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HomeMy WebLinkAboutRDA ENV. INS. MCAS 11-27-01AGENDA REPORT 150-50 RDA NO. 1 11-27-01. MEETING DATE: NOVEMBER 27, 2001 TO' WILLIAM H.USTON, CITY MANAGER FROM' REDEVELOPMENT AGENCY STAFF SUBJECT: ENVIRONMENTAL INSURANCE MCAS-TUSTIN I I II IIIIIII III I IIII IIII II I III I I II I III I II I _1 I '1"-I I. I'1I1' 'r'" : ' SUMMARY City Council authorization is required to secure environmental insurance coverage for certain property at the former MCAS-Tustin site by December 31, 2001 and prior to acceptance by the City and/or the Tustin Redevelopment Agency of any property at the former facility. RECOMMENDATION it is recommended that the City Council and Redevelopment Agency authorize staff to bind environmental insurance coverage from ECS Insurance Company for portions of the MCAS-Tustin property, subject to special legal counsel approval of all policy endorsements, and to authorize premium payments' in the installment amounts as follows' 20% of the to;Iai premium due upon inception of the policy; 40% of the total policy premium on or before July 1, 2002 and 40% of the total premium on or before December 21, 2002. FISCAL IMPACT Costs for environmental insurance have been requested as an eligible expense to be recovered through future land sale proceeds in the City's Economic Development Conveyance. Application to the Department of the Navy. The policy premium for coverage would be $704,871 if paid all at one .time. ECS has agreed to an installment plan for an additional charge of 5% of the quoted premium or a total amount for coverage of $740,114.55 to be paid as follows' $148,022.91 to immediately bind coverage before the end of the year; $296,045.82 by July 1, 2002; and $296,045.82 before December 21, 2002. Expenditures required during Fiscal Year 2001-02 would be taken from the MCAS-Tustin Redevelopment Fund, and no additional appropriations in Fiscal Year 2001-02 would be required for the initial premium installments. The second and third installments of premium would be included in the Fiscal Year 2002-03 budget. :" Agenda Report Environmental Insurance MCAS-Tustin November 27, 2001 Page 2 of 3 BACKGROUND The federal government is generally responsible for remediation of contamination at former military bases and for providing limited indemnification against subsequently discovered environmental contamination. The risk challenge has been to protect a proposed recipient of property (such as the City of Tustin and Tustin Redevelopment Agency) by ensuring: first, that known exposures are contained and limited; and second, that the risk of unknown or future exposures is transferred to an insurance carrier, thus allowing redevelopment to proceed in a timely manner. Carriers also provide protection from cost overruns in the event additional unknown contamination is discovered after the military issues and approves a Finding of Suitability to. Transfer (FOST) property and issues a Remedial Action Plan (RAP) for a site, or there is greater concentration of known contamination then originally identified in the FOST or RAP, or a change of regulatory conditions associated with the FOST and/or RAP after inception of an insurance program. For the MCAS-Tustin project, the City is expected to accept title to a number of public use sites including the site to accommodate the Orange County Rescue Mission, a community park site, two neighborhood park sites, over 250 acres of property for fUture arterial roadway right-of-way, and 1288 acres for which we have applied through the Economic Development Conveyance Application. As the Council is aware, Agency staff will be recommending acceptance of the first Navy deeded property to the City of Tustin at the Council's regular meeting on December 3. The property to be deeded to the City is the Orange County Rescue Mission site. Since. the potential for environmental liability exists with any of these transfers, environmental insurance must be in place before a transaction is completed. This becomes more critical to the City particularly before the end of the year, since most environmental insurance carriers have treaties expiring December 31; and with the substantial losses that were incurred by the Insurance industry with the World Trade Center tragedy, rates are expected to increase substantially. To respond to the need for environmental insurance for the MCAS-Tustin project, the Agency early in 2001 began a substantial effort to solicit proposals for environmental pollution coverage. Unfortunately, the Orange County Cities Risk Management Authority (OCCRMA) Joint Powers Authority does not provide environmental pollution coverage so the City tapped resources outside to support our effort. After consulting with Barry Steinberg of Kutak Rock LLP, the City's special base closure counsel for environmental and insurance matters, and City Finance Director Ron Nault, the City Council was informed in April that Rich Hyland with Complete Insurance was appointed as the City's exclusive broker to prepare (under Barry Steinberg's advice) an insurance proposal and Agenda Report Environmental Insurance MCAS-Tustin November 27, 2001 Page 3 of 3 invite insurance carriers and/or underwriters offering environmental insurance to respond. The proposal process was supported with the assistance of a team of City representatives (the Finance Director, Assistant City Manager, Public Works Director and Redevelopment Program Manager). Responses to the proposal were received from Zurich, Kemper and ECS. After the World Trade Center tragedy, Kemper unfortunately .withdrew their proposal due to the significant impact of the tragedy on their company. After an extensive review of each proposal by the City team and a requested response to detailed questions by each respondent, the entire City insurance team concluded that ECS quite clearly offered the best combination of terms and conditions of coverage and the most competitive premium available in the marketplace. Notable characteristics of the proposed policy which favored ECS in the final analysis included the following' · $75 million dollar limit of liability (including all loses, remediation expenses, or legal defense expenses) · No minimum earned premium (policy can be cancelled with a pro-rata reduction in the premium) · Favorable wording that permits the City to add future developers as additional insured · Retention or self insured amount of $100,000 with up to a $1,000,000 aggregate · In addition to a 10 year policy term, an extended 5 year reporting period is provided · Ability to pay premium under an installment proposal (basically unheard of in the environmental insurance industry). Perhaps the most impor[ant factor is that ECS has insured 19 different base closure sites throughout the country. They understand this business as well as or better than any carrier, and they have a lengthy history of performing at an extremely high level for their clients (i.e., claim responses, etc). Barry Steinberg and a representative from Complete Insurance will be available at the special City Council meeting on November 27 to provide 'a brief overview and will be available as well as City and Agency staff to answer any questions Christine Shingleton Assistant City Manager