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01-17-1995 - BKK Class I and Class III Financial AssistanceCity of West Covina Memorandum AGENDA TO: Mayor and City Council Members City Manager ITEM NO. K- le DATE 1117.195 FROM: City Attorney ®PRINTED ON RECYCLED PAPER SUBJECT: BKK Class I and Class III Financial, Assistance If the City Council desires to discuss the litigation implications of the reports from Mr. Kightlinger on the Financial Assurances for the Class I and III landfills. I recommend we do that in closed session. A Notice for this ( has been included in this evening's agenda. purpose g g Respectfully, Elizabeth Dixon City Attorney ro: ataroira From: Jeffrey Kightlinger 1-13-95 10:58an p. Z of 4 • BURKE, WILLIAMS & SOI ENSEN IFFIC,E tt_lK IO-RANTVUM TO: City Mann cr CC: S. Saniarliego City Attorney FILE NO.. 00396-265 FROM: Jeff Kightlinger DATE: January 13, 1995 RE: Financial Assurances; Class [II Site The following is an update on the status of BKK s financial assurances for the BKK [. andfill - Class III facility. Separated financial assurances are required for BKK's closed Cla..s I (hazardous waste) facility. CURRENT STATUS BKK has a trust fund fi6ncial assuramces mechanism on file with the California Integrated Waste Management Boards (C[ WMB) from 1992 which has been approved for closure and post - closure costs. However, after proposing the trust fund mechanism, BILK decided not to fund the mechanism. Instead, BKK proposed an insurance policy financial mechanism to replace the trust. fund. The CIWMB Ihas reviewed thepolicy and found it deficient in a number of ways. The CIWMB met with BKK on December 12, 1994 and detailed the changes that need to be made to the policy before �itwill meet legal requirements. BKK submitted a letter last week to the CIWMB with its interpretation as to why the proposed insurance policy actually meets legal requirements. The CIWMB has not responded to this letter. 1 T.AX2d I7M7.2 . I To: Starbird From: Jcffrev Kightlinger 1-13-95 10:50an p. 3 of 4 City Manager, City Attorn City of West Covina January 13, 1995 Page 2 LEGAL REQUIREMENTS The enacting financial assurances regulations required landfill operators to have financial assurances in place by August 17, 1%9. The operator is entitled to choose from several different financial tnechanisnLs to satisfy the financial assurances requirement." BILK supplied the CIWMB with a trustfund mechanism which was approved by the CIWMB as a proper mechanism in 1992.2' However, BKK never funded the trust fund except for a start up payment of $5,ow. This failure to fund is a violation of the requirement that the mechanism be adequateto cover estimIated closure and post -closure costsY Closure/post-closure insurance was authorized as an acceptable mechanism in 1992 by Senate Bill 610 to bring California! into conformance with Federal regulations. In 1993, BKK submitted an insurance policy to the CIWMB to replace the trust. fund. As California has not yet adopted regulations covering insurance policies, the CIWMB has analyzed BKK's policy using Federal regulations on insurance i licies." Federal regulations requue that the policy must guarantee that funds to the full face amount of the policy will be available whenever closure occurs regardless of the status of the premiums at that time.5r The policy must. provide funds in an amount to cover estimated costs of closure, post -closure and corrective action;!' ensure that funds will be available in a timely manner when 1-r Pub. Res. Coale § � 3t501; 14 CCR § 18283 a Trust agreement between BKK and Sanwa Bank entered September 10, 19r— satisfied the requirement to establish financial assurances mechanism, 74 CCR § 78284. 31. 14 CCR 18282. dr 40 CFR §§ 264.745(e); 258.74(d). The CIWMB has proposed regulations to cover insurance policies.which may be adopted by April 1995 but until such regulations are adopted, the CIWMB wi11 continue to use the Federal regulations. sr 40 CFR § 258.74(d)(2). 40 CFR § 258.74(I)(1). T.AX2:117 &17.2 lo: Starbirb I Frow: Jeffrey Kiqhtlinqcr . 1-13-95 10:59an p. 4 of 4 C� City Manager, City A City of West Covina January '13, 1995 Page 3 nae.ded;2' allow assiglinient� to successors;' allol%kr for annual ad_julgments for inflation;y' and must. be legally binding and enforceable under Federal and 5tAte law.'' INSURANCE POLICY CIWMB has determined that. BKK's most recent insurance policy does not meet the legal requirements discussed above. The CIWMB met with BKK in September and December and went over the deficiencies with the policy in detail. The chief problem appears to be thatthe policy is limited to the amounts of the premiums until all premiums are. paid. The. CIWMB is insisting that the policy miist be in effect for the full face amount from day one of coverage regardless of the status of the premiums. There are a number of oth Ir problems that. the CIWMB has noted in the areas of how funds are disbursed from the policy,) naming the CIWMB as the Regulatory Body in the endorsement, allowing CIWMB to disburse funds to cover costs of CIWMB or authorized third party should BKK fail to perform, etc. BKK initially responded that many of the noted deficiencies were procedural and could be quickly remedied. Other changes, however, require meeting with the insurance company and making substantial chants in thestructureof the policy. The CIWMB has. placed BKK under no official deadline to respond but has informed BKK it is not in compliance with the regulations regarding financial assurances for the Class III facility. BKK last week sent a submittal to the CIWMB containing its analysis that BKK's current policy actually does comply with the Federal regulations. The CIWMB has not responded to this submittal yet. We are attempting to get a copy of BKK's submittal to the CIWMB. i 40 CFR § 258.74(I)(2). 40 CFR § 258.74(d)(Sj. 40 CFR § 258.74(d)(7). 40 CFR M.74(1)(4). T AX2c117667.2 • rrom: Jettrey Nightlinger • 1-13-95 1�:49an P. 2 of 4 Qi TO: City Mallagel City Attorne3 FROM: Jeff Kightlinj DATE: January '13, 1 RI,: Financial Ass �URKE, WILLIAMS & SORENSEN FFICE MEN112I ANDUIts CC: M. Miller FILE NO. 00346-265 Class I Site The following is an update on the status of BKK's financial assurances for the BKK Landfill - Class I facility. Separate financial assurances are required for BKK's operating Class III (solid waste) facility in West Covina. CURRENT STATIJS The State Department of Toxic Substances Control (DTSC) has informed us that BKK's insurance policy for the past -closure maintenance of the Class I facility was approved by DTSC at the staff level on January 9, 1995. LEGAL REQUIREMENTS An insurance policy for post -closure maintenance- is a permissible financial assurances mechanism under the law.'l-r The policy must be issued in a face amount equal to the current post -closure cost estimate,.guarantee that funds will be available for the entire post-closurecare period, be maintained for thirty (30) years or such shorter or longer period as DTSC requires, and allow assignment of th policy to any successor.'' The amount of the policy hinges on the it 22 C. C. R. § 66264 745. - 22 C. C. R. § 66264. 74_5 (e). io: jin �tarbirU I From: Jeffrey Kiqhtlinger 1-13-95 10:49an p. 3 of 4 0 City Manager, City At City of West. Covina January 13, 1995 Page 2 estimates for remaining adjusted by the operator )surecare for the facility which areto reviewed annually and ingly.-I As BKK's insurance policy, ,aq so recently reproved by DTSC, we have not had a chance to review the language of this policy; the policy we did review was an earlier version. According to DTSC staff in telephone "versations, all of the above requirements. are met. by BKK's most recent policy. The most critical question that we raised repeatedly with DTSC was the premium and payout issue. The proposed polieyllias a premium period of several years and our concern was what would happen should BKK default on the policy in the next few years. DTSC staff believes that these concerns are nnet by language in the policy which states that the issuing insurance company agrees to be bound by the Federal and State regulations in existence today. Current regulations state that for cancellation due to non-payment of premiums, the insurance company shall give DTSC 120 days notice before cancellation shall be effective. The policy cannotbe terminated by the insurance company if one of the following occurs within that '120 day period: DTSC deems the facility abandoned; or, interim status is revoked by DTSC; or, closure is ordered by DTSC or a court; or, the operator is named as a debtor in a bankruptcy action; or, the full premium is paidY My reseiarch indicates that this issue has never been litigated in the United States. INSURANCE POLICY The actual policy filed by BKK is for the current estimated post -closure costs and has been issued by the Steadfast Insurance Company. DTSC has determined thatthe policy meets all the . legal requirements contained in the.regulations and which are briefly described above. Steadfast is part of the Zurich -American Insurance Group of companies. Steadfast has a 1994 rating of "A+" in Best's Ratings; an "A+" rating is "superior". Each pool member of Zurich currently has an "A+" rating. The Financial Size Category is listed as Class XY, which means sr ar T.AX2:117509.1 22 C. C. R. §§ 66264,.144(b); 66264. 745. 22 C. C. R. § 66265. J43.