that event, the lending entity should obtain evidence that the liability carrier has issued the supplemental coverage.

AGREEMENT SHOULD BE IN WRITING

Under the legislation described above, it is anticipated that when entering into a shared services agreement, that the agreement will be in writing. There may be times during an emergency when there is no opportunity to enter into a formal written agreement. However, it is recommended that there be some memorialization, perhaps by email. An example might be:

"Dear Chief, Because of the pending emergency, we have agreed that City A will borrow the Fire District's fire engine. City A agrees to assume any potential liability for damages, injuries or death or loss to personal property that occurs while the fire engine is in City A's possession. Mayor, City A."

CONCLUSION

Recent legislation encourages political subdivisions to enter into equipment sharing agreements. The statutes provide that a governmental entity who borrows equipment may agree to assume liability arising out of the use of the borrowed equipment. When acting as a lender or borrower of equipment, notify your broker and confirm liability coverage with the other entity to the equipment sharing arrangement. When entering into an equipment sharing agreement put it in writing.

Robert J. Gehring, Esq.