South County administrator left district uninsured
July 10, 2012
By KAREN VELIE
South County sanitation district administrator John Wallace’s failure to maintain errors and omissions insurance during a 2010 sewage spill could leave him financially responsible for a proposed $1.4 million fine.
In late 2009, following reports of environmental abuses to local and state water authorities from South San Luis Obispo County Sanitation District employees, the insurance company that carried insurance for Wallace said it was canceling his coverage.
Wallace, however, failed to inform the district’s board of directors of the cancellation and did not acquire another insurance policy. As a result, district officials plan to increase charges and pass the cost of any fines to the rate payers.
But because Wallace failed in his fiduciary duty as administrator of the plant, he could be found financially and personally responsible for the proposed fine.
The district, which serves the residents of the Oceano Community Service District, Arroyo Grande and Grover Beach, is governed by a three person board consisting of one representative from each community.
Former board member Jim Hill said the district had been paying for Wallace’s errors and omissions insurance.
“I expected him to have maintained insurance,” Hill said. “There was no reason for him not to have it.”
In a complaint filed last month, prosecutors for the Regional Water Resources Control Board accuse Wallace of failing to properly report incidents to regulators.
Regulators also contend Wallace’s failure to properly maintain the plant resulted in 1,139,825 gallons of sewage spilling into the community of Oceano, local waterways, and the Pacific Ocean in December 2010.
Wallace argues that the plant spilled only 400,000 gallons of raw sewage and has vowed to aggressively defend his claim. Apart from possibly having to cover the proposed fines, the rate payers are also funding the district’s mounting legal expenses.
During the 2011/2012 fiscal year, the district paid $232,500 to attorney Michael Seitz. In its 2012/2013 proposed budget, the district estimates it will pay $295,000 to Seitz and a Sacramento based attorney firm Wallace hired to defend him and the district.
Sewage plant administrators at other county plants report the costs for legal services run substantially less than those paid out by the South County district.
For example, Paso Robles has similar sewage needs as those at the South County district. Paso’s costs for legal services are currently budgeted at $22,000 for the year, said Chris Slater, Paso Robles city waste water division supervisor.
Regulators have set a tentative public hearing on the complaint for Sept. 6 at the water board office in San Luis Obispo. At the hearing, Wallace will have an opportunity to argue against the complaint.
During the 2010 spill, sewage flowed into approximately 40 homes in Oceano. Unaware of allegations of mismanagement, none of the residents filed suits against the district before the statute of limitations to make a claim against the public agency ran out. However, if the hearing results in charges of mismanagement, those homeowners would have an opportunity to seek restitution from Wallace.
Water board investigators are currently interviewing Oceano residents whose homes were damaged from the sewage spill. Office of Enforcement investigator James Fischer is asking homeowners to call him at 916-341-5548 or email him at firstname.lastname@example.org.