Port Manatee, HRK violated dredging contract without insurance policy

jsalman@bradenton.comAugust 5, 2012 

PALMETTO -- Port Manatee and HRK Holdings LLC were in violation of their contract when the first drop of water entered the dredging reservoirs last year at Piney Point, records show.

The quasi-government agency and HRK disregarded a mandate to obtain $2 million worth of liability insurance, a joint policy that was to be funded equally between both parties, according to documents obtained by the Bradenton Herald.

The safeguard was written into the 2007 contract for cleanup relief in the event of an environmental disaster -- like the subsequent storage liner rip that sent 170 million gallons of toxic water gushing into Bishop Harbor in May 2011.

But both parties went ahead with pumping sludge from the port's Berth 12 dredging project into gypsum stacks at Piney Point without that required policy in-hand. The signed contract was never amended to show the absence of insurance, documents show.

The shortcut is the latest questionable decision discovered by the Herald that may have worsened the impact of the toxic spill and the $15.8 million cleanup cost that could now fall into the lap of taxpayers.

"Neither port staff nor HRK personnel were able to obtain the type of coverage envisioned under the contract," said Kevin Hennessy, an attorney now representing Port Manatee. "It was a matter of nobody willing to write the policy."

Insurance experts speculate it was instead a matter of cost, with both parties seeking to avoid premiums much higher than they first anticipated.

Insurers also would have shied away if preexisting environmental conditions were

too dire -- a strong sign the storage of dredged materials shouldn't have occurred there in the first place, said Thomas Reese, a St. Petersburg environmental attorney.

"If I was the county or port, I would be very concerned right now," he said. "To sign a contract and then not be able to get insurance is a huge red flag. If you can't get insurance on the activity, you probably shouldn't be doing it."

There are dozens of insurance firms in the U.S. that specialize solely in hazardous and environmental insurance. If those traditional companies decline a policy, surplus lines usually step in.

The surplus lines market -- which are private insurers not regulated by the state and with no caps on premiums -- tend to cover anything at a price, even dynamite mining, said Sam Miller, executive vice president of the Florida Insurance Council, an industry trade association.

"Surplus lines will provide coverage for very risky things that no other regular insurance would touch," Miller said. "Everything is insurable at a price."

Port attorneys were unable to produce any documentation that shows they were declined a policy. Traditionally when a party is shopping for policies of any kind, the insurer will provide written notification identifying the risks involved in their decision, said Lynne McChristian, Florida representative for the Insurance Information Institute.

She too believes cost was the underlying factor. HRK officials did not respond to calls and emails seeking comment.

"There's insurance for almost every type of risk -- but for what price?" McChristian said.

In April 2011, Port Manatee did acquire its own environmental insurance policy with the Illinois Union Insurance Co. The coverage is still less comprehensive than what is required by the contract, port attorneys acknowledge.

Port attorneys notified Illinois Union of a potential threat in June 2011, but never filed a formal claim because the spill would not have been covered under the policy, according to legal records.

'Environmental catastrophe'

Piney Point is a former phosphate facility purchased by HRK in 2006 to serve as disposal grounds for Port Manatee's Berth 12 dredging project -- the focus of a $200 million decade-long expansion to allow for larger cargo ships.

In May 2011, liners and pipes that housed the dredged material at Piney Point sprung leaks, gushing 2,700 gallons of toxic water a minute into Tampa Bay's Bishop Harbor. The final pollution count was 170 million gallons.

The dredging was completed in October, but the environmental fallout can still be evidenced today, with high levels of ammonia in an on-site drainage ditch and watershed that's contaminated with dredging sediment, according to the Florida Department of Environmental Protection.

HRK is now battling Chapter 11 bankruptcy with $26 million in debts largely tied to the Piney Point disaster.

But a series of Bradenton Herald reports show the toxic spill could have been averted had the state halted the project when a liner tear was discovered months before the dredging began. State officials never notified port staff of any previous problems before the toxic spill.

The DEP also allowed HRK to get by without applying a commonly used protective dirt cover over the exterior of the gypsum stack, which could have prevented sun damage that's believed to have contributed to the rips, reports show.

Meanwhile, the state drastically reduced HRK's mortgage note on the site and never vetted the dredging disposal contract for accuracy. Environmental groups now fear those decisions have become troubling evidence that every party involved rushed to complete the lucrative project at the expense of Tampa Bay's aquatic habitat. HRK earned $1.9 million in 2011, most of which came as a result of the port contract.

The threat to the environment remains.

Because Piney Point still has not been properly maintained, state officials say, the undrained gypsum stacks will exceed their storage capacity at current rainfall levels by early September -- sending more highly acidic runoff that's potentially deadly for fish and plants into Bishop Harbor.

"We're just one hurricane away from seeing how bad things can get," said Glenn Compton, director of Manasota 88, an environmental group familiar with the actions at Piney Point. "We could be looking at a real environmental catastrophe."

Dangerous precedent

Piney Point was the first time the DEP ever had to oversee the closure of a gypsum stack after Mulberry Phosphates Inc. abandoned the plant -- and another like it in Polk County -- in its 2001 bankruptcy, according to the state agency.

Compton fears the state's handling of the situation has set a dangerous precedent for the two dozen other gypsum stacks in Florida now processing phosphate fertilizer that ultimately will shut down some day.

Some also have expressed concerns over why the state would ever approve storing dredged materials in a gypsum stack -- which had never been done before in Florida -- on a waterfront property that still carried high levels of toxins including phosphate, ammonia, phosphorus and nitrogen.

Even after things started to go wrong, the DEP, HRK and Port Manatee kept pushing ahead, records reveal.

"Everybody needed to know about that first tear," said Jim Mikes, who has a $250,000 claim in HRK's bankruptcy case. "HRK and the DEP kept it a secret. They decided to cover it."

The failure to obtain the required insurance by both Port Manatee and HRK strips $2 million from any funds available to help with cleanup.

If HRK can't survive its bankruptcy, Florida taxpayers will be forced to pick up the $15.8 million bill, according to the DEP.

"The provision they made for project insurance, like that which they required of the dredging contractor for general liability, pollution liability, vehicle liability and worker's compensation insurance, appear to be prudent requirements," DEP spokeswoman Dee Ann Miller said in an email statement. "However, the parties themselves are responsible for policing and enforcing compliance with the terms of their own contract."

Commissioners don't recall

The contract between Port Manatee and HRK spells out in detail the insurance requirements, from the $2 million minimum coverage to a 50 percent premium share and even specifies that the plan must cover the spillage of dredged material.

The policy also was to last 24 months after the final dredging was deposited in the stacks, a clause that could have provided financial relief for the future runoff threat that's still expected this fall.

The contract was signed by the port's then second vice chairman Carol Whitmore. Manatee County commissioners, who serve as the Port Authority, approve all contracts before an authority member can sign them.

Whitmore could not recall the document or any issues related to insurance.

"You have your legal counsel present it to you and your executive director reviews it," Whitmore said. "Hopefully staff followed procedures."

Commissioner Larry Bustle, who now serves as port chairman, also found it difficult to believe the port would ignore the stipulation.

"I don't know anything about it," he said.

Now retired, David McDonald was executive director of the port during the Piney Point negotiations. He could not be reached for comment.

Current port officials also declined to comment, citing the pending litigation, and referred all inquiries to their attorneys at the Bradenton law firm of Lewis, Longman and Walker.

Bill Fay served as the port's attorney at the time the contract was prepared. He has since retired.

Long-time Commissioner Joe McClash, port chairman when the contract was handled, blamed the attorneys for the mistake.

"We rely on our attorneys to ensure the contract provisions are met," he said. "Prior to us putting the first spoil at HRK, the attorney at the time should have reviewed the contract again ... That attorney will be held accountable."

Josh Salman, Herald business writer, can be reached at 941-745-7095. Follow him on Twitter @JoshSalman.

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