HomeMy WebLinkAbout16 ENVIRONMENTAL INSURANCE-TUSTIN LEGACY_ ~V ~l r ~~ ~~W1 ®~ 1 Revewe'd m 16
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Finance Director
MEETING DATE: DECEMBER 6, 2011
TO: WILLIAM A. HUSTON, INTERIM CITY MANAGER
FROM: CHRISTINE SHINGLETON, ASSISTANT CITY MANAGER
SUBJECT: ENVIRONMENTAL INSURANCE-TUSTIN LEGACY PROJECT
SUMMARY
City Council authorization is required to secure environmental insurance coverage for
certain property at the former MCAS Tustin.
RECOMMENDATION
It is recommended that the City Council authorize staff to bind environmental insurance
coverage from Catlin for portions of Tustin Legacy property, subject to special legal
counsel approval of all policy script and endorsements.
FISCAL IMPACT
The anticipated policy premium is currently being negotiated and is estimated, with a
broker payment and taxes, to be in an amount of between $187,000-195,000 during
Fiscal Year 2011-12. An appropriation for this expenditure and other Tustin Legacy
project expenditures is being requested under a separate agenda report to the City
Council from the City's Finance Director.
BACKGROUND
The City currently has an environmental pollution legal liability insurance policy for portions
of the Tustin Legacy project that involves properties awned by the City and certain other
agencies that was purchased in December 2001. The policy has a 10 year term and
aggregate limit of liability of $75 million (including all losses, remediation expenses and
legal defense expenses) which expires on December 21, 2011 and covers losses that
occur due to pre-existing pollution conditions created at the former MCAS Tustin by the
federal government and other environmental coverage. To date there have been
approximately $7.3 million in claims paid and pending reserves on claims of $2.3 million
with all claims activity paid to date having been originally filed by Tustin Legacy
Community Partners, LLC ("TLCP"} as an additional named insured on the policy. The
existing policy endorsement which names several additional named insured parties also
identified a specific sublimit for TLCP of $35 million. The City has attempted to obtain
Agenda Report-Environmental Insurance
December 6, 2011
Page 2
approval from TLCP for a surrender of a portion of their $35 sublimit which they have
rejected with a counter proposal that has requested unacceptable concessions from the
City, including City indemnification of TLCP.
The existing PLL policy includes a 5 year extended reporting period through December 21,
2016 which covers losses that occur due to pollution conditions existing as of or prior to
the current policy's termination date otherwise covered by the insurance.
To respond to the impending policy termination, the City Council on June 21, 2011
authorized an effort to solicit proposals for continuing environmental pollution coverage.
Unfortunately, the Orange County Cities Risk Management Authority {OCCRMA} Joint
Powers Authority does not provide environmental pollution coverage. The RFP proposal
process was supported with the assistance of special legal counsel, Barry Steinberg with
Kutak Rock, Rich Hyland with Edgewood Partners Insurance Center (EPIC), the Assistant
City Manager and Agency staff.
Proposals were sent to 19 firms, including the existing carrier {Indian Harbor,XL}. The City
received a response from its existing carrier. For example, the City's existing carrier
offered a program that would specifically exclude coverage for remediation expenses and
other legal liability, with a requirement that the City surrender the current 5 year extended
reporting provisions in the current policy which was completely unacceptable. As a result,
the City is being advised that it should keep its current extended reporting coverage.
Since the greatest risk is discovery of pollution conditions that were caused or created by
military activities prior to December 21, 2011, additional efforts are being undertaken by
the City and its consultants to identify and report to XL as many potential pollution
conditions that might be a problem as possible.
The City has also received a late proposal from Catlin Specialty Insurance Company Inc.
JEnvironmental ("Catlin"} which would address City risks from newly created pollution
conditions on the property. A summary of notable features of the proposed policy include
the following:
• A 5 year term
• $10,000,000 limit of liability {including all losses and remediation and transportation
liability expenses)
• Retention or self insured amount (SIR} of $100,000
• A minimum earned premium of 35°l0. In the event of cancellation of the policy, a
prorated reduction in the premium would occur with the minimum earned premium
amount retained.
Agenda Report-Environmental Insurance
December 6, 2011
Page 3
Staff, broker and special legal counsel are currently reviewing all policy script and are also
in discussions regarding addition to the policy of favorable wording that would permit the
City to add future developers as additional named insured. The policy cannot be bound
until these issues are resolved and Catlin has completed its risk control/engineering survey
of the property. Recognizing the timing constraints, staff is requesting authority to bind
coverage of a new policy subject to concurrence of the City's special legal counsel, with
the understanding that in negotiations with the carrier, modifications and changes to the
proposal may be necessary.
In conjunction with future developer negotiations, and to reduce potential risk to the City,
staff and our legal representatives will recommend that developerslcontractors be required
to indemnify the City, carry contractors pollution legal liability insurance and obtain
additional coverage for newly created pollution condition risks.
Christine Shingleton
Assistant City Manar