Title
Recommendation to Authorize the City Attorney to Bind Pollution Legal Liability Insurance Coverage for 10-Years for Alameda Point with Ascot in an Amount Not to Exceed $529,776. (Community Development 858)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City’s current insurance coverage for pollution legal liability at the former Naval Air Station will expire on March 21, 2021. New coverage is important to help protect the City against potential pollution liability claims and encourage future development in the area. Staff engaged in a competitive process to award the next ten-year insurance coverage contract and received four quotes. Staff is recommending coverage placement with Ascot Group for a ten year policy with limits of $25 million per incident and $25 million for the policy aggregate. The amount for this contract is not to exceed $529,776.
BACKGROUND
In 2001, the Alameda Reuse and Redevelopment Authority (ARRA) purchased a ten-year Pollution Legal Liability (PLL) insurance policy from the insurance carrier AXA XL (then known as XL) to address personal injury, property damage, remediation costs and defense costs arising from pollution conditions at the former Naval Air Station Alameda, commonly referred to as Alameda Point. The ten-year policy, which cost $681,014 in 2001, expired on March 21, 2011. In March 2011, ARRA purchased another PLL insurance policy from AXA XL. This second 10-year policy, which cost $720,112, will expire on March 21, 2021. On January 31, 2012 ARRA transferred their rights, assets, obligation, responsibilities, duties and contracts to the City of Alameda (City). On February 1, 2012 local redevelopment agencies across California came to a formal end. No claims have been made against the City’s policy since coverage was first obtained in 2001.
DISCUSSION
It is important that the City maintain PLL coverage to protect itself from liability and to facilitate redevelopment on Alameda Point. The benefits of PLL insurance include protection of the City from significant liability arising from preexisting (Navy-created) conditions at the property, as well as new conditions that arise during the term of coverage. In addition, the coverage contemplated could facilitate development of the property by demonstrating that an independent, financially responsible party has evaluated Alameda Point and underwritten its environmental risks. Even though the Navy is responsible for necessary environmental remediation and is legally obligated to indemnify future property owners for claims arising from the contamination, the PLL policy helps ensure prompt cleanup.
Staff recently engaged in a competitive process to award a contract for a new ten-year environmental insurance policy. Seven carriers were approached and four of them provided quotes: Ascot, Beazley, Great American, and AXA AL.
The following table summarizes the pricing Staff evaluated (these bids do not include mandatory state surplus line tax of 3.25%):
|
Limits of Liability |
Self-Insured Retention |
AXA XL Renewal Quote |
Beazley |
Ascot |
Great American |
|
$10M each incident/$10M policy aggregate |
$100,000 |
$812,000 (10 years historical with 3 years new) |
$307,394 (5 Year Term $169,275) |
$415,200 |
Not Offered |
|
$10M each incident/$10M policy aggregate |
$250,000 |
$746,000 (10 yrs historical with 3 years new) |
$275,704 (5 Year Term $151,825) |
- |
$330,658 (5 Year Term for $200,000) |
|
$15M per incident/$15M policy aggregate |
$100,000 |
$947,000 (10 years historical with 3 years new) |
$378,439 (5 Year Term $208,399) |
$463,500 |
Not Offered |
|
$15M per incident/$15M policy aggregate |
$250,000 |
$883,000 (10 years historical with 3 years new) |
$339,425 (5 Year Term $186,914) |
- |
$394,247 (5 year term for $216,836) |
|
$25M per incident/$25M policy aggregate |
$100,000 |
NA |
Not Offered |
$513,100 |
Not Offered |
|
$25M per incident/$25M policy aggregate |
$250,000 |
$1,097,500 (10 years historical with 3 years new) |
Not Offered |
- |
$489,629 (5 year term for $269,296) |
The proposals contain important differences in extent of coverage and what the carriers are willing to insure. The proposals that contain more exclusions from coverage will be less protective of the City. Both pricing and coverage are important considerations when evaluating the proposals.
AXA XL’s pricing is not competitive compared to the other three carriers. AXA XL further restricted the ten-year policy term to only historical conditions that occurred prior to the policy’s inception, and only covers pollution conditions occurring after the policy’s inception for 3 years. AXA XL is the only carrier to limit their coverage term in such a manner. AXA XL’s coverage also contained multiple exclusions for important items that the other carriers covered, including Per- and Polyfluoroalkyl Substances (PFAS).
While Great American’s pricing is within a reasonable range of Beazley and Ascot, their options only include a deductible of $250,000 and do not include options for a $100,000 deductible like the other carriers do. Great American’s coverage also excluded certain important items that Beazley and Ascot covered, including PFAS.
The pricing and coverages offered by Beazley and Ascot are comparable but Ascot offers a few distinct advantages. Ascot offers a higher coverage limit of $25 million compared to Beazley’s coverage limit of $15 million. Beazley also excludes coverage for pollution conditions from early transfers by the Navy, also known as Finding of Suitability for Early Transfer (FOSET). Pollution conditions from FOSET are not excluded under Ascot’s proposal. Further, Ascot’s proposal includes litigation defense costs up to 100% outside of the policy limit, whereas Beazley’s defense costs is within the policy limit. Beazley’s and Ascot’s financial strength ratings are both high, with respective AM Best Rating of A XV and A XIV. While Ascot’s pollution liability product is relatively new to the market, they are an established name with other products in the broader insurance market and their financial strength rating reflects their good reputation. One advantage that Beazley offers over Ascot is aggregated retention, which reduces the aggregate amount paid out of pocket in scenarios where the insured experiences multiple claims. Given that the City has yet to make a pollution claim against its policy over the last twenty years, Beazley’s benefit of an aggregated retention does not outweigh the benefits of increased coverage under Ascot.
Staff recommends City Council award the contract to Ascot for $513,100 for a ten year policy with limits of $25 million per incident and $25 million aggregate for the policy, subject to a $100,000 self-insured retention. An additional 3.25% surplus lines tax will need to be paid to the State. The premium and surplus lines tax combined cost will be under $529,776. Ascot’s proposal is competitively priced and offers the broadest coverage that best protects the City from potential losses.
Coverage provided in the recommended proposed policy will include remediation of: on-site and off-site clean-up costs, bodily injury and property damage arising from pollution conditions and defense costs, transportation pollution, business interruption, mold where buildings have valid certificates of occupancy, and scheduled underground storage tanks. The policy will offer primary coverage unless another policy also offers primary coverage, in which case the policies will share limits. The policy will be excess over any other valid and collectible insurance policy for: mold, business interruption, transportation, or other project specific policy, meaning that Ascot’s policy will provide additional coverage where a tenant provides insurance coverage as well.
Not all environmental risks are addressed in the proposed PLL policy. Remediation (to be distinguished from property damage and bodily injury claims) for asbestos-containing materials and lead-based paint are excluded. These contaminants are viewed in the insurance industry as known and identifiable pre-existing conditions, for which coverage is routinely excluded. The City’s Marsh Crust Ordinance provides detailed measures to be taken when digging or other construction activities may lead to an encounter with it, and noncompliance with the ordinance will be excluded. Violations of land-use controls are also excluded. For example, housing that is inadvertently located where residential land use is restricted, would not be covered.
ALTERNATIVES
City Council may:
• Authorize the City Attorney to Bind Pollution Legal Liability Insurance Coverage for Alameda Point.
• Direct staff to search for a different policy and/or provider.
• Direct staff to discontinue this coverage.
FINANCIAL IMPACT
This insurance coverage is budgeted under the Community Development Department with funds for this contract’s annual costs budgeted in the Base Reuse fund (Fund 858).
Full premium payment is due within 30 days of binding.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (CEQA) under CEQA Guidelines section 15061(b)(3), the common sense exemption that CEQA applies only to projects that have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity may have a significant effect on the environment, the activity is not subject to CEQA. As a separate and independent basis, this action is not a project under CEQA Guidelines section 15378(b) and Public Resources Code section 21065.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Authorize the City Attorney to bind pollution legal liability insurance coverage for 10-years, for Alameda Point with Ascot in an amount not to exceed $529,776.
CITY MANAGER RECOMMENDATION
The City Manager recommends approval. My understanding is that the amount of the premium is a one-time up front cost for the 10 year policy.
Respectfully submitted,
Montague Hung, Risk Manager
Financial Impact section reviewed,
Annie To, Finance Director
Exhibit:
1. Renewal Proposal
cc: Eric Levitt, City Manager