Insuring Customers' Lateral Lines

Utah district takes control of lateral lines for the benefit of its collections system and customers.

Insuring Customers' Lateral Lines

Jake Kesler (left) and Corey Hudson set up for a routine sewer cleaning job.

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On the eastern edge of Salt Lake Valley, the Sandy (Utah) Suburban Improvement District sits among similar sewer entities at the base of the Wasatch Mountains. It’s a mature district and percolates along day by day without dramatic changes in the offing.

The absence of drama is deceiving, however, because the district’s transformation has already occurred. It happened six years ago when Sandy Suburban’s elected board instituted a universal insurance program for residential lateral pipelines.

Lateral insurance may not seem transformational. After all, sewer lines, suburbia and insurance are all pretty mundane subjects. Nevertheless, something truly significant happened in Sandy in 2014.

That was when, after years of research, an elected sewer board implemented a plan insuring residents against the threat of house-to-street sewer pipe failure. What’s more, the board set the cost of the insurance for each resident at $5 a month, a pittance compared to an emergency repair’s price tag. Furthermore, the board declined to raise rates to pay for it.

Jerry Knight, general manager of the district, oversaw implementation of the new district policy and staunchly advocates for it today. Yet Knight was skeptical in the beginning. Renee Christensen, board member, recalls that when the idea of lateral insurance first came up, Knight’s response was, “People just have to pay their own bills. That’s all there is to it.”

Status quo

Sandy Suburban Improvement District is a collections system only, piping 3.5 mgd of sewage to the South Valley Water Reclamation Facility that also serves four other systems. The facility’s 20 mgd of treated water is discharged into the Jordan River, which flows northward until it empties into the Great Salt Lake.

Compared to some older parts of the U.S., the community has relatively young sewer infrastructure comprised of mostly well-maintained clay and concrete pipe. Situated on the western slope of the Wasatch Mountains, the district moves its wastewater entirely by gravity. Furthermore, the system is 98% built out, so capacity issues are not anticipated in the foreseeable future.

All of this translates into district employees principally maintaining the status quo: keeping the wastewater moving, inspecting pipes for developing obstructions or infiltration, and responding to emergency situations. The district doesn’t even own excavation equipment because there is so little demand for it. When digging — or, for that matter, pipe relining or bursting — is required, the work is bid out.

Sandy Suburban’s fleet of equipment reflects this narrow concentration of tasks. Two Vactor 2100 hydro combo units — 2012 and 2007 models — are the heavyweights Knight calls out for big cleaning jobs. A 2004 Vactor jetter unit on a Sterling chassis complements the bigger rigs. A brand-new RapidView IBAK North America camera system mounted in a Ford E-450 van — and a 5-year-old virtually identical unit — provide eyes in the pipe for maintenance technicians.

“We are set up pretty nice,” Knight says.

Full coverage

Sandy, a community of less than 100,000 people, is part of a Salt Lake City metro area population of more than a million. Its city government is developing a futuristic plan that effectively partitions the city into urban villages, so there is some inkling of civic willingness to try new things.  

Perhaps that explains how the Sandy Suburban Improvement District caught the lateral insurance bug. The three-person elected board was exposed to the idea in 2010 after Mark Hurst joined the board. Hurst had served once before and told his new colleagues that the district had a problem that needed addressing: Too many lateral pipes were failing and individual property owners couldn’t afford the cost of rehabbing them.

“We had citizens coming to ask us to pay sewer repair bills,” Christensen says. “We couldn’t justify doing it. We were not in the lateral business. We couldn’t afford to set the precedent of paying for collapsed pipe. That would have been a serious precedent.”

Knight readily agreed with that assessment. Undaunted, the board and general manager began to kick around ideas.

One obvious response was for property owners themselves to buy insurance riders covering the pipes, but that was a “too little too late” proposition for some and a relatively expensive option for all. Nearby Salt Lake City offered its residents this form of lateral insurance as an option, but Knight didn’t believe an optional program was a long-term solution for his smaller district.

“The only people who were going to opt in would be the people who knew they had a problem. An insurance program could only work if no one could opt out.” That is, without everyone contributing to the pool, the numbers wouldn’t work.

As he researched the matter, Knight sought out Rick Lindsey, president of a local agency for Prime Insurance Co. Based in Chicago, Prime specializes in custom insurance products such as aircraft, taxicab and inflatables insurance. The conversations between Lindsey and Knight ultimately bore fruit. Nearly four years after the board began its internal discussion, the district finally implemented a plan in 2014.

The custom Prime insurance product for municipalities and special districts is called SWIP, which stands for Sewer and Water Insurance Plans. Each plan is strictly tailored to a sewer or water system. Such customization is key, Knight says. “I can’t stress enough how important it is that we were able to customize the program based on our specific needs and fee.”

After all the numbers were crunched, Sandy Suburban’s insurance plan offered each residential customer lateral insurance for $5 a month or $60 a year, a charge eventually incorporated into the district’s bimonthly bill. The monthly fee is fixed and separate from periodic rate increases, the last of which occurred 10 years ago.

“I probably could raise the lateral insurance fee and I wouldn’t get a lot of complaints because so many people have benefited from the program. It’s changed people’s lives, people on fixed incomes who have been dealing with failing pipes for years,” Knight says.

Holistic approach

After five years, the program data shows how it’s working. There have been 762 lateral pipe failure claims, each of which was investigated by a district employee before being forwarded to SWIP. Each failed or blocked line was inspected, cleaned out or repaired as necessary by a contractor, followed by a post-inspection and claim settlement. Of the 762 claims, 477 resulted in rehab work rather than Band-Aid clean-outs or patches. That’s by design.

“We want a full repair when it’s needed. We don’t want a point repair done for, say, $2,500 if a $4,500 relining is needed,” Knight says. “And while the contractor is there, we also want a clean-out put in if there isn’t one.” The holistic approach drove the cost of the average repair job to about $5,000. Translated, that means customers who individually paid $300 in premiums over five years would have had their pipes rehabbed at a cost 15 times more than that.

To protect itself against a calamitous series of failed pipe episodes, the district has a stop-loss stipulation, which limits its financial liability to $15,000 per incident. To protect its reserve, it also limits total district payout over a 12-month period. The limits are not hard and fast, however. On a couple of occasions, rather than defer a project until a new calendar year, the board has approved a repair even though the stop-loss figure for the year was slightly exceeded.

This same flexibility was evident more recently after a resident errantly hired a private contractor to fix a lateral rather than work through SWIP. He ended up with an $18,000 bill. At the time of this report, the board was leaning toward reimbursing the resident to the extent its insurance plan would have covered it. After all, the district also benefited by having one more lateral upgraded.

This is the dynamic that keeps the program sustainable: As aging laterals are relined or otherwise updated, the need for the insurance declines across the system and financial pressure on the district lessens. Barring a catastrophic event — like, say, an earthquake — a future board might even reduce the $5-per-home fee as demand for lateral repairs fades.

“My board really pushed for a long-term insurance program, for a complete solution that provided complete repairs. A lot of work went into planning this so it would be sustainable,” says Knight, who himself has been a sustainable influence. He began working for the district 34 years ago as the “low man on the totem pole” before becoming general manager in 2007.

The improvement program works in part because the district, insurance company and repair contractors all work together. That teamwork lets them “triage,” as Knight puts it. They set priorities as claims come in and flex as necessary when the money at the end of the year is running out. “We all are on the same page. That’s key.”

Several contractors are called on regularly to perform the lateral work. Matrixx Excavation, a MaxLiner cured-in-place contractor in Sandy, and a local Roto-Rooter plumbing firm most frequently work the lateral jobs. SWIP requires competitive contracting and, according to Knight, has been pleased with the work of its contractors.

Win-win situation

Sandy Suburban was Prime’s first SWIP client and, to date, is its only one. This is interesting because the program has proven fiscally sound and wholly beneficial to both district and residents. It comes close to being a true win-win situation. Yet not even the special districts that surround Sandy Suburban Improvement District are emulating it.

“They are where I was,” Knight says of the reluctance of officials in other districts to offer the program. “You know, they’ll say, ‘It’s not our problem. We don’t want to go into the laterals business.’” That Sandy Suburban has proven both of those assertions wrong doesn’t seem to matter.

Knight was on the program last January at the Fort Worth, Texas, Underground Construction Technology conference. He reported on Sandy Suburban’s response to the problem of aging laterals and recalls it was a packed house. “They had to shut down the meeting finally so the next speaker could come on. Then we had a panel discussion and all the questions were directed to me.”

Enthusiasm for the idea remains high. Knight periodically answers calls and emails about the program from elsewhere in the country. Yet to his knowledge no other district or municipality has followed Sandy Suburban’s lead and created its own program. Not yet, anyway.

Board member and activist

Serving on a sewer improvement board isn’t glamorous, yet the work is vitally important to the environmental integrity of communities. Thank goodness for public-spirited citizens who step up.

Renee Christensen is one such person. She is starting her fourth four-year elected term on the governing body of Sandy (Utah) Suburban Improvement District. Early in her tenure, the district conceived and implemented its lateral insurance program, the purpose of which is to reduce the leakage of sewage from lateral pipelines into surrounding soil and water tables.

Though the program has proven itself over five years, it has not caught on with other districts in the Salt Lake Valley or elsewhere in the country. Christensen earnestly advocates for it, but so far with little success.

“Managers love the concept,” she says of responses to her lobbying efforts. “They see the benefits. However, political powers in a community look at constraints in their budget and dismiss the idea as an uphill climb they are not fit for. They fear the voice of the people will rise in outcries of ‘You want more money from me?’ This is a reality in the thought process of elected officials. The lateral program has yet to breach it.”

She believes education can resolve the impasse. To that end, she regularly addresses local civic and sewer district officials. Several presentations to officials on the south end of the valley are scheduled for 2020. Jerry Knight, general manager, is advocating similarly but farther afield, across the region and country.

“The lateral insurance program is a proactive way of solving the problem,” Knight says. “Government is, by nature, used to being reactionary. Being proactive is a huge step for it. Most officials are just not even willing to try.”


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