South County administrator left district uninsured

July 10, 2012

John Wallace

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 jfischer@waterboards.ca.gov.


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doggin

This entire ordeal is beyond belief and there’s something smelly in this story (no pun) and I believe its a result of CNN being mislead by the Pirates.

From day one Wallace has been backed by Ferrara,Nicolls and Seitz regardless of what the allegations has he not?. They have contended EVERY SSLOCSD employee complaint was/is frivolous, and EVERY one of the State or Federal regulators allegations to be false or hugely exaggerated. Hill says the The Sanitation Dist paid Wallace’s E&O insurance, yet they are unaware it was cancelled after the investigators found multiple problems?. I call BS on this one. I say the Board of directors knew damn well Wallace lost his insurance. They covered Wallace’s ass again as always because if they admitted they knew it wouldn’t exactly be in their best political interest now would it? I’ll bet Black Beard (Ferrara) and his pet monkey (Nicolls) had every intent of covering up Wallace’s cancellation of E&O insurance and intend on having us tax payers cover the bill for the fine whatever it may be. That was until Karen and CCN exposed this little oversight and as always exposed more fraud from our illustrious leaders.


MaryMalone

QUOTING DOGGIN:

Hill says the The Sanitation Dist paid Wallace’s E&O insurance, yet they are unaware it was cancelled after the investigators found multiple problems?. I call BS on this one. I say the Board of directors knew damn well Wallace lost his insurance.


It is highly unlikely that the three-member SSLOCSD board collects, opens and processes the mail. Indeed, it may be mailed directly to John Wallace’s offices.


Since the three-member oversight board for SSLOCSD has basically rubber-stamped anything John Wallace did or wanted to do, I would be surprised if they even reviewed the warrants before they signed off on them/signed the checks.


Before this lapse of insurance issue arose, I bet if you asked any one of the three-member oversight board when their insurance policies come up for renewal, none would be able to answer.


If Wallace has the power to submit to the board what he wants, I believe it is possible the board members didn’t see the notices from the insurance company.


I know of a local CSD where, when a new financial officer took over for one who retired, he found a drawer full of IRS notifications regarding unpaid taxes, payroll taxes, etc., going back YEARS.


As the world turns

In Wallace’s contract, there should be a provision that yearly his office has to provide the district with evidence of insurance. Someone look at his contract to verify whether this clause is included.


TheLoneGunman

If you’d ever seen Wallace’s contract you’d realize that’t a joke. It’s still the original document and hasent been updated, reviewed, or sent out for bid since 1986. Last year’s Grand Jury Report slammed the District for this exact reason.


dante0182

The attorney’s job is to protect the district and make sure documents are legally defensible. Why didn’t the district attorney monitor the contracts and other legal agreements to make sure they were current?


dante0182

Before ferrara was elected to Arroyo Grande City Council, he had no problem being very nasty and making some very ugly accusations about city staff and council members at the time. He used those nasty comments to get elected. Look at him now. He is defending the very situations he once accused others of defending. What a sad man.


doggin

Wallace will never take responsibility for his actions, he’s to mesmerized by arrogance and backed by 3 liars of similar character, Ferrara, Nicolls and SLO county public enemy #1 Mike Seitz . I’d lay odds if Wallace is on the hook for the fine he files bankruptcy, walks away unscathed then reopens under one of the other multiple names his SLO based co-owned companies screw the public with.. Seitz, he should be debarred. He, like the others are PUBLIC servants who should be protecting our best interest not digging us in deeper financially.


danika

There are things to know about E&O insurance.


1) Tail coverage. When a professional policy is cancelled, there is opportunity to purchase tail coverage. It is coverage that is extended for a set period of time past the expiration date. It is NOT a new polciy, simply an extension of time in which claims can be made against the policy while it was in force. Was tail coverage offered and excepted in this case?


2) Professional coverage such as E&O are often times written on Claims Made form, not Occurrence form. This is a risky and dangerous form of insurance. However, it is what is out there for most all E&O policies.


3.) Unintentional acts of error and/or omission are covered under the E&O policies. INTENTIONAL acts are not.


MaryMalone

LOL, I was just thinking, “I wonder what Danika has to say about this,” and here you are!


danika

LOL…And HERE i am….. : )


Vallybear

There is only one thing Wallace has ever been interested in. And that is feathering his own nest and those of his friends – like lawyer Seitz.

What is wrong with the people in the South County that they haven’t taken notice of what was going on in their representatives?


MaryMalone

1. VB, sometimes it is a chore just trying to find where the SSLOCSD board/Wallace have decided, at the last minute, to change the meeting to.


2. There are many people who have noticed what is going on. However, many simply don’t have the time to commit to challenging Wallace and the SSLOCSD board.


3. Even for those who have the time, they certainly don’t have the resources to match what the SSLOCSD and Wallace have (which the rate-payers pay for) can bring to the fight.


Have you ever sued a local government body or its council/staff/whatever?


They have nearly unlimited resources, compared to what you have.


Getting your records together? They can allot as many people as they want to organize and decide which records should be submitted, then do the scanning and submission process. How much time would you have in each day to deal with selecting and preparing the most pertinent, compelling records?


Need legal assistance? Hope you have a rich uncle because often there won’t be an attorney who will work on contingency basis, and even then, you still have to pay for many of the costs associated with the attorney’s work. The government body you are suing, however, can bring in as many attorneys, including specialist attorneys, as they want, and each of those attorneys has a raft of clerical staff to deal with the other many, many tasks involved in a lawsuit.


I’m not saying that there aren’t a lot of people who don’t pay attention to local politics. It’s just that we are out-gunned to start with.


Jorge Estrada

One reason the legal fees are ten time greater along the coast than by comparison, Paso Robles, is because the Coastal Commission will hammer at the regulatory agencies, like the Fish and Game, to do their job. Inland, the Fish and Game are more likely to run a hunting calendar and seem to ignor the live streams thence fisheries. When it comes to equality, The Regulators can eat, very appropriately, at the sewer farms.


MBCA

San Simeon Community Services District legal fees are 23k a year.


Disgusted

Allowing the plant to be run by a company that has no E & O insurance is unforgivable. To not KNOW that he had no E & O insurance is unforgivable. The board, comprised of elected officials, was not looking out for us. The reason people carry E & O is so that they will not be liable for negligent behavior. If they don’t have it, they get sued and suffer the consequences. The original problem, if Wallace is guilty, is bad enough, the lack of insurance is beyond belief. The citizens should not have to pay for the mistakes of others.


TheLoneGunman

It goes without saying that Wallace should be held financially responsible for whatever fines result from his negligence.

I think another important fact is to remember that Nicolls and Ferrara have both been on the San Dist board for YEARS and they’re just as much to blame for allowing Wallace to get away with all the things he has. It’s time for new blood on the San Dist Board and each Parent Agency should make that happen as soon as possible if they want to maintain any credibility whatsoever.


Booty JuJu

“I expected him to have maintained insurance,” Hill said. “There was no reason for him not to have it.”


There was in fact a very good reason why he didn’t have E & O coverage. After reports of potential problems he had no chance of ever getting covered.


CalCoastOutrage

Wow.

I clicked reply a few minutes ago but have been so dumbfounded by this news I am unable to come up with much to say yet I haven’t written anything.

I hope this is FINALLY the straw that breaks the proverbial camels back when it comes to the SLLOCSD board blindly supporting and defending John Wallace. It seems to me, JW made them all look like idiots (although they have done a decent job in this department themselves,) had risked their own reputations and has done the entire community a disservice in costing the taxpayers an exorbitant amount of $$$.

I never understood how they could continue to back him back then, and I surely don’t know how they can support him now.

SSLOCSD Board members who might be reading this, allow me to spell it out for you using words you might understand: JOHN WALLACE IS HURTING THE DISTRICT, WHICH IS MORE THAN JUST THE PHYSICAL PLANT THERE. HE IS HURTING *YOU*. HE IS HURTING THE TAXPAYERS. HE IS HURTING THE ENVIRONMENT.


!!!!!!!!!!!!!!GET RID OF HIM!!!!!!!!!!!!!


I do have to wonder ho long the silent members of the South County are going to keep quiet. Stand up against this pig. Storm those meetings. Insist all the findings/reports from all those secret investigations are made public.


The state water board has, in essence, by the way I read it, said JW is a liar and shouldn’t be trusted to run that plant.

The grand jury has,in essence, by the way I read it, said JW is a liar and shouldn’t be trusted to run that plant.

And now the District’s own insurance company has, in essence, by the way I read it, said JW is a liar and shouldn’t be trusted to run that plant.


Throw this garbage out!


MaryMalone

Get rid of Wallace AND the three-member oversight board.


Obviously, NONE of them are doing their jobs.


winedude

Stories like this remind me of the reason SLO County is such a hilarious place to live. We have the most inept people on earth running our cities and CSDs with no critical oversight from the folks that are supposed to be looking out for the public interest. This leads me to believe the elected officials are as corrupt as the folks they’re supposed to be monitoring, sad to say…


CalCoastOutrage

It might be funny if it weren’t costing the ratepayers. And the environment.


winedude

True…so very, very true. In which case I guess it’s more of a sad situation than funny. I guess the funny part is that it has gone on for so long and is still tolerated by the so-called oversight.


hijinks

And what’s it say about the voters? As you say, it’s a hilarious place.


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