For years, the leaders at Rhode Island’s trash agency bought insurance to cover potential liability by its officers, directors and others.

Now, in the wake of a state audit that says the agency’s former leaders squandered $75 million over the past decade, General Treasurer Frank T. Caprio wants to start collecting under those policies.

Caprio has met with the Rhode Island Resource Recovery Corporation’s executive director, Michael O’Connell, who endorses the idea, and plans to take it up with Governor Carcieri, whose staff has been exploring other avenues of action after state law-enforcement officials concluded that no criminal charges could be brought.

“I will not stand on the sidelines and shake my head about why this continues to happen to us in Rhode Island,” said Caprio. “It seems like there’s been a big party, where some people seemed to have a good time. We, the taxpayers, weren’t invited, but were just given the bill.”

Attorney General Patrick C. Lynch, a potential rival of Caprio’s in next year’s race for governor, said he applauds the efforts, but questioned whether Caprio has thought through all of the legal obstacles and ramifications.

“I’ll give them credit for creativity, but it’s fraught with legal challenges,” said Lynch. “It smacks of politics.”

On Sept. 23, Carcieri released an audit that said Rhode Island’s trash agency was plagued for years by waste and mismanagement, flawed multi-million-dollar construction projects, questionable land deals, cronyism, suspected fraud, apparent bid rigging, bogus workers’ compensation claims and phony overtime scams.

Despite public outrage, Lynch, federal prosecutors and the Rhode Island state police concluded that they couldn’t pursue any criminal actions because of a lack of evidence, a lack of cooperation from witnesses and the expiration of the statutory limitations on potential crimes.

That leaves the civil avenue, said Caprio. As general treasurer, Caprio oversees Rhode Island’s general funds, including revenues turned over by Resource Recovery from the state’s trash and recycling operations.

But any lawsuits would have to be filed by the current leaders of Resource Recovery, as the insured party. The agency has three policies: a directors and officers liability policy with RSUI Indemnity Co., and fiduciary liability and criminal coverage policies with Travelers Casualty and Surety Co.

The officers and directors policy and the fiduciary liability policy each carry a $5-million limit on claims. The criminal policy includes a limit of $1 million on employee theft, $1 million on theft from pension funds, $1 million on forgery and $1 million on computer fraud.

Peter Troy, the insurance agent who sold the policies to Resource Recovery, said that the agency’s lawyers filed notice last month, when the audit came out, under all three policies.

“This was done to notify the carriers of the possibility that there could have been a wrongful act,” said Troy. Notification is required to preserve the right to sue later on, he said, but more work would be needed before any lawsuit. The findings of the audit have yet to be fully analyzed by lawyers for the governor and Resource Recovery to determine potential claims.

Caprio, however, said that the $1-million audit, which was conducted over the past year by a team of state and private accountants, gives lawyers a head start in identifying potential claims. And in the civil arena, where the burden of proof is less than in criminal actions, a lawsuit could develop witnesses with knowledge of wrongdoing, he said.

“I look at the audit’s findings as potential acts [that could be the basis of a lawsuit],” said Caprio. “Some are stronger than others, but because of the scope, it would be a worthwhile exercise to pursue claims.”

Caprio said that a law firm would have to be chosen, perhaps on a contingency basis, to do the necessary spadework. And then, Carcieri spokeswoman Amy Kempe noted, a determination would have to be made about whether it was worthwhile.

“We wouldn’t want to invest state resources if there wasn’t a good chance to recoup some money,” she said.

Lynch argues that it might not be so easy. First, he noted, Rhode Island law indemnifies Resource Recovery officers, directors and employees from being sued, unless acts of “intentional misconduct” or bad faith are involved. But many such insurance policies won’t cover intentional misconduct.

That creates a potential “catch-22,” in which Lynch said that a victory could wind up costing taxpayers money since the insurance company would be off the hook and the state would then be obliged to pay.

Caprio countered that the law indemnifies only individuals, not the insurance companies. Furthermore, he said, the potential hurdles shouldn’t prevent the state from reviewing potential lawsuits and insurance claims.

As for Lynch’s accusations of politics, Caprio, said, “Let the process make those decisions.”

The challenges of any civil action are highlighted by the biggest boondoggle cited in the 155-page audit –– construction of a $19-million tipping station that auditors said wasn’t necessary and which was plagued by questionable bidding procedures and cost overruns. To collect money under one of its insurance policies, the agency would have to prove that the station was more than just a bad decision.

The audit also criticizes past management at Resource Recovery for buying land at excessive prices for an ill-conceived industrial park next to the landfill, including two parcels from the family of then-Johnston Mayor William Macera. In one deal, auditors said, the agency overpaid for Macera property, paying $2 million for land that engineers had told then-executive director Sherry Mulhearn contained wetlands.

The insurance brokerage that sold the liability policies to Resource Recovery, Troy Pires & Allen, of East Providence, was also mentioned in the audit.

According to the report, Resource Recovery paid $5.9 million in premiums from 1999 to early 2007 for the policies. Less than 10 percent of that went to Troy Pires as its commission, said Peter Troy, a partner in the firm. The remainder went to the insurance companies.

Former House Finance Chairman Antonio Pires is also a partner, but had nothing to do with procuring or servicing the account, said Troy. Resource Recovery, he said, “has been a difficult account for agents to place. We’ve had years that have been up and years that have been down.”

mstanton@projo.com