Wednesday
October 26, 1988
Part II
Environmental
Protection Agency
40 CFR Parts 280 and 281
Underground Storage Tanks Containing
Petroleum—Financial Responsibility
Requirements and State Program
Approval Objective; Final Rule
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43322
Federal Register / Vol. 53; No 207 / Wednesday, October 26, 1988 / Rules and Regulations
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 280 and 281
[FRL-UST-3; 3419-3]
Underground Storage Tanks
Containing Petroleum—Financial
Responsibility Requirements and State
Program Approval Objective
AGENCY: Environmental Protection .
Agency.
ACTION: Final rule.
SUMMARY: The Environmental Protection
Agency (EPA or the Agency) is
promulgating financial responsibility
requirements applicable to owners.and
operators of underground storage tanks
containing petroleum under Section 9003
(c) and (d) of the Resource Conservation
and Recovery Act (RCRA), as amended
by the Hazardous and Solid Waste
Amendments of 1984 (HSWA) and the
Superfund Amendments and
Reauthorization Act of 1986 (SARA).
This rule establishes requirements for
demonstrating financial responsibility
for taking corrective action and
compensating third parlies for bodily
injury and property damage caused by
sudden and nonsudden accidental
releases arising from the operation of
underground storage tanks containing
petroleum.
Today EPA is also promulgating, for
purposes of state program approval, a
federal technical objective for financial
responsibility of owners and operators
of petroleum UST systems. Subtitle I of
RCRA allows EPA to approve state
programs to operate in place of the
federal UST requirements if those state
programs have standards that are no.
less stringent than the federal
requirements, and also provide
adequate enforcement of compliance
with those standards.
EFFECTIVE DATE: This rule becomes
effective on January 24,1988.
FOR FURTHER INFORMATION CONTACT:
The RCRA/Superfund Hotline at (800)
424-9346 (toll free) or (202) 382-3000 in
Washington, DC.
SUPPLEMENTARY INFORMATION: The
contents of today's preamble are listed
in the following outline:
I. Authority
II. Background
A, Legislative and Regulatory Background of
the Rule
B. The Comprehensive Federal UST
Regulatory Program
C. Program Objectives and Summary of
Today's Rule
1. Program Objectives and Major Changes'.
in the Final Rule
2. Summary of Today's Rule
D. Availability of Mechanisms
III. Section-by-Section Analysis
A. Applicability (§280.90)
1. Owners and Operators
2. Tanks Taken Out of Operation Before
the Date for Compliance (§ 280.90(b)J
3. Applicability lo State'and Federal
Government Entities (§ 280.90(c))
4. Applicability to Local Government
Entities
5. Applicability to Indian Tribes
6. Deferrals and Exclusions (§ 280.90(d))
B. Compliance Dates (§ 280.91)
C. Definition of Terms (§280.92)
1. Accidental Release and Occurrence
2. Bodily Injury
3. Director of the Implementing Agency
4. Petroleum Marketing Facilities
5. Petroleum Marketing Firms
6. Property Damage
7. Additional Definitions
D. Amount and Scope of Required Financial
Responsibility (§ 280.93)
1. Per-Occurrence Amount
2. Aggregate Amounts
3. Apportionment of Costs and Levels of
Coverage Under Separate Mechanisms
E. Allowable Mechanisms and Combinations
(§280.94)
1. Mechanisms Allowed
2. Combinations of Mechanisms
3. Attorney General Certification
(§ 280.94(b))
4. New Mechanisms
5. Specification of Tanks in Financial
Assurance Instruments
F. Financial Test of Self-Insurance (§280.95)
1. Proposed Financial Test
2. Comments on the Proposed Financial
Test
3. Summary of Changes in the Financial
Test
G. Guarantee (§ 280.96) and Indemnity
Contract
H. Insurance and Risk Retention Group
Coverage (§ 280.97)
1. Availability
2. Insurance Cost and Its Impact
3. Viability of Risk Retention Groups
4. Specific Requirements for Insurance and
Risk Retention Group Coverage
I. Surety Bond (§ 280.98)
J. Letter of Credit (§ 280.99)
K. Use of State-Requjred Mechanisms
(§280.1001 • i
L. State Fund or Other State Assurance
(§280.101)
M. Trust Fund (§ 280,102)
N. Standby Trust Fund (§ 280.103)
O. Substitution of Financial Assurance
Mechanisms by an Owner or Operator
(§280.104) i
P. Cancellation or Nonrenewal by a Provider
of Financial Assurance (§ 280.105)
1. Length of Notice: Period
2. Termination for Non-Payment of
Premium • '
Q. Reporting by Owner or Operator
(§280.106) ;
R. Recordkeeping (§280.107)
S. Drawing on Financial Assurance
Mechanisms (§280.108)
T. Release from the Requirements (§280.109)
U. Bankruptcy or Other Incapacity of Owner
or Operator or Provider of Financial
Assurance (§ 280.110)
V. Provisions Pertaining to Other Instruments
(§ 280. Ill) !
1. Maintaining Oth£r Instruments at
Required Levels of Coverage
2. Exclusionary Language for Other
Instruments.
W. Suspension of Enforcement (§280.112)
1. Statutory Authority
2. Suspension of Enforcement Process
IV. Integration with Other EPA Programs
A. Other Subtitle'l Rdlemakings
B. Leaking Underground Storage Tank
(LUST) Trust Fund and Response Program
V. State Program Approval
A. Background ;
B. Financial Responsibility Objective
(§281.37) ;
VI. Compliance Monitoring and Enforcement
VII. Economic and Regulatory Impacts
A. Regulatory Impact •Analysis
1. Compliance with ^Executive Order 12291
2. Integration of-the'Finaricial
Responsibility and Te'chriical Standards
Regulatory Impact Analyses
3. The Regulated .Community
- 4. Assumptions and Methodology Used in
theRIA • i
5. Annual Real Resource Costs
6. Economic Impact^
7. Benefits !
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Federal Register / Vol. 53, .Not 207 ,/ Wednesday,. OetobeE 26j> .1988 / Ride* aiuir fiegalgtkms 43323
5. Regulatory Flexibility Act
C, Paperwork Reductiem Act
I. Authority
These regulations are issued under the
authority oi Sections 2602; 9081, 9002,
900$ 9GQ4v 9S05, 9800.900!?, and 900Soi
tbe SoKd Waste Disposal Aet,. as
amended. The pimeipar amendments-to
this Act have- been under the Resource
Conservation and Recovery Act of 1976,
the Hazardous and Solid Waste •
Amendments of 1984 (Pub. L,98-616}
and the Superiund Amendments and
Reauthorization Act of 198a{Pub.,L. 99-
499) (42 U.S..C.. 6921,6991,6991(a}t
6991(b), 6991(c), 6991(d), 6991(6), 6994®,
and6991(h»,
II. Background
This section provides the legislative
and regulatory background for the final
rule* describes' the comprehensive
underground storage tank (USTJ
regulatory program, and summarizes
today's, financial responsibility
rulemaking;
A- Legislative and Regulatory
Background of the Rule
The Hazardous- and Solid Waste-
Amendments of 198* (HSWAJ extended
and strengthened the provisions of the
Resource Conservation and Recovery
Act (RCKA}. HSWA created Subtitle t
which provides for the development and
implementation of a regulatory program
for underground storage tanks fUSTs} *•
1 Under section. 9801(1} "underground, storage)
tank" is defined as "any one or combination of
tanks (including underground pipes eomiectee?
thereto) whichis used'tacontain an.accumulation of
regulated substances, and flie vohime of which
(including the volume of tfte underground pipes*
cojmeeted thereto) is IttpeEcehf or more beneath
th& surface of. thaground.. Such term- dees not
include any—
(A) Farm or residential tank ofl.lOO gallons or
less capacity used'for storing motoFfuel: for
noncommercial' purposes,
(B) Tank uasdforstoring-fteat&jgoifi&r
consumptive use omthftgremtsea whete staceA.
(,QjSeplie-tank,,
(D) Pipeline facility (including gather.ing.Hnes),
regulated1 under—
(i) The Natural Gas Pipeline Safety Aefcof t9SB' (49
U.&C; AppVHSTI, et seq.).
(ii) The Hazardous Eiquid1 Pipette: Sa&ty AcCof
1979 (49 U.S.C. App. 2001, etseq:%.
(iii) Which, is an intrastate pipeline faeility
regulated under State laws comparable to the
provisions of law referred tp-itr clause ft)- or fnf ef
this subparagraphi.
(E) SucfaeeimpaundmenC, pit, pond;, or lagoon,
(F) Storm water or waste wateBesileetienssystem.
(G) Flaw-through process tank*
(HJ Liq.uidtrap.or associated gathering lines
directly related to oil on gas production anoS
gathering-operations, OP
{15 Storatge. Sank situated in an andfetgrouud are*
(sueh- as-B: basenient,.ceUaK.miirevH)ridngs.di;rfU.
shaft> or tunnel), if the storage: tank is situated apen:
or above the surface ofcth'e floor.
containing regulated substances^
fnclttding petroleum 2 and other
regulated substances. * (such-
nonpetroleum regulated substances -are
hereinafter referred to as hazardous
substances}. Section 9003(aJ of Subtitle I
requires the EPA Administrator to
promulgate requirements for release
detection, prevention and correction as
necessary to protect human health and
the environment.. These technical
standards were promulgated at 53 FR
37082" (September 23,1988J. '
The Superfund Amendments and
Reauthorization Act of 198&(SARA}
amended sections 9003 (,c) and (d) of
Subtitle I to mandate that the Agency
establish financial responsibility
requirements for UST owners and
operators to assure the costs of
corrective action and third-party
liability caused by sudden and
nonsudden accidental releases from.
USTs. SAKA made other changes to
Subtitle I affecting financial
responsibility.
(1) It established: $1 million per occurrence
and an appropriate annual aggregate as the,
minimum assurance level's for USTs at
facilities engaged in petroleum production,
refining; or marketing, and for USTs which
handle substantial amounts of petroleum-; the
Administrstormay set lower pet-occurrence
limits foE USTs. at othet types, of facilities.
(Z) It authorized the Adminisfcatoii to
suspend enforcement of the financial
responsibility requirements if financial
assurance for a particular class or category of
USTs fs "not generally available" and steps
are being1 taken to' either form: a risk retention
group [RRG5>OF establish a* state fund-
pursuant to § 9Q04(cMl).
(3) It created a $50armffion Leaking UST
Trust Fund to fund certain, corrective action
casts- for petroleum releases (including th& .
costs of cleanup, enforcement aad.cost
recovery I-4 Before the effective date of
today's rule, Trust Fund monies can be used-
whenever the Administrator os state under
cooperative agreement determines that such
action is necessary to protect human health
and the environment and. when there is no>
owner1 or operator capable or willing, to
undertake proper action. Priority must be
The- term 'underground storage-tank' snail rrof
include- any. pipes connected' to-any- tank whren. is
described in subparagrapte (A); through. (I);'* These
terms are further-defined by. regulation, under, the
technical standards published- at (CIT&-TS).
2 Under section 9001(8},. petroleum is.defined as
"petroleum, including, crude, oil or. any, fraction.
thereof," which is liquid at standard condiiions-of
temperature (60 degrees Fahrenheit) and pressure
(14.7 pounds per square inch absolute);.
* Kinder section- £TOlf2)-, "regulated substances"
are defined as "(A):any substance-defined1 trr section
lOHSfof the-eomppeheBSFve Environmental
Response; Comptensa'tiaH^and lability, AeBof T980
(but not including any substance-flegsteted asa.
hazardous! waste, under, Subtitle C^, and; OJi
petroleum^'
•^The Trust. Blind may noi be used, tocompensaie
third parties,
given, to cases posing the greatest threat to.'
human health and the environment. After the
effective date of today's rule, the
circumstances mtdkr which Trust Fund
monies may be? used are more restricted {see
Section IV.B).
On April 17,1987, the Agency
proposed financial responsibility
requirements for USTs containing
petroleum (52 FR 12786}. The Agency
provided a 60-day comment period and
extended it for an additional 30 days. In
addition the Agency published two
Supplemental Notices modifying the
initial proposal (52 FR'48638, December ,
23,1987, and 53 FR 10401, March 31,
1988}. Based on EPA's analysis of the
commenfSj EPAhas revised the rule and
is. today promulgating a final rule, which
is summarized in Section C below,
EPA has also issued an Advanced
Notice of Proposed Rulemaking,
(ANPRM) on- financial responsibility
requirements for USTs containing
hazardous substances (53 FR 3818,
February 9,1988}.
B. The Comprehensive-Federal UST
Regulatory Program
In addition to this financial
responsibility rule- for USTs containing
petroleum, the Agency has promulgated
technical standards for USTs containing
petroleum and hazardous substances (53
FR 37082, September 23,. 1988} and
procedures for approval of state UST
programs (53 FR 37212,, September 23,.
19881. The three rulemakings together
establish a comprehensive program to
regulate USTst as required by Subtitle I
ofRCRA.
The technical standards require UST
owners and operators to meet standards
for tank operation, and design,, release
detection and reporting, corrective
action, and closure. The operation and
design standards require that USTs be
protected from corrosion and equipped
with devices to prevent spills- and
overfills. The release detection and
reporting standards, require owners and;
operators to install leak detection
systems and report actual and suspected
releases.. These requirements pertain to
new USTs. on the effective date of the
rule. Some operational requirements
pertain to USTs currently in use- on the
effective date. USTs currently in use
become subject to the tank operation
and design requirements over a ten-year
phases-in, period and the release
detectiom requirements over a five-year
phase-in period. The .corrective action
standards!, which? apply to all tanks on
the effective date,,reqoke owners;and.
operators to- clean, up releases from UST
systems. In. the. short run. one; effect ef
the technical standards will be to
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43324 Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 11988 f Rules and i Regulations
increase detection of releases; over the
long run, the standards will reduce the
likelihood that new releases will occur.
The financial responsibility rule
requires that UST owners or operators
demonstrate financial responsibility for
the costs of corrective action and
compensation of third parties arising
from release of petroleum from
underground storage tanks. The
financial responsibility requirements
will help ensure that owners and
operators can respond promptly to clean
up releases and to compensate third
parties for any injuries or damages
associated with the releases. Because
the providers of financial assurance
mechanisms may require UST owners
and operators to install leak detection
and corrosion protection systems as a
condition of coverage, the financial
responsibility requirements may
accelerate compliance with the
technical standards.
The state program approval objectives
(S3 FR 37212, September 23,1988) enable
states whose programs are no less
stringent than the federal program and
which provide for adequate enforcement
of compliance to administer the UST
regulatory program. EPA has designed
the approval criteria to provide
flexibility consistent with statutory
requirements to encourage states to
adopt the UST program. EPA believes
that regulation of the large and varied
UST population is best implemented by
state and local agencies, which can
oversee and enforce the UST program
more effectively than EPA.
Finally, the last major component of
the federal UST regulatory program,
establishing financial responsibility
requirements for USTs containing
hazardous substances, will be proposed
in the future.
C, Program Objectives and Summary of
Today's Rule
1. Program Objectives and Major
Changes in the Final Rule
The Agency had three guiding
objectives in considering the comments
received on the proposed rule and in
adopting the changes for the final rule.
First, the financial responsibility
program for petroleum USTs must
require adequate and reliable financial
assurance for the costs of UST releases,
based on the following considerations:
(1) The certainty that funds will be
available;
(2) The sufficiency of funds to cover
the costs of releases; and
(3) The availability of funds for
corrective action and third-party
liability.
Second, while requiring adequate and
reliable financial assurances, the rule
must provide flexibility, where possible,
to increase the feasibility of compliance
by the regulated community. Subtitle I
specifically allows flexibility in
establishing per-occurrence levels of
assurance for USTs at facilities not
engaged in petroleum production,
refining, or marketing, and for aggregate
levels of assurance. The Agency has
carefully considered where to allow
flexibility in the financial responsibility
program while ensuring adequate
protection for covering the costs of
petroleum UST releases.
Finally, to the extent possible, this
rule should promote expansion of
existing assurance mechanisms and
development of new ones to achieve
maximum compliance by UST owners
and operators. The Agency recognizes
the current limited availability of
financial assurance mechanisms and the
difficulty many owners and operators
will have in complying with the
requirements, at least initially. However,
insurance coverage is available now to
some UST owners and operators, and a
number of states have either adopted or
are taking steps to adopt state funds.
The Agency has constructed the final
rule to promote timely compliance by all
owners and operators and to encourage
development of additional assurance
mechanisms.
The major changes in the rule and the
way in which they further these
objectives are summarized below:
• Phased schedule of compliance. The
final rule phases in compliance in four stages
for different categories of UST owners. The
Agency has adopted this approach to allow
adequate time for compliance and to promote
development of financial assurance
mechanisms in the following ways:
—Owners most able to comply, based on
financial strength, must do so 3 months
after the promulgation date.
—Most owners in the next two groups have
or can obtain insurance. The phase-in
allows time for processing insurance
applications (which may take several
months per application). It also provides
time for insurance providers to conform
their policies to the requirements of this
rule, as well as to decide whether to extend
their policies to new segments of the
regulated community. Some owners in
these groups may also be able to rely on
state funds.
—Owners scheduled for compliance 24
months after the date of promulgation of
the rule, e.g., single station owners and
non-marketers, will rely primarily on state
funds and expansion of insurance and
RRGs beyond currently available
programs. The schedule provides time for
these mechanisms to become available.
—Phasing in compliance also provides UST
owners and operators time to invest in .
technical improvements or replacement of
tanks to make them insurable, as well as to
comply with the UST technical standards.
• $500,000per occurrence level of
assurance allowed for non-marketers with
monthly throughput of 10,000 gallons of
gasoline or less. The Agency has determined
that this amount should be sufficient to cover
about 99 percent of'all claims at these
facilities—a key criterion in deciding the
coverage amounts. At the same time, this
lower coverage amount reduces the burden
on individual owners or operators. In
addition, allowing a lower level of assurance
may increase the number of policies insurers
are able to-write and may provide an
incentive to extend jcoverage to non-
marketers, i
• Lower aggregate level of assurance. The
final rule requires a maximum aggregate of $2
million and raises the number of tanks
qualifying for the $1 million aggregate to 100.
These aggregate levels achieve the Agency's
goal'that releases at UST facilities not exceed
the aggregate more than one percent of the
time. At the same time, the lower levels
significantly reduce the burden on owners
and operators. More firms will be able to .use
existing insurance programs (which currently
provide maximum aggregate coverage of $2
million). The lower aggregate will also make
it easier to capitalize RRGs and state funds. >
• Suspension of enforcement. Today's rule
does not contain suspension of enforcement
procedures. The Agbncy has chosen to defer
the promulgation of these procedures. The
Agency hopes to gajn experience with
implementation of the program on which to
base a process that (minimizes the
administrative burden of suspension of
enforcement on owners and operators as well
as on the Agency. ;
2. Summary of Today's Rule
This section briefly summarizes EPA's
financial responsibility rule for
petroleum USTs. ^Section III of this
preamble describes the final rule, some
of the major comments that were made
on the proposed r,ule, and the rationale
for the changes. The Comment/
Response Document ("Summary of
Comments and EPA's Response to
Comments on the: April 17,1987,
Proposed Financial Responsibility Rule
for Petroleum Underground Storage
Tanks") in the dojcket contains a
detailed summary of all comments on
the proposed rule' and the Agency's
response to those! comments.
Today's financial responsibility
requirements are applicable to owners
or operators of "petroleum UST
systems" with the following exceptions:
(1) Federal or state entities that own or
operate USTs containing petroleum; and
(2) owners and operators of USTs
excluded from the technical standards
(Section III.A.6 below). For purposes of
covering.costs of Corrective action and
third-party liability, EPA requires all
owners or operators of petroleum USTs
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Federal Registee / Vol. 53» Not 207 f Wednesday, October 26, 1988 / Rules .and Regulations 43325
at facilities engaged in petroleum.
production) refining, or marketing and)
owners, or-operators ofUSFs- with an
average monthly- throughput of more
than* 10,000 gallons to obtain financial:
assurance of at least $1 million per
occurrence.. Owners or operators of
USTs; at facilities not engaged in
petroleum production, refining,, or
marketing with an average monthly
throughput o£lO>000 gallons or less must
maintain financial assurance of at least
$500,000 pep occurrence. All ownens or
operators- must maintain an annual
aggregate of $1 million or $2 million,
depending on the number o£ USTs
assured-
US? owners ou operators may satisfy
the requirements using: the following
mechanismsc insurance or risk retention
group,coverage, surety bond,,guarantee,
letter of credift.-financial test of self-
insurance,, trust fund, a- state-required
mechanism, or a- state fund or. other
state: assurance. Mechanisms* can be •
used alone. OB in combination to cover
the costs of taking.corrective, action and
compensating third parties as long: as a.
mechanism or combination, oi
mechanisms provides the appr,aixi?iate
amount of assurance.; The only/
combination of mechanisms that is; not-
allowed is: the financial test o£ self-
insurance and: a guarantee where; the
financial statements, of the-owner or
operator and the guarantor are
consolidated.
The final rule does not.contain
procedures for obtaining a suspension of
enforcement o£ the requirements;. The
-Agency willpromulgat-e: suspension, of
enforcement .procedures, at a later date.
The: final rule requires-awmess; or
onecatocs. to; submit dbfiunssntatkna; o£
financial,r.espaHsibiiity to the?
implementing agency after » known: or
suspected.? elease- occurs;, wlien:. a>,
provider^beGomea incapable-.of
providing- assurance; and when?a
pEowider revokes a mechanism; and the
o wrreis or operator is. unable to attain
alternate coverage. Owners: or operators
must alad submit documentation? of
financial responsibility/ if requested by
the implementing ageney.-, to addrfionv
UST owners, or-operatora'ntuist notify the
implemeirtiag agency .of their methods of
demonstrating financial responsibility
upon- instaflaticm- of new tanks- Owners
or operators must maintain records; of
th& financial assur,anee:»iaeehanJsms«
used to satisfy these- reQuireiBejatasHi?-
site. or- at thedij glace? of businessi, -
The Jinat ride ajsoj resjufeesithatDST.
determine whether there are existing
releases. .
Owners and operators must comply7
with, these financial responsibility
requirements over a phased-in
compliance period lasting up to 24
months, from the promulgation date of
this-rule.
The state program approval objective
for financial responsibility of owners
and operators of petroleum UST systems
is. also promulgated today. This
objective outlines the financial'
responsibility requirements that owners
and operators of petroleum UST systems
must meet in order to be "no less-
stringent" than the corresponding
federal technical standard, and to
demonstrate adequate, enforcement of
compliance.
Lk Availability of Mechanisms
The Agency received many comments
suggesting that the mechanisms allowed
to demonstrate compliance, with today's
rule 'are generally unavailable. The
Agency recognizes that, for several
reasons, including cost, company size, or
lack of qualified'providers, some of the
mechanisms proposed in the rule might
have- a limited availability at this time.
Some mechanisms, such as surety bonds
and letters of credit, are likely to be
available and affordable to only a few
owners and operators. However, in
deciding to allow a wide variety of
mechanisms to be used to demonstrate
financial responsibility, the Agency did
not want to preclude the use of any
mechanism- that might be used and that
would provide- an adequate degree of
assurance that funds will be available if
needed; "Fhe guarantee, for example,
was included; because- some U$T owners
and operators have-'b-usmess'
relationships; with firms wha might be
willing and able to provide them
guarantees. Not all- owners and
operators, however; will have^that-
option.
The1 Agency recognizes that insurance
and state financial assurance programs
are- likely to be the most feasible
mechanisms for most owners and
operators to comply with today's rule.
Currently, however, pollution liability
insurance for USTs>is not widely
available-for p number of reasons:.. .
Foremost is the fact that such pollution
liability insurance is now and is: likely to
continue to be offered by a limited
number of- specialized providers. Second
is tire unpredictability of the risks
iiivolvedior unprotected: tanks that have
not teen: subject to, regular leak
detectibm,.In.addttionvit\& unclear to
of claims. This current uncertainty also
affects the amount of reinsurance that is
available. for insurance policies written
for USTs and thereby limits the number
of policies that insurers are able to
issue.
Despite its limited availability,, a
number of UST owners and operators
have been able to find coverage.
Cbmmenters indicated that several
insurers are already covering some
USTs or are planning to offer such
coverage in the future. While a
substantial' number of petroleum
marketers are currently insured, the
Agency recognizes that many smaller
motor fuel marketers and UST' owners
not engaged in motor fuel marketing
have had difficulty in obtaining
coverage.
Implementation of the technical'
standards rule is likely to increase the
availability of insurance over the long
term. As old, unprotected tanks are
removed and/or fitted with release '
detection systems, the number of leaks
that are detected should increase
significantly. As these leaks are
detected and corrected, the
requirements for upgrading or replacing
tanks, combined with regular
monitoring, should significantly reduce
both the occurrence of leaks and their
duration prior to detection. Over the.
long term, implementation o£ the
technical standards should make UST
risks more predictable and,, therefore,
insurers should, he more willing, to
provide coverage;
Owners and operators who cannot
secure traditional insurance coverage
may also .have alternatives.. For some
owners and operators, RRGs will .offer
an alternative. to insurance. One such
RRG has been formed and offers
coverage to petroleum marketers.
Several, other commenters indicated, an
interest in forming RRGs.
State funds may also be av/ailable to
UST owners and' operators. In fact
Congress specifically, recognized the
important role that state funds may play
in providing financial assurance by.
including attempts to form a state fund
as a basis for suspension of enforcement
and by, explicitly allowing such funds to
meet financial responsibility
requirements for state program, approval
under RCRA section 9a04[c]{lJ.
Although not widely available at
present, state funds have already been
established In several states'. The
Agency recognizes that, in most cases,
state funds may only supply a. portion of
the financial asisurance-reqnired. Some
currently available -funds' cover
liability casfsverthef s saver bate,
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43.326 Federal Register,/ Vol. 53. No. 207 /Wednesday, October 26, 1988 /Rules and Regulations
Generally, these funds dp not supply .
coverage in the full amount required in
today's rule. State funds may need to be
used fn combination with other
mechanisms to meet the requirements of
today's rule. Depending on their
structure, state funds can provide an
important means for compliance with
financial responsibility requirements at
the onset of the program and encourage
development of insurance and RRGs
over the longer term.
The Agency realizes that the
mechanisms allowed in today's rule may
be difficult to obtain at present.
However, the phased-in schedule for
compliance with the rule will provide
insurers more time to develop and
expand lines of insurance and states
more time to establish state funds. In
addition, the Agency expects to
promulgate final procedures for
suspension of enforcement in the near
future. Following promulgation of that ,
rule,'those owners and operators unable
to obtain a financial assurance
mechanism by their compliance date
may form classes and apply for a
suspension of enforcement.
III. Section-by-Section Analysis
A. Applicability (§280.90)
The rule promulgated today applies to
owners and operators of all
underground storage tank systems
containing petroleum, with certain
exemptions or deferrals. Commenters
raised several issues concerning the
applicability of this rule.
1. Owners and Operators (§ 280.90(a))
The final rule applies to owners and
operators of all petroleum UST systems
(as defined in § 280.12 of the technical
standards rule). If the owner and
operator are separate persons, only one
person is required to demonstrate
financial responsibility although the
Agency will hold each responsible if the
financial responsibility requirements are
not complied with by either party. While
the Agency's intention with respect to
this issue was explicitly stated in the
preamble to the proposed rule (52 FR
12795, April 17,1987), the rule also
conveyed the Agency's intention by.
using the phrase "owner or operator"
instead of "owner and operator" in all
but the applicability section.
The Agency retains this approach and
expliticly states it in the rule, as well as
in the preamble, to avoid possible
confusion. For this reason, the Agency
has added the following language to
§ 280.90 Applicability:
If the owner and operator of a petroleum
UST system are separate persons, only one
person is required to demonstrate financial
responsibility.
Some coihmenters supported the
Agency's app'roach'to applicability
when the owners .and operators are
separate persons; however, other
commenters believed that EPA should
designate which person should comply
with the rules. Of these commenters,
some supported a rule.that required only
the owners to comply with the
requirements while other commenters
believed only operators should be held
responsible. Some commenters
suggested that the person with
responsibility for a particular activity,
e.g. tank installation, maintenance or
daily operation, should demonstrate
financial responsibility.
The commenters who urged EPA to "
designate only one responsible person
when the owners and operators are
separate persons believed that the
proposal left owners and operators to
"fight it out" to determine who will
demonstrate financial responsibility and
that problems would occur when they
do not agree who should obtain
coverage. The commenters who urged
EPA to hold only operators responsible
pointed out that in many cases owners
will have only minimal or nominal
control over the operation of the tanks
(e.g., passive lessors of property such as
oil jobbers or marketers ordinarily do
not control day-to-day tank operations).
On the other hand, one commenter who
supported holding .only owners
responsible pointed out that, when oil
jobbers and marketers own tanks, they
have usually assumed responsibility for
tank replacement and maintenance.
The Agency has decided not to
designate a single party, either the
owner or operator, as responsible for
compliance with the rules because the
statute requires the UST standards to be
applicable to "all owners and
operators," and a determination of
which person should assume these costs
could only be made on a cases by case
basis. Under the technical requirements,
both persons'-are responsible for
corrective action; however, the liability
of owners and operators to third-party
claimants will vary depending on the
circumstances of each case and on the
applicable state law. Making financial
assurance the responsibility of only the
person engaged in a particular activity
would also be inappropriate because the
liability of an owner or operator is not
limited to. the-results, of particular
activities. In some.cases the person
responsible for one activity may have
allowed a release to occur and therefore
incur liability .to third parties, while in
another case, the person responsible for
a different activity may be liable. Under
theories.of strict'liability and negligence,
even passive lessors:could be liable for
third-party damages in some situations.
Moreover, the person responsible for
maintenance(and installation will vary
depending on the individual
arrangements between-owner and
operator. j
The Agency recognizes that in some
instances owners and operators will
have difficulty agreeing which one of
them will comply with the rules.
Nonetheless, the Agency believes that
owners and operators are -in the best
position to decide between themselves,
as part of their ongoing business
relationships, which one of them should
demonstrate financial responsibility.
Owners and operators may decide that
the person most responsible for
particular activities should obtain
financial assurance, or they may decide
that the person most able to
demonstrate financial responsibility
should do so. EPA believes this
approach will allow for greater
flexibility, yet avoids the considerable
expense.of requiting both parties to
secure financial assurance.
Other commenters expressed concern
about other applicability issues. Some
commenters objected to requiring
current owners a!nd operators to obtain
financial assuraijce when past owners
and operators might be responsible for
contamination. Another commenter
pointed out that tank testers may be
responsible for releases and urged that
they should be subject to financial
responsibility requirements.
Current owneijs and operators are
responsible under the regulation for
obtaining financial assurances for their
tanks even if previous' owners or
operators are responsible for
contamination. In situations where a
current ovyner oil operator is faced with
claims for contamination that occurred
under a previous owner or operator, he
may pursue appropriate legal remedies
against the previous owner or operator.
Similarly, damage to tanks and releases
which result from tank testing activity
are subject to tort claims under
applicable state law.-Moreover, the
statute does riot authorize the imposition
of financial responsibility requirements
on tank testers, only UST owners and
operators.
Finally, one commenter requested that
the Agency clearly define owners and
operators to. exclude corporate parents
or affiliates. Parents and affiliates
generally would hot be subjpct to
today's rule. Parents, forexample, may
serve as guarantors for owners-and
operators, thereby enabling the owner or
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Federal Register / Vok 53, No. W /Wednesday,: October 26. 1988 / Rules ;and JRegtilatiQnis 43327
operator to satisfy financial ;
responsibility requirements, but would
not be directly responsible themselves
for complying with these requirements.
The Agency might, however, hold
parents or affiliates subject to these
requirements in certain situations. For
example, if an owner or operator
attempted to circumvent today's
requirements through the creation of a
sham subsidiary or through other
arrangements, the Agency could in
appropriate circumstances hold a parent
or affiliate responsible for compliance
with these rules. Thus, a definition of
owners and operators which excludes
corporate parents or affiliates in all •:
situations is not appropriate. The
Agency does not expect, however, that
parents or affiliates will generally be
subject to these financial responsibility
requirements.
2. Tanks Taken Out of Operation Before
the Date for Compliance (§ 280.90(b))
The preamble to the proposed rule
stated EPA's intention to make the rule
applicable to tanks taken out of
operation before the effective date of the
rule. The language of the proposed rule,
however, did not state specifically that
it would apply to such tanks.
The Agency received a number of
comments on this provision. One
commenter'questioned the Agency's
authority under Subtitle I to apply
financial responsibility requirements
retroactively to owners of tanks taken
out of operation before Subtitle I was
enacted in 1984.
The statutory definition of "owner" in
RCRA section 9001(3)(A) and (B)
includes owners of tanks taken out of .
operation before enactment of HSWA,
as well as owners of tanks in used on
the date of enactment. RCRA section
9003(a) further authorizes EPA to
promulgate regulations, including
financial responsibility regulations,
applicable to all owners and operators
of USTs.. Therefore, the Agency has
authority to regulate tanks taken out of
operation before the enactment of
Subtitle I and to impose financial
responsibility requirements on owners
and operators of such tanks where
necessary to protect human health or
the environment:
Some commenters, while not
questioning the Agency's statutory
authority, urged the Agency to exempt
tanks taken out of operation before the
effective date of the rule or before
November ,8,1985 (one year after
enactment of HSWA). Gommenters gave
the following reasons for such "an
exemption: • '
••. Jroviders-of financiaLassurahce. are riot
likely to offer assurance for tanks taken out
. of operation unless it can be proven that
there, is no contamination present.,
• Because so many tanks have been taken
out of operation in recent years, it would be
extremely difficult to identify these tanks and
inform former owners and operators of their
obligations.
One cpmmenter recommended ;that if
the requirement for such tanks is
retained, owners and operators of .tanks
that arej>roperly closed should not be
required to^maintain financial .assurance
if they can demonstrate that no .
contamination is present
At the time the Agency proposed to
require owners or operators of tanks
taken out of operation before the
effective date to obtain financial
assurance, it also proposed in the
technical rule to require these tanks to
comply with closure requirements
(§ 280.80). the Agency reasoned that,
because non-operational tanks were
subject to the closure and corrective
action requirements under Subparts F
and H of the technical standards,
requiring financial assurance was
necessary to ensure that closure'was
undertaken properly and quickly.
Since that time, the Agency has
decided to eliminate the requirement
that all USTs taken out of operation
before the effective date for the
technical rule undergo closure. The rule
does provide, however, that
implementing agencies may require
owners or operators to close these tanks
properly if there is a reason to believe
that they may pose a threat to human
health and the environment. The
preamble to the technical standards rule
discusses the reasons for this change.
Based on comments on the proposed
financial responsibility rule and the
revisions to the'technical standards, the
Agency has decided not to require
owners or operators of USTs taken out
of operation before the compliance
dates in this rule to obtain financial
assurance. The Agency recognizes that
for many owners and operators of USTs,
insurance will be the only feasible
financial assurance mechanism
available. The Agency agrees with
commenters, among them insurance
companies, that insurance providers
would be extremely reluctant to assure
tanks taken out of operation because of
the perceived greater uncertainly
associated with them.
Even if providers of assurance would
assure these tanks, it is unlikely that
they would cover leaks which occurred
before the effective date of the policy.
For example, based on standard
• insurance industry practice, owners and
Operators'" applying for coverage must
meet certain pre-conditions 'which ritay
include tank tightness testing'and a
determination that there are no existing
releases. If releases are discovered,'
insurance policies probably would not
cover them, because the insurance
industry's practice is to exclude pre- -
existing releases from coverage. In
addition, as .a condition for coverage of
a tank not in operation, an insurer might
require proper closure in order to ,
minimize the risk of a release of
material which might remain in the tank.
Such an insurance policy would be of
little value of protecting human health
and the environment since it would not
cover pre-existing conditions and would
only cover tanks that have been emptied
of their contents. The Agency believes
that the owners'and operators'
resources would be better spent in
closure and corrective action that in
attempting to procure this type of
insurance. Nevertheless, owners and
operators of tanks taken out of
operation before the effective date
remain responsible for the costs of
releases associated with them.
3. Applicability to^State and Federal
Government Entities (§ 280.90(c))
The final rule, like the proposed rule,
is not applicable to state and federal •
government entities whose debts and
liabilities are the debts and liabilities of
a state or the United States. Several
commenters argued that state and
federal government entities should not
be exempt from the financial
responsibility requirements. Their
reasons included the following:
• Such an exemption conflicts with
Congressional intent to have all tanks
assured.
• The exemption will discourage sound
tank management practices on the part of
state and Federal governments.
• The exemption would provide state-
owned transit agencies with unfair
advantages over private owners.
The Agency does not interpret the
Congressional intent of Subtitle I to
preclude exempting any class of USTs
from otherwise applicable requirements
when the Agency has determined that
such requirements are not necessary to
protect human health or the
environment. See RCRA section 9003(a).
With respect to financial responsibility,
such requirements need not be imposed
where the owners or operators will
consistently be able to cover the costs of
releases in a timely, fashion. The
purpose of these financial responsibility
requirements is to ensure that funds will
be available in a timely manner to cover
the'costs of corrective action and
compensation of ithird parties arising
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43328 'Federal Register / VoL 53., No. 207 /Wednesday, October 20. 1988 / Rules and Regulations
£rom UST releases. While the Agency
recognizes that these requirements may
provide an incentive for sound tank
management practices, this is not their
primary purpose.
No commenters disputed the Agency's
opinion that-Federal and state
governments have the requisite financial
strength and stability to fulfill their
financial assurance obligations. In
addition, exemption from the
requirements will not discourage sound
tank management practices by state and
federal government entities, because
they remain responsible for the cost of
corrective action associated with tlie
releases.
the Agency, concedes that not having
to pay the costs of procuring a financial
assurance mechanism may result in a
slight competitive advantage for state-
owned transit agencies. Such an
advantage is not likely to be'
significantly greater than advantages
already enjoyed by state-owned transit
systems (e.g., through government
subsidies). In addition, the financial
advantage of the state-owned agency is
comparable to the position of any firm
which can rely on a guarantee provided
by a parent or related firm, and merely
reflects the difference between large
and small businesses. If releases occur,
state-owned agencies may rely on state
assistance to pay the costs of damages.
Privately-owned transit agencies-,
however, would have to rely on their
own funds to pay these costs. Thus,
even without today's rule, private transit
agencies have a financial incentive to
purchase insurance coverage not shared
by the state-owned agency.
4. Applicability to Local Government
Entities
While the proposed rule exempted
from the requirements those government
entities whose debts and liabilities are
the debts and liabilities of federal or
state governments, local government
entities were required to provide
financial assurance for USTs that they
own or operate. The final rule remains
applicable to local government entities.
However, under the Agency's schedule
for phased compliance with the rule,
local government entities have 24
months from the promulgation date to
comply. EPA also intends to develop a
financial test in the interim that will
allow local governments that can
demonstrate the requisite financial
strength and stability to cover the costs
associated with UST releases to self-
insure.
Local government entities include
both general purpose local governments
and special purpose local entities,
General purpose local government
entities include municipalities, counties,
townships, towns, villages, parishes and
New England towns. Special purpose
local governments perform a single
function or a limited range of functioins.
Special purpose governments are
generally designated as either public
authorities or special districts such as .
school districts, water and sewer
authorities, transit authorities or power
authorities. All local governments, both
general and special purpose, are subject
to this rule. -
One commenter supported application
of the financial responsibility
requirements to local government
entites. However, many commenters
stated that the proposed exemption for
federal and state governments from
demonstration of financial responsibility
should be extended to local government
entities. The major arguments in favor of
such an exemption focused on three
areas: [1} The permanence and stability
of local governments; (2) the incentives
for local governmens to provide funds m
a timely manner; and £3} the financial
strength and capability to raise funds in
a timelymanner.
First, several commenters maintained
that the permanence and stability that
the Agency attributes to Federal and
state governments also- apply to local
governments; local governments are-
unalterably attached to their particular
location. Moreover, commenters
asserted that cities almost never go
bankrupt, and when they are unable to
meet their financial obligations over the
short-term, their debts are not forgiven
under the bankruptcy laws bat are
extended until they can be satisfied.
Therefore, unlike private firms, local
governments do not-disappear even if
they file bankruptcy. .
Second, commenters stated that local
governments have the same-incentives
as federal and state governments-to
meet their UST .obligations in a timely
manner. Local governments exist to
safeguard public health and welfare,
and local officials have voter
accountability that helps assure an
immediate and effective response to an
UST release. One commenter, an
association of city governments, stated
that cities have consistently
demonstrated an ability to respond to
UST leaks in a timely manner and have
taken prompt action to ensure that leaks
do not recur in the future by either
upgrading or removing failed USTs.
Third, eommefiters claimed that local
governments have the requisite financial
strength, to meet potential UST
obligations in a timely manner. One
commenter representing, city
governments pointed oat that cities are
accustomed to addressing emergencies
such as natural disasters and routinely
establish contingency funds of a size
that could easily cover the costs
associated with most UST leaks.
Another commenter. noted that local
appropriation procedures often; are
structured, so that officials may take
fund originally intended for one purpose
and divert them to a more pressing need
related to USTs.:
Finally, one commenter argued that
for UST releases in excess of fund
reserves, many local government
entities—tike stajtes.—have the ability to
raise funds throagh taxes and debt
issues. The comm-enter stated that the
delays involved with tax and bond
initiatives are unlikely to affect the
timeliness of an UST cleanup because
cities tend to be excellent credit risks
and can often have contracted work
performed in an emergency without
having to provide funds until after the,
emergency is remedied or use their own
personnel to respond.
The Agency believes that there is •
merit in many of ;the points commenters
raised as applied to particular
municipalities. However, for several
reasons, the Agency is unwilling to
exempt all local government entities
from these requirements. There is
substantial variability ia local
governments in terms of size, financial
capacity, and functions. A number of
.commenfers urged that the financial test
should be modified-so that local
government entities could use it. The
corporate financial test is not applicable
to most government entities beqause if
contains a net worth indicator, a"
financial-measure that is either
unavailable to many local governments
or does not measure financial strength
in the same way it does for private
firms. It .requires reporting to the U.S.
Securities and Exchange Commission
(SEC) or to Dun and Bradstreet, which is
also not applicable to government
entities. Accordingly, the Agency is
taking steps to develop a financial test
that will allow local governments
meeting the test criteria to self-insure
like private comp'anies that use the
corporate financial test. .Local
governments which pass this financial
test will not be required to obtain other
financial assurance mechanisms to
comply with the requirements of this
rule. In the interim as discussed in
Section III.B, under the phased schedule
of compliance, thb compliance date for •
local government; entities is 24 months
after promulgation. The Agency
anticipates that the final financial test
for local government entities will be .
promulgated befcfre their scheduled
compliance date.;
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Federal Register / Vol.
Some commenters on the proposed
rule suggested that particular special
purpose local governments such as
public power entities or airports should
be exempt from the financial
responsibility requirments. The Agency
sees no reason to treat particular special
purpose local government entities
differently from ail other local
governments. All local governments
remain subject to the rule and may be
able to meet the local government
financial test under development.
Some ccmmenters suggested a change
to the corporate financial test so that
power authorities meeting the other
criteria in the test could use it.
Specifically, they suggested that the
Agency accept reports to the Rural
Electrification Administration and the
Energy Information Administration, as
an alternative to filing with the SEC or
Dun and Bradstreet. Their comments
indicated thai other than Filing annual
statements with a different Agency, they
could use the Subtitle I corporate
financial test. This change has been
made to the corporate financial test so
that power authorities meeting the
criteria in the test may use. it.
5. Applicability to Indian Tribes
The proposed rule did not address the
applicability of the financial
responsibility requirements to Indian
tribes. Indian tribes are included in the ,
statutory definition of municipalities in
RCRA Section 10Q4{13), Accordingly,
under the phased schedule of
compliance, Indian tribes will be
required to comply with financial
responsibility requirements on the last
compliance date, 24 months after the
promulgation date of the rule, similar to
municipalities. However, in the
proposed financial test for local
government :enliiies, the Agency will
specifically request comments on
whether this test should apply" to Indian
tribes. The Agency intends to finalize
this proposed rule before the compliance
date for local government entities and
Indian tribes.
6. Deferrals and Exclusions [§ 280.90(d}}
Under the proposed rule, EPA would
have deferred from" .the financial
responsibility requirements certain
categories of tanks that the Agency also
was proposing to defer under the
technical requirements. The Agency
• proposed to defer, the regulation of these
categories of USTs because it had
limited information .about these USTs or
was otherwise uncertain about the need
to regulate them. Several coimaetiters
addressed these and other categories of
tanks thai they beBev«d should be
deferred or exempted from the final rule.
The proposed technical requirements
deferred the following categories of
tanks from all of their requirements
(except the requirements for corrective
action and notification and the
prohibition of bare steel UST
installation requirements): (1)
Wastewater treatment, tanks, (2) sumps,
(3) underground bulk storage tanks, (4)
• USTs containing radioactive waste and
other radioactive materials, (5) UST
systems containing electrical equipment,
(6) hydraulic lift tanks, and (7) UST
systems containing used oil.
In the final technical standards rule
(53 FR 37082, September 23,1988), the
•Agency has excluded some of these
categories of USTs from the technical
requirements. Some of the other
categories of USTs that the Agency
proposed to defer from regulation are
now regulated. The.Agency continues to
defer regulating certain categories of
USTs (except from corrective action
requirements and prohibition of bare
steel UST installation).
The financial responsibility rule
tracks the final technical standards rule
with respect to exclusions and deferrals
from the requirements. All USTs
excluded from regulation are excluded
from these financial responsibility
requirements. All USTs that are deferred
from regulation also are not subject to
these financial responsibility
requirements. Because the Agency is
uncertain about the need to regulate
deferred categories of USTs, or has
limited information about them, the
application of financial responsibility
requirements to the deferred-categories
of USTs is inappropriate at this point.
The Agency's decision about.the
regulation of each of the categories of
excluded or deferred tanks is
summarized below. The preamble to the
- final technical standards rule contains a
thorough discussion of the Agency's
rationale for each.decision.
• UST Systems Containing Hazardous
Waste and Regulated Substances. The
Agency has excluded these tank systems .
from regulation under Subtitle L
' • UST Systems Containing Electrical
Equipment and Hydraulic Lifts. Equipment or
machinery using regulated substances for
operational purposes are now excluded from
regulation. . . '
• Wastewater Tfedtmunt USTs. ..
Wastewater treatment tanks regulated under
the Glean Water Act are excluded from
regulation. Wastewater treatment USTs that
are not regulated under the Clean Water Act
are deferred from regulation.
• Tanks Containing Be MinimisQuantities
of Regulated Substances. The Agency is
excluding the following .categories of USTs:
-^USTs with a capacity of less than 110
gallons;
USTs holding a de minimis concentration
of regulated substances; and
— USTs that serve as emergency backup
tanks, hold regulated substances for only a
short period of time, and are expeditiously
emptied after use.
• Sumps. Sumps are not excluded or
deferred as a separate'category; however,
many sumps may be excluded under the de
minimis exclusions, the wastewater
treatment exclusion, and the statutory
exclusion for storm water and wastewater
collection systems. Other sumps may be
deferred under the "field-constructed tank"
deferral.
.« Field-Constructed Tanks. Field-
constructed tanks, which include many tanks
that were classified as underground hulk
storage tanks in the proposal,' are deferred
from regulation.
• UST Systems That Contain Radioactive
Wastes and Other Radioactive Materials.
The Agency is deferring UST systems that
contain radioactive materials from regulation.
• Backup Diesel Tanks at Nuclear
Facilities. These USTs are deferred from
regulation.,
• Airport Hydrant Fueling Systems. These
USTs are deferred from regulation.
* Used OH. Tanks containing used oil,
including crankcase oil, are no longer
deferred. They are now subject to the final
technical rule, and are also subject to the
financial responsibility requirement.
For each of the following categories of
tanks, the Agency received comments
supporting a deferral or exemption of
these requirements from the financial
responsibility requirements (see also the-
preamble to the technical standards rule
for a more thorough discussion):
• Small Capacity Tanks. One commenter
urged "special consideration" for small
capacity users. One commenter suggested
that petroleum USTs contaming-under 5.00O
gallons should be exempt. Another
commenter suggested 4,000 gallons as a
cutoff. As noted above, the Agency has
decided on a de minimis exclusion for tanks
with a capacity of less than 110 gallons.
• Small Business. One commenter
requested a small business cutoff for the final
rules because insurance may be offered only
at unaffordable rates. Other commenters
requested an exemption for small businesses
. not engaged in petroleum markeiing. The
Agency has not exempted small businesses ,
from the final financial responsibility
requirements because the costs of corrective
action and third-party claims Will not be
different for small businesses than for .other
owners and operators. The .specific concerns
of small businesses and busiaesses not
engaged in petroleum marketing are
addressed in establishing a phased •
compliance schedule {Section III.B in the
preamble) and a lower peroccurrence amount
for certain facilities riot engaged in petroleum
production, refining or marketing (Section
II1.D.1J.
• Tanks Containing Heating OIL Based on
experience with releases in New Jersey, one
commenter urged that heating oil for on-site
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43330 Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 /. Rules and' Regulations
consumption should not be excluded From the
requirements. Because heating oil tanks are
excluded from regulation by statute, EPA
cannot require these USTs to obtain
coverage.
• Small Throughput Tanks. One
commenter supported exempting a system
with small throughput volume. According to
this commenter, this exemption is appropriate
because most leaks are associated with
piping. The Agency recognizes that a large
number of releases are associated with
piping; however, the Agency does not believe
an exclusion for these tanks is appropriate.
Releases may still occur from tanks with
small throughput and owners or operators
should obtain coverage for releases that do
occur. However, the Agency has taken these
concerns into account in establishing a lower
pre-occurrence amount of financial assurance
for tanks at certain facilities not engaged in
petroleum production, refining, or marketing.
• Tanks Owned by Small, Rural Telephone
Systems. One commenter urged EPA to
consider exempting small, rural telephone
systems from these requirements for the
following reasons: (I) The unavailability of
pollution insurance, (2) the high net worth
requirement for self-insurance, and (3) the
high per-occurrence and aggregate coverage
levels. Although EPA recognizes owners and
operators of these USTs may have difficulty
obtaining financial assurances, releases from
these USTs may still require corrective action
and cause bodily injury and property damage
to third-party claimants. For these reasons,
EPA has not exempted these categories of
, USTs.
• Aircraft Owners. One commenter
supported an exemption for aircraft owners,
comparing these USTs to motor fuel tanks
with a capacity less than 110 gallons. All
tanks with a capacity of less than 110 gallons
are now exgluded from these requirements.
Thus, many aircraft owners with USTs that
contain a capacity of less than 110 gallons
are excluded under the de minimi's exclusion.
In addition, EPA has deferred regulation of
airport hydrant systems. The Agency is not
aware of any evidence to support an
additional exemption for these categories of
USTs that contain more than 110 gallons.
B. Compliance Dates (§280.91)
Today's rule is effective on January
24,1988. However, UST owners are
required to comply with this regulation
by the date assigned to their appropriate
compliance category in the rule. The
composition of the compliance
categories and the compliance dates for
each of these categories is summarized
in Table 1. As Table 1 shows, EPA has
designated UST ownership as the factor
determining compliance categories. The
rationale for this jdecision is explained
below. i
UST owners in; Category I are
required to comply on the effective date
three months after the rule's
promulgation. UST owners in Category I
include all petroleum marketing firms
that own 1,000 orlmofe USTs and all
other UST-owninJE; entities that report a
tangible net worth of $20 million or more
to the SEC, Dun and Bradstreet, the
Energy Information Administration, or
the Rural Electrification Administration.
USTs owners in Category II are
required to comply by 12 months after
-the rule's promulgation date. UST
owners in Category II include all
petroleum marketing firms owning 100 to
999 USTs. j
USTs owners in Category III are
required to comply by 18 months, after
the rule's promulgation date. UST
owners in Category HI include all
petroleum marketing firms owning 13 to
99 USTs at more than one facility.
TABLE 1.—COMPLIANCE DATES FOR AND COMPOSITION OF COMPLIANCE CATEGORIES
Category and compliance date for this category
Composition of category
Petroleum marketing firms
Nonpetroleum marketing firms
I. 3-months after promulgation date of rule, on
the effective date.
II. M months after promulgation date of nile
III. 18 months after promulgation date of rule
IV. 24 months alter promulgation date of rule .'.,
All petroleum marketing firms owning 1,000 or
'
more USTs.
AH petroleum marketing firms owning 100-999
USTs.
All petroleum firms owning 13-99 USTs at more
than one facility.
All petroleum firms- owning 1-12 USTs or
owning only one facility with fewer than 100
USTs.
All UST-owning non-petroleum marketing firms that report a
tangible net worth of $20 million!or more to the SEC, Dun and
Bradstreet, the Energy Information Administration, or the
Rural Electrification Administration. '
None. • ' •
Do. ',
All UST-owning non-petroleum marketing firms that do not
report a tangible net worth of $20 million or more to the SEC,
Dun .and Bradstreet, the Energy Information Administration, or
the Rural Electrification Administration, including all local gov-
ernment entities. I ''
UST owners in Category IV are
required to comply by 24 months after
the rule's promulgation date. UST
owners in Category IV Include all
petroleum marketing firms owning 1-12
USTs or those owning only one facility
with fewer than 100 USTs. (For example,
a petroleum marketing firm owning 13 .
USTs at one facility would be classified
by EPA in Category IV.) Category IV
also include all UST-owning firms not
engaged in petroleum marketing but
having tangible net worth of less than
$20 million and all local government
entities.
In § 280.92 of the final rule, the
Agency defines petroleum marketing
firms as all firms owning facilities
engaged in petroleum production,
refining, or marketing. These includes all
facilities at which petroleum is produced
and all facilities at which petroleum is
produced and all facilities from which
petroleum is sold or transferred to other
petroleum marketing or to the public.
Petroleum production facilities include
all refineries and all facilities engaged in
producing petroleum products from
purchased materials. Facilities from
which petroleum is sold or transferred to
other petroleum marketers or to the
public include all wholesale petroleum
marketers facilities, such as bulk
terminals and bulk plants, and all Detail
petroleum marketing facilities, such as
automobile service stations, marine
service stations, truck stops,
convenience stores selling gasoline, etc,
The Agency considers all facilities
selling petroleum products to the public
to be retail petroleum marketing
facilities, even if the amount of
petroleum sold is minimal. Facilities that
store petroleum products in underground
storage tanks only to refuel their own
vehicles (e.g.; establishments owning
fleets of vehicles) are not considered
facilities that are engaged in petroleum
marketing. Establishments that store
fuel to refuel vehicles rented to the
public (e.g., rental car facilities) are not
considered facilities engaged in
petroleum marketing as long as the fuel
is not sold to the public at large.
The Agency considers firms owning
both petroleum marketing facilities and
other types of facilities that are not
engaged in petroleum marketing to be
petroleum marketing firms. The
compliance date fqr such firms is based
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Federal Register / Vol. ,§3, Nq. 207 /Wednesday, October 26, 1988 /Rules and Regulations 43331
on the total number of USTs owned at
their petroleum marketing facilities and
at their other facilities.
Many commenters on EPA's proposed
rules suggested that the Agency delay
the effective date of the rule because
pollution liability insurance for USTs
and other financial assurance
mechanisms would not be available to a
large number of UST owners and
operators by fee rule's effective date.
Although EPA has decided not to delay
the effective date ;of this rule, the
Agency is concerned about the
unavailability of financial assurance
mechanisms for a large portion of the
regulated community. On March 31,,
1988, EPA published a supplement to the
proposed rule (53 FR10401} in which the
Agency explained that it was
considering a phase-in of the financial
responsibility regulations to allow
different categories of owners and
operators to come into compliance at
different times after publication of the
• final rules. The principal reason for the
phase-in was to provide sufficient time
for owners and operators to obtain
financial assurance in accordance with
the rules. Additional reasons for the
propo.sed phase-in included:
• The time necessary for providers of
financial assurance mechanisms to conform
them to EPA's requirements;
• The time necessary to provide assistance
and outreach programs for portions of the
regulated community;
• The administrative difficulties of trying
to implement this regulation for such a large
aud|diverse regulated community; and
• | The unavailability of mechanisms to .
largp portions of the regulated community.
The Agency received a large number
of comments in response to this notice.
Although the majority of commenters
generally agreed with the phase-ia
strategy, many suggested an across-the-
• board delay and still others were
concerned about the possible negative
consequences of any type of delay
(Including a phase-in) to the
implementation of the financial
responsibility rules. The Agency agrees
with many commenters who pointed out
that the relative unavailability of
financial responsibility mechanisms
(primarily insurance, the financial test of
self-insurance, or state funds) presents a
problem for some members of the
regulated community and that a phase-
in may help to alleviate this problem.
However, the Agency recognizes that
the problem of the:unavailability of
mechanisms for some members of the
regulated community may not be
> resolved before the compliance date for
the requirements for those owners. The
Agency retains its discretion to use the
suspension of enforcement authority
provided in section 9003(d){5)(D5 to
address the problem of -unavailability in
the future. EPA expects that"
implementation of the rule during the
phase-in period will enable the Agency
to develop appropriate suspension of
enforcement procedures based on this
experience tailored to the numbers and
types of facilities for which assurance
remains unavailable.
Many commenters opposed a phase-in
or any type of delay in the
implemeatation of these rales. Their
arguments included:
« Delaying implementation of financial
responsibility rules witl not increase the
availability of insurance and may even
further delay any response from the
insurance marketplace.
• Delaying the implementation of financial
responsibility rules removes a strong
incentive to replace or upgrade substandard
USTs quickly.
• Delaying implementation of the financial
responsibility rules may delay the .
establishment of state funds.
• Delaying implementation of the financial
responsibility rules will not eliminate the
need for regulated entities to-apply for a
suspension of enforcement.
In deciding that a phase-in is the best
regulatory strategy, the Agency has
attempted to establish compliance dates
which are as early as possible
considering the type of assurance
different types of facilities are likely to
obtain. The use of an approach
involving different compliance dates for
different compliance categories is
designed to achieve the maximum
balance between the need to ensure
financial capability for UST releases
and the necessary time for owners and
operators to obtain assurance
mechanisms. For example, EPA believes
that almost all firms in Category I will
be afaie to comply with these
requirements using the financial test of
self-insurance or a guarantee. Chapter 2
of an EPA-sponsored study, entitled
"Financial Responsibility for
Underground Storage Tank Releases:
Financial Profile of Retail Motor Fuel
Marketing Firms." shows thai all but
one of the firms for whom data were
collected that own 1,000 or more USTs
(assuming that there are 4.1 USTs per
oudet) have over-$20 million in tangible
net worth. Firms in other industry
sectors with at least $20 million in
tangible net worth will be able to pass
the financial test :of self-insurance as
long as they file financial statements
with the SEC, the Energy Information
Administration, or the Rural
Electrification Administration, or they
report their.tangible net worth to Dun
and Bradstreet and Dun and Bradstreet
assigns them a financial strength rating
of 4A or 5A. The Agency sees no reason
why such firms should not be required
to comply with this regulation by the
effective date of the requirements.
Further, almost alhfirms in Category II
either have insurance now or can buy it
from providers already in the
marketplace, on the-condition that they
upgrade-their tanks to meet insurers'
criteria. These firms have 12 months
from.the-promulgation date to apply for
insurance and to upgrade their tanks.
This period also gives insurance
providers time to conform their pollution
liability or environmental impairment
policies to EPA's regulatory
requirements and to raise the necessary
capital or reinsurance to offer the limits
of liability required in today's rules.
The Agency recognizes that the
smaller petroleum marketing firms in
Category III are less likely than firms in
Category II to have have insurance and
therefore-need additional time for
processing of their insurance'
applications and upgrading'their USTs
to meet insurers' requirements. These
firms_have 18 months from the
promulgation date to comply with the
regulations.
The Agency expects that regulated
entities in Category IV {which includes
the smallest petroleum marketing firms,
general industry firms with tangible net
worth under $20 million.'local
government entities, etc.) will have the
most difficulty obtaining financial
assurance. Most of these entities cannot
pass the financial.test -of self-insurance
included in today's rule, and pollution
liability insurance has not generally
been available to them. EPA expects
that the majority'of these regulated
entities will have to rely on state funds
for assurance. Many commenters
responding to the Supplemental Notice
(53 FR 10401) stressed that EPA's
estimate of 18 months for state funds to
form was overly optimistic, Today's rule
would give .those entities relying on a
state fund for financial assurance 24
months from the rule's promulgation
date to come into compliance.
In the absence of a phase-in, the
Agency does not believe that most
entities in the regulated community
would have adequate time to comply
with the-financial responsibility
regulations, because only the self-
insurance mechanism can be
implemented immediately by those firms
able" to use it. Those firms able to use
insurance will probably not be able to
comply by the effective date of the
regulations. Even those firms that
already have UST pollution liability
policies probably do not have policies
that conform to EPA's requirements or
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43332 Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 /Rules and; Regulations
that have sufficient limits of liability.
These policies will have to be changed
or augmented to comply with today's
financial responsibility regulation.
It will be even more difficult for those
firms that may be able to obtain
insurance but have not yet done so to
comply by the effective date of the
regulations. One current insurer of USTs
commented that some type of phase-in
is "imperative" because the
administrative capacity of UST insurers
is not sufficient to accommodate all tank
owners and operators who want to
purchase insurance. In addition, most of
the pollution liability insurance
currently being offered to petroleum
marketers contains preconditions with
respect to the age of the USTs insured
and leak detection methods. Firms with
older USTs or inadequate leak detection
methods will need time to comply with
these insurer requirements. It would be
impossible for all firms not already
meeting these requirements to comply
with them by the effective date of the
regulations. Finally, as pointed out by
many commenters, the development of
state funds can take a considerable
amount of time. Thus, the Agency
concludes that it would be impossible
for most of the regulated community to
comply with today's financial
responsibility requirements within 90
days of the promulgation of the
regulations.
At the same time, the discretionary
authority to suspend enforcement of the
rules is not an adequate substitute for
the phase-in because suspension does
not serve the same purpose as a phase-
in. The Agency believes that human
health and the environment will be
belter protected by establishing
reasonable compliance dates than by
requiring large portions of the regulated
community to devote their immedaite
compliance efforts to petitioning for a
suspension of enforcement. During the
phase-in period, the resources of the
regulated community can be devoted tc
obtaining financial assurance
mechanisms, and the resources of the
states, EPA, and the regulated
community can be devoted to
developing and encouraging the
development of mechanisms such as
state funds and RRGs. Inclusion of a
phase-in will restrict the use of the
suspension of enforcement mechanism
to those situations where compliance
difficulties have to do With things other
than inadequate time to complete
administrative activities and to meet
insurers' preconditions.
The Agency also does not believe that
deferral of the requirements is a/useful
substitute for a phase-in. A phase-in has
two advantages over a deferral. First, a
phase^in is more protective of human
health and the environment than a
deferral in that it requires those who can
obtain financial responsibility
mechanisms to do so. Second, when the
deferral period is ended, there is likely
to be a last-minute rush of activity that
could overwhelm the insurance
industry's administrative capacity and
the. capacity of those businesses
providing tank replacement, upgrading,
and-release-detection services.
Furthermore, the Agency does not
think this relatively short phase-in will
delay the entry of new insurers into the
marketplace. If the rule did not include a
phase-in of compliance dates, any new
insurer would have to (1) develop and
announce a new? program that would
comply with EPA's requirements and (2)
process and accept applications for this
program within 90 days to allow the
regulated community to comply by the-
effective date of the regulations. EPA
believes.it would be extremely difficult
for UST owners and operators to get
pollution liability insurance conforming
to the requirements of this rule from hew
insurers within 90 days of the rule's
effective date. The phase-in establishes
the necessary time for new insurance
programs to develop, publicize their
operations, and process applications.
With the phase-in, a new program
would Have 1 year to carry out these
steps for its first customers and an
additional year to process applications
for other members of the regulated
community. Furthermore, the regulated
community still has a strong incentive to
purchase insurance prior to the required
compliance dates. The phase-in of
compliance with the financial
responsibility requirements does not
relieve the regulated community of
liability for corrective action and third-
party liability. Thus, many in the
regulated community will attempt to
obtain insurance as soon as it becomes
available.
Nor does the Agency believe that the
phase-in will remove incentives for
regulated entities to replace or upgrade
substandard USTs or to initiate leak
detection. If the rule had only one
compliance date, it would be impossible
for the existing tank replacement and
leak detection industries to provide
adequate professional service to the
many firms that may need their services.
The technical standards rule phases in
leak detection and tank upgrading arid
replacement requirements for the same
reason.
Finally, the Agency does not believe
that, the phase-in will delay the
implementation of state funds. None of
the state representatives who
commented on the Supplemental Notice
(53 FR 10401) were of the opinion that
the phase-in would delay the
implementation of state funds. They
explained that states would need time to
pass laws authorizing the establishment
of a fund, to develop regulations
specifying how trie fund would be
implemented, and to'develop revenue
sources and capitalize the fund. In fact,
EPA views the ph, ase-in.as the only way
to allow states adequate time to develop
thoughtful, sound, and adequately- •
funded programs. The Agency believes
it is more protective of human health
and the environment to allow time for
the development Of well-thought-out
programs than to!create a situation that
will result in the development of state
funds that have not been properly
designed.
In the example given in the
Supplemental Notice (53 FR 10401), the
phase-in categories were set up based
on the number of |tanks owned or
operated as an indicator of financial
strength and thus1 the time needed to
comply with the rule. In today's rule, the
phase-in categories are set up based on
UST ownership for petroleum marketing
firms and on net worth for non-
petroleum marketing firms. One
commenter requested that EPA clarify,
both for the purpbse of the phase-in and.
for the rule in general, that "individual
persons controlling separately operated
facilities may * i • * treat themselves
either as a single owner or operator or
as several independent operators."
Although this interpretation reflects
EPA's intention with regard to most
provisions of the final rule being
promulgated today (see Section III.A.l.
above), it is not the basis for the final
rule's phase-in provision. Instead, the
phase-in is basedjon the total number of
USTs owned to make clear at what time
USTs that are owned and operated by
different entities are required to be in
compliance with the final rule. UST
ownership is a better indicator of both'
ability to comply With the financial test
and to obtain insurance. If the Agency
adopted the commenter's suggestion,
many more owners or operators of USTs
at more than one facility could qualify
for a later compliance date. EPA has
designated UST ownership, rather than
UST operation, as the factor determining
the compliance category so that earlier
compliance dates will be required for
most .USTs (since |UST-owning firms
tend to be larger than UST-operating.
firms). i
The majority of< commenters agreed
that the number of tanks is the most.
reasonable basis on which'tp predicate
-------
Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43333
a compliance date phase-in. The reasons
for the choice of the number-of-tanks
criterion included:
« The number of tanks reflects a firm's
financial strength and its ability to get
insurance (and thus to comply with the rule);
• The number of tanks is a partial measure
of the risk of release; arid
• The number of tanks is easy to determine
for compliance purposes and easy to verify
for enforcement purposes.
Other phase-in criteria suggested by
commenters included measures that
were more reflective of risk (e.g., age,
storage capacity, or location of tanks),
financial strength, and type of industry.
One commenter suggested that the basis
for compliance should be .the ability of
owners or operators to self-insure or to
obtain insurance from private or public
sources. In essence, this is the strategy
the Agency has adopted: it involves
separating the regulated community into
two groups, petroleum marketing firms
and other; regulated entities. For
petroleum marketing firms, the number
of tanks owned acts as a reasonable
proxy for the ability of a firm to self-
insure or to obtain insurance. For other
regulated entities, the $20 million in
tangible net worth requirement is a good
proxy for firms that will be able to use
the financial test because almost all
firms with $20-million in tangible net
worth should be able to use the financial
test, irrespective of how many tanks
that they own. (Entities with less than
$20 million in tangible net worth may
not be able to self-insure and insurance
has not been available to such firms up
to now.)
The Agency rejected basing the
phase-in on risk-related measures
because a schedule designed to require
the highest risk USTs to comply first
would not further the Agency's objective
in phasing in compliance with the rules.
The Agency's objective for phasing in
compliance is to give the regulated
community the time it will need to
obtain assurance. For this reason, in
developing the phase-in the Agency
considered only those factors (e.g.,
financial strength) related to the ability
of various segments of the regulated
community to obtain assurance.
The Agency also notes that requiring
high-risk USTs to comply first could
have .a negative impact on the
availability of financial assurance
mechanisms. If high-risk USTs were
required to comply first (as some
commenters suggested), insurers already
in the market. w,quld be reluctant to
insure additional'USTs and new
insurers would be reluctant to enter the
market. Therefore, this would «ct as a
disincentive to a gradual increase .in the
availability of insurance.
In the example described in the March
1988 Federal Register notice, EPA set up
compliance categories and compliance
dates as follows:
Compliance date
6 months after effective date
12 months after effective date....
18 months after effective date....
Number of tanks
owned or operated
1 ,500 or more.
50 to 1,499.
6 to 49.
1 to 5.
For reasons already discussed, EPA
decided to base the phase-in on the
number of USTs owned and to develop
different compliance categories for
petroleum marketing firms and for non-
petroleum marketing firms to reflect the
time necessary for regulated entities to
comply with this regulation. The Agency
decided to give firms in the second
category more time to comply and to
change the number of tanks owned (for
petroleum marketing firms) in each
category so that the categories would
more accurately reflect this objective. In
making these changes, the Agency was
aided by information provided by
commenters with regard'to the
availability of assurance to various
segments of the regulated community.
Petroleum marketing firms owning
1,000 or more USTs (as opposed to 1,500
or more USTs) are in Category I because
the Agency believes.that such firms can
almost always use the financial test of
self-insurance.5 Petroleum marketing
firms owning between 100 to 999 USTs
(as opposed to 50 to 1,499 USTs) are in
Category II because the Agency believes
this UST ownership spread more
accurately represents the UST-owning
firms that have insurance'now or can
obtain it .most easily. Petroleum
marketing firms owning between 13 and
99 USTs at more than one facility (as
opposed to 6 to 49 USTs) are in Category
III because this range more accurately
represents UST-owning firms that are
eligible for insurance but may need
more tune to obtain it than firms in
Category II. In addition, because
insurance has not been available to
petroleum marketing firms owning only
one facility in the past, such facilities
have been moved to Category IV.
Category IV was expanded to include
firms owning.l to 12'USTs or, as noted
above^only one facility with fewer than
100 USTs (as opposed,to 1 to 5 USTs).
This expansion.pf the upper limit of the
category from 5 to 12 USTs allows
5 Information supporting EPA's assumptions with
regard, to the types of financial assurance
mechanisms ''available to petroleum marketing firms
owning differenOnumbers of USTs canbefdundin
the Regutetbiy Impact Analysis for the rute-tbat iis.
available in the docket.
additional time for compliance for the
smallest rural jobbers. These firms may
have older USTs and greater difficulty
obtaining insurance than other
petroleum marketers. All non-petroleum ...
marketing firms which cannot self-
insure, including local-government
entities, have also been included in
Category IV because pollution liability
insurance has not been available to
these entities in the past.
C. Definition of terms (§280.92)
In the preamble to the proposed rule,
the Agency discussed definitions for
several terms used in the rule. With the
exception of "occurrence," the Agency is
adopting the definitions as proposed.
This discussion addresses only those
terms for which the Agency received
comment. - . .
1. Accidental Release and Occurrence
In the April 17,1987, proposal, the
Agency defined "accidental release!' as
"Any sudden or nonsudden release of
petroleum arising from operating an
underground storage tank that results in a
need for corrective action, bodily injury or
property damage neither expected nor
intended by the tank owner or operator
(§280.91).
This definition incorporates both sudden
and nonsudden releases, as required by
RCRA Section 9003(c)(6). In addition, the
Agency proposed tp define "occurrence"
as "an accident, including continuous or
.repeated exposure to conditions, which
results in a release from an underground
storage tank."
Two commenters asserted.that the
proposed definitions of occurrence and
accidental release do not reflect
standard insurance definitions. The
commenters noted that the
comprehensive general liability (CGL)
form issued by. the Insurance Service
Office (ISO) defines "occurrence" as "an
. accident, including continuous or
repeated exposure to substantially the
same generally harmful conditions."
They also noted that the ISO's pollution
liability coverage form does not define
"occurrence" or "release." Instead, the
policy uses the term "pollution
incident." These commenters urged EPA
to remove the definitions of
"occurrence" and "accidental release"
from the rule and the certificate and
endorsement forms, and to replace them
with the term "pollution incident."
Another commenter argued thatthe
definition of "occurrence", should be
changed to reflect the ISO's newest CGI
form. ,
Gpmmentersjwarned thaUf:4he
definitions in:the regulation remain, at
variance with those in use in the ISO's
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43334 Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988- / Rules and Regulations
pollution liability coverage form, courts
will have to review more than one
definition of key policy terms during
litigation. Insurers indicated that EPA's
use of non-standard definitions in
today's rule would reduce the range of
predictability in UST coverage and
expose insurers to an uncertain amount
of liability; Such conditions, they
argued, would seriously impair the
insurance industry's willingness to
provide liability insurance required by
today's rule.
In specifying the language in the
certificate of insurance and
endorsement, the Agency does not
intend to modify contractural
obligations regarding the extent of
coverage under insurance policies used
to satisfy the liability coverage
requirement. In response to the
problems cited by commenters, the
Agency has retained the definition of
"occurrence" but added clarifying
language to the rule. The rule now
allows insurance policies containing
alternate definitions of "occurrence" or
standard terms other than "occurrence,"
such as "pollution incident," to be used
to satisfy the UST liability coverage
requirements. This definition of
occurrence is included in today's rule to
assist in the understanding of the
financial assurance requirements, i.e., to
clarify the scope of coverage required
under the rule. It is not intended to limit
the meaning of "occurrence" in a way
that conflicts with general insurance
industry usage.
The Agency prefers not to require that
policies incorporate a specific definition
of "occurrence" because of the wide
range of definitions currently in use and
because insurance practices may change
over time. However, the Agency has the
authority under RCRA section 9003(d)(l)
to specify acceptable and unacceptable
liability insurance policy terms and the
Agency may need to specify such terms
in the future. In addition, policies
employing unsatisfactory definitions of
"occurrence" or unsatisfactory terms
other than "occurrence" may not
provide liability protection in
accordance with today's rule.
In addition, the Agency has made a
minor change to the definition of
"accidental release" simply to capture
the meaning more precisely. The
modified definition, with the
modification in italics, is as follows:
"Any sudden or nonsudden release of
petroleum arising from operating an
underground storage tank that results in a
need for corrective action and/or
compensation for bodily injury or property
damage neither expected nor intended by the
tank owner or operator,(§ 280.92(a}).
The Agency received two comments
arguing that the definitions of
"occurrence" and "accidental releases"
should include releases that are caused
intentionally (e.g., sabotage, vandalism).
EPA believes that an explicit inclusion
is unnecessary. Since "accidental
release" is defined as a release resulting
in "a need for corrective action and/or
compensation for bodily injury or
property damage, neither expected nor
intended by the tank owner of
operator," the relevant determinants of
coverage are the intentions and
expectations of the insured. Thus,
damage resulting from sabotage or
vandalism is accidental if the insured
party had no intention or expectation of
such damage.
Finally, a commenter also suggested
that vague terms like "intended" or
"expected" in the definition of
accidental release be defined in the rule.
However, as discussed above, EPA
intends to allow insurers flexibility in
writing policy language .by not defining
every policy term explicitly. The Agency
recognizes that such terms are open to
interpretation, but also realizes that
because they are common in insurance
industry usage, defining them in the rule
is not necessary and may limit
availability. Therefore, the Agency
believes that it is appropriate to leave
interpretation of such terms to private
insurance law.
2. Bodily Injury
In-the proposal and in the final rule,
the Agency defines "bodily injury" as
having the meaning given to it by
applicable state law. In addition, the
definition excludes those liabilitias that,
consistent with standard industry
practice, are excluded from coverage in
liability insurance policies for "bodily
injury."
The Agency received several
comments in favor of the proposed
definition and some comments opposed.
Commenters opposed to the definition
maintained that it would create
inconsistent definitions, and thus
varying scopes of coverage, from state
to state. One commenter proposed that
EPA define "bodily injury" as "any
damage to a third party which the tank
owner or operator is legally liable for
causing due to negligence."
The Agency is reluctant to adopt a
standard definition for a number of
reasons. First, the Agency fears that any
attempt to redefine "bodily injury" will
result in a more tightly limited insurance
market. Comments received from the
insurance industry strongly urged EPA
to retain, the approaeh.in.the proposed
rule, and.pcedicted that insurers .might
exit the market if the term is given .a
standard definition.
Second, EPA recognizes that third
parties will generally faring liability
claims pursuant tp state law. Because
the definition of "bodily injury" and the
treatment of bodily injury claims differ
from state to state, the Agency believes
that mandating a nationwide definition
would promote confusion in state courts,
which would be required to review two
definitions of "bodily injury" (i.e., a
definition pursuant to state law and a
standard definitioh) during litigation.
Third, the Agenpy prefers the
definitions of terrrjs used in the liability
insurance requirements to be consistent
with their common meanings within the
insurance industry. Since the definition
of "bodily injury" [often varies from state
to state, mandating a standard definition
would establish definitions of terms
inconsistent with their common
meanings. I
Consequently, EPA has retained the
proposed definition of "bodily injury" in
today's final rule.;
3. Director of the Implementing Agency
This term refers to the person
responsible for implementing the UST
program under Subtitle I of RCRA. For
USTs in authorized states, this person is
the Director of the, state agency; for
USTs in states without approved
programs, this person is the EPA
Regional Administrator.
In today's rule, this term replaces the
term "Regional Administrator," a term
used in the proposed rale, wherever
appropriate. ;
4. Petroleum Marketing Facilities
This definition was not in the
proposed rule. It has been added to the
final rule to assist [in understanding the
phased schedule for compliance and to
define per-occurrehce levels of
assurance for USTs. The definition
closely follows the| statutory language of
RCRA section 9003(d)(5)' (A) and (B).
"Petroleum marketing facilities" are all
facilities at which petroleum is produced
or refined and all facilities from which
petroleum is sold or transferred to other
petroleum marketers or to the public.
5. Petroleum Marketing Firms
These are all finps owning petroleum
marketing facilities. Firms owning other
types of facilities with USTs, as well as
petroleum marketing facilities, are
considered to be petroleum marketing
firms. This definitioh also was not in the
proposed rule. It has been added to the
final rule.to assist in understanding the
phased schedule for compliance.
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Federal Register / Vol. 53, No. 207 /Wednesday, October 26, 1988 /Rules and Regulations 43335
6. Property Damage
In the proposed rule and in the final
rule, the Agency defines property
damage as having the meaning given it
by applicable state laws. In addition, the
term excludes those liabilities which,
consistent with standard industry .
practice, are excluded from coverage in
liability insurance policies.
One commenter agreed with the
Agency's approach, while other
commenters suggested that the
definition be modified to cover an
intentional act (e.g., sabotage). Including
intentional acts in the definition, the
commenters argued, would ensure that
owners or operators will be financially
responsible for all leaks and spills, not
just those that are accidental or
unintentional.
As noted above, the relevant
intentions and expectations of damage
or injury are those of the insured. Thus,
damage resulting from sabotage would
be considered accidental if the insured
party did not intend or expect such
damage.
Consequently, EPA has decided that
including intentional acts in the
definition of "property damage" is
unnecessary.
7, Additional Definitions
One commenter suggested that EPA
use the broad term "financial
assurance" to designate all acceptable
methods of satisfying the financial
responsibility requirements, and
proposed a definition of the term.
EPA uses the term "financial
assurance" to designate all acceptable
methods of satisfying the financial
responsibility requirements, but is not
defining the term in today's rule.
Because the rule clearly delineates all
financial assurance mechanisms by
which owners or operators may satisfy
these requirements, the Agency believes
that defining the term is unnecessary.
D. Amount and Scope of Required
Financial Responsibility (§280.93)
The rule promulgated today requires
that owners or operators of petroleum
USTs that are located at facilities
engaged in petroleum production,
refining, or marketing or that handle
more than 10,000 gallons of petroleum
per month demonstrate evidence of
financial responsibility in the minimum
amount of $1 million per occurrence to
cover corrective action and third-party
compensation costs for accidental
releases from their tanks. The minimum
per-occurrence amount of assurance
required for owners or operators of
USTs that are not located at facilities
engaged in petroleum production,
refining, or marketing and that handle
10,000 gallons or less of petroleum per
month is $500,000. In addition, the
Agency is establishing requirements for
annual aggregate levels of assurance,
based on the number of USTs to be
assured. Today's rule also includes a
paragraph (§ 280.90(e)) that explicitly
states that if the owner and the operator
of a tank are separate persons, only one
person must,demonstrate financial
responsibility. The Agency's reason for
adding this paragraph is discussed in
Section III.A.l, Owners and Operators.
The rationale for determining the
amount and scope of required assurance
is discussed below, as it pertains to the
following topics:
(1) Per-Occurrence Amounts.
(2) Aggregate Amounts.
(3) Apportionment of Costs and Level
of Assurance under Separate
Mechanisms.
1. Per-Occurrence Amount
Section 280.93(a) of today's rule
establishes $1 million per occurrence as
the minimum amount of required
financial assurance for owners or
operators of petroleum USTs located at
facilities engaged in petroleum
production, refining! or marketing and
for owners or operators of petroleum
USTs that handle more than 10,000
gallons of petroleum per month. The
minimum amount of required assurance
for USTs that handle 10,000 or less
gallons of petroleum per month and are
located at facilities that are not engaged
in petroleum production, refining, or
marketing is $500,000. The proposed rule
required that all owners or operators of
petroleum-containing USTs provide
assurance in the minimum amount of $1
million.
EPA received numerous comments on
the subject of the required per-
occurrence amount of assurance.
Arguments for lowering this amount of
assurance included:
• The costs of almost all UST releases are
far lower than $1 million;
• Small businesses cannot afford to obtain
$1 million in per-occurrence coverage;
• The money required to pay insurance
premiums would be better spent on upgrading
tanks;
• Insurance coverage for $1 million per-
occurrence is not available; and
• A lower per-occurrence limit would
encourage insurers and reinsurers to offer
UST pollution liability coverage.
Several commenters pointed out that
EPA had required the same per-
occurrence limit of $1 million for all
USTs even though Subtitle I clearly
allows the Agency to set limits lower
than $1 million for USTs at facilities not
engaged in petroleum production,
refining, or marketing and that are not
used to handle large amounts of
petroleum. Tha reasons given in support
of a lower per-occurrence limit for USTs
at these facilities included many of the
same arguments presented above and
additional reasons specific to facilities
not engaged in petroleum production,
refining, or marketing. Some of these
additional reasons included:
• Low-volume facilities are less likely to
have catastrophic-failure-induced large
releases;
• Low-throughput facilities will have
smaller releases from their underground
pipes; and
• Low-throughout facilities can be
monitored more accurately.
Finally, several commenters argued
that $1 million in per-occurrence
coverage might be too low. They
explained that past claims data
underestimate future claims and that
both corrective action and third-party
liability awards will be more costly in
the future than they have been in the
past because of corrective action
regulations that impose minimum
cleanup standards..
As explained in the proposal, the
minimum $1 million per-occurf ence level
required for owners or operators of
USTs at facilities engaged in petroleum
production, refining, or marketing was
based on the provisions of section
9003(d)(5) (A) and (B) of Subtitle I of
RGRA. These sections state:
(5)(A) The Administrator, in promulgating
financial responsibility regulations under this
section, may establish an amount of coverage
for particular classes or categories of
underground storage tanks containing
petroleum which shall satisfy such
regulations and which shall not be less than
$1,000,000 for each occurrence with a'n
appropriate aggregate requirement.
(B) The Administrator may set amounts
lower than the amounts required by
subparagraph (A] of this paragraph for
underground storage tanks containing
petroleum which are at facilities not engaged
in petroleum production, refining, or
marketing and which are not used to handle
substantial quantities of petroleum.
The Agency's interpretation of these
provisions is confirmed by the
discussion of this amendment to Subtitle
I, section 205 of SARA, in the
Conference Report accompanying
SARA. The Report states that "The
Administrator cannot set a minimum
financial responsibility requirement of
less than $1 million for tanks which are
engaged in petroleum production,
refining or marketing * * *." (House
Report 99-962, 99th Congress, 2nd
Session, p. 264.)
Therefore, absent further instruction
from Congress, EPA's per-occurrence
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43336 -Federal Register / Vol. S3, Efov 207 /-Wednesday, October 26, 1988 / Rales and| Regulations
requirement for USTs at facilities
engaged in petroleum production, .
refining, and marketing must be at least
$1.000,000.
The Agency shares the concern
expressed by commenters that releases
may be more expensive in the future,
and performed an analysis of this issue.
The model developed to aid in this
analysis estimates both the costs and
frequency of UST-related corrective
actions. It takes into account both the
more stringent cleanup standards that
will prevail under the technical
standards being imposed by EPA and
the fact that releases will be detected
sooner, when they are smaller, once the
regulations have been promulgated. This
analysis showed that the .average costs
of UST-related corrective actions will be
lower rather than higher in the future
(see Appendix A of the Regulatory
Impact Analysis for the Financial
Responsibility Requirements for
Underground Storage Tanks Containing
Petroleum and Chapter 7 of the
Regulatory Impact Analysis of the
Technical Standards for Underground
Storage Tanks). Because the number of
UST-related releases and the extent of
the damage associated with these
releases will not increase in the future,
the Agency is confident that corrective
action and third-party liability costs will
also not increase in the years after
promulgation of these requirements.
In the final rule, EPA allows owners
or operators of petroleum underground
storage tanks that are not located at
facilities engaged in petroleum
production, refining, or marketing and
that handle an average of 10,000 gallons
or less of petroleum per month (based
on annual throughput for the previous
calendar year) to provide a minimum of
$500,000 in per-occurrence assurance.
As indicated above, section
9003(d)(5)(B) authorizes the
Administrator of EPA to set per-
occurrence amounts lower than $1
million for petroleum USTs located at
facilities that are not engaged in
petroleum production, refining, or
marketing and that are not used to
handle substantial quantities of
petroleum.
Section 9003(d)(5)(C) of Subtitle I lists
the factors that the Administrator may
consider in setting an amount of
assurance lower than $1 million for
certain classes and categories of USTs:
* The size. type, location, storage; and
handling capacity of underground storage
tanks in the class or category and the volume
of petroleum handled by such tanks;
• The likelihood of release and the
potential extent of damage from any release
from underground storage tanks in the class
or category;
• The economic impact of the limits-on the
owners and operators of each such class or
category, particularly relating to the small
business segment of the petroleum marketing
industry;
• The availability of methods of financial
responsibility in amounts greater than the
amount established by this paragraph; and
• Such other factors as the Administrator
deems pertinent.
When the Agency considered these
factors for the proposed rule, it
concluded that a $1 million per-
occurrence level of assurance for all
USTs was appropriate and would
achieve EPA's goal, which was to set a
per-occurrence level high enough to
cover the costs of 99 percent of UST
release occurrences.
The Agency still believes that this
goal is appropriate. Material submitted
to the docket in response to the
proposed rule has enabled the Agency
to perform a more refined analysis of the
frequency of per-occurrence claims at
various levels. From this analysis, the
Agency concludes that a $500,000 level
of assurance is adequate to assure the
costs of approximately 99 percent of per-
occurrence claims for USTs with
throughputs no greater than the
throughputs characteristic of USTs at
retail motor fuel marketing facilities.
(This analysis is provided in Appendix B
to the Regulatory Impact Analysis.)
Thus, the Agency has revised the final
rule to provide a lower per-occurrence
level for such facilities, and has limited
facilities qualifying for this lower per-
occurrence amount to those with UST
throughputs no greater than retail motor
fuel marketing facilities (i.e., 10,000
gallons per month).
In responding to comments on the
proposal and revising the rule, the
Agency considered each of the criteria
in section 9003(d)(5)(C), both when
evaluating a per-occurrence limit of
$500,000 and when identifying the class
of USTs that would be allowed to use
this lower per-occurrence limit. The
Agency decided to use monthly
throughput as the measure that best
distinguishes USTs used in petroleum
producing, refining, and marketing, for
which Congress mandated a minimum
per-occurrence limit of $1,000,000, from
USTs used in other industries that might
appropriately be assigned a lower per-
occurrence limit. As discussed in the
preamble to the proposed rule, factors
such as age of tank, material of
construction, and the presence of a
secondary containment are not critical
in determining a per-occurrence limit:
Although such factors do affect a tank's
propensity to leak, there is no evidence to
suggest that any of these factors affects the
costs related to a release. The setting of an
appropriate per-occurrence level depends on
the costs of individual releases rather than on
the probability that a release will occur, and
there is therefore no reason why the factors
mentioned above should have a bearing on
the per-occurrence ilevel of coverage required.
For example, a release from a 1-year-old tank
can be just as expensive to address as a
release from a 20-ypar-old tank.
The Agency based its decision to
allow a lower per-occurrence limit for
facilities that are not engaged in
petroleum production, refining, or
marketing and that have a monthly
throughput of 10,000 gallons or less
primarily on the extent of the potential
damage associated with releases from
these tanks. The Agency also carefully
analyzed the extensive UST claims
record submitted by the largest insurer
of service station USTs and found that
this record provided statistically
significant evidence that releases
costing more than $500,000 occur less
than 1 percent of'the time. The Agency
has concluded that coverage of $500,000
will assure that the per-occurrence limit
is exceeded less than 1 percent of the
time. These same data show that a per-
occurrence limit set below the $500,000
level would be exceeded more than 1
percent of the time.
For this reason', the final rule rejects
those suggestions of commenters that
low-throughput USTs be exempted or
that the per-occurrence limit for such
USTs be set below $500,000.
The choice of 10,000 gallons per month
as the definition of "substantial
quantities of petroleum" is also
consistent with Congressional intent as
expressed in the Conference Report
accompanying SARA. It states that the
Administrator cannot:
set a minimum financial responsibility
requirement of less 'than $1 million * * * for
tanks that dispense! very large volumes, for
instance tanks at airports, (p. 264)
The 10,000-gallon-per-month throughput
limit for USTs qualifying for the $500,000
minimum per-occurrence amount is far
lower than, the volume of fuel dispensed
monthly at- typical airports.
EPA has not considered economic
impact to be a primary factor in
determining the appropriate per-
occurrence limits.) The Agency's
regulatory impact: analysis found that
the cost of insurance premiums would
have relatively imrior impacts on most
smaller firms that are not engaged in
retail motor fuel marketing. Further, the
threat to human h|ealth and the
environment posed by releases from
USTs is the same; in terms of severity,
whether the leaking tank is owned by a
small firm or a large firm.
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Federal Register ./ VtoL S3, iNo. 207 / Wednesday, 'October 2.6., 1988 / Rules and iBegutetrans 43337
TheAgeacy.agreeswi.thithTa.se
:commea:ters -who suggested that
facilities .outside the retail motor foel
marketing industry may bave 'difficulty
obtaining financial assuramee
mechanisms. 'The Agency !has found -that
•no insurer 'offering policies to facilities
not engaged in petroleum production,
refining, or marketing meets these
coverage requirements. Lo-wening the
per-occurrence limit may serve to
increase the availability of financial
•assurance mechanisms. A lower per-
ocourrenoe fetit wil malce it -easier for
insurers with .limited .reserves 'to .offer
tbeae policies!, will .ease .the
capitalization of RRGs, and will .allow
states to set up state funds with .less
commitment of funds.
2. Aggregate Amounts
.Section 900a(d]{5l(AJ of Subtitle I
grants fhe Administrator discretion to
set '"an appropriate aggregate
requirement" for financial .responsibility
for petroleum TJSTs. In §-2SQ3Z(b] of fhe
proposed rule issued on Apjil 17, 1987,
owners or operators .of petroleum USTs
were required to demonstrate evidence
of financial responsibility in annual
aggregate amounts that varied from $1
million to $6 million, depending on the
number of USTs assured [see Table '2)
by the mechanism or combination of __
mechanisms. fFor the purposes sf
determining required aggregate levels of
coverage -only, any -reference to tanks
means -only tadivtSual -containment -units
and does -not 'include Hjomtornations -erf
these units. See § 280;93(«?).')
RQRQSED
SCWEBSUUE
Number, of tanks
1-T21artks '.
61-140 itartks . :
141 250 tanks
?51-340 tariks
341 oi* more tariks .
/ftnnual
aggregate
amount
51 ;ooo;ooo
^toooi-ieo
,a!QDQ;ooo
•4(00.0,000
S(DOQ,DSO
B.'OOD.ODO
The Agesacy caaiiisidered this ap^sroopiftaite
becajase the aggraga ies ~xssem set .a t .a
sufficiently high level that CMmaesti-ve
action and third-party liability costs
incurred in any one year from releases
from petroleum USTs would nofbe
exceeded aaaorfi thara sane freneent of USTs inoied tiaat
an aggregate -of $2jOOO,"OQO Jntad -never
been*xaeeded onsany of 'tbeh' policies.
The . Agency .ooatinues to fad ithat ,the
aggoxegate is most ,appjp.o.priately set :'on
the .basis .of the number .of iUSTs 'Coveued
by -a f maoeial .mechanism, .aad that an
aggregate should "generally provide •
adequate lunding .99 p.encen:t ,of the .time.
However, !the Agency agrees with ihase
commenters wiio argiiaed.thatEPA'.s
initial .estimates, both .of the costs -and
probabilities .of releases., wease
. especially for fhose firms that will
actually 'be able to obtain 'insurance. In
addition, the Agency recognizes that
both the .availability .of financial
aaeofeanisms and aconomk: teipacts
should be considered u-n id-eteprarining
classes arid Ba'tegories with «eepHcit to
^gregate'ilimits, .-as aufhroriized ^BiBier
sectrcm'goOSfdJtSKC;). As -a -result off
these •considerations, the Agency 'has
revised its aggregate schedule so that
the maximum aggregate is .$2^)00,000
(the TOaxtmam ag®re,ga±e currently
iavailaMei), fflBdimecisantsms t)jEr»erAng
100 USTs or less may rase .a?m aggregate
of SliDOOiOOO. 'Ta-yie '3 presents the
a-ggregate -schedule included m the final
rule. ,
TABUE 13.— A-
ate Schedale
'Number of -tanks . :
1 ^100 'tanks . I
.Annual
•aggregate
• amount
•$1(000)000
This .resfeed .aggregate -sdhednie assures
that most firms will not-exceed the
aggregate more than 1 percent t# the
time, given the Agency's revised
estimates of the .risk of USTjaleases.
t(.See Appfindix B >of -tfie .Regulatory
Impact Analysis for the Financial
Responsibility RegmraEaents fear
•Lin dergroand .Storage 'Taraks >G®Tftairiing
Petroleam.i) The revised ^aggregate
schedule' also has,:a siumtoer'df important
advantages ov.er*fae proposed stJiedule.
First, 'instir.aHce ^rogcaims ;do not
ourrsntry ipnevide .ooorerage ior
aggregates higher *han :$2 million. Ttos,
under the revised .schedule, a»hi-ch:caps
aggregates ;ait $2 TtiilHon, 'firms will foe
able to use existing iinsurajnce programs.
Also, the 'lc-wer.ed aggregates shoul'd
cencoEixage greater avaiiabi'lii'y off
medhanisjns .other ifaon JrasusanDe and
thus enable amorfi ©wners tor operaitans to
utilize alieriEale mechanisms. For
example, by aredHciing .She iaanoanit >df
capitalizaticm iseqained, *ke r-evfeed
schedule will jmake -it easier to -capitalize
RRGs and :staite imads *bai -foran te
. provide UST pollution liability
insura-nae. fa additioiPi, fk>ms lihait
already .have poliuticsn faMMty
insurance for their !I3ST:s -at Jihe ^1
!Hilldion.-and:$2 imiilioin aggregate leveis
will not ^be required to fed inethads i.of
meeting ithe balance aaf thsir fferamcial
atespojasibiLity lOiWigatioas. Qven that
these aggregate teweds snsape (that most
USTiownecs and ^operators wil not
exceed tfee :aggrega.te smeire than'!'
peroenit of i&e ti'ioe, iBPA befieves tthat
Ae cost iof requiring such 'additional
assurance would-be >unmecfissairy..
Under the Revised .aggregate schedule,
there are two .-categories of firms ithset
may lexceed fh.e sggEegaite jmor.e ithan 1
. percent '.of ihe it-tnae. The iirsit caStegory
kaclndss limns with metre rthan :5QO 'USTs.
(These Ifa-ras ako ccoatld bawieiesoBed-ed
the aggregate mware t'ha;n :1 percent ;of rfa
time iHiaAer ifce pr-ap'ose-d ;a@gi!ega1ie
schedule.) 1'he Agfiacy fcas stcfi extemdad
the ;a®gnegate 'RclKesyie ifsr fems roaMntEfg
more than SDO 4JST« !b®.causE ittese ffirm*
safe .-laige and aiaaadly fcaleak;deSE.aMm!a iprogtiaMis.
iHoTwesvEr, rawxet sfirxas .iwilfc toHtween 40 .
and 100 LJSTs a-ne CBirnan% insuBed ;aaai
meet insurers' leak detection
requirements.. Because ihs -small usiariber
of firms 'Wisth toeiweem 40 and IBS DSTs
that -do not -have .-safficientiealk
detection proagpams
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43338 Federal.Regiater / Vol. 53. No. 207 / Wednesday, October 26. 1988 /Rules and Regulations
has decided not to set a higher aggregate
, for these firms on the basis of their
temporarily higher risks.
The Agency received a number of
comments suggesting that a lower
aggregate level for owners or operators
of upgraded tanks could provide an
incentive for other owners or operators
to upgrade their systems—in essence a
"credit system." EPA agrees with these
suggestions, but because the Agency has
lowered the maximum aggregate level of
required assurance from $6 million to $2
million and has raised the number of
tanks qualifying for the $1 million
aggregate-from 12 to 100, much of the
incentive to upgrade tanks and qualify
for a lower level of required assurance
has effectively been eliminated. Given
that few owners or operators would be
able to upgrade tanks to a level that
would quality for a lower amount of
assurance, EPA believes that the
complexity of developing, implementing,
and administering such a program far
outweighs its potential benefits.
Therefore, the Agency still believes that
it is appropriate to continue to use the
number of tanks owned or operated,
rather than tank characteristics, as the
basis for determining aggregate levels.
During the comment period, a number
of questions were raised regarding the
effective date for increases in an
aggregate level when an owner or
operator acquires or installs additional
tanks. The Agency agrees that it could
prove awkward to change an aggregate
level in midyear and took that factor
into consideration in determining when
financial assurance levels should be
updated. Financial assurance
mechanisms such as insurance policies
and letters of credit are generally
written for one year, and the final rule is
consistent,with this practice. Thus, an
owner or operator who is using a single
mechanism to assure his tanks and who
has increased the number of tanks for
which he is providing financial
assurance is required to update the level
of assurance (i.e., the aggregate level) on
the anniversary date of the financial
assurance mechanism. If this same
owner or bperator is using'a
combination of mechanisms to provide
financial assurance for his tanks, the
level of assurance must be updated by
the first-occurring anniversary of any of
the mechanisms being used (excluding a
financial test or guarantee) (see
§ 260.93(f)).
The question of tank numbers also '
arose in the context of determining the
appropriate aggregate amount when a
firm is acting as a self-insurer,
guarantor, and/or inderhnitor (however,
indemnities are not an allowable
mechanism under the final rule, as
discussed in Section III.G of the
preamble). By aggregate amount, EPA
means the total of all costs potentially
incurred within a given year for all
releases from petroleum USTs for which
evidence of financial responsibility is
being demonstrated by a single
mechanism or a combination of
mechanisms. If an owner or operator
uses different financial assurance
mechanisms to cover different USTs, the
appropriate aggregate amount is based
on the number of tanks covered by each
separate mechanism or combination of
mechanisms. One commenter
recommended that, for the purpose of
determining whether a firm passes the
financial test, the aggregate level of
coverage be "based on the total number
of tanks for which a firm is responsible
by self-insurance, indemnity, or
guaranty." Because this was EPA's
intention at the time of the proposal, the
Agency recognizes that the explanation
in the preamble to the proposed rule
confused some commenters. By stating
that the aggregate amount is based on
the number of tanks for which a single
mechanism or combination of
mechanisms is being used to
demonstrate evidence of financial
responsibility the Agency means:
1. If an owner or operator self-insures his
own tanks and guarantees tanks belonging to
a different owner or operator, the owner must
pass \\iefinancial test based on the total
number of tanks self-insured and guaranteed.
Two different examples follow:
• If an owner is self-insuring 60 tanks and
guaranteeing 60 tanks, the amount of annual
aggregate assurance to be demonstrated to
use the financial test to self-insure and
guarantee these tanks is $2 million. The
guarantee must be issued for an aggregate
amount of $1 million.
• If a guarantor guarantees 60 tanks for
each of three different owners, the amount of
annual aggregate assurance to be
demonstrated to use the financial test to
guarantee these 180 tanks is $2 million. Each
of the three guarantees, however, must be
issued for an aggregate amount of $1 million.
2. If an owner or operator uses a
combination of mechanisms (e'.g./insurance
and surety' bond) to demonstrate evidence, of
financial responsibility, the aggregate
amounts provided by these mechanisms
added together must equal the required .
aggregate amount for the number t)f tanks for
wb.ich these mechanisms are demonstrating
financial responsibility. For example, if an
owner with 200 tanks has insurance with a $1
million aggregate, aggregates of additional
mechanisms for these tanks must equal at
least $1 million, for a total of $2 million in
aggregate coverage.
3. If an owner or operator uses one
financial mechanism to demonstrate evidence
of financial responsibility for one set of tanks
and another mechanism to demonstrate
evidence of financial responsibility for a .
different set of tanks, each mechanism must
have an aggregate amount appropriate to the
separate set of tanks, assured. For example,
an owner has a total of 300 tanks: 140 tanks
in one state and 16(3 tanks in another state.
The 140 tanks are assured at the $2 million
aggregate level by a mandatory participation
state fund that only assures tanks in that
state. The owner must provide additional
financial assurance at the $2 million
aggregate level for 'the other 160 tanks located
elsewhere.
3. Apportionment of Costs and Levels of
Coverage Under Separate Mechanisms
Several commenters questioned the
provision that separate mechanisms (or
• combinations of mechanisms) obtained
for corrective action and third-party
liability must each be at the full amount
of required assurance. The commenters
believed that this; provision would be
prohibitively expensive. "The Agency has
retained this provision in the final rule
despite the added costs of providing
coverage under this approach. As
explained in the preamble to the
proposed rule, the-Agency decided not
to apportion costs between third-party
liability and corrective action because
apportionment limits the amount of
funds that are available for either type
of cost. Thus, mechanisms covering
these costs separately cannot be set at
amounts less than the full amount of
required assuranpe.
Owners or operators may use a
combination of mechanisms to obtain a
total of $1 million per occurrence and v
appropriate aggregates, as long as both
corrective action and third-party
compensation are fully covered. For
example, an owner or, opera tor may
obtain, insurance coverage for the first
$100,000 of corrective action and third-
party liability costs and use an
approved state fund to cover corrective
action and third-party liability costs in
excess of $100,000 up to $1,000,000. In
another example,' an owner or operator
could obtain insurance coverage for the
first $100,000-of corrective action and
$300,000 of liability costs and use an
approved state fund to assure corrective
action costs aboV|6 $100,000 and third-
party liability costs above $300,000, up
to $1 million. ! ,
E, Allowable Mechanisms and
Combinations (§'280.94)
1. Mechanisms Allowed. The
proposed rule allowed a variety of
mechanisms to be used to demonstrate
financial responsibility, including: a
financial test of s^lf-insurance,
guarantee contract, indemnity contract,
insurance, RRG coverage, surety bond
letter of credit, state-required
mechanisms, or a; state fund or other
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federal Hegister '/ Vol. S3, No. W J :^efces$aj, 'October 26, 19B8 / Rides an-d Regtdkfiqns :. 43339
state .assimiption. of EesponsiMlity. fa
eBteEB supported the
, .
range of alksvssaWe saeehartisfffis
proposed by titee iAgemoy.. <&B idas
bielerav, the final rule authorizes *he WSE
of isffiott .of .the proposed iweoharoiBms,
with the •esaception asf tke iimdeniiHi9>y
conitract, and .an addftiiaiaall medseamsm,
•a f uliy-ftmded trust land.
Xhe jpjeamble to ih-e proposed rule
.stated Aat &f. ee mechanisms wece
considered but .not included in .the set oof
allowable mechanisms.: ,tnust lands,
security agreements, and Mrtes .of ccedit.
One commenter explicitly supported the .
Ageracy's raitionafte for exGhidfeg toast
funds and security agreements. "Ife
Agency rejected security agreements
because of three concerns with respect
to .the aaJenpiaoy -of the assurance such
^gEeenaeats would pr-ovide: {Ij) Ifihe-
liquidity (of -the -amUaaisral subject to itihe
agneement; [2] ,tb.e pitocediUEaJ
xe^uiremeiiis io .estafeMisli and maintain
a .seniority .ajgBeement; aad £3j Ae .ability
.of .the implementing agency .to seize :aad
sell. the. collalex-al.
' One commenter urged the Agency .to
allow lines of credit, .statkjg that lines -.of
credit could Tae used for TJSTpurfios.es
as we'll as ior other 'business purposes.
The Agency believes, however, feat Its
'basis for rejecting Tines of credit .[i.e.,
that fhey are conditional on the current
financial standing of the borrower and
therefere do not represent a substitution
of "the iss-uer'-s credit for the borrswer'sj
TOrtfirowes to 'be valid aiid.'fhus, •Shat
lines of credit should not be an
allowable mechanism.
Another Eommentej advocated flre
incluasom '.of trust funds in the set <®ve .edlieir (EiBaiaoiad
assuianoe teechaiiifismfi »vaii-aJ
EP A do.es agree, ihtawKe'vasr., that the
'
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43340 Federal Register / Vol. 53, No. 207 / Wednesday. October 26,1988 / Rules and Regulations
thai such a request could only be made
through a state agency.
Second, the surety bond and
guarantee authorized in today's rule
may be subject to the insurance laws
and regulations of certain states.
Although the "ultra vires" defense is
generally no longer considered tenable,
the Attorney General certification
requirement ensures that any
contractual formalities unique to a
particular state have been addressed in
the contractual agreement and that
questions concerning the validity of the
agreement will not delay the provision
of funding for corrective action. The
Agency recognizes that some states may
require minor changes to the wording of
the instruments to ensure that they are
valid and enforceable under the laws of
the state. The final rule requires
submission of a letter by the Attorney
General of a state verifying the validity
and enforceability of the guarantee and
surety bond before these mechanisms
may be used to demonstrate financial
responsibility.
4. ffew Mechanisms. Many
commenters advocated adding a
mechanism under which the Federal
government provides some form of
financial assurance. The suggested
forms for this mechanism ranged from a
Federal fund to some form of Federal
insurance pool.
Several commenters advocated a
Federal insurance program to offer
liability insurance at a reasonable price.
One commenter supported a program
similar to the Federally-run Flood
Insurance Program under which
premiums are paid by member
corporations. However, another
commenter said this approach would not
work, because insured parties would not
want to subsidize other parties with
USTs installed over vulnerable ground-
water areas.
Several other commenters advocated
various forms of Federal funds. One
suggested approach was to establish a
loan fund from which owners or
operators could borrow at no interest
and repay over a 25-year period.
Another suggestion was to establish a
fund to cover events that cost between
some established amount that reflects
average remedy costs and one million
dollars. Under this approach, the fund
would only be available to owners and
operators who demonstrate responsible
monitoring and leak prevention
practices.
In the SARA amendments to Subtitle
I, Congress has established a $500
million Leaking Underground Storage
Tank (LUST) Trust Fund for addressing
releases from petroleum USTs.
However, after the effective date of .the
technical standards, use of the Trust
Fund is authorized by RCRA section
9003(h) only in the following limited .
circumstances: (1) A responsible owner
or operator capable of taking prompt
and appropriate corrective action
cannot be identified; (2) prompt action is
required to protect human health and
the environment; (3) the cost of the
corrective action exceeds the financial
responsibility requirements established
under this rule and expenditure of
additional funds is necessary; and (4)
the owner or operator has failed or
refused to comply with a corrective
action order. (Uses of the Fund are
discussed in more detail in Section
IV.B.) The Fund may not be used for the
purposes suggested by the commenters.
Nor is EPA authorized under Subtitle I
to develop another fund for any of the
purposes suggested by the commenters.
In addition, one of the Agency's major
goals reflected throughout the entire
UST regulatory program" is to encourage
development of the UST program as a
state-implemented program. EPA
encourages states to consider
developing the type of funds, that
commenters urged should be undertaken
' by the Federal government. Several
different types of state funds or state-
backed insurance programs can serve as
assurance mechanisms to allow owners
and operators to comply with the
financialresponsibility rule. In addition,
state funds may provide valuable
assistance and incentives to the
regulated community to comply with the
new tank'performance standards.
5. Specification of Tanks in Financial
Assurance Instruments. In the proposed
rule, the Agency required that the
financial assurance instruments list by
identification number the specific tanks
that they cover-Many commenters
addressing specific mechanisms argued
that this requirement is unnecessary and
could in fact limit coverage or delay
payment from the assurance mechanism.
They felt that listing tanks individually
could lead to contention as to which
tanks was the source of release.
This final rule requires the listing of
facilities where assured tanks are
located rather than the tanks
themselves. The Agency has concluded
that listing of tanks at a facility where
all tanks are assured under a single
mechanism is unnecessary. A listing by
facility should also provide greater
certainty concerning which tanks at a
given location are covered by the policy.
Moreover, listing tanks by facility also
prevents delays in payment that might
arise if coverage were triggered only
after identification of the particular tank
that had caused the damage.
In today's rule the language of the
assurance instruments is amended to
strike the requirement for tank
identification numbers and add a
statement indicating that the required
aggregate coverage, levels have been
purchased. Each instrument must
identify each facility covered by the
mechanism and the number of tanks at
each facility. If separate mechanisms
are used to cover different USTs at one
location, the tanks bovered by each
mechanism must be identified in the
wording of the mechanism.
F. Financial Test of Self-Insurance
(§280.95) •
1. Proposed Financial'Test
As part of the underground storage
tank requirements proposed on April 17,
1987, EPA included;a financial test that
could be used by owners and operators
to self-insure. UST bwners or operators
able to meet the proposed financial test
criteria would not Be required to obtain
insurance or another'financial assurance
mechanism to demonstrate evidence of
their financial responsibility for
corrective action and third-party claims
arising from UST releases. The financial
test of self-insurance was also proposed
as a means to qualify guarantors and
indemnitors of firms owning or-
operating USTs. ', .
As originally proposed, the Subtitle I
financial test consisted of the following
criteria: :
a. The firm must have a tangible net
worth equal to at least 10 times the
amount of aggregate assurance required
for UST financial assurance. The
' proposed amount of required aggregate
assurance ranged frbm $1 million to $6
million, depending on the number of
tanks the owner or operator, guarantor,
or indemnitor was assuring for EPA or
an authorized state.! If the firm was also
using a financial test to meet the
financial responsibility requirements for
the costs of closured post-closure care,
liability coverage, and/or corrective
action at a Subtitle C facility, or for the
costs of plugging and abandonment at a
Class I Hazardous Waste Injection Well,
the firm was required to have a tangible
net worth equal to a|t least 10 times the
sum of these costs plus the required
aggregated coverage for its USTs.
b. The firm must have a tangible net
worth of at least $10 million.
c. The firm must either file annual
financial statements; with the SEC or
annually report the firm's tangible net
worth to Dun and Bradstreet (D&fl),
which .must have assigned the firm a
financial strength rating of 4A o
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Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43341
d. The firm's year-end financial
statements, if independently audited,
could not include an adverse auditor's
opinion or a disclaimer of opinion.
In addition to these financial test
criteria, the proposed requirements
included procedures for financial test
reporting and certification. Within 90
days after the close of each fiscal year,
the chief financial officer of the firm
owning, operating, guaranteeing, or
indemnifying had to sign a letter
reporting the year-end financial
information supporting the firm's use of
the financial test, If an owner or
operator, guarantor, or indemnitor found
at the end of the fiscal year that he was
no longer eligible to use a financial test,
the owner or operator was required to
obtain an alternate mechanism within
120 days of the end of the fiscal year.
Finally, the proposed rule authorized the
Regional Administrator to disqualify a
firm's use of the financial test if he
found, based on reports of the firm's .
financial condition, that the firm no
longer met the financial test
requirements. The owner or operator
would have 30: days after notification of
such a finding to obtain another
financial assurance mechanism.
The criteria-for the proposed Subtitle I
test reflected several key Agency
objectives. First, the reliance of the test
principally on a net worth measure was
intended to keep the test relatively
simple to administer and monitor, in
view of the large number of firms to be
regulated under Subtitle I requirements.
At the same time, the net worth criteria
were designed to ensure that virtually
all firms able to pass the test would also
be able to meet their UST obligations. In
particular, the requirement that firms
demonstrate a level of net worth 10
times the size of their potential UST
obligations was based on an Agency
analysis of failure rates among firms
.classified on the basis of their ratios of
UST liabilities to net worth. The Agency
found that, for those firms with UST
liabilities equal to 10 percent or less of
their net worth, the associated
probability of bankruptcy was
approximately one percent. Therefore,
to achieve a level of assurance such that
no more than one percent of financial
test users would go bankrupt as a result
of their UST obligations, the Agency
decided to require that financial test
users maintain their net worth at a level
at least 10 times their environmental
obligations.-
By tequiring that other environmental
obligations assured by a financial test.
be aggregated with the required UST
assurance when determining the amount
of net worth to require, the Agency
wished to prevent financial test users
from diluting the degree of assurance
provided by the test. Similarly, the
requirement that there be no auditor's
disclaimer of opinion or adverse opinion
was also intended to increase the
margin of security provided by the test.
A disclaimer of opinion or an adverse
opinion indicates that the auditor has
found material uncertainties regarding
the firm's valuation of its assets, current
litigation or tax liabilities, or changes in
accounting method. Therefore, because
these opinions indicate that the reported
net worth of a firm may be greater than
its actual net worth, there is
considerable doubt as to whether a firm
receiving a disclaimer of opinion or an
adverse opinion has sufficient resources
to meet its UST obligations.
Finally, the requirement that firms
either file their financial statements with
the SEC or report to D&B and obtain a
D&B financial strength rating of 4A or
5A was meant to ensure that the
information used to support a financial
test would be publicly available and
therefore easily verified by EPA or state
regulators. At the same time, by
allowing a D&B rating as an alternative
to filing with the SEC, the Agency
wished to make the test available to the
large number of privately-held UST
owners and operators who would not
otherwise be submitting their financial
statements to the SEC.
2. Comments on the 'Proposed Financial
Test
EPA received comments on its
proposed Subtitle I financial test from a
wide representation of firms and entities
that will be affected by the UST
requirements. These included both
publicly- and privately-held firms,
municipalities, trade associations,
environmental group's, State regulatory
agencies, and firms representing all
aspects of UST ownership: owners of a
single tank or many tanks,, petroleum
refiners and marketers, and firms
engaged in businesses other than
petroleum production, refining, or,
marketing. The majority of comments
focused on (1) the net worth criteria of
the financial test; (2) requirements for
financial test certification and reporting;
and (3) the 'ability of municipalities to
use the test. Comments were also
received on a number of miscellaneous
issues,- such'as -the aggregation of other
environmental costs with the required
level oHJST coverage; the use of a
binding; guarantee to support the
financial test; and the extension of the
aggregate schedule for owners or
operators using a financial test to assure
a large number of USTsi The substance
of the major comments received is
briefly summarized below, followed by
the Agency's rationale for accepting or
rejecting cominenters' recommendations
in the final financial test requirements.
a. Net Wofth Criteria of the Financial
Test. Many commenters objected that
the proposed financial test would not be
available to any but the largest
petroleum distributors .or refiners and
therefore recommended that the net
worth criteria of the test be relaxed to
allow smaller businesses to use the test.
Other commenters argued that a lower
net worth multiple was appropriate in
view of the fact that the proposed per-
occurrence and aggregate amounts of
coverage were much higher than the
average costs of UST releases.
Commenters also questioned why a 10
times net worth multiple, was proposed
for Subtitle I, when a six times, net worth
multiple is required for the 'Subtitle, C
tests for closure and post-closure care
and liability coverage.,';'../..
The Agency agrees that the
availability of the financial test will be
limited to larger firms in, the regulated
community; nevertheless, EPA also.
believes that this restriction is, necessary
to increase the likelihood that a
financial test user will be able to pay for
its potential UST obligations. Because
the incidence of bankruptcy among
firms with less than $10 million in
tangible net worth is approximately two
times as great as the bankruptcy rate
among firms with more than $10 million
in tangible, net worth, .the Agency has
decided to retain,the minimum $10
million tangible net worth requirement
in the final rule.. ...
For similar reasons, the Agep,ey has
also decided to retain.the requirement
that tangible net worth be at least 10
times the required UST aggregate for
any firm using the financial test.
Lowering the net worth multiple would '.
mean that more than one percent of
financial test users would be predicted
to fail without funding their UST
obligations—a risk that the Agency does
not believe should be accepted among
financial test users, particularly since
owners or operators who use any of the
other financial assurance mechanisms
allowable under Subtitle I(insurance,
surety bond, etc.) pose little risk of
incurring unfunded UST obligations.
Other changes iare,--however, being
made in the final UST rule that should
make the 10 times level of net'worth
somewhat less restrictive to''potential
financial test users; First; thef schedule
of required annual 'aggregates has been
modified (see Section III;D), .so that the '
maximum annual aggregate •• to be ' •
assured is $2:million:raUJerthan:$8 • .
million as originally proposed.,Thus,
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43342 federal Register ./ .Vol. 53. No.-2Q7./ rWednesdayy October 26,-1988 / Rules -and Regulation
without changing the net worth
requirement, the corresponding level of
required net worth will nevertheless be.
lower for many firms owning and
operating large numbers of USTs.
Second, the Agency has incorporated
into the final rule (§ 280.95{c)) a second
set of financial test criteria that may be
used instead of the originally proposed
"net worth" test. Owners or operators
may now choose to use the financial test
criteria of the Subtitle C test for liability
coverage, as specified in § 264.-147(f)(l)
or § 265.147(f)(l), to demonstrate their
ability to pay for their UST obligations.
These criteria are included in the final
rule as Alternative II, while the
originally proposed financial test is
retained as Alternative I. As a result of
this addition, firms with a tangible net
worth of $10 million and six times their
UST obligations will be able to use a
financial test under Alternative II, as
long as they also have:
• At least 90 percent of their assets in the
United States, or U.S. assets at least six times
their UST obligations; and
• Net working capital at least six times the
required amount of UST aggregate coverage;
or
• A current Standard and Poor's bond
rating of AAA, AA, A, or BBB, or a current
Moody's bond rating of Aaa, Aa, A, or Ba.
As with Alternative I of the Subtitle I
financial test, if the firm is using a
financial test to assure the costs of
closure, post-closure care, corrective
action, liability coverage, and/or
plugging and abandonment costs at a
Class I Hazardous Waste Injection Well,
then the multiple requirements of
Alternative II must be applied to the
sum of these costs plus the UST-
required annual aggregate. EPA believes
the two tests provide equivalent
assurances of financial strength.
EPA has decided to adopt this .
Alternative II financial test in addition
to Alternative I as a way of increasing
the availability of the financial test
without jeopardizing the level of
assurance provided by the test. As
designed for the Subtitle C liability test,
and now for the UST Alternative II test,
the requirement that either 90 percent of
a firm's assets be in the United States or
that U.S. assets be at least six times its
UST obligation is intended to ensure the
accessibility of these assets, should the
firm require them to meet its UST costs.
The net working capital requirement is
designed to measure the adequacy of a
firm's liquid resources, given the
potential level of its environmental
obligations. Because, however, the level
of net working capital can vary
significantly by industry, the Agency
allows firms to meet the bond rating
requirement as an alternative to the aet
working capital requirement. Thus,
financially healthy firms that typically
maintain relatively low levels of
working capital due to the nature of
their business can nevertheless use the
bond rating alternative to demonstrate
that they have adequate liquid resources
to meet their obligations.
The Agency decided to use the
financial test criteria of the Subtitle C
test for liability coverage for the UST
financial test because they were
specifically designed for assurance of
possible, rather than certain, costs. For
this reason, these criteria are somewhat
less stringent than the standards of the
Subtitle C closure and post-closure test
where future costs that are certain to be
incurred are being assured. Furthermore,
the criteria selected for the Alternative
II test have the advantage of being
easily obtained from public sources
even for .those firms that do not have
audited financial statements or do not
report to the SEC.
b. Requirements for Certification and
Reporting. EPA received two comments
endorsing the Agency's proposal not to
require firms using the financial test to
obtain a special auditor's report
verifying the financial test information
contained in the chief financial officer's
report. Other commenters, however,
objected to the proposed requirements
for financial test certification and
reporting on the grounds that such
requirements were unnecessarily
burdensome and restrictive. Specific
objections to the reporting and
certification requirements are
summarized below, followed by the
Agency's response to each of these
objections.
• The requirement that the chief financial
officer list in his annual letter every tank
being assured by the financial test would be
especially time-consuming for owners and
operators of a large number of tanks.
EPA agrees that the requirement for
individual tank listing in the chief
financial officer's letter may impose an
unnecessary recordkeeping burden on
firms with many USTs or on firms that
frequently change their inventory of
USTs. The Agency has therefore
adopted in the final rule the suggestion
that financial test users list the sites or
facilities where their tanks are located,
rather than each tank. (This same
suggestion has been adopted for all the
financial assurance mechanisms in the
final rule; see Section III.E.5.J If,
however, separate mechanisms or
combinations of mechanisms are used to
assure;differeHt.sets of USTs at a
location, individual tanks, must still be .
identified.
• Other ratings, such as a Moody's.or a -
Standard and Poor's rating, should be
allowed as a substitute for a D&B rating as
part of the financial \esi criteria.
EPA has decided not to allow a bond
rating from Moody's or Standard and
Poor (S&P) as part: of the Alternative I
test, because these ratings cannot be
used in the same dray as D&B ratings or
SEC reports—namely, to verify that a
firm has at least $10 million in net
worth. The Agency has, nevertheless,
incorporated requirements for a
Moody's or S&P bond rating in the
Alternative II test;iUnder § 280.95(c)(l),
a financial test user may either
demonstrate that it has net working
capital at least sixjtimes the required
amount of UST aggregate coverage or
that its most recenj: bond issue has
received an investment grade bond
rating from Moody''s or S&P. As such,
the bond ratings are intended to
increase the availability of the test to
those firms that are financially strong,
. but because of the nature of their
business, do not routinely maintain high
levels of working capital. The bond
ratings are not, however, intended to
provide evidence qf the level of a firm's
net worth. In the Alternative II test, this
purpose is instead accomplished by the
requirement that a firm either report to
the SEC, the Energy Information
Administration, or the Rural
Electrification Administration, in which
case its net worth can be easily verified
in the reports publicly available from
these agencies, or submit a special
auditor's report, corroborating the firm's
declaration that it has at least $10
million in tangible net worth.
• The annual reports filed by utilities with
the Energy Information Administration and
by rural electric cooperatives with the Rural
Electrification Administration are publicly
available. The Agency should allow reporting
to one of these agencies as a substitute for
reporting to the SEC.'
The Agency agrees with these
commenters. Because the annual reports
filed by utilities with the Energy
Information Administration and by rural
electric cooperatives with the Rural
Electrification Administration are
publicly available and equivalent to
annual reports filed with the SEC, the
Agency will allow an annual report to
one of these two agencies to substitute
for reporting to the SEC.
• The 90-day deadline for filing financial
test information after 'the firm's fiscal year
end is inconvenient iri view of other
deadlines for filing with public agencies.
EPA recognizes that filing with the
SEC is.a time-consuming process,
involving the compilation and
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Federal Register /Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43343
verification of large amounts of financial
data. Because the UST financial test
relies oh the same information that is
reported to the SEC, many firms will not
be able to prepare their financial test
submission until they have first
.completed the SEC filing. Furthermore,
the deadline for the annual reports filed
by utilities with the Energy Information
Administration is April 30 (i.e., 119 days
after the end of the calendar year),
whereas there is no strict deadline fo.r
filing with the Rural Electrification
Administration, In view of these
considerations, the Agency has decided
to extend the deadline for completing
the UST financial test by an additional
30 days. This means that the financial
test information is now required to be
completed 120 days after the end of the
firm's reporting year, rather than 90
days, as originally proposed. With this
change, the preparation of the UST
financial test information should not
add significantly to the reporting burden
of firms.
Given this extension of the reporting
deadline, the Agency has also decided
to extend the deadline for obtaining a
new financial assurance mechanism for
those firms that find that they can no
longer use a financial test. The final rule
now requires that firms must obtain
alternative coverage within 150 days of
the end of the year reported in their
annual financial statements if these
statements indicate that they no longer
meet the financial test criteria
(§ 280.95(e]). This 150-day period is
based on the expectation that firms will
need up to 120 days after the close of
their reporting year to compile their
financial information and an additional
30 days to find an alternate mechanism
if this information does not support
renewing their financial test.
« The proposed rule did not clearly define
the authority given to the Regional
Administrator to request further information
from financial test users.
EPA has retained in the final rule the
proposed provision authorizing the
Director of the implementing agency to
require reports of financial condition at
any time from a financial test user and
to disallow use of the financial test if
these reports demonstrate that the
financial test criteria are no longer being
met (§ 280.95(fj). In response to
commenters' concern that such authority
could be used arbitrarily to disqualify
the use of the test by some firms, the
Agency emphasizes that the information
requested by the Director of the
Implementing Agency could be used
only to verify compliance with the
financial test requirements as they are
promulgated under § 280.95 (b) or (c)
and (d). Generally, such information
would include unaudited interim
financial statements (such as 10-Qs
submitted to the SEC) or mid-year
restatements of financial information
(such as 8-Ks submitted to the SEC).
Any information not bearing on the
requirements specified in the financial
test would not be used to disqualify an
owner or operator. The Agency has
modified the wording of this provision to
make its intention clearer in this respect.
« Reporting of financial information to EPA
could result in anti-competitive activity
because EPA is under no obligation to keep
such information confidential. :
EPA does not believe that the
financial test reporting requirements
will in any way violate a financial test
user's interest in keeping information
confidential, because the test relies only
on information that is already reported
to other organizations that make this
information publicly available.
Furthermore, the financial assurance
rules do not require regular reporting of
information to EPA, but instead require
that owners or operators maintain a
record of this information at their place
of business.
In summary, the Agency emphasizes
that the reporting and certification
requirements for the Alternative I
financial test are designed to be
minimally burdensome to firms, while
still ensuring that financial test
information can be verified through
sources other than the owner or
operator. Because firms will be allowed
to meet the test requirements by .
reporting their net worth to Dun &
Bradstreet as an alternative to reporting
to the SEC, the Energy Information.
Administration, or the Rural
Electrification Administration, financial
test users will not necessarily be
required to have audited financial
statements. For owners and operators
who opt for the Alternative II financial
test, however, the reporting and
certification requirements are stricter.
Specifically, Alternative II requires that
the financial statements of an owner or
operator using the financial test be
independently audited. EPA considers
this requirement to be necessary in the
case of Alternative II because of the
type of information called for by the
test—namely, the level of net working
capital and the level of U.S. assets. The
measurement of these, variables can
differ substantially according to the
accounting method used to prepare
financial statements. By requiring that
the financial statements of Alternative II
test users be independently audited,
EPA has, at a minimum, the assurance
that these variables will be measured in
a relatively consistent and conservative
fashion and in accordance with
generally accepted accounting
principles.
Furthermore, in the final rule,
Alternative II requires a special
auditor's report from those firms that do
not file their statements with the SEC,
the Energy Information Administration,
or the Rural Electrification
Administration. The reason for this
requirement is to provide the Agency
with some objective measure of the
validity of the information reported by
those firms whose financial information
may not otherwise be publicly available.
Thus, this requirement1 serves the same
basic purposes as the D&B rating that is
included as part of the Alternative I
financial test.
c. Availability of the Financial Test to
Municipalities. Many commenters on
EPA's proposed financial test
requirements pointed out that the test
was designed for use by private
corporations and not by municipalities
or other governmental entities. In
particular, the reliance of the test on
measures of net worth makes it
inappropriate for use by most
municipalities since net worth is
generally not a meaningful or readily
measurable indicator of a government
entity's ability to meet its obligations.
Only for those special purpose
municipalities, whose operations and
accounting procedures are similar to
those of a privately owned firm, is "net
worth" a meaningful indicator of
financial condition. Commenters also
noted that the proposed financial test
reporting requirements were
inapplicable to those municipalities that
do not file financial statements with the
SEC or report their net worth to D&B.
As discussed in Section III.A.4., the
Agency intends to propose a financial
test for local government entities. Under
this test, qualifying local government
entities would be able to demonstrate
that they are capable of self-insuring the
costs of cleanup and third-party liability
associated with UST releases, and thus
do not need to obtain a separate
financial assurance mechanism.
d. Miscellaneous Issues Concerning
the Proposed Financial Test. In the
preamble to the April 17,1987, proposed
Subtitle I financial test, EPA requested
comments on two requirements under
consideration for inclusion in the final
rule: (1) A requirement that firms issue a
binding written guarantee that they will
pay for the corrective action and third-
party obligations that they were
assuring with a financial test or through
provision of a guarantee or indemnity
contract; and (2) a requirement
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43344 Federal Register /
Wednesday. October 26. £988 / Rales and| Regulations
extending the aggregate schedule
beyond the required maximum for
financial test users.
One commenter objected to the
proposal to incorporate a binding
written guarantee into the financial test
criteria on the grounds that it could
result in lower bond ratings for firms
and increased interest costs on their
debt, which in turn would impair firms'
abilities to demonstrate financial
assurance. Commenters also questioned
whether such a guarantee would
materially improve EPA's'ability to
obtain the required funding for UST
obligations in the event of a firm's
bankruptcy. In view of these comments,
EPA has decided not to incorporate a
requirement for a binding guarantee in
the financial test provisions of the final
rule.
With respect to extending the
aggregate schedule for financial test-
users, some commenters considered that
this provision would be unfair to large,
financially viable firms who seek to
assure their obligations with a financial
test. The Agency's original intention in
making such a suggestion was to limit
the ability of financial test users to
assure thousands of tanks on the
strength of a limited net worth. Because
the required aggregate is capped, it
would be possible for a firm to add to
the number of tanks it was assuring by
means of the financial test without
having to increase its required level of
net worth. The Agency, however, has
decided that extending the aggregate
schedule is not necessary for financial
test users assuring large numbers of
USTs. As indicated above in discussing
the aggregate schedule, those few firms
that assure hundreds or thousands of
USTs are also firms with resources that
are substantial and more than sufficient
to cover their obligations. Moreover.
these same firms are likely to have good
loss prevention programs to limit their
potentially large liability.
Other comments received on the
proposed financial test criteria included
objections to the Agency's proposal to
require, for purposes of the Subtitle I
financial test, that an owner or operator
add to the required UST aggregate any
other environmental costs for which a
financial test is used to demonstrate
financial assurance. Commenters
questioned why a ten times net worth
multiple would be applied to the sum of
these costs under Subtitle I, while under
the provisions of the Subtitle C test, a
six times net worth multiple is required
for coverage of all costs being assured
by a financial test
The Agency believes that this addition
of costs is necessary to ensure that an
UST owner or operator canmeetall of
its environmental obligations, without
jeopardizing the financial health of the
firm. The financial tests used for closure
and post-closure care, liability coverage,
and corrective action all rely on a
measure of. a firm's net worth relative to
the costs being assured. If, therefore,
these costs were not added together in
the UST financial test for purposes of
determining the required amount of net
worth, UST owners or operators would,
in effect, be "double pledging" their
financial resources, thereby reducing the
likelihood that UST obligations could be
met if they were also faced with other
environmental costs.
One commenter recommended that a
firm owning or operating USTs and
using a financial test to assure Subtitle
C obligations should be required to have
a tangible net worth equal to the sum of
10 times the applicable UST aggregate
•plus six times the applicable Subtitle C
costs, rather than a tangible net worth
equal to 10 times the sum of all costs
assured by a financial test, as the
Agency proposed. It was argued that
this procedure for determining the
magnitude of net worth coverage for
multiple environmental obligations was
more consistent with the Subtitle C
financial test requirements, which use a
six times net worth multiple. However,
for reasons discussed in Section III.F.2.a.
above, the Agency continues to believe
that, for the purposes of the Alternative
I financial test, a requirement that net
worth coverage be fully 10 times all
costs being assured by a financial test is
necessary to maintain the level of
protection that the Agency has set as the.
standard for the Subtitle I test. The
Alternative II financial test, by contract,
requires that net worth coverage be at
least six times all environmental costs
being assured by a financial test. This
lower net worth coverage is acceptable
in the context of the Alternative II test
because the test requires firms to meet
other criteria indicative of financial
strength that are not included in the
Alternative I test.
Another set of recommendations
received by EPA urged the Agency to
make the Subtitle I test more consistent
with the Subtitle C financial test. In one
case, a commenter recommended that
the Subtitle I test adopt the same
•procedure for calculating tangible net
worth as is currently used for the
Subtitle C test for closure and post- •
closure care (§ 264.151(f) and (g)). Under
this procedure, any of the costs being
assured by the test that have been •
incorporated in the measure of a firm's
liabilities can be subtracted from the
liability total and added to net worth.
Because generally accepted accounting
principles require that firms accrue as
liabilities those future costs that are
reasonably certain and measurable,
those firms with known future
environmental obligation's are required
to count these obligations as part of
their liabilities. The net worth (or
difference between total assets and total
liabilities) of such firms will be
decreased correspondingly by the
amount of the accrued liability. Thus,
generally accepted accounting
procedures measure net worth as if
known future obligations had already
been paid for or discharged. However,
the purpose of the net worth criteria in a
financial test is to measure the net
worth resources available to a firm
before it incurs ah environmental cost,
and thereby to determine whether the
firm can meet this cost without
jeopardizing its ajbility to meet other
unanticipated obligations. For the
Subtitle C test, EPA therefore believed
that the appropriate procedure for
measuring a firm's available resources
was to compute net worth before
adjusting for those liabilities that the
test is being used to assure. EPA
believes that the same reasoning is
applicable to the Subtitle I test and,
therefore, allows in the final rule any
UST costs that have been accrued as
part of total liabilities to be subtracted
from the sum of total liabilities and
added back to net worth. The Agency
has adopted this procedure for purposes
of both the Alternative I and the
Alternative II UST financial tests.
3. Summary of Changes in the Financial
Test
As discussed in Section 2 above, the
Agency has made, a number of changes
to the Subtitle I financial test, proposed
on April 17,1987, largely in response to
the comments received on the proposal.
These changes are briefly summarized
below. . ' •
a. Alternative Financial Test Option.
In addition to the originally proposed
Subtitle I test, th^Agency is allowing
UST owners and operators who wish to
use a financial test to meet the criteria
of the Subtitle C test for liability
coverage. Under this option, owners or
operators, and/or .guarantors, would be
required to demonstrate the following:
• A tangible net worth of at least $10
million; ;
• A tangible net worth of at least six times
the amount of the applicable UST aggregate;
• U.S. assets at least 90 percent of total
assets, or U.S. assets at least six times the
amount of the appliqable UST-aggregate; and
either:
• Net working capital at least six times the
applicable UST aggregate, or
• A current bond rating for the most recent
bond issue of AAA, IAA, A, or BBB as issued
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Federal Register / VoL 53, No. 207 / Wednesday, October 26, 1988 / Rules and- Regulations 43345
by Standard and Poor's, or Aaa, Aa, A, or
Baa as issued by Moody's.
In addition, firms using this
alternative must have independently-
audited financial statements and cannot
have an auditor's adverse opinion,
disclaimer of opinion, or going concern
qualification. For those firms that do not
file their financial statements with the
SEC, the Energy Information
Administration or the Rural
Electrification Administration, a special
auditor's report, which compares the
financial information reported in the test
submission to. the firm's financial
statements and certifies that there are
no material differences between the
two, is also required.
b. Disallowance of a Financial Test if
a "Going Concern" Qualification, Is
Received on a Firm's Financial
Statements. In the proposal, the Agency
stipulated that, if the financial
statements of a financial test user had
been independently audited, they could
not carry an adverse opinion by an
independent certified public accountant
or a disclaimer of opinion. In the final
rule, the Agency has decided to add a
"going concern" qualification to the
types of auditor's opinions that will
disqualify a firm from using a financial
tes.t. Because a "going concern"
qualification indicates that there is a
question about the ability of a firm to
stay in business, the Agency does not
believe such firms should be allowed to
rely on their own resources to cover
their UST obligations.
c: Reporting to the Energy Information
Administration or the Rural
Electrification Administration. The final
rule allows utilities filing annual reports
with the Energy Information .
Administration and rural electric
cooperatives filing annual reports with
the Rural Electrification Administration
to use the financial test.
d. Listing of Locations of Covered
USTs. The financial test, like all of the
financial assurance mechanisms in the
final rule, does not require identification
of individual tanks at the locations
assured by the financial test unless the
financial test is.only being used to cover
some of the USTs at one location.
e. Extending the Deadline for
Preparing the Financial Test. The final
rule allows firms using a financial test
120 days from the end of their reporting
year to prepare their UST financial test.
In-EPA^s original proposal, the chief
financial officer of the firm had-to, sign
the financial test documentation withia
90 days-of the close of the fiscal year.
The final rule also allows owners or
operators- who can no longer use.,a
financial test ISO days frqm the encf of
the reporting year to obtain alternative
means of financial assurance. In the
event that an owner or operator fails to
obtain alternative assurance, he must
notify the Director of the implementing
agency within 10 days. In the proposed
rule, only 120 days were allowed to •
obtain an alternative mechanism.
f. Procedures for Determining
Tangible Net Worth. In the final rule,
the Agency has adopted the procedure
for calculating a firm's tangible net. .
worth from the Subtitle C financial test
for closure and post-closure care. With
this procedure, firms are allowed to
deduct from their total liabilities any
accruals for costs that are being assured
by the financial test. This deduction can
then be added to the measure of tangible
net worth.
G. Guarantee (§28M6) and Indemnity
Contract
The final rule, unlike the proposed
rule, allows only one form of financial
assurance by which-a firm promises to
pay the specified amounts for corrective
action or third-party liability for another
firm: a guarantee {§ 280.96). Indemnities,
which were included in the proposed
rule, are not authorized in the final rule.
EPA based its decision not to authorize
the indemnity on the following rationale.
Many commenters on the proposed
rule noted that authorization of an
indemnity as an allowable mechanism
to provide financial assurance in this
regulatory context would seem to
endorse practices which, in the past,
required some petroleum product
marketers to indemnify their suppliers.
Although the Agency's proposed
authorization, was not intended to
endorse any other use of indemnities,
the Agency believes that dropping.the
indemnity will prevent any possible
misunderstanding.
Moreover, in order to cover third-
party liability, indemnities duplicate so
closely the structure and operation of a
guarantee contract that, in effect,' no
additional financial assurance option is
added by including indemnities. In fact,
their inclusion may create unnecessary
confusion because, in the petroleum
marketing industry, indemnities have
been used in a very different context.
Commenters on the proposal indicated
that, in the past, petroleum product
marketers have often been required by
their contracts to indemnify their
suppliers, rather than looking to them
for indemnities and guarantees. Finally,
because the same kinds.of firms ate
likely to be guarantors and indemnitors,
indemnities do not provide the regulated
community with an addifionaLgroup.,of
potential 'financial assurance providers.
FSE thesareasons, the Agency
authorizes guarantees in today's rule but
not indemnities.
A guarantee is a promise by one party
(the guarantor} to pay specified debts or
satisfy the specified obligations of
another party [the principal} in the event
the principal fails to satisfy the debts or
obligations. Under the final rule, a
guarantee may be provided by related
firms or by unrelated firms that have a
substantial business relationship with
the owner or. operator. The obligation
between the owner or operator (the
principal), the implementing agency, or
third parties rests on regulatory
requirements and potential tort liability.
If the owner or operator fails to perform
corrective action or satisfy certified
third-party claims, the guarantor agrees
to fund a standby trust from which the
implementing agency will direct the
payment of corrective action costs or
third-party claims.
Guarantors must demonstrate that
they are qualified to provide financial
assurance by satisfying the Alternative I
or Alternative II financial test under
§ 280.95, described in Section III.F. Also,
to ensure that state insurance laws do
not call into question the enforceability
or validity of the mechanism,, the
guarantee can be used only if it is
certified as valid and enforceable by the
Attorney General of the state where the
USTs covered by the mechanism are
located.
Many commenters questioned the
availability of the guarantee,
particularly to small- and medium-size
firms. These commenters were
concerned that .such firms would not
have the required relationship with a
potential guarantor or. that a-potential
provider would be unable to satisfy the
financial test requirements. EPA's
proposed rule included guarantees
among a variety of alternative
mechanisms to provide owners and
operators a number of compliance
options. Although some.segments of the
regulated community will be unable to
use the guarantee because of the rule's
business relationship and financial test
requirements, the Agency continues to
believe these requirements are
necessary to ensure that the guarantee
provides adequate financial assurance.
These provisions, therefore* remain.
unchanged in today's rule.
The proposed rule allowed firms to
provide a guarantee if they were related
-firms that own a controlling .interest in
the owner or operator (parent firms).
firms that own.a controlling interest in a
parent firm of the owner of operator
fgrandpareritfirms), or affiliated firme
that «re controlled by & parent .that Taiso
owns a conteilhng interes
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43346 Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules and: Regulations
or operator. As defined in § 280.92(c),
"controlling interest" means direct
ownership of at least 50 percent of the
voting stock. The proposal also allowed
a firm engaged in a "substantial
business relationship" with the owner or
operator to provide a guarantee as an
act incidental to that business
relationship. These firms were included
to increase the number of potential
financial assurance providers without
sacrificing the validity or enforceability
of the instrument. Section 280.91(j) of the
proposed rule defined a "substantial
business relationship" to mean the
business relationship necessary under
applicable state law to make a
guarantee issued incident to the
relationship valid and enforceable. A
guarantee is considered incident to such
a relationship if it arises from and
depends on existing economic
transactions between the guarantor and
the owner or operator.
These required relationships between
owners or operators and providers of
guarantees were the subject of many
comments. Several commenters praised
the Agency for expanding the number
and kinds of corporate affiliates that are
authorized to provide guarantees of
financial assurance and urged even
further-broadening in recognition of the
variety of corporate structures that exist
within some sectors of the regulated
community such as electric utilities. One
commenter suggested the broader
definition of corporate affiliates used in
Federal securities law, which would
include any firm that, directly or
indirectly, through one or more
intermediaries, controls, or is controlled
by, or is under common control with, the
owner or operator.
EPA's concern is to ensure that
guarantees from corporate affiliates are
valid under appropriate state law and
that sufficient unity of interest exists
between the guarantor and the owner or
operator to provide adequate assurance
of financial responsibility. The. proposed
relationship requirements are those that
seem most likely to result in adequate
assurance. A firm engaged in a
substantial business relationship with
the owner or operator can, however,
provide a guarantee regardless, of its
'position within the corporate structure.
Thus, the Agency will allow affiliates,
such as those enumerated in the
securities definition, that satisfy this
criterion to provide financial assurance
as guarantors.
The proposed rule required providers
to use the contractual language specified
in the rule for the guarantee. Some
commenters expressed concern that the
proposed wording of the guarantee ,
instrument did not sufficiently limit the
providers' liability, particularly in the
event of the bankruptcy of the owner or
operator. The Agency believes that the
required language explicitly limits the
obligation of the provider to the per-
occurrence and aggregate amounts for -
corrective action and third-party
liability as stated on the face of the
instrument and that the wording,
therefore, need not be modified. In
addition, as discussed in Section III.V.2
of this preamble, the Agency is
incorporating certain exclusionary
language into the terms of the guarantee
to more clearly limit the type and
circumstances of third-party liability for
which this mechanism can be used. A
provider may, however, have incurred
obligations outside those of the
guarantee contract, under state law or
other coiitractual agreements with the
Owner or operator. Such legal
obligations will not be changed by the
limitations in the guarantee.
H. Insurance and Risk Retention Group
Coverage (§ 280.97) '
1. Availability
Today's rule allows UST owners and
operators to demonstrate financial
responsibility through the purchase of
insurance. The Agency believes that for
many owners and operators, insurance
will be the private mechanism of choice
because it will be less costly and more
available to most owners and operators
than the other commercial mechanisms.
Many commenters expressed concern,
however, that insurance would not be
readily available, and many felt that
coverage, if available, would not be
offered at the levels required by EPA
and that it would not be available to
particular groups of owners and
operators.
The Agency recognizes that the
liability insurance market, particularly
the market for pollution liability
coverage, has become restricted in
recent years. As many commenters
pointed out, a number of factors.have
contributed to the current limited
availability of liability insurance.
The Agency also believes that despite
the tight market, some insurance is
available for USTs and more may
become available in the near future.
Evidence from the commenters suggests
that UST coverage is currently available
from a small number' of specialty
insurers, although some policies do not
provide the level and scope of coverage
required in the rule. One major provider
of UST coverage insures over 80,000
tanks at ,25,000 locations. A major
insurance broker has obtained coverage
for over 1,500 petroleum marketers with
more than 90,000:tanks at over 26,000
locations. Effective July 1,1987, the
company that wrJDte policies for this
broker stopped writing new policies or
renewing existing policies. However, the
broker is continuing to offer coverage
through a RRG which has recently
become licensed and which is currently
offering policies. In addition to the
petroleum marketers currently" covered
through existing policies, the RRG
intends to extend coverage eventually to
many of the 78,000 open dealers who
currently find it difficult to obtain
insurance. :
Although UST insurance is most
readily available !to petroleum
wholesalers and ^distributors, some non-
marketers (e.g., auto dealers) have also
been able to purchase coverage. Many
insurance companies that do not
specialize in pollution insurance
nevertheless offer UST coverage to their
policyholders who purchase other lines
of commercial liability coverage. A
major supplier of insurance to petroleum
marketers also issues policies to non-
marketers purchasing other liability
lines. Three other major insurers also
reported that they provide UST coverage
to some non-marketers.
The market for UST coverage has.
improved somewhat since the financial
responsibility regulations were proposed
on April 17,1987. Two new UST insurers
have entered the market (one of whom
offers coverage to non-marketers) and
an existing insurer, Who had provided
coverage in only a few states, has
expanded to offer coverage in all fifty
states. This insurer also offers coverage
to single station owners. TWO insurers
already offering other pollution liability
lines have indicated that they are
considering offering UST coverage as
well. ,
The Agency is aware that the
availability of coverage at the per-
occurrence limits required in the statute
and today's rule is limited. Recently, one
major insurer lowered its per-occurrence
limits from $1 million to $500,000. Its
aggregate coverage levels remain at .$2
million, enough aggregate coverage for
owners and operators with any number
of tanks to meet the aggregate
requirement in the rule. The RRG
discussed above has begun offering
policies with $750,000 per-occurrence
limits and plans to offer $1 million limits
when it becomes sufficiently capitalized.
In addition, a number of insurers not
specializing in pollution liability
coverage continue to offer, coverage with
$1 million per-occurrence limits. While
some of these insurers offer aggregate
limits of only $1 million, in most cases
these insurers provide coverage to
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product liability.poBey might be
extended to provide indemnification for
tank owners or operators! However,
such a mechanism would present a
number of.difficulties in meeting, the
financial responsibility requirements.
Among the difficulties would be setting
a level of product liability insurance that
would ensure indemnification of each
tank purchaser at a level of $1 million. In
addition, it is likely'that the scope of
product liability insurance coverage
would be unaeceptably low (e.g., it
would only cover releases caused by
tank defects). Also, administrative
difficulties connected with securing
payment through a manufacturer's
policy might delay cleanup. For
example, a claim might have to be made
by first contacting the manufacturer who
would then contact the insurer.
Therefore, the Agency declines to . ,
authorize such a mechanism as a means
of compliance with the regulations. The
Agency recognizes, however,, that tank
manufacturers may act as guarantors for
tank owners or operators provided that,
they comply with the applicable
requirements of § 280.96.
owners pr operators with fewer tanks
for whom feraillioiti would be adequate
to meet the Agency's requirement In
some 'cases, owners' and'operators may
have to combine policies and- other
mechanisms to obtain the required
coverage.
While the current insurance supply is
inadequate to cover all members of the
regulated community, the Agency hopes
that the supply will expand in the
months between the promulgation, of the
regulations and the compliance dates for
the majority of unassured USTs. As
noted above, a slight expansion has
already occurred. The requirement to
demonstrate financial responsibility
should significantly increase the
demand by owners arid operators for
UST insurance. At the same time,
promulgation of UST technical
standards should increase the ability of
the insurance Industry to predict its risk
iii offering UST coverage. These two
factors may increase the certainty of the
profitability of insuring USTs andshouM
encour'age new entrants into the
marketplace.
The Agency further believes feat 12 to
18 months is a reasonable time in which
to expect the insurance industry to
respond to the increased demand for
coverage and for alternatives to
conventional insurance,, like RRGs or
state funds, to develop. Estimates of the
time frames for establishing new
insurance programs and RRGs range
from 12 to 36 months. Commentera on
the Supplemental Notice generally
agreed with the estimates, with Only one
commenter suggesting that it might take
as long as 5 years for a RRG to form.
Nevertheless, the Agency recognizes
that some owners and operators may
have difficulty obtaining insurance after
the date set for compliance with the
rule. In particular, individual service
station dealers who are not part of an
industry association may face such
difficulties because UST policies are
often sold through such associations,
making it difficult for unaffiliated
owners or operators to obtain insurance
on their own. Individual service station
dealers and other UST owners and
operators not currently members of
larger groups or trade associations may.
have to form or join a group to facilitate
purchase of UST.coverage or the
formation of a RRG. Alternatively they
may be able to rely on a state fund.
2. Insurance Cost and Its Impact
Many commenters felt that the cost of
insurance for USTs would be
prohibitively high and suggested that in
considering the impact of the rale, the
Agency haft underestimated the-cost of
UST pollution, liabili^r policy premiums;
Other commenters addressed issues
coricerriing the high cost of insurance in
general, arid felt that particular groups of
owners and operators, especially small
businesses and local governments,
would be adversely affected by the
regulations.
The Agency believes that its
projection of average premium costs of
$2,000 to $4,000 per facility is accurate.
The estimate was developed based on
current and projected premiums using
data supplied by insurers. .The
information received in the comments
supports this estimate. The proposed
RRG noted above reported that its
average premium for $1 million
peroccurrence coverage is expected to
be $2,000 per site. Other current
providers reported premiums of $500 to
$2,000 for coverage of one to twelve
tanks. The largest average premiums
were reported by the National
Association of Convenience Stores'
(NAGS) and the1 Society of Independent
Gasoline Marketers of America
(SIGMA). These trade associations
reported average premiums of $13,600
and $32,000 per member respectively.
NAGS and SIGMA members tend to
own several locations, however, and
there is likely to be more than one tank
at each location. Forty percent of NAGS
members own more than 10 stores,
while 47 percent of SIGMA members
own 11 to 50 outlets and 39 percent own
51 or more. Given the large numbers of
sites covered, the high NAGS and
SIGMA average premiums are also in
line with the Agency's, original estimate.
Reported claims data suggest that
UST claims have been predictable and
not extremely costly. Most claims have
been under.$100,000. In addition,
insurers can expect the risks of UST
coverage to become more predictable in
the future.'While the cost of insurance
for USTs could be relatively high
initially, particularly when the
regulations first go into effect, the
increased predictability and decreased
risk that the technical regulations are
likely to promote should help to limit
costs.
The Agency recognizes that the cost
of liability insurance in general may
pose a hardship upon some members of
the regulated community. However, .
average premiums of about $2,000 are
small compared to the costs of
corrective action whielu if incurred,
would certainly pose a much greater
economic hardship.
The Agency received severaF
comments with specific suggestions for
alternative requirements that might
reduce the cost of obtaining insurance
coverage for USTs; One eonimenter"
: ssiggested'thaf a-tiank maaafactBrer's:
3. Viability of Risk Retention Groups
Commenters raised a number of
issues concerning the viability of risk
retention groups (RRGs) as an
alternative to traditional insurance
coverage. Among the issues were:
Difficulty of organization, cost of
capitalization, instability of RRGs, and
conflicts between current state- laws and
regulations and the Liability Risk
Retention Act of 1986 (RRA), 15U.S.C.
39Gletseq.
The Agency recognizes that forming
an RRG requires considerable effort.
Evidence from the comments suggests
that it would take at least one year to
establish a group. However, such groups
are currently being organized to offer
environmental impairment liability
insurance. One of these RRGs is now
offering coverage to a number of UST
owners and operators, including owners
of single outlets for retail motor fuel
marketing.
A number of commenters were
concerned that costs of capitalization
could be high for RRGs. The Agency
recognizes that capitalization costs
could be a significant barrier to RRG
development. At present, however,, there
is little evidence available to indicate
what .typical capitalization costs per.
owner or operator are likely to be. The
recently formed RRG mentioned above
requires a capital contribution of $2,000
or an amount equivalent to the a^ruial
premium, whichever is leas. Premiums
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43348 Federal Register / Vol.53, No. 207 / Wednesday October 26, 1988 / Rules arid Regulations
are currently around $1,600 per site and
are expected to increase to about $2,000.
Broader questions of general RRG
stability and solvency, along with issues
concerning the regulation of RRGs by
states, are questions connected with the
RRA and go beyond issues directly
related to financial responsibility for
underground storage tanks. Therefore, it
is not within the scope of this
rulemaking to address these broader
RRG issues. Such issues, however, are
being addressed by other agencies of the
federal government. The Commerce
Department has Tecently issued a report
evaluating the effectiveness of the
RRA.8 The report found no major
problems with RRGs themselves (in
terms of solvency and potential risk to
the public), but noted conflicts between
state insurance laws and regulations '
and the provisions of the RRA. Such
conflicts are matters for the states to
address.
RRGs may be unavailable to some
owners or operators due to an inability
to o.rganize into a group or raise the
necessary capital. Regulation may also
limit the formation of such groups in
some states. While some UST owners
and operators may be unable to form
RRGs, however, the Agency believes the
groups may provide an alternative to
insurance for a number of owners and
operators of USTs.
4. Specific Requirements for Insurance
and Risk Retention Group Coverage
A number of commenters questioned
specific policy conditions that insurance
mechanisms must include under this
rule. In general^ commenters questioned
the effect of these requirements on the
availability of insurance. The Agency
recognizes that the limited availability
of insurance, in part, reflects the
significant uncertainties regarding the
risk'that insurance providers may be
undertaking and that various policy
language has been developed to
minimize uncertainty. Therefore, in
specifying certain policy conditions the
Agency attempted to meet two
objectives: (1) The need to ensure that
insurance coverage will provide the
same level of protection as other
mechanisms; and (2) the need to
preserve flexibility in policy
specifications to allow insurers to
develop acceptable policies and 19 avoid
unnecessarily constructing the
availability of insurance.
a. On-Site Cleanup. Several
commenters questioned the availability
of insurance for on-site cleanup and
• U.S. Department of Commerce, .
nttienlionAct'gf 1986 Implementation RijporL
Scplcmber"l£f87"
suggested that financial responsibility
for these costs not be required; The
statute clearly requires financial
assurance for corrective action.
Corrective action,involves cleanup of
contamination caused by a release.
While a release may, for an initial
period of time, be confined to the
property of an owner or operator of an
UST, there is no way to ensure, without
corrective action, that the release will
not eventually affect the health or
property of others. Financial
responsibility for corrective action will
ensure that cleanup may be undertaken
promptly, thus minimizing third-party
and environmental damage.
The Agency recognizes that some
insurers are reluctant to provide on-site
coverage because of the "moral hazard"
involved. In other words, insurers fear
that coverage of on-site corrective
action could provide a disincentive to
the owner or operator of an UST to
maintain his site properly!of may
encourage negligence and thus may
result in more releases and more claims
to the insurance provider. Insurers also
fear that coverage for on-site cleanup
might make them responsible for the
costs of routine maintenance or site ,
restoration. First party coverage (i.e.,
coverage of damages to the insured) has
traditionally been offered as a separate
type of coverage.
Some insurers, however, provide on-
site coverage in order to limit their
exposure to more expensive third-party
claims. Currently, the two primary
sources of insurance for petroleum USTs
cover on-site cleanup of UST releases. A
recent entrant into the market also
provides on-site cleanup coverage. In
addition, some other insurance
providers will cover on-site cleanup if it
will prevent more costly third-party
damages. The comments suggesting that
on-site coverage is not generally
available referred to policies covering
environmental impairment liability in
general and do not reflect the standard
practice of the specialized market for
UST coverage. The Agency received
only one comment regarding the recent
entry into the UST market of an insurer
who will not cover on-site cleanup.
One commenter suggested that
coverage for cleanup be mandated
whether or not the corrective action is
ordered by the government. Such a
requirement could be interpreted to
mean that policies must Cover response
actions that the owner or operator might
perform as a general ope'rating practice.
Although the Agency is requiring that
on-site'corrective action \)e covered by
all financial responsibility mechanisms;
it does riot intend to require policies that
make insurers responsible for activities
that are clearly ithe day-tc-iday
responsibility of the owner or operator.
Therefore, the Agency wished'to clarify
that EPA is not mandating ihat
acceptable insurance policies cover
response actions that are part of routine
maintenance of [the tank site, site
restoration and enhancement.
Corrective actiop, coverage Will be
required only for cleanup of releases
required by §§ 280.60 to 280^66 and
280.72 of the technical standards or
ordered by the implementing agency.
The Agency believes that this
requirement will ensure that adequate
financial resources are available to
perform necessary corrective action.
b. Non-Sudden Accidental
Occurrences. Several commenters also
suggested that insurance companies
would not be willing to provide
coverage for non-Sudden occurrences as
required by today's proposal. The
statute requires; however, that all
releases, whether sudden or non-
sudden, be covered. This is particularly
necessary to ensure adequate coverage
for USTs, because it is often difficult to
determine whether an UST release is
sudden or gradual.' Therefore, to ensure
adequate protection of human health
and the environment, both types of
coverage are necessary. Comments
indicate that coverage for non-sudden
releases is currently offered by the
major providers, iln the event that an
owner or operator could not obtkin
insurance for non-sudden releases, a
separate mechanism could be used. Both
mechanisms, however, must provide $1
million worth of coverage (see Section
III.D.3). t
c. Agency Specification of Various
Policy Terms,. A number of commenters
from the insurance industry felt that
EPA-proposed coverage terms did not
precisely follow insurance industry
standards and would limit availability
of insurance coverage for USTs.
However, it was. also clear from
industry comments that adoption of the
recommended language would not, by
itself, increase the availability of
pollution insurance. The objections of
the commenters centered on the
definitions of the iterms occurrence, ,
accidental release, and bodily injury; on
the prohibition of; certain exclusions
(those for non-sudden releases and on-
site coverage); and the requirement that
120-day notice be[ given to an insured in
the event of a cancellation. The
commenters recommended that the
Agency defer1 to standard industry
practice 'tit establishing policy 'language*;
One eommenter siiggested specific terms
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Federal. Register /Vol. 53, No. 207-/ Wednesday, October 26, 1988 / Rules and Regulations 43349
that he felt would more strictly define
appropriate insurance coverage.
The Agency has two reasons for
clearly delineating the terms of
insurance policies that are acceptable to
meet.financial responsibility
requirements. The first is that, given an
insurance market with widely varying
types and scopes of coverage, the
Agency is concerned that the insurance
provided to an UST owner*or operator in
fact provides a sufficient level of
financial .assurance. Second, because
the Agency has mandated that proof of
financial responsibility be demonstrated
only in the event of a release or if
specifically requested by the
implementing agency, the Agency wants
to define very clearly the terms of
acceptable coverage so that both the
insurer and the owner or operator can
determine whether the policy is
adequate to comply with the regulations.
, Several commenters took issue with
the Agency's use of the terms
"occurrence."; and ."accidental release,"
preferring instead the combined term
"pollution incident," a term widely used
, 'in the insurance industry. Commenters
also suggested that the term "bodily •
injury", be defined in a manner
consistent with the standard established
in ISO'.s new CGL policy. These issues
apply to all the instruments and have
been addressed in Section III.C above,
Commenters also requested that the
120-Hay notification period for
cancellation of insurance be shortened.
The Agency agrees that a shorter time
period will still give owners and
operators adequate time.to locate-
another mechanism for financial
responsibility, and that the 120-day
requirement may put too severe a
burden on insurers by exposing them to
the risk that th'e'insured will fail to pay
the premium in those 120 days. Thus, the'
120-day notification period may limit the
availability of UST insurance. The
Agency is therefore shortening the
notification period to 60 days (see also
Section III.P below regarding
cancellation'of mechanisms). The
notification period for other
terminations of insurance policies has
also been shortened to 60 days.
. Commenters made a number of very
specific recommendations regarding the
terms of insurance policies. Several
commenters suggested that acceptable
policies be required to include a
provision specifying that the insurer pay
on behalf of the insured, rather than
reimburse* the owner or operator for
cleanup costs qr third-party .damage
payments1* The Agency, has considered
these cqnunents and has.determined. •
that insuEanoe policies.
r, than indemnify^
the insured is not necessary to ensure
that insurance will provide adequate
assurance for corrective action and
third-party liability costs. Many policies
currently in use already specify that the
insurer will pay on behalf of the'insured,
especially in cases of third-party
liability. In some cases of corrective
action, the implementing agency may
undertake response activities to clean
up a release in a timely manner. In such
cases the implementing agency would
receive reimbursement by the insurer.
One commenter recommended that
lower premiums be mandated for tanks
brought into compliance with tank
performance standards in advance of
their compliance dates. The Agency
does not need to mandate particular
premium levels because the market
itself should respond to tank
improvements by offering lower
premiums for safer tanks.
d. First Dollar Coverage. Many
commenters felt that the provision
requiring policies that make insurers
liable for amounts within the deductible
applicable to the insurance policy would
be unfair to insurers, and ultimately
force them to bear the cost of the
deductible. The Agency disagrees with
these comments. The Agency'developed
this .requirement to ensure that disputes
(between the insurer and the insured)
over who is responsible for paying
amounts within deductible limits will
not interfere with prompt performance
of corrective action measures or with
payment of third-party claims. The
Agency does not intend to require
policies that limit the right of insurers ;to
specify deductibles applicable to ;.
particular policies and to receive these
costs from insureds. Therefore, the first
dollar coverage requirement should not
hinder development of a pollution
liability insurance market. If an owner
or operator is in bankruptcy at the time
'of a release and therefore cannot pay
the deductible, the insurer, as a creditor,
could seek payment through the
bankruptcy proceeding, just as any other
creditor would.
Commenters suggested that the LUST*
Trust Fund might be used to guarantee
payment of deductibles to the-insurer.
However, the statute establishing the
LUST Trust Fund specifically defines
those cases in which the Fund will pay
corrective action costs and does not
include payment otdeductible amounts.
In addition, the Trust Fund'cannot be •
used to pay third-party damages.
Pollution liability policies.frequently
have high deduetibles in order to keep
pretoium. coats dowht and cqmmenters '.
suggested that paying :ampuntS7 within .
these deductible^ may. notbe affordable;.
, Jhe First dollar coverage
requirement will prevent delay of
. cleanup or payment for third-party
damages in such cases and will meet the
Agency's goals of protecting human .
health and the environment. The insurer
will still be entitled to recover costs
within deductible limits from
policyholders, although in such cases
payment arrangements would have to be
made, , .
e. Policy Retroactive Dates and
Exclusions for Pre-Existing Conditions.
Several commenters expressed concern
that the Agency's acceptance of claims-
made policies would limit protection of
the insured and, consequently, the
degree of financial assurance. Claims-
made policies typically provide
coverage only for releases reported
during the-policy period and that begin
subsequent to the policy's retroactive
date. The retroactive date is generally
the same as the effective date of the
policy.
One commenter suggested requiring
the retroactive date to be 18 months
prior to the effective date of the policy.
The Agency understands the concern of
the commenters arid realizes that use-of
claims-made policies could result in
occasional gaps in coverage-, particularly
with respect to releases occurring prior
to the retroactive date. The. Agency
considered a requirement that claims-
made policies have retroactive dates 6
months, prior to the issue date-of the
policy but decided against-suqh a
requirement because few, if any,
insurers are willing to' offer such a
policy. Given that "insurance is likely to
be the "mechanism of choice" of most
UST owners and operators (especially
smaller businesses), the Agency feels
that its goals of protecting human health
and the environment will not be served
by specifying policy provisions which
will prevent most otherwise qualified.
UST owners and operators from-being
able to obtain insurance. Prohibiting the
use of claims-made policies or requiring
a retroactive date prior to the'policy
effective date is likely to severely limit
insurance availability.
In. addition, the problem of gaps
occurring in coverage prior to the
retroactive date1 is likely to be a
significant problem primarily at the
outset of the UST financial ,
responsibility requirements, when large
numbers of previously uninsured owners
and operators purchase insurance for
the first time. After that initial time '
period, most owners or, opera tors, should
be able-to maintain, continuous :. •....
cpverage, given the advance notice of
cancellation that the Agency is requiring
.as well as this use of'extende.d repojiing,
periods TOT claims-made cbntr,ajrit'8,;.!-;,, '
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43350 fadecal Register J Vol. 53,, No. 2W/ .Wednesday, October 26, 1988 / Rules and I Regulations
Ex tended reporting periods allow the
insured to report a release occurring
.during the policy period -after the
termination date of the new policy. This
"tail" coverage helps prevent gaps in
coverage that could arise because the
replacement policy will not cover
releases that occur prior, to the
retroactive date of the policy. In the
case of policy renewal as opposed to
policy replacement, most policies should
, provide continuous coverage over time
because the retroactive date of the
policy is generally the original issue
date and not subsequent renewal dates.
As the technical requirements for leak
detection are phased in, owners and
operators are likely to identify a number
of USXs that are leaking and are not
covered by a financial assurance
mechanism. When die owners -or
operators -of these tanks obtain
insurance, these identified leaks are
likely to be excluded from coverage as
"pre-existing conditions.". The Agency
realizes that insurance is not
appropriate to meet the cost of known
releases and is not requiring that
insurance policies purchased to comply
with today's rule cover known pre-
existing conditions. Any requirement for
coverage of known -conditions would be
likely to severely limit UST insurance
availability because insurers will not be
willing to issue policies obligating .
payment for damages that have already
occurred. UST owners and operators are
responsible for cleanup and third-party
liability costs that are not covered by
financial assurance mechanisms. In
some instances the LUST Trust Fund or
state funding programs may be
appropriate means to fund cleanup of
those pre-existing conditions. .(Under the
LUST TrastFund, however, owners and
operators are liable for any funds.
expended to clean up pre-existing
conditions.)
An insurance representative
expressed concern that implementation
of the technical regulations would result
in discovery of more releases in. the
early years of the regulation and lead
insurers to avoid the UST market until
compliance with the technical ,
regulations is complete. While it is likely
that more releases will be discovered in
the early years of regulation, this fact
alone should not reduce insurance
availability. Insurers will establish their
own pre-conditions for iank coverage.
Such pre-conditions may include
inspections, audits-or other measures to
identify existing leaks. Tanks that are
insurable are likely to remain so. Tanks
that ate discovered to be leaking are
likely to need-corrective action and
appropriate repair, upgrading, or
replacement before an insurer will
accept them for .coverage. These
measures will also be required by the
technical standards. Phased
implementation of the technical
requirements should aot adversely
affect insurance availability, because
insurers .will be able to require
correction of existing releases as a
condition for coverage.
f. Endorsement and Certificate of
Insurance. The Agency received a
number of comments regarding fee
specific wording of the Endorsement
and Certificate of Insurance requfeed for
users of insurance and RRG coverage.
AH commenters on this issue agreed ttiat
the requirement that tanks be listed by
identification numbers on the certificate
of insurance or endorsement would
result in more-limited insurance
coverage than the standard i»dtretry
practice of listing covered tanks by site.
As described in Section Ifl.E.5, the
Agency agrees with these comments.
For the pmr-pose of determining Hie
appropriate aggregate coverage,
however, a statement indicating that the
mechanism assures 100 or fewer or more
than 100, USTs is necessary, m today's
rule, the endorsement and certificate
language (if 2S0.9?[bJ(l3 and
280.97(bK2)l nas been amended to strike
the requirement for tank serial numbers
and instead requires a listing of the
number, of tanks at each facility insured
and the name and address of each
facility.
.Commenters also suggested that the
issue date of the policy is unnecessary
for the endorsement and certificate of
insurance, given that the policy .effective
date, which-defines the date on which
coverage begins, is also required. The
Agency again agrees with the
commenters that inclusion of the issue
date is unnecessary and that the scope
of coverage provided is clearer when flie
endorsement and certificate of
insurance contain only the effective date
of the policy. In policies wimo-ut' an
effective date, the issue date is
considered to be the sams as Ike
effective date. However, in cases in
which policies-include effective dates,
coverage is generally considered to
begin-tm the .effective date. In jno&t
cases, the issue date and the effective
date of the policy will be the same, but
in those cases in which they are not, the
difference could be a source of dispute
concerning whether a particular release
is covered. Listing only.the effective
date on the endorsement and certificate
will eliminate such a dispute. Today's
rule does aot include the issue date of
the poMcy in the endorsement or
-certificate OJl.2SO.S7 (fe)(l) and (b)£2)J,
but does continue, to require listing of
the policy effective date. •
g. Six Months Extended. Reporting
Period. As indicated am the April 3J987,
proposal, the Agency is concerned that a
claims-made contract may leave gaps in
coverage if, for ej|cample,' a claim is
reported after tfae -expiration of. a policy
for a release that jbegan prior to the
expiration date. Such claims may not be
covered by a replacement financial
assurance medaaiiism {see retroactive
date discussion, Section HLGAe above).
Originally, flbe Agency proposed a one
year "extended discovery" period to
address this concern. Under this
provision, claims teade during the
extended discovery period for losses
that occwrred during the policy period
would be covered. In today's rule, the
Agency has changed the term to
"extended reporting period" and
reduced the time frame to six months.
These changes w&re made for several
reasons.
Commenters suggested replacing the
term "extended discovery'period" wi'fh
the term "extended reporting period" to
clarify that the period only covers
incidents which took place during the
actual policy period and were reported
during the extended reporting period.
The Agency agrees with commenters
that the insurance industry suggestion
more accurately describes the coverage
that the Agency intends. The Agency
intends to require that only releases
beginning during jfhe policy period itself
be covered during the extension and
agrees with comiAenters that the term
"extended discovery period" could
cause confusion dver whether a policy
would cover occurrences beginning
during the extended discovery period or
only those beginning under the actual
policy period and reported during the
discovery period. Therefore, the Agency
has changed the term to "extended
reporting period.11! The Agency also
agrees with the comment that it would
be unnecessary to include an extended
reporting period clause in an
occurrence-based contract because by
definition, such policies cover losses
occurring during the policy period
regardless of when they are reported.
Therefore paragraph 2(eJ of the
endorsement and certificate of
insurance (§128G.97(b](l) and
280.97(b)(2)3 are required, only in the
case of a.claims-made contract.
. The Agency alsb reconsidered ihs
proposed .one-year time frame for
extended reporting. Several commenters
addressed this issue. One suggested a
reporting period ojf three years. Others
urged that EPA should not establish a:
mandatory time .frame.-Wiiilei the
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Federal Register / Vol. 53, No. .207 / Wednesday. October 26, 1988 / Rules and Regulations ^.43351
Agency recognizes thata three-year
reporting period may afford :even greater
assurance by allowing an owner or
operator more time in which to report
damages caused by a release, the
Agency has" declined to mandate such a
lengthy reporting period. Insurers are
.unlikely to be willing to offer "tail"
coverage as long as three years due to
the continuing risk to which such
coverage would expose them. Also, even
if insurers were willing to offer long
reporting periods, the cost of the
coverage could be prohibitively
expensive. Because the Agency believes
that an extended reporting period is
essential to ensure adequate coverage
by claims-made policies, the Agency has
decided hot to mandate a reporting
period of such length that the insurance
would be unavailable or unaffordable to
otherwise qualified UST owners and
operators. The significant, reduction in
insurance coverage created by such a
provision would result in lesser
protection of human health and the
environment.
At the same time, the Agency does not
believe that the length of the reporting
period should be entirely discretionary.
Therefore, the Agency has decided to
set a shorter minimum length of six
months for the extended reporting
period.
The Agency has decided that six
months is a reasonable time frame in
which to identify and report a release
following termination of a policy for the
following reasons. First, implementation
of leak detection requirements should
result in prompt detection of releases.
Six months should be sufficient time.to ,
report releases occurring during the
policy period. The Agency is making
such a reporting period mandatory for
all claims-made contracts used to
demonstrate compliance with today's
rule, regardless of the reason for
termination. Although the extended
reporting period differs from the
industry standard, it is important to
bridge the potential gap between the
end of a claims-made insurance policy
and the initiation of another assurance
mechanism.
Second, commenters estimated that
the cost of the extended reporting period
could range from half the premium cost
to more than the cost of a yearly
premium. This reflects the difficulty in
establishing proof of when releases
reported during this extension actually
occurred. The Agency feels that the cost
of a six-month period would be
affordable for more owners or operators
than the cost of a one-year period, thus
increasing total insurance coverage.
This is especially true because the
owner or operator must also pay the
cost of a new financial assurance
mechanism to remain in compliance
with the rule.
The change of the reporting period
requirement from one year to six months
may help to address two other issues
raised by commenters. The first issue
raised by commenters concerned
potential conflicts over responsibility for
coverage during the reporting period. A
release discovered during the reporting
period could either be covered by the
old insurance policy if it began prior to
policy termination or by the new
replacement mechanism if it began later.
There could be a delay in payment for
corrective action and third-party
damages while the date of the release
was determined. As the reporting period
was extended the potential for conflict
would increase. By reducing the
reporting period to six months; the
Agency intends to minimize the
potential for conflict between
mechanisms and thus the potential for
delay in meeting the costs of a release.
Second, members of the insurance.
industry noted that the extended •
reporting period required by the Agency
differed from the reporting period in
common use in the industry in that it
was an "upfront" requirement, not an
option to be purchased only in the event
that a policy was cancelled for reasons
other than non-payment of premium.
Insurers feared that mandatory
reporting periods would expose them to
the possibility of supplying coverage for
one year to an insured who had not paid
his premium, or who voluntarily
cancelled, thus essentially receiving
"free" coverage for one year. The
Agency wishes to stress that it is only
requiring an extended reporting period
during which insureds may report
releases that occurred while their policy
was in effect, not an extended coverage
period during which insurers would be
liable for releases occurring after the
policy's termination. Insureds who
voluntarily cancel their policies,
therefore, would not receive "free"
coverage for any period of time.
Futhermore, by establishing an
appropriate schedule of premium
payment, insurers can best protect
themselves against providing "free"
coverage to insureds whose policies
they ultimately would cancel due to
nonpayment of premium..
One commenter recommended that
forfeiture of insurance coverage due to
delayed notice of a claim be prohibited.
The Agency believes, however, that the
extended reporting provisions of the rule
adequately ensure that claims will be
covered even if not reported
immediately to the insurer; The .
reporting period Vvpuld allow an insured
covered by a claims-made policy extra
time to report any releases which may
have occurred'during the policy period,
but which were not immediately
discovered.
h. Legal Defense Costs. The Agency's
proposal to exclude legal defense costs
from the coverage limits of'insurance
policies used to comply with financial
responsibility requirements was
opposed by many commenters. The
commenters argued that insurers will
not provide coverage exclusive of legal
defense costs. The Agency has reviewed
these comments and decided to continue
to require exclusion of coverage for legal
defense costs from insurance policy
indemnity limits. •
The exclusion was originally proposed
for several reasons: (1) To ensure that
legal defense costs would not absorb too
great a portion of coverage limits and
thus leave little coverage available for
corrective action and-third-party
liability; (2) to conform to the general
insurance industry standard practice for
comprehensive general liability of
paying all legal defense costs outside
policy limits until the indemnity limits
have been exhausted; and (3) to provide
the same level of financial assurance to
cover both third-party claims and
corrective action as the other
mechanisms {none of the other
mechanisms for demonstrating financial
responsibility under the rule covers legal
defense costs).
In general, the above reasons for the
exclusion are still valid. Legal defense
costs could amount to a significant
portion of policy limits now and in the
future.NA study-by the ISO indicates that
legal defense costs have increased three
times faster than indemnity losses since
I960.7 Defense costs per one dollar of
loss tripled between 1958 and 1984. This
trend is not limited to any one particular
area, but rather is common throughout
the general liability field. There are few
actual data on defense costs for liability
suits brought in cases of pollution
releases, but an Agency analysis of
general liability, Superfund, and .
asbestos claims suggests that legal
defense costs in Cases involving '
pollution liability could constitute as
much as 36 to 42 percent of policy
liability limits.
The insurance industry standard for
commercial general liability coverage
continues to be payment for all legal
defense costs outside general liability
policy limits until the limits have been
7 The Rising Costs of General Liability Legal
Defense, Insurance Services Office, 1386.
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43352 P-ederal, Register / Vol. 53. No. 207. / Wednesday. October .26. 1988 /Rules alid Regulations
exhausted by indemnity payments. Only
about 25 percent of commercial.general
liability policies include payment of,
legal defense costs within policy limits
and ISO's standard CGL policy includes
a clause obligating the insurer to
provide payment for legal defense until
coverage is exhausted by indemnity
payments. EH, policies are more likely
than CGLpolicies to include legal
defense costs within policy limits;
however, industry practice .even within
the smaller universe of EIL policies is
not uniform. EEL policies are available
that provide Indemnity limits exclusive
oflEgal defense costs.
The Agency recognizes that .the
insurance industry attitude toward legal
defense costs may be changing. Some
members of the industry, in response to
the spiralling costs of legal defense,
"have begun examining ways to contain
defense costs, feeling that the insurer's
traditionally unlimited "duty to defend"
may be a disincentive to pplicyholders
to fceep legal defense costs down. At the
same time, it does not appear that the
industry is moving toward inclusion of
legal defense costs within policy limits
as a solution to the problem. While ISO
proposed at one time that some portion
of legal defense costs be included within
policy limits, it withdrew that proposal
and has more recently pat forward ,a
plan to limit legal defense costs outside
of policy limits.
Although the Agency's reasoning on
costs of legal defense and standard
insurance practice continue in general to
hold true, EPA recognizes that legal
defense costs are sometimes handled
differently in-the specialized market of,
insurance USTs. The consensus of
commenlers is that insurance policies
for USTs generally include legal defense
costs within the policy limits. All
policies issued through one major broker
were written inclusive of legal defense
costs. A number of other insurance
providers similarly indicated that UST
coverage would only be available if
legal defense costs were included. One
major insurer, however, has excluded,
and will continue to exclude, legal
defense costs for policy limits. Thus,
while many current UST policies include
legal defense in policy limits, the
Agency does not feel that the exclusion
or inclusion of le^al defense costs will
affect the availability of insurance
coverage over the loag term.
The Agency considered two other
approaches to dealing with Segal defense
costs. The first would be to allow
insurers to include legal defense costs
within the limits. Because few UST
insurers currently offer coverage
exclusive-of defense costs, this option
would at least reinforce currently
available insurance policies as a means
of compliance with financial
responsibility regulations. In addMon,
while it is clear that RRGs may (cover
legal defense costs (section 3901{a}:(2j(A)
of the RRA explicitly legal defense costs
within the definition of allowable
liability coverage), it is not clear that
RRGs will genera te enough capital to
cover legal defense costs above and
.. beyond policy limits, inclusion of
defense costs in the limits could
facilitate RRG formation. The second
approach would be to allow insurers to
include legal defense costs within policy
limits higher than the ;$1 million
requirement. This approach would
address insurer concerns regarding
defense cost limitation, but probably
would not address issues of RRG
capitalization.
The Agency believes, however, that
arguments for continued .exclusion are.
compelling and that development of
higher insurance policy limits allowing
defense costs to be included would not
guarantee that insurance would provide
adequate financial assurance. The linal
rule continues to require that policy
limits be exclusive of legal defense
costs. The statutory requirement is $1
million of per-occurrence coverage for
the costs of corrective actien and third-
party liability for USTs at facilities
engaged in petroleum production,
refining, or marketing. If insurance
policy limits included defense costs,, in
effect, insurance policies would foe
providing financial assurance .a t a level
lower than that required by the statute.
Exclusion of legal defense costs from
policy limits is also consistent with
RCRA Subtitle C liability coverage
regulations.
The Agency recognizes that in many
cases legal defense costs may not be
high enough to significantly affect the •
adequacy of insurance policies to
provide the coverage required,
particularly that-for corrective action.
However, if defense costs for petroleum
USTs are low, then the insurance -
industry will not 'be excessively
burdened if it must cover these costs
outside of policy limits. Alternatively, if
defense costs for petroleum USTs are
high, then coverage for these costs
outside policy limits is necessary to
ensure adequate financial assurance .for
corrective action and third-party
liability costs. While this may place a
greater burden on the insurer, the
insurer is free, as many insurers are
cuniently doing, to limit defense costs in
some way outside of policy limits.
i. Insurer Qualifications. The April
1987, proposal'required that insurers
eligible to provide policies in
compliance with UST financial
responsibility [requirements be licensed
to (transact th^ business of insurance or
as an. excess or surplus lines insurer in
each State where a covered UST is
located. Oommenters suggested that the
proposed qualifications were too .
limiting and one commenter suggested
substituting Department of
Transportation'regulations that allow
insurers licenced or approved fay a
foreign government to provide coverage
in addition to those licensed te any state
or eligible to provide coverage as an
excess or surplus lines insurer.
The Agency idoes not, however, feel
that its qualifications for insurers are
overly stringent.'Foreign insurers
offering coverage in the United States
are generally licensed-to provide
coverage in at jleast one state which
would, in most cases, quality them to
provide coverage as an excess lines
insurer. Therefore, the EPA
qualifications requirements 'should not
necessarily prevent UST owners or
operators froid purchasing insurance
from a foreign insurer. The Agency does
not, however, wish to allow UST owners
and operators io purchase insurance to
meet financial Responsibility
requirements from an insurer who may
not be a stablelsource of-coverage. An
insurer who is licensed only by a foreign
government may not be subject to the
same reserve requirements that help to
ensure that an insurer can meet his
obligations. :
The Agency has, however, decided to
make other changes to the •qualifications
for RRGs and insurers. Today1s rule
does not include separate qualification
for RRGs and insurers as originally
proposed, but instead imposes the same
qualifications fpr both. Because a RRG
is a type of insurer, it is simpler and
•more appropriate to delete the separate
requirements for RRGs. The Agency has
also decided to. delete from the insurer
qualifications the requirement that
insurers be licensed or eligible in "each
state where a csvered underground
storage tank is jlacated." The final rate •
requires instead that insurers and RRGs
. be licensed to transact the business of
insurance or eligible as an excess or
surplus lines insurer in "one or more
states." This -change -was made because
the Agency decided that the proposed
requirements might too severely limit
insurance coverage, available to owners'
and operators with USTs in more ihan
one state. While the Agency continues
to believe that }t is essential that
insurers and RRGs supplying financial
assurance under today's rule be subject
to adequate regulatory oversight, it
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Federal Register / Vol. 53,. No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43353
believes that a requirement that inaurers
be licensed or eligible in one or more
. states will ensure that insurers and
RRGs are sufficiently qualified to
provide UST coverage. This ensures tuat
the insurance provider meets the
qualifications of the state in which it is
writing policies. If a provider writes a
policy for a large firm with USTs in
more than one state, the provider must
meet the eligibility requirements in the
state where the firm buys the policy, but
does not need to meet licensing
requirements in every state where an
UST may be located.
j. Other Comments. Commenters
suggested specific changes regarding the
manner in which insurance policies are
interpreted by the courts, specifically,
questions of joint and several liability
and use of retroactive damages. These
comments go beyond the scope of this
rulemaking and are appropriately left to
private insurance law. Note, however,
that under RCRA section 9003{h}(6),
liability is strict, joint and several for
government costs incurred in responding
to a release of petroleum from an UST
under section 9003(h).
Commenters also suggested that the
potential for direct action against a
provider of financial assurance would
deter insurers from entering the market.
The statutory-provisions of RCRA
section 9003(d)(2), how'eyer, specifically
allow direct action against any provider
of financial assurance. It is, therefore,
beyond the authority of the Agency to
prevent such direct action.
Other commenters suggested that
private insurers provide guidance to
states on the structure of state programs,
that insurance be used to fill gaps in
state fund coverage for third-party
liability, and that EPA develop outreach
programs and programs te~ encourage
entry of private insurers into the market.
The Agency agrees: that private insurers
can provide guidance on the structure of
state funds and states may choose to
consult with private insurers in the
development of state funds. This rule
allows several mechanisms and
combinations of those mechanisms to
achieve compliance. For example,
traditional insurance may be used in
combination with some other
mechanism {like a state fund} to-
demonstrate financial responsibility.
To encourage the entry of private
insurance carriers, the Ageney is
currently working with the insurance
industry to develop a better
understanding^ the UST population
and how UST insurance works. Several
insurance companies-current^? provide-
UST coverage aHd't&eBease-indicatkms-
that other iaa&EeEs; are, jdaniring;i&-e»ter
thermiatkefe hiadditioH. t
believes that the implementation of the
technical regulations will make UST
risks more predictable and thus make
the market more attractive to insurers.
/. Surety Bond (§280.98)
The final rule, like the proposed rule,
allows owners or operators to use surety
bonds to satisfy their financial
responsibility obligations. Section
9003(d)(l) specifically lists surety bonds
as mechanisms to be considered in
establishing financial responsibility
requirements. Several commenters
expressed concern about the
availability, terms, and costs of surety
bonds. These commenters did not object
to the use of surety bonds as a financial
mechanism, but questioned whether
owners or operators would be able to
obtain surety bonds at a reasonable
cost. They cited several factors affecting
availability. Some commenters felt that
surety companies would be. reluctant to
provide coverage because they believe
the implementing agency would have
absolute discretion over the control of
the funds. For this reason, one
commenter objected to the cancellation
provision, which requires the surety to
fund a standby trust in the event the
principal fails to obtain an alternative
mechanism and the Director of the •
implementing agency knows or suspects
that a release has occurred. A large
number of commenters stated generally
that surety bonds will be unavailable for
third-party liability and corrective
action. Finally, some commenters stated
that if surety bonds are available, only
those companies able. to. meet the
financial test could afford the bond.
Along these lines, one commenter
explained that, in attempting, to meet the
collateral requirements of a surety bond,
petroleum marketers would reduce or
eliminate their financial ability to
puchase their products and equipment
or to upgrade or monitor their
equipment.
The agency recognizes that certain
terma of the proposed performance bond
(e.g., .the cancellation provision) may
limit the availability of the bond. The
Ageney believes, however, that the
terras of the surety bond as, proposed
are necessary to ensure that coverage is
available when needed to taker .
corrective action and compensate third
parties. For example,, without the •
cancellation provision, sureties eould
cancel coverage when* a release is
suspected and the costawoald be
unfunded!..
The «ommenters- whfr objected to the
discretionary authority of fee Direetor. af
the imptemeating agency to e0Ertr»l the
proposed Emulations. The performance
bond clearly describes the situations in
which funds may be drawn; the Director-
does not have unlimited discretion to
draw on the funds. (See also Section
IH.N of the preamble for discussion of
the standby trust.)
The Agency acknowledges that many
companies will be unable to afford
surety bonds, or meet collateral
requirements. EPA has authorized the
use of those bonds in order to allow
those persons who can secure surety
bonds the option of using them to
comply with these requirements. The
rule continues to allow use of a, surety
bond.
In addition, as discussed in Section
III.V.2. the Agency is incorporating
certain exclusionary language into the
terms of the instrument to more clearly
limit the type and circumstances of
third-party liability for which this
mechanism can be used.
/. Letter ofCfedit (§280.99}
The final rule, like the proposed rule,
allows owners or operators to use
letters of credit to satisfy their financial
responsibility obligations. Section
9003(d)(l) specifically lists letters of
credit as a mechanism'to be considered
in establishing financial responsibility
requirements. Many commenters on this
mechanism did not object to the use of
letters of credit, but were concerned -
about whether this mechanism w_ould be
available. For example, many
commenters believed that letters of
credit are not viable options for smaller
entities. Comnienters pointed out that
smaller companies cannot meet'
collateral or liquidity requirements
necessary to obtain letters of credit.
Other commenters pointed out that
the costs of letters of credit are much
higher than the costs of insurance, and
that tying up capital or collateral to
purchase letters of credit would prevent
owners or operators from using letters of
credit to purchase equipment for their
businesses, including monitoring
equipment and equipment for upgrading
or replacing tanks. One commenter
noted that the letter of credit would be
unavailable to,many governmental
. bodies because some lending
institutions- refuse to issue them to
governmental bodies, and some city
codes prevent governmental entities
from securing letters of credit.
The Ageney acknowledges, that the
collateral requirements, for letters of
credit may approach- or exceed the face
value of'teietteir of crediti and will-be
prohibitively expensive far many
owners and operators^ The'Agency is
allowing thjfe usea* tettera of credit,.
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43354
Federal Register / Vol. 53,No. 207 / Wednesday, October 26, 1988 -/ Rules and Regulations
however, as an option for those owners
and operators who can afford them.
One commenter objected to the
language in the letter of credit because
he believed that it requires the issuer to
examine the legitimacy of the conditions
precedent to presentation of the sight
draft. This commenter suggested that the
sight draft and the statement that the
Director of the implementing agency
must provide to the bank should identify
the purpose for which the letter is being
issued (corrective action and/or third-
party liability for sudden and/or non-
sudden releases). This commenter also
suggested that these documents should
specify the tank identification number
and name and address of each facility
location.
The letter of credit does not require
the issuer to examine the legitimacy of
the conditions precedent to presentation
of the sight draft. The letter of credit is
payable upon presentation of a sight
draft and a signed statement certifying
that the letter is payable pursuant to
these regulations.
A number of commenters, in
addressing specific mechanisms,
disagreed with the proposed >
requirement to identify individual tanks
that are assured by the mechanisms.
They.all felt that identification of the
facilities covered by the mechanism
would ensure that releases from the
facilities are covered, without delays '
and needless paperwork to determine
which tank was the source of the
release. The Agency agrees, and has
revised the language of the mechanisms
to specify coverage by facility, rather
than by individual tank. Individual
tanks must be identified if separate
mechanisms are being used to cover
different USTs. The letter of credit does
allow the parties to specify the purpose
for which the letter is being issued
("corrective action" and/or
"compensating third-parties for bodily
injury and property damage").
In addition, as discussed in Section
III.V.2., the Agency is incorporating
certain exclusionary language into the
terms of the instrument to more clearly
limit the type and circumstances of
third-party liability for which this
mechanism can be'used.
K, Use of State-Required Mechanisms
(§280.100)
EPA proposed that, in those states
that have not obtained UST regulatory
program approval, UST owners and
operators may use state-required
financial assurance mechanisms'to meet
the federal financial responsibility
requirements. However, the proposed
rule required the EPA Regional
Administrator to determine that such
mechanisms provide assurances that are
at least equivalent to those of
mechanisms specified in the Federal
requirements.
Several commenters noted that
allowing use of state-required
mechanisms will do little to help UST
owners'or operators because not all
states have established or will establish
their own financial responsibility
requirements. Another commenter
supported EPA's proposal that state-
required mechanisms used to determine
financial responsibility while EPA
reviews the state program will be
considered to be at least equivalent to
other required mechanisms and thus in
compliance with Subpart I for the
amount and types of costs covered by
the mechanisms.
In response, the Agency agrees that
some states' without authorized UST
programs may not have state-
implemented financial responsibility
requirements for USTs. However,
owners or operators in states that do not
have authorized programs, but which do
have financial responsibility
requirements, will be able to use
equivalent state-required mechanisms.
These owner or operators will not have
to procure additional mechanisms to
satisfy the Federal requirements. The
final rule regarding the use of state-
required mechanisms retains the
language in the proposed rule.
L. State Fund or Other State Assurance
(§280.101)
EPA proposed that UST owners or
operators may use state funds or other-
state assurance programs to meet the
financial responsibility requirements.
RCRA section 9004(c)(l) authorizes the
use of "corrective action and
compensation programs administered by
state or local agencies" as mechanisms
to provide evidence of financial ' '
responsibility for state program
approval. .
Although several commenters
supported the use of state assurance
programs as an acceptable financial
assurance mechanism, commenters
remarked that state assurance programs
are generally not available and, even
where available, often do not provide
sufficient coverage. Several states
remarked that they did not plan to
establish funds or that the Federal
government should not rely on states ;to
demonstrate financial responsibility for
UST owners and operators.
The Agency recognizes that state
assurance programs are not widely
available to date. However, funds have
been established in several states, •
including Virginia, Delaware, and
Minnesota. Other states are also in the
j
process of attempting to establish funds.
The Agency does not require any state
to establish an assurance program.
In addition, EPA is aware state
assurance programs may not provide
complete financial responsibility for
UST owners or operators. For example,
funds may not cover third-party
compensation or all corrective action
costs. Therefore, UST owners and
operators using these types of programs
must use other financial assurance
mechanisms in combination with a state
fund to demonstrate compliance with
the financial assurance requirements.
Several commenters suggested that
states use particular program structures
or particular financing mechanisms. For
example, several commenters suggested
that state funds coyer corrective action
costs above $100,000 and third-party
compensation costs above $300,000, up
$1 million per occurrence. Other
commenters suggested that state funds
be structured to entourage entry of
private insurers intp the UST insurance
market. ' j
The Agency believes that the structure
and means of financing programs is at
the discretion of eajch state. EPA will not
" dictate the approach states should take
in establishing assiirarice programs.
However, for those! states interested in
establishing assurance programs, EPA
will provide assistance in designing and
evaluating such programs. In addition,
EPA has developed a handbook
providing guidance! on establishing state
assurance programs.
The Agency also idoes not intend to
mandate a particular program structure
in states that currently use funds to '
cover UST release costs. For example,
the Agency would not require a state
with a fund that only covered corrective
action costs to alter its fund structure
(e.g., to add coveragetor third-party
compensation) in order to qualify under
this section. The oWner or operator
would have to obtain additional
assurance to,cover third-party liability
requirements. |" . ',- •
M. Trust Fund (§ 280.102)
A trust fund was not included in the
proposed rule as an1 allowable financial
assurance mechanism; As stated in the
preamble to the proposed rule, the
Agency believed that a trust fund with a
pay-in period would provide inadequate
financial assurance [early in the period,
and a fully-funded trust fund would be
unaffordable to the bwners or operators
most likely to need to use the trust fund.
Moreover, the Agency felt that a trust
fund used in combih'aition with an
insurance policy would problably be
more costly than paying the additional
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premium, for firstdollaE insurance
coverage because.:. .[I) Unlike the costs of
other mechanisms, truat fund deposits
are not business expenses for federal.
tax purposes; and [2] insurance policies
for USTs may be written to include
coverage of a deductible that is later
recovered from the insured.
The Agency received a.comment
requesting that a trust fund be allowed
as .a financial assurance mechanism.
This commenter maintained that some
firms may wish to use a trust fund to
cover multiple tanks if other
mechanisms are not available, and
advocated allowing either a fully-funded
trust fund or a partially-funded trust
fund if combined with another
mechanism that provides the'remaining
amount of required coverage.
In light of this comment, the Agency
decided to allow trust funds' in' the final
rule. .Although the Agency believes that
trust funds will in general cost more
than other-mechanisms arid in many
cases wiKbeTiiiaffordable; frust funds
are allowed toprovide mdre';flexibility
to owners or operators in providing
financial assurance: To ensure that the
trust fund will provide adequate ,
financial assurance, the Agency requires
the trust fund to be Mly-funded for the
amount of required coverage, or
partially-funded and used in
combination with another allowable
mechanism that provides the remaining
amount of required coverage.
The language of the trust fund
instrument is identical to the language of
the standby trust fund used to manage
funds paid from other mechanisms (e.g.,
letter of credit). The amount of the trust
fund is determined by the owner or
operator, as long as the remaining
amount of required coverage is provided
by another mechanism.
In addition, as discussed in Section
III.V.2. of the preamble, the Agency is
incorporating certain exclusionary
language, into the terms of the
instrument to more clearly limit the type
and circumstsirces-ef-third-party
liability for which this mechanism can
be used.
N. Standby Trust Fund (§280.103-}
Under the proposed and final rule,
EPA establishes the standby trust fund
as the depository mechanism that an
owner or operator must put in place
upon acquiring one of the following
financial assurance instruments:
Guarantee (§280.96), surety bond
[§ 28058), or letter of credit (§ 280.99),
Funds drawn under any of these
instruments, pursuant to the instruction
of the Director of the implementing
agency, must be deposited directly into
the standby trust fund by-the institution
making the payment. Tfae use. of a
standby trust is necessary- because
without such a depository mechanism,
any funds drawn under those
instruments that are payable to the
Regional Administrator would have to
be paid into the U.S. Treasury and could
not be used specifically to pay for the
UST corrective action or third-party
liability claims for which the funds were
intended without Congressional action
(see 31 U.S.C. 3302). Similarly, funds
payable to the state Director may have
to be paid into the state treasury.
The rule requires that the trustee must
have the authority to act as a trustee
and its trust operations must be
regulated and examined by a federal or
state agency.This trustee qualification
requirement is the same as the trustee
qualification requirement under the
Subtitle C regulations. If the trust
operations are not regulated and
examined by a federal agency, the trust;
operations must be regulated and .:
examined by a state agency in each .
state in which a standby,trust fund is
established.
All eommenters on the proposed ,
standby trust requirement argued that
the provision is unnecessary. In the case
where a guarantee is used to provide
financial assurance, several commenters
asserted that the use of the guarantee is
comparable to self-Insurance, which
does not require a standby trust •
because, in each instance, funds are
assured.from existing corporate assets.
The Agency recognizes that corporate
assets are the source of the funds for
both self-insurance and guarantees, but
does not believe that the similarity
obviates the need to establish the
standby trust when a guarantee is used
to provide financial assurance.
The standby trust fund is necessary to
ensure access to funds when they are
required and to ensure that the
implementing agency can address
corrective action requirements promptly
and preclude further damage to health
or the environment.
The financial test of self-insurance is
a direct mechanism for providing
finanical assurance. When it is used, the
owner or operator ensures that he will
take prompt* corrective action and pay
valid third-party claims from existing
corporate assets—evidenced by
satisfaction of the financial test.
A payment guarantee,, such as the
guarantee in the proposed rule and
today's rule, is an indirect mechanism.
When, it is used,, the guarantor does not
ensure that it will take prompt
corrective action or.pa"y third-party
claims, if the owner or operator does not
Rather, the guarantor contracts with thft
implementing-agency that, if the-awner-
or operator fafls; to undertake- required ••
activities, the guarantor wilt provide the
necessary fcinds- to undertake the
activities front its corporate assets. HPA
cannot hold the funds directly because
of the prohibitions of 31 U.S.C. 3302, as
discussed above. It is necessary,
because of the prohibition, that the
funds be placed in an existing
depository mechanism, the standby
trust, from which the implementing
agency can direct funding of required
actions as promptly as possible.
Therefore the standby trust requirement
for a guarantee remains a provision of
today's rule.
Other commenters disagreed with the
provision that the standby trust mast be
established at the same time as the
fmanpial assurance mechanism, noting
that, under RCRA Subtitle C, the trust is
established only when assured funds
are required; The 'Commenters misstate
the requirements of Subtitle C. The
standby trust requirement-in'today's rule
differs from the Subtitle C model
because its purpose is different. In the
Subtitle C rule, guarantees are
recognized to assure funds for closure
and post-closure and third-party
liability. No standby trust is required for
the guarantee for liability because valid
third-party claims, if not paid by the
owner or operator, are paid by the
guarantor directly to the claimants. If an
owner or operator fails to perform
closure or post-closure 'caire whenever
required to do so, the guarantor can
perform the required activities itself or
establish a trust from which EPA can
fund the activities. Today's rule
provides Financial assurance for both
corrective action and third-party
liability. A release from an UST may or
may not occur. If a release does occur
and corrective action is.necessary, it
should not be delayed while a standby
trust is put in place. Prompt action will
prevent further damage to human health
and the environment. In addition,
because under Subtitle I one assurance
mechanism covers both corrective
action and third-party liability, the
standby trust provides a mechanism for
the Director of the implementing agency
to ensure that funds are available first to
pay for corrective action (see Section
III.S). The Agency, therefore,, has not
changed the requirement that a standby
trust be established when a guarantee,
letter of credit, or surety bond is
acquired to provide financial assurance
in compliance with this rule.
The wording of the standby trust
agreement must be identical to the
wording provided by § 280.103tb).
Uniform, wording ef the agreement
minimizes the admini8tr,ative:biiEdeai-oa;
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Federal Register / Vol. 53. No. 207 / Wednesday. October 26. 1988 / Rules and Regulations
the implementing agency by eliminating
case-by-case review of standby trust
agreements and provides owners and
operators with the assurance that the
agreements will satisfy the regulatory
requirements. In addition, as discussed
in Section III.V.2. of the preamble, the
Agency is incorporating certain
exclusionary language into the terms of
the instrument to more clearly limit the
use of the mechanism only to costs
associated with releases from USTs.
Commenters on the standby trust
were also concerned about the costs of
trusts, particularly if the owner or
operator has several facilities in several
states for which standby trusts must be
established and maintained. The
Agency evaluated the costs related to
establishing and maintaining a standby
trust fund when .today's rule was
prbposed..The primary costs are the
costs of managing the funds; other
relatively .minor costs include the
administrative fee charged to establish
the trust.fund and fixed fees for simply
maintaining the account. The
incremental costs of establishing a
standby trust" at the time the instrument
is established will be minimal, since
there will be no funds in the trust. The
Agency believes, therefore, that the
requirement to establish the standby
trust fund at the time a financial
assurance instrument is acquired will
not be particularly burdensome to UST
owners or operators.
In addition, the final rule allows the
owner or operator to establish one trust
as the depository mechanism for all
funds assured in compliance with this
rule. Owners'and operators with a
number of facilities in various states
may, therefore, establish one standby
trus.t into which funds can be deposited
if and when required. States authorized
to implement this program may adopt
this policy or may .require the owner or
operator to establish a standby trust in
their own jurisdictions.
O. Substitution of Financial Assurance
Mechanisms by an Owner or Operator
(§280.104)
Under § 280.104 of the proposed and
final rule, the Agency allowed an owner
or operator to substitute alternate
financial assurance, provided that an
effective financial assurance mechanism
or combination of mechanisms that
satisfy the financial responsibility
requirements existed at all times. After
obtaining alternate financial assurance,
an owner or operator may cancel a
financial assurance mechanism by
providing'notice to the provider of
financial assurance. The owner or
operator imlst rtlafritaln conUntibus
coveVage\with; a financJarassufande
mechanism'to ensure the availability of
funds'at.all times for corrective action
and third-party liability claims, should a
release occur from an UST containing
petroleum. • •
The Agency received no' comments on
provisions regarding the substitution of
financial assurance mechanisms by an
owner or operator, and thus promulgates
these provisions as proposed.
P. Cancellation or Nonrenewal by a
Provider of Financial Assurance '
(§280.105)
1. Length of Notice Period
In the April 17,1987, proposal, the
Agency required insurers to provide
owners or operators 120 days notice
before cancelling (i.e., failing to renew)
insurance coverage and 90. days before
terminating a policy under other
circumstances'(eig., non-payment of
premium by an, insured). Other providers
of financial assurance were permitted to
cancel-refuse to renew, or otherwise
terminate an instrument only if the
provider first notified the owner or
operator at least 120,.days in advance.
Further, EPA required any owner or
operator failing to obtain an alternate
mechanism within 60 days after
receiving a notice of cancellation or
• termination to notify the implementing
agency of such failure and submit
evidence of the existing financial
assurance mechanism,, the name and
address of the provider of financial
assurance, and the date of cancellation.
In the sixty days remaining until
termination of coverage, the
implementing agency would then have
the opportunity-ID inspect the affected
tanks to determine if any releases had
occurred, thus assuring that the st.ill
viable mechanism could be drawn upon
to provide any necessary funds.
Moreover, the 120-day requirement
reflected the Agency's concern that
providers of financial assurance might
want to cancel their mechanisms upon
the discovery of an UST release, leaving
the owner or operator without assurance
when it is most needed.
Several commenters, primarily from
the insurance industry, urged EPA to
reduce the number-of days' notice
required for cancellation to 60 days. The
commenters presented several
arguments -supporting their fequest.
First, they argued that 60 days is an
adequate amount of time for/owners or
operators to search1 for ijnd obtain any
other type of available;cissurance, or to
determine that none is available and
report this1 to the implementing agency.
Second; coihmentefs noiejd' that a 60-day
notice period is becoming a standard
insurance practice iii riiany:states. Third,
commenters vieVved the 120-day
provision as puriitiye to insurers, and
predicted that reducing the npfice period
to 60 days would result; in the greater
availability pf affordable Coverage.
Finally, twd'comfteiiters warned that if
90 days or more.riotice were required,
insurers would automatically send out
cancellation notices on ah annual basis
to every insured party, thereby giving
them the time toireview accounts at a
point closer to the beginning of a new
policy year. j .
Based on these comments, the Agency
has concluded that the 120-day notice
period is unnecessary for insurance,
RRG coverage, and state fund coverage.
In the 60 days following.an owner's or
operator's determination that no.other
financial assurance .is available, the
Director of the implementing agency-has
the authority, to require a guarantor*
surety, or issuer of a letter of credit to
fund a standby trust. However,, the
Director of the .implementing agency
does nothavedhe authority to require.
insurers, RRGs, ahd.state funds to >fund
a standby trust should a leak be
suspected or confirmed. Consequently,
an additional 60-.day period following
the determination by an owner or
operator that no. alternate financial
assurance is available would not benefit
an owner or operator using insurance,
RRG coverage, orlstate fund coverage in
the manner intended by the Agency.
Other circumstances unique to •
insurance, RRG coverage; and slate
funds also support 'the conclusion' that a
120-day notice-period for cancellation is
inappropriate for these mechanisms* In
cases where insurance or RRG Coverage
is cancelled, for example; an owner or
operator has an incentive to: submit any
claims if there is ^release. In addition,
the extended repotting period for"' ..
claims-made poiicjes allows ah owner
or operator to file a fclaim six months
after the policy has been'cancelled;
Finally, states are not likely to abruptly
withdraw financial assurance in case of.
an UST leak. !
Consequently, EPA has decided1 that
providers of insurance, RRG coverage,
and state-backed coverage need only
provide a 60-day notice period for
cancellation or termination of coverage.
Owners or operators Who fail to obtain
alternate coverage -. after thes'e
mechanisms are cancelled are still
required to-riotify the implementing
agency 60 days after being notified of
cancellation<>r tenjtimatioh of financial
assurance (i.e.< when .coverage expires).
Reporting at this time can trigger ,an
evaluation of the USTs,for release's"
which should be tepofted'during'.thV
extendedreportihgipeVidd.' "' '
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Nevertheless, the Agency, for the
reasons rioted above, believes that the
proposed 120-day period is essential in
cases where an owner or operator has
obtained a guarantee, letter of credit, or
surety bond. Therefore, providers of
these financial assurance mechanisms
must still provide a 120-day advance
notice of cancellation or. termination of
coverage.
2. Termination for Nori-Payment of
Premium
A number of commenters, primarily
from the insurance industry, argued that
the provisions should allow for a quick
termination of coverage in the event of
non-payment of premium by an insured.
.Most suggested that this period be 10
days. Under the proposed provisions,
commenters noted that the insurance
agent or insurer would have to provide
9Q days worth of coverage on behalf of
an insured who fails to pay his premium.
Some commenters warned that should •
the 90-day period be maintained in all
cases, they might protect themselves
from this contingency by requiring full
payment of premium prior to the
issuance of coverage. Moreover,
commenters asserted that termination
with 10 days notice for non-payment of
premium conforms with standard
industry practice on other types of
insurance.
While sympathetic to industry
concerns, EPA is unwilling to accept a
10-day notice period in these cases.
First, the Agency-calculates that such a
brief notice period will not allow UST
owners or operators sufficient time to
"obtain alternate assurance mechanisms,
and hence will result in unacceptable
gaps in coverage.
Second, the Agency remains
convinced that the shortened 60-day
notice period will fulfill the needs of
providers. As noted earlier, a 60-day
•notice period is standard in many states.
•In addition, insurers, for.example, could
protect themselves by establishing an
appropriate schedule of premium
payment. Insurers could require
payment 90 days before the expiration
date of coverage for the maintenance or
renewal of the policy. An insurer could
then terminate.the. policy with 60 days
notice;if an insured does not meet the
schedule of payment within 30 days of
the premium due date.
The Agency therefore is requiring a
60-day notice period for termination of
coverage even in the event of.non- '
payment of premium by an insured.
Q. Reporting-by Owner or Operator
(§280.16® :
TheAp'rilrift198?,proposalreqiHred
each UST'bwner' dr;operaior;tb..fee'ep
evidence of financial responsibility at
his UST site or at his place of business.
(Section IILR of this preamble describes
the nature of the records that the owner
or operator must maintain.) In addition,
the proposed rule required an owner or
operator to submit the appropriate
documentation of financial
responsibility to the implementing
agency in the following circumstances:
(1) Wheri the owner or operator notifies the
Regional Administrator of the existence of a
new petroleum underground'storage tank
under § 280.22;
(2) Within 30 days after the owner or
operator has a known or suspected release
from a petroleum underground storage tank
required to be reported under § 280.74;
(3) If the owner or operator fails to obtain
alternate coverage as required by this
subpart within 30 days after the owner or
operator receives notice of:
• Commencement of a voluntary or
involuntary proceeding under Tide 11
(Bankruptcy], U.S. Code, naming a provider
of:financial assurance as a debtor,
• Suspension or revocation of the authority
of a provider of financial assurance to issue a
financial assurance mechanism,
• Failure of a guarantor to meet the
requirements of the financial test, or
• Other incapacity of a provider of
financial assurance;
(4) If an owner or operator is unable to
obtain alternate assurance within 60 days
after receiving a notice of termination of a
mechanism, as required by § 280.105(b); or
(5) If the owner or operator using the
financial test fails to meet the requirements
of the test, as required by § 280.94.
The Agency received several
comments supporting the propose.d
reporting requirements. Two
commenters, both representative of
large segments of the regulated
community, noted that an annual
reporting requirement would impose
excessive administrative burdens on
small businesses. Moreover, a number of
state government commenters expressed
concern that they might be unable to
administer a mandatory reporting
requirement The commenters supported
their position by citing the large size of
the regulated community, the lack of
state financial and personnel resources,
and the excessive paperwork burdens
that would accompany such an effort.
Other commenters, however, urged
EPA to mandate more extensive
reporting requirements. TWO
commenters suggested an annual
demonstration of financial
responsibility. The commenters cited
several benefits of enhanced
requirements, including: (1) Greater
incentives for proper tank management
and. rapid release! detection'and..
.response; (2) .the'Agency's ability to
t^rg&t..$nforcement efforts towards
owners or. Operators who fail to sujbrriil
evidence; and (3) greater assurance that
funds will be available to pay the costs
of UST releases.
There are other potential advantages
of more stringent reporting
requirements. Stringent reporting could
increase the level of compliance with
the regulations, since owners or
operators would be required to
demonstrate on an annual basis that
they have obtained financial assurance
required under this subpart.
Despite these considerations, the
Agency has 'decided that the advantages
of more frequent reporting are
• outweighed by several factors unique to
the UST financial responsibility
program. First, the regulated UST
community, consisting of an estimated
1.7 million USTs located at 500,000
facilities, is extremely large. Receiving
and processing financial assurance
certifications from all these UST owners
or operators on an annual basis could
•place substantial administrative
burdens on implementing agencies. In
fact, the sheer volume of reports could
overwhelm implementing agencies and
mask the more critical information, i.e.,
cancellation or release notices.
However, the Agency intends to develop
non-traditional approaches to
compliance monitoring and enforcement
and will initiate pilot projects in states
• to test these approaches.'
In addition, provisions in SARA for
the LUST Trust Fund create incentives
for owners and operators to comply with
the regulations, since the fund may be
used to pay for costs in excess of the
required amount of financial
responsibility if the owner or operator
has maintained evidence of financial
responsibility. To increase awareness of
and compliance with UST rules, EPA is
preparing a public outreach program
aimed at providing UST owners and
operators with information on all UST
requirements. Mbreoye'r, many UST
owners and operators are already
obtaining insurance to limit their
exposure to future liability due to UST
costs.
Finally, the alternative of reporting by
postcard, while minimizing costs for
owners and operators, would still
inundate implementing agencies with
the same number of reports, and thus
would not alleviate the critical problem
created by annual reporting.
The Agency has thus decided not to
impose more stringent reporting
requirements on the regulated'
community. '
The Agency also'received comments
opposing certain provisions of the
proposed reporting requirements/ • •
Several c0mmentiers!disagree'd'.with-the
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43358 Federal Register / Vol. 53, No. .20.7 / :Wdday. -October
and
requirement to submit financial
responsibility documentation for new,
and not old, tanks, arguing that new
tanks are less likely to lealc than older-
tanks.
The'Agency has retained this
provision in the final rule. As noted
above, the proposed requirement builds
upon existing notification requirements
mandated under section 9002(a] of
Subtititle I and codified in the UST
technical standards (53 FR 37082,
September 23,1988). Specifically,
§ 280.22 requires owners or operators
who bring a new tank into use to notify
the appropriate state or local agency or
department of the existence, age, size,
type, location, iand uses of the new tanks
as well as to obtain an installation
certification. Including financial
assurance information in these reports
involves a minimal increase in the cost
of these reports for the regulated
community and provides valuable
compliarice'monitoring information to
the implementing agency.
Another coramenter argued that
owners or operators should not be
required to submit .financial assurance
documentation for new tanks to both the
EPA Regions and the states. The Agency
agrees with the commenter. While the
proposed rule required owners or
operators to submit this documentation
lo the Regional Administrator, today's
rule relies on submittal of the. new tank
notification'to the appropriate state or
local agency or department, as required
in § 280.22 and RCRA section 9002(a).
Another .commenter found the
wording of § 280.106^a)(2) unclear, and
inquired whether financial responsibility
documentation should be submitted for
a suspected release or only in the'event
of a confirmed release. The financial
assurance reporting requirements, which
have been revised to reflect provisions
for reporting releases for corrective
action in §§ 280.53 and 280.61 of the
UST technical standards, now require
submittals in the event of the confirmed
releases. (These provisions are
discussed in further detail in Section
1V.F of the UST technical standards -
preamble.)
The same commenter urged EPA to
allow entities installing large numbers of
tanks the option of submitting financial
responsibility documentation annually
to the Regional Administrator rather
than submitting multiple documentation
for each new tank. The Agency sees no
reason to adopt this approach. Section
260.22 requires that owners or operators
certify in the new tank notification form
that they are in compliance with the
financial responsibility provisions as
well as provide information on
compliance with other technical
requirements..
R. Recordkeeping (§280.107)
Under the proposed rule, owners or
Operators were required to maintain
evidence of all'financial assurance
mechanisms used to demonstrate
financial responsibility under this
subpart\intil one year after closure or
one year after the completion of closure
and corrective action. An owner or
operator was required to maintain at his
UST site or place of business the
following types of evidence for
mechanisms used to demonstrate
financial responsibility:
(1) Copies of assurance mechanisms
specified in § § 230.94 through 280.100,
worded as specified. '
(2) Letters of certification from the chief
financial officer of firms using the financial
test of self-insurance or providing guarantees,
based on year-end'financial statements for
the last completed fiscal year. Such evidence
must be on file no later than 120 days after
the close of each fiscal year.
(3) Originally-signed duplicates of the
standby trust funds worded as specified in
§ 280.103(bj for guarantees, surety bonds, or
letters of credit. -
(4) Originally-signed duplicates of the ,
insurance policies or RRG coverage policies
with the endorsements or certificates of
insurance and anyiatoendments.
[5] Copies of letters or certificates from
states regarding coverage by state funds or
other state assurances.
The proposed rule also required the
owner or operator to maintain a
certification that the financial assurance
mechanism used to demonstrate
financial responsibility is in compliance
with the requirements of the rule- •
The Agency received a number of
comments concerning the recprdkeeping
requirements of owners or operators of
•petroleum USTs. .Some commenters
expressed unconditional support for the
provisions. . . . '
Several commenters, however, were
dissatisfied with the requirements. One
commenter urged EPA to delete the
recordkeeping requirements and instead
require owners or operators to submit
evidence of financial responsibility
directly to the Agency. Since the
Agency, as noted in Seption III.Q, does
not require the automatic submission of
financial responsibility documentation,
it has decided to retain the
recordkeeping requirements under
§280,107. .
Another:cornrn.enter suggested that the
certification of compliance be kept at
the LTST.si.te, rather than at "the place of
business, and. that it include the address
of the cprporate.office where details
would be maintained.. The provisions of
this section allow UST owners or
operators to choose fhis reeordkeeping
option. However, ;as with the technical
standard rule, off-rsiie records must be ,
made .available on request of the
implementing agency.
One commentefnoted'that compiling
the annual letter from the chief financial
officer supporting' the use'of financial
tests or guarantees is' unnecessary. The
commenter suggested that this annual
letter should not be required, especially
since the certification of financial
responsibility presents essentially the
same information! Another commenter
asserted that the certification of
financial responsibility'iS'Unnecessary.
The Agency has decided to retain
both requirements. Because EPA is not
receiving financial responsibility reports
on a regular basis, the Agency believes
that requiring an innual letter from the
chief financial off jcfer may be'necessary
to further ensure the. validity of various
financial responsibility mechanisms.
Morisovei', the Ag'ency notes' that large
firms, as('a matfef!6f sfimdard.'business
practice, routmeljf maintain'the
information requited in' the annual letter.
Similarly, requiring: the' certification of
financial responsibility will provide
additional incentives' for'owners or
operators to cpmjJly with the regulations
at all times, and will riot entail a
substantial administrative burden.
One commenter argued that sending
the chief financial" officer's annual letter
to all UST'sites will present significant ;
administrative burdens on some firms.
The Agency .agree!?, and riptes that the
comrhariter mjght fiave misread the '
proposed rule', which allows owners or
operators to mainjtain all,documentation
at either the UST site or the owner's or
operator's place df business. However,
off-site records aniist be made available
upon request of the implementing
agency.' .'. .!..'.'..•
One cpmmentei; questipneid the need
to maintain an originaUyTsigned
duplicate of .the sfjandby trust,agreement
at each'UST location or place of
business when it is adequate to
maintain only a copy of the guarantee,
surety bond, or letter of credit Similarly,
the commenter questioned the need to
maintain an origirially-signed.duplicate
of the. insurance pplicy when it is
adequate to maintain, a c.ppyof the
certificate of insurance, especially since
the commenter's policy-contains
confidential information not intended
for widespread distribution. Requiring
originals, the cornmenter-asserted,
would increase,the paperwork burden
exponentially for firms with large
numbers of facilities. As an alternative,
the commenter recommended that .the
Agency allow pw-ijers. or, operators to.
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Federal Register /Vol. 53, No. 207• / Wednesday, October 26; 1988 / Rules and Regulations 43359
keep copies at each location and be
required to. submit originals only in
accordance with proposed (§280.106 or
within 15 days of a written request by
the Agency.
The Agency agrees with the
commenter that requiring an originally-
signed duplicate of the standby trust
agreement and the insurance policy to
be maintained at each facility is
unnecessary. An owner or operator need
not maintain an originally-signed
duplicate of an insurance policy in order
to draw on the policy; similarly, an
owner or operator need not present an
originally-signed copy of a standby trust
in order to exercise the trust.
Consequently, the Agency has revised
the final rule to require an owner or
operator using a guarantee, surety bond,
or letter of credit to maintain a copy of
the signed standby trust fund agreement
and copies of any amendments to the
agreement. In addition, an owner or
operator using an insurance policy or
RRG coverage is npw required to
maintain a copy of the signed insurance
policy or RRG coverage policy, with the
endorsement or certificate of insurance
and any amendments to the agreements.
The Agency also received two
comments suggesting that including a
list of specific tanks and tank numbers
in the financial assurance mechanism is
unnecessary. The Agency agrees with
these comments and has revised the
required wording of all mechanisms to
reference each facility where covered
USTs are located rather than a'tank-
specific list of USTs at each facility (see
discussion under Section III.E of this
preamble).
Pursuant to the changes outlined in
Section III.T, owners or operators will
not be required to maintain evidence of
financial responsibility for one year
after-closure. Rather, owners or
operators need only maintain such
evidence until the date of closure or
until corrective action is completed if a
release is found at the time of closure.,
S. Drawing on Financial Assurance
Mechanisms (§ 28O.108)
The proposed rule provided special
procedures for funding and drawing on
the trust fund and on the standby trust
fund for those financial assurance
mechanisms (guarantees, indemnity
contracts, surety bonds, and letters of
credit) that require action by EPA to
initiate payment. The rule proposed ,
procedures for EPA to follow in funding
corrective action and paying valid third-
party claims, while minimizing the
administrative burdens on the Agency
and owners, operators, and claimants.
For corrective action claims, the
proposed rule required that an owner or
operator .who notifies the Regional
Administrator of a release in
accordance with proposed notification
requirements (Subpart F of 40 CFR Part
280) must provide evidence of financial
assurance within 30 days. Once EPA
possessed the evidence of the assurance
mechanism, the Regional Administrator
would be able to prepare and submit the
appropriate instructions to the provider
of financial assurance to fund the
standby trust, if necessary. If the owner
or operator fails to conduct any
necessary corrective action, the
Regional Administrator can direct, the
provider to fund the standby trust and
can direct payments from the fund.
The proposal provided different
procedures for third-party compensation
claims in § 280.108(b)(2) than were
established for corrective action claims,
because the UST owner or operator may
contest a third-party compensation
claim as invalid or inaccurate. In order
to avoid EPA being placed in the role of
a claims adjuster, the proposal required
the owner or operator and the third-
party claimant to submit a document
signed by each .party and by attorneys
representing each party certifying the
validity and amount of the claims. If the
parties cannot agree on the claims or
amount underlying the signed certificate,
a lawsuit may be required to adjudicate
the validity of the claim and any amount
due.
In addition, § 280.108{c} of the
proposed rule established procedures
for the Regional Administrator to draw
on the financial assurance mechanisms
once estimates or known costs of
•corrective action and third-party claims
are available. The rule required the
Regional Administrator to instruct the
trustee to pay corrective action costs
before paying third-party claims in order
to minimize further threats to human
health and the environment and
additional third-party claims caused by
the release.
A number of commenters criticized
the Regional Administrator's
discretionary authority to fund the
standby trust fund as too vague,
especially in light of the Regional
Administrator's apparent lack of
training in technical and financial
issues, his vulnerability as a political
appointee to political pressures, and the
lack of a mechanism by which a
guarantor .or indemnitor can appeal the
Administrator's decision to fund the
amount awarded. Some commenters
thought that this loss of control over
funds by financial institutions or other
entities will discourage participation by
such entities in providing financial
assurance.
One commenter argued that providers
of financial assurance will be reluctant
to issue instruments if they believe they
will have to process paperwork arid
follow the funding protocol even when
their customers are financially capable
of performing corrective action or
paying third-party claims, or are able to
obtain a substitute instrument.
Apparently, providers of surety bonds
and letters of-credit carefully screen
customers in order to minimize the
likelihood that the instrument will ever
be drawn upon; that is, these are truly
intended to be "standby" instruments.
As a solution, the commenter
recommended that the 120-day
cancellation provision be shortened, and
that the instrument be drawn on only if
substitute coverage has not been
provided five working days before the
instrument expires. This timeframe
would lessen the probability that
unnecessary paperwork and processing
would commence and that cash would
sit needlessly in trust funds requiring
management by the trustee.
The essence of these comments is that
the mechanism for funding the standby
trust will diminish the availability of the
financial assurance vehicles requiring
establishment of a staridby,.trust. In
responding to these comments, as well
as those discussed below, it should be
noted that the Agency's desire to
encourage the availability of a wide
array of financial assurance vehicles
under this rule is secondary to the
Agency's mandate to assure that all
financial vehicles will be readily
available when a leaking UST is
discovered. Thus, assuring the
.availability of funds for corrective
actions must take precedence over
marginally enhancing the availability of
any one mechanism.
With respect to the commenters who
thought that the Regional
Administrator's role in ordering the,
funding of the standby trust or the
disbursement of funds would'impair
availability or, worse, compromise the
integrity of the financial assurance
program, these comments greatly
overstate the discretion accorded to the
Director of the implementing agency
(either the Regional Administrator or the
state Agency director) under these
regulations. The Director of the
implementing agency is required to act
only under clearly defined
circumstances, and, other than for
cancellations, only when the owner or
operator does not cover the costs of
corrective action and third-party
liabilities. For example, the Director will
require funding of and draw on the
standby trust in three situations: (1) If
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43360 Federal Register / Vol 53, No. 207 / Wednesday, October 26, 1988\J Rules and Regulations
the owner or operator fails to establish
alternative financial assurance within 60
days of notice of cancellation, and the
Director of the implementing agency
determines >or suspects that a release
has occurred and so notifies the owner
or operator (evidence of a'suspected
release under § 280.50 includes positive
monitoring results from testing,
monitoring and sampling, unusual
operating conditions, or the discovery of
regulated substances in the
environment); {2) if the Director
determines .that there is a release and
the owner or operator fails-to undertake
necessary corrective action; or {3} if the
Director receives proper-certification of
a third-parly liability claim or a valid
final-court order for a third-party
liability claim that the owner or operator
fails to-pay •(§ 280.108(a)(2) in the final
rule). Thus, while the Director is a
critical participant, the provider of
financial assurance and the owner or
operator are intimately involved in the
actions triggering funding of the trust,
and ample notification accompanies
each step.
One .commenter see.med to argue that
availability does not hinge on the
Director's role so much as it is a
function of the provider of assurance's
aversion to risk and paperwork.
According io this arugment, these
mechanisms will be available only to
owners and operators who have the
ability to .undertake corrective action
and meet demands for third-party
damages, but be jeopardized if it is
likely that the standby trust might be
tunded, necessitating cost and
paperwork.
In response, EPA notes that payment
into the standby trust fund is not easily
triggered, but occurs when cancellation
of the financial assurance vehicle
coincides with the likelihood of
certainty of a release from an UST or
xvhen the owner or operator fails to
carry out or pay for the actual costs of
corrective action or fails to pay valid
third-party claims. When an instrument
is cancelled and there is a known or
suspected release, questions of aversion
to handling costs or red tape are clearly
secondary to securing the availability of
funds for corrective action. The only
other circumstances under which the'
standby trust would be drawn upon are
consistent with the commenter's
concern; that is when the owner or
operator truly fails to cover the assured
costs. Further discussion of cancellation
and notice is provided in Section III.P,
above.
One commenter objected to the
specific langauge in the proposed
§ 280.108(a)(l)(ii) that empowers the
Regional Administrator to require
funding of die standby trust if the
financial assurance mechanism is
cancelled and not replaced and if the
Regional Administrator "determine or
suspects that a release ... has
occurred," arguing that mere "suspicion"
on the part of the Regional
Administrator was not adequate ground
for funding the trust.-The commenter
'wouldamend this language to prevent
the Regional Administrator from acting
unless a determination has been made
that a release has actually occurred.
The Agency cannot accept this
restriction on the Director's authority to
.act on the suspicion that a release has
occurred. EPA intends that this
suspicion be based on objective
evidence, such as failure of a tank
tightness test, discovery of free product
in adjacent sewer and utility lines,
notice by the owner or operator, or other
clear but unverified evidence. Further,
the suspicion must be coupled with the
cancellation and nonreplaeement of the
financial assurance mechanism as
described above. In this case, there
would be no new assurance mechanism
to take over when the cancellation
becomes effective, leaving the owner or
operator potentially unable to fund
corrective action and third-party
liabilities arising from release that
occurred before the cancellation.
Finally, a number of commenters
misunderstood the workings of the
provision. One commenter thought that
EPA should not propose procedures to
evaluate third-party claims, but, rather,
should allow the parties themselves or
the courts to settle claims. An insurance
company association commented that
the language suggested that the owner
or operator may settle a claim with a
' potential claimant without consultation
with the insurer, thus placing the insurer
in the position of indemnifying any
claim, no matter how frivolous, if the
owner or operator chooses to settle* An
insurance company commenter
requested that the standby trust
provision be clarified to prevent its
application to insurance entirely.
In response, the Agency notes that the
claims for third-party damages are
settled by the parties themselves, with
full access to the courts if unresolved
issues remain. The regulations simply
provide a mechanism that expedites
settlement of claims made against the
funds held in trust if the parties agree on
the.details of the settlement. It is
unlikely that insurance companies will
- be providing surety bonds, guarantees,
or letters of credit, but if they do, issues
concerning any alleged breach of duty
by parties to the agreement are the
province of the legal system, not the
Director. Finally, She regulations state
clearly that the provisions of the
standby trust do not apply to insurance
policies. ;
After reviewing all of the comments
on drawing on the financial assurance
mechanisms, EPA has concluded that
only two changes should be made to
§ 280.108 as proposed. All references to
the Regional Administrator have been
changed to the Director to clarify that
these responsibilities are delegated to
the Director of the state implementing
agency in authorized states. In addition,
the standby trust is only required for
guarantees, letters of credit, and surety
bonds becaus^ indemnity contracts are
not included a|s -an allowable mechanism
in the final rule-
T. Release From the Requirements
(§280.109) i ;
I
Under the proposed rule., owners and
operators were released from the
requirements after completion of closure
or, if corrective action was required,
after the tank was properly closed and
after completion of corrective action.
The preamble jto the rule, however,
discussed the Agency's intention to
. require owners and operators to comply
with the requirements-for one year after
closure. Many: commenters objected to
the possibility I that owners or operators
who properly close their tanks wouid be
subject to the requirements for one year
after closure. These commenters pointed
out that there is no need to require
coverage afte^ closure because
corrective action, when required, must
be taken before closure, and because
they believe that insurers are unlikely to
insure ownersjand operators after tanks
are closed. . .
Commenters indicated that it is
unlikely that financial assurance
providers will jprovide coverage after
tank closure. The Agency recognizes
that this is the1 case. The closure
requirements in Subpart G of the
technical standards specify a closure
process that requires owners and
operators to notify the Director of the
implementing agency before closure,
and conduct a;site assessment. If
releases are identified, the owner or
operator mustjconduct corrective action
and the tanks jsannot be closed until
corrective actijon is completed. This
process will ensure that closure is not
completed until any releases from the
petroleum UST system have been
cleaned up.
Therefore, the Agency has determined
that the need for. financial assurance
will be greatly diminished after
corrective action and closure are
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Federal Register. / Vok 53, Net 2Q7 / Wednesday,, October 26% 1988 / Rules- and Regulations 4336.1
completed and will not require owners
and" operators to maintain financial
assurance, after proper closure of their
tanks. Under the. final rufe*. owners and
operators are released from the,
requirements after, completion of closure
or of corrective action and closure,
when required.
U. Bankruptcy err Other Incapacity of
Owmer-ar Operator or Provider. &f
Fimmciat Assurance (§2O8i£tO)
The proposed rule required that any
owner or operator named as a debtor in
voluntary or fnvohmtary bankruptcy
proceedings (under Title 11 of the U.S.
CodeJ notify the Regional' Administrator
within 10 days after commencement of
such- proceeding; In addition, the
proposed rale required a guarantor or
indemrritor to notify the owner or
operator by certified' mail wilhm "£& days
after eommeneement of a voluntary or
involuntary proceeding under TMe M
(Banlmiptcyjof tfee-TJ.S. Code that
names- such guarantor or indemnitos as
debtor. The proposed* rote s%elated,
fuBlhermore, that any owner wh»
demonstrated; financial responsibility
using a mechanism other than the
financial test of self-insurance- wilt be
deemed: to be without the required
financial assurance in the event of a
bankruptcy or incapacity of its fwaewtef
of financial assurance, or a suspension
or revocation of the authority of a.
provider to issue a guarantee, indemnity
enatract,' surety bond, insurance peBey,
risk Eeteatfon.^eonp coverage policy,
letter of credit. cn-state-Fequiredi
mechaniant, Fina%v proposed § 280HIO
required states to notify the Segionat
Admmiatrafear and owitess and
operators covered by a state fund: oir
other state assurance within 3D days
after the assurance mechanism becomes
incapable of covering assared coats. The
proposed rule adopted ths pcovisJOQ in
Subtitle C rules- for the incapaeitjf di
owners.QE opera torSy guarantors, or •
financial iaslitetkras (jsee §;& 2&£14a and
265.140^ but amended ttekngaags IET
make ft more applicable to the
requkements iW Subtitle I financial
responsibiltty.
One e©HHn$n*esdoaMed-whether aa
owner OF operator would be- informed
withia 1O days after th« commGacement
of baoakBaptey/ of a prewide* of assurance
to notify EPA of the bankruptcy. The.
commenter aaggested that this
requirement be eliminated.
The enmmenteB appears to have
misread the rufe. Proposed f 28a.tl0r
required, a guarantor or indemnitot to
notify the awner, or operator bjj certified
mail-within la days, aftei
commencement of a voluntary, or
involuntary bankcupt&jf pr.aceedtog
naming the guarantor or indemnitor as a
debtor. (As noted in Section IIL G of
today's preamble,, indemnity contracts
cannot be. used t& satisfy tb& fiaancial
responsibility requiEements.) AH owner
or operrator, in aceordance with
§ 280.106, must notify the Diiector of the
implementing agency of the. incapacity
(e.g.» bankruptcy) of a provides of
financial assurance only if the owner or
operator fails, to, obtain alternate
assurance wtthia 3Q days of receiving
notice of such incapacity.
The Agency, therefore-,, has; deeided to
promulgate these provisions as
proposed.
V. Provisions Pertaining to Other
Instruments (§28ff.llll
1. Maintaining Other Instruments at
Required Levels ofCoveBage
If the Director of the implemenrnig
agency requires fandingoif the standby
trust where- financial assurance'i's.
provided by a guarantee! fetter of credit,
or a surety bond, and draws on the
standby trust or on a trust fund: fo pay
the cost of corrective action or third-
party" damages; me faff amount of
assurance required by § 280'.93' witt no
longer be asaSabte. Tlie proposed
regulations did not specify the steps the
owner or operator had to take .to assure
that his financial responsibility.
obligations w.ere being met' after one of
these mechanisms had been used. WfiiFe
the need to take these steps was implicit
in the proposed: rolev t&e Ageacy is
making, a technical addition, to the, rule
to clarify precisely how the meehanisms
would tie implemented. Accordingly, a
new- section: has been, added to the final
financial responsibility regulation. •
(§ 280J.11}- establishing requirements, for
replenishing a guarantee, letter of credit,
surety boHd,OE trust fond if the
assurance these mechanisms provide
falls below the required amount.
These, new provisions provide, that, if
the amount in the- standby bast is
reduced below the fall amount-of
assurance required* the owner, or
operator shall:,
(1) By the anniversary/ dfete of the {foascial
mgcbanisEQi fsoau whicb the funds were-
drawre,
(,2} Replenish, the value o£ finaneial
assurance to equal the full amount of
-assuranee Beq.uire«Jt oc
(3) Acquire another Kkahcial assurance
mechaism for tfie amount by Whfe&fnhcls in
the standby trust have beea teSoced
If a^Gombination of mechanisjns v«as.
used to pr&vide, the-assuraatce funds
which, were drawn, upon,, replenis&mani
shall occur by, the earltest aauuversary
date among, the mechanisms. This,new
sectioa provides, needed:-iaatroction. for
the Director of the implementing agpaey
and the owner or operator, and,, more
importantly, ensures, that aoa adequate
level of funding will be available far
coraective action and. payment of thrfd-
party damage claims.
2. Exclusionary Language for Other
Instruments
The language of the instrraaeBte for
guarantees, letters of credit, sorety
bonds and teust funds hi today's rule
contains a provision that they do, not
apply to certain categories; of damages
or obligations. These exclusions we
patterned; on existing: standard
exclusions found in insurance coverage!.
and are intended to ensure that the
coverage is not exhausted- by the
payment of claims, that are covered by
other compensation systems or- that aie
otherwise not intended to beinelmded
within the scope of. coverage^. The five
exclusions do not, cepcesent aE common
insurance poliey exclusions, bat were
selected because they were considered
most relevant to the financial assurance
mechanisms for Hability requked under
Subtitle I. In commeating an specific
mechanisms^ some csmmenteis were
concerned about the possible uses foe -
the mechanisms oc the Director's
perceived diseretion in ordering
pay%reiits firouj th® standby trnsfc
Incorporating this-exekisfonary' l
will ensure ntDre certaiaty for&e
or operator and for the prouder that
these mechanisB3S;wilfcb.e-used!Q!iiiy for
costs associated with UST releases, as
therufe reqskes..
Hie exclu^ons,-wife on« exception,
parallel exclasions that are being
proposed fer .iristramente. raader Subtftte
C.'Ehepuppose of aeM-ing these
exclusions- to Subtitle C instruments is-
similar to the pappose under Sabtitte{r
to ensure that coverage, provided by the
instruments will be available only to-
respond to corrective action and third-
party claims related to releasesfrouj
underground storage tanks-and will not
be available to cover routine accidents
not related to USt releases or claims foi
damage to the owner OE operateE,. orto
meet other liabilitiea assumed by the
awner or operator vjliick are uncefafed
ta UST releases. The Subtitle. G
exclusiQH,, however,, excludes damage to
the property o£ the owner, or operator.
While, penoissifalfi for Subtitle C liability
reQuiEemeats because only-thizd-paitjf
damages, must be covered, such an,
exclusion. we
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43362 Federal Register / Vdl 53. No. 207 / Wednesday, October 26. 1988 / Rules and' Regulations
corrective action (e.g., cleanup which
•would be part of routine maintenance
and not subject to Subpart F of the
technical standards).
Exclusion (a), for obligations under
workers' compensation, disability
benefits, or unemployment
compensation law or similar law, is
intended to prevent the use of Subtitle I
financial assurance mechanisms to
cover such claims.
Exclusion (b), for bodily injury to the
employees of the owner or operator, is
also intended to ensure that such claims
are not covered by assurance
mechanisms obtained to comply with
this rule.
Exclusion (c), for bodily injury or'
property damage arising out of the
ownership or use of any aircraft, motor
vehicle, or watercraft, is to prevent use
of an authorized financial assurance
mechanism for routine accidents that
are not directly related to management
of underground storage tanks.
Exclusion (d), for property damage
other than that related to cleanup as
required by under Subpart F of the
technical standards, is intended to
prevent use of the instruments' funds to
meet other on-site cleanup costs such as
those for routine maintenance.
Exclusion (e), for bodily injury or
property damage for which the owner or
operator is obligated to pay damages by
reason of the assumption of liability in a
contract or agreement, is intended to
exclude liabilities assumed by contract
that do not involve the ownership or
operation of the underground storage
tank. It does not exclude settlements or
other agreements to pay damages in
connection with accidental occurrences
resulting in bodily injury, or property
damage caused by releases from
underground storage tanks.
W. Suspension of Enforcement
(§280.112)
1. Statutory Authority
RCRA section 9003(d)(5)(D) authorizes
the Administrator to suspend
enforcement of the financial
responsibility requirements for
particular classes or categories of USTs.
Suspensions of-enforcement may allow
time for owners and operators of USTs
in particular classes or categories or
located in particular states to obtain
assurance for corrective action and
third-party compensation costs. Because
some'owners or operators of certain
classes or categories of USTs" may find
that financial assurance mechanisms are
not generally available on the date set
for compliance in the rule, suspensions
would allow these owners and operators
time to comply with the requirements
through the formation of RRGs or the
establishment of state funds.
The statute requires that, to suspend
enforcement, the Administrator must
determine that (1) methods of financial
responsibility are not generally
available for USTs in the class or
category; and (2) either steps are being
taken to establish a RRG for that class
of tanks or a state is taking steps to
establish a corrective action and
compensation fund under RCRA section
9004(c)(l). A suspension of enforcement
may not exceed 180 days. The
Administrator has the discretion to
suspend enforcement for a period of less
than 180 days.
After an initial suspension expires,
the Administrator may again suspend
enforcement of financial responsibility
requirements, but only if (1) methods of
financial responsibility are still not
generally available, and (2) either (a)
"substantial progress" has been made in
establishing a RRG; or (b) the owners or
operators of USTs belonging to the class
or category demonstrate, and the
Administrator finds, that the state is
unable or unwilling to establish a fund
and formation of a RRG is not possible.
EPS proposed relatively detailed
procedures and criteria for its
consideration of suspension
applications. EPA requested comment
on all aspects of the proposed
suspension of enforcement procedures
and on any alternative procedures.
2. Suspension of Enforcement Process
A number of commenters stated that
the proposed requirements were
unnecessarily complex and burdensome.
They urged the Agency to simplify the
procediirarrequiremerits associated
with suspension of enforcement. (A
detailed summary of these comments is
contained in the Response to Comments
document, Section H.T., in the docket.)
Based on these comments and the
enormous uncertainty over the number
of suspension applications the Agency
will receive on the dates set for
compliance, the Agency has decided to
defer promulgation of the final
procedures for suspension of
enforcement. Therefore, this section is
not included in today's final rule; EPA
intends to promulgate final suspension
procedures as necessary in the future.
As- noted earlier, the regulated
community subject to these rules is
extremely large. Due to current
constraints in the insurance industry
and the assurance risks associated with
the existing'tank universe, there is also
a correspondingly large universe of
USTs for which- financial' assurance is
currently available. HoweverV EPA is
today-phasing :in these requirements
over two years and recognizes that the
availability of certain financial assuance
mechanisms (particularly state funds)
may change dramatically during that
time. Moreover, some states may receive
approval to operate their programs in
lieu of the Federal UST program as the
compliance dates arrive. As a result of
these factors, there is significant
uncertainty over whether, and to what.
extent, suspension of enforcement will
be necessary in the future. Thus, it is
impossible for the Agency to craft
appropriate procedures for
implementing the provision in a manner
that is'at the same time consistent with
statutory requirements, responsive to
the regulated community, and not an
overwhelming burden on the Agency.
During the phase-in period, the
Agency will gain experience with
implementation of the UST financial
responsibility program and gather
additional information on the form that
suspension of enforcement petitions
should take. This will serve as the basis
for adopting procedures, if necessary,
before the scheduled compliance dates
for the largest group of UST owners and
operators. Until such procedures are
promulgated, however, the Agency does
not intend to exercise its discretionary
suspension authority.
IV. Integration with Other EPA
Programs
In promulgating the Subtitle I financial
responsibility requirements, the Agency
received a humjber of comments •
concerning integration of these
requirements with other EPA program,
including other iSubtitle I rulemakings
and the LUST Trust Fund programs.
A. Other Subtitle I Rulemakings :
The proposal noted that certain
requirements in other Subtitle I
rulemakings were relevant to UST
financial responsibility requirements.
One set of relationships raised in the
preamble was the influence of UST
technical standards on the cost of
corrective action and third third-party
liability, and on the amounts of
aggregate coverage needed. Early
detection or reduction in the probability
of release will reduce the occurrence
and extent of harm, thus influencing
coverage. These relationships were the
subject of numerous comments
addressed in Section III.D of this . •
preamble concerning aggregate levels of
coverage. .'.',-.
Numerous coijiments raised' other
significant concerns about the
relationship between'thetechnical and
financial responsibilityrequireiH&jtS.
Commenters wejre concerned" a&Wt the
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^Federal Register / Vol. 53, No. 207 •/-. Wednesday. October 26, 1988 / Rules and Regulations 43363
impact providers of financial assurance
would have on tank upgrading and
replacement vis-a^vis the proposed
phasing of requirements in the technical
standards rule. For example, several
state and local governments addressed
the relationship between the content
and timing of the proposed technical
UST requirements and the financial
requirements, primarily the securing of
insurance. They thought that insurance
would become more-readily available
and less expensive if tank inspection
and certification were required first
since insurance companies generally
attached these conditions to coverage.
However, they were surprised that the
Agency's tiineframe for bringing tanks
into compliance with new tank
standards was so long in view of the
relationship between tank upgrading
and inspection and availability of
insurance. .•
Some went further, stating that the
insurance industry via the financial
responsibility requirements would be
determining the technical tank
standards, .and that this incongruity was
a major philosophical and logical flaw in
the regulations. Rather, technical
considerations should drive the
construction and monitoring standards;
then, with tougher tank standards, the
financial responsibility requirements
cna be significantly curtailed.
Furthermore, they argued that the heavy
relia'nceLplaced by Congress and EPA on
financial-responsibility was not
consistent with the goal of Subtitle-I to
prevent contamination of ground water.
Instead, consideration should be given
to expanding efforts in preventing
contamination, which should be the
objective of regulation, rather than
environmental reclamation after the
fact. . •
Commenters from the regulated
community made approximately the
same comment as the above, noting that
meeting conditions imposed by insurers
for tank tightness and leak detection
will force tank owners'arid operators to
meet technical standards when the
financial responsibility requirements
become/effective, despite the later
compliance schedules under the
technical standards.
Drawing a blunter-economic
relationship between the financial
responsibility and.the technical
requirements, these commenters stated
thatthe money spent on insurance
would be unavailable for tank upgrading
where, they.reasoned, it would be better
spent. One commenter concluded that a
conservative UST technical program
and the state-of-the-art UST
manufacturing; and installation .
techniques currently available will
substantially reduce, if not eliminate,
the need for excessive financial
responsibility in most cases.
Commenters from states and the
regulated community argued that the
timing and content of the technical and
financial responsibility regulations will
result in remediation, rather than
prevention, being the dominant
consideration behind UST control, and_
in the providers of financial assurance
specifying the technical requirements for
tank owners and operators as a
condition for coverage. The states and
owners and operators apparently differ
on how each would correct this
situation. The states would strengthen
the technical requirements and reduce
the financial responsibility
requirements, whereas commenters from
the regulated community would
substitute state-of-the-art technical
requirements for all financial assurance
requirements.
EPA does not believe either correction
is necessary. EPA does not agree with
the assumption that the technical and
financial responsibility rules are
necessarily competing alternatives, and
in its final rules has attempted to
interrelate the two more clearly.
Congress specified that financial
responsibility under section 9003 (c) and
(d) of RCRA could be required at the
discretion of the Administrator. SARA
amended these provisions to mandate
financial responsibility coverage and to
provide a response program for
petroleum UST releases. Congress did,
not present these amendments as
alternatives to technical specifications
for USTs. The sections of this;
comprehensive legislation cannot be
viewed in isolation, but must be viewed
as a whole; the overallgoal of the
legislation is to reduce the unacceptable
risk to human health and the
environment posed by thousands of UST
leaks through prevention and assuring
quick response when leaks occur.
Both the technical and financial
responsibility requirements are
preventive in nature. Neither would be
totally preventive of harm to the public
health and environment in itself, but in
conjunction they will assure a high
degree of protection. The direct control
of leakage from USTs is obviously a
preventive strategy,, but is not foolproof.
The funds assured through the various
mechanisms permitted in this
rulemaking establish a safety net that
finances immediate and thorough
corrective actipn when a release does
occur and before the spread of ;
contamination. If the provider of
assurance also places demands on the
owner or. operator for technical controls,
this strengthens protection af public"
health and the environment by
increasing the incentive for tank
upgrading and replacement as well as
assuring funds for corrective action and
third-party liability.
Phasing in compliance for the
financial responsibility requirements
brings this compliance schedule more
into balance with the compliance
schedule for the technical requirements.
The Agency projects that many owners'
and operators will begin to comply with
the technical standards early in the
phased-in schedule for tank testing and
upgrading or replacement. These tanks
will represent low-risk USTs and thus
financial assurance, particularly
insurance, should be available for them
at a lower cost than for pre-regulation
tanks.
The Agency recognizes that there
might be continuing concern because the
timeframes for the two regulations are
not the same; however, EPA cannot wait
until all technical requirements are in
place before imposing the financial
responsibility rules. The result of further
delay would be an unduly long period of
time during which many members of the
regulated community would have-no
financial assurance and could be unable
to afford-the cost of cleanup or liability.
Moreover, longer delay would provide
little incentive to states and insurance
providers to develop mechanisms that
will be needed to comply with the rule*
Several commenters claimed that the
burden of complying with financial
responsibility requirements would force
owners and operators to move tanks
aboveground and, thus, that ;the final
rules' should contain criteria that help
the changeover to aboveground systems.
For example, commenters suggested that
an owner or operator's commitment to ,
move tanks aboveground over a
specified period of time should trigger
an exemption from interim requirements
for leak detection. Small, businesses
would be especially likely.to install
aboveground petroleum tanks in place
of USTs. Because these tanks would
pose significant hazards to facility
personnel, local communities, and the
environment, the commenters went on
to urge the Agency to assess the
consequences of this scenario before
promulgating a" final rule, and,
meanwhile, to exempt small businesses
not involved in petroleum marketing
from •financial responsibility
requirements.
The Agency feels that moving tanks
aboveground is not necessarily,a
problem-if done in compliance with .
applicable state and local .requirements.
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43364
Register./ Vol. 5& No. 207-./ Wednesday, October 26, 1SB8 / Rules and
Any, tank removed from underground, to
aboveground must meet the same
closure requirements under Sub.part G
as any other tank that ia taken out .of"
service or permanently closed. Mo
reasons have been put forth by
commenlers for why financial.assurance
requirements should be waived for
owners and operators who intend to
withdraw tanks from coverage under
these regulations in the future. In
addition, because numerous
jurisdictions already stringently regulate
or prohibit aboveground tanks, the
Agency suspects that moving tanks will
not present as appealing an alternative
to leaving the tanks underground and
providing mandated protection.
Therefore, EPA has not provided an
exemption from these requirements for
tanks that may be moved aboveground.
Finally, two suggestions were
submitted that would relate technical
and financial requirements. One
commenter suggested that a financial
credit should be available to owners
and operators who installed secondary
containment with continuous interstitial
monitoring, thereby minimizing the
potential for leak occurrence and
attendant cleanup costs and third-party
damages. However, EPA has rejected
the use of such credits, as discussed in
Section HI.D, above.
The second mechanism consists of a
new federal fund, financed by a sales
tax on petroleum products; to be
collected and used by states as a state
cleanup fund. One condition on the fund
is that owners and operators would
have to register.tanks with the state
environmental department within 90
days, with failure to comply triggering
the need to supply proof of insurance
and/or net worth as prescribed in the
proposed financial responsibility
regulations. However, the only available
federal fund, -the LUST Trust Fund under
section 9003(h), was created to provide
cleanup of UST releases in particular
circumstances. Congress did not
authorize its use as a financial
assurance mechanism. Rather the fund
is intended to "stand behind" the owner
or operator who has obtained financial
responsibility in the required amounts.
SARA Conference Report H. Rep. 99-
962.99th Cong., 2nd Sess. at 271.
B. Leaking Underground Storage Tank
(LUST) Trust Fund and Response
Program
Because the LUST Trust Fund and the
financial responsibility .program are
closely related, the comments proposed
a wide range of uses for the Fund.
Several commenters stated that .the .final
regulation should .require states to uae
the Trust Fund tp. cover costs in; excess
of financial- responsibility limits'where
the owner or operator has complied-with
all regulatory and financial
respOns'ibi;tity-reqnKemen.tsI In support,
the commeritefs cited the Agency's
discretion to forego full cost-recovery in
section gq03(h)(6)(B3 and the .potential
incentive this provision might give
owners and operators to secure
financial responsibility and report leaks
promptly, as reasons why the final rules
should specify such a condition on use
of the Trust Fund.
Several additional .uses of the Trust.
Fund were suggested. One commenter.
encouraged EPA to allow use of Trust
Fund monies in cases where a leak
occurs at. the site of an owner, or
operator who belongs to a class against
which enforcement has been suspended.
Another commenter suggested that the
Trust Fund could be used to repay RRGs
for payments for deductibles. To offset
these costs to the Fund, the RRG would
require protection beyond that required
by the final regulations .(e.g., secondary
containment). Another commenter
objected to the requirement that an
insurance company must pay the
deductible for a company in bankruptcy,
because if the Trust Fund were used for
such purposes, the US. Government
would be a preferred creditor in
bankruptcy, whereas an insurance
company making the payment would be
non-preferred.
A state commenter argued that Trust
Fund money should not be given only to
states with approved UST regulatory
programs. The commenter stated that
the Trust Fund and the regulatory
program.were created separately and
shpujd remain so; that the loss of Fund
monies would place, a major financial
burderj on states with marginal
capability to fund the base progra*m;
.and, furthermore, that the environment
and public, health would be jeopardized
by not using the Trust Fund separately;
from the regulatory .program, as
designedly .Congress. Mayors could tap
into the Fund if EPA would require, as
part of state program approval, that the
state program provide direct municipal
access to the Trust Fund for cleanup and
oblige the state to address other local
concerns. In addition, the.commenter
urged EPA to seek authority to use the
Fund as. a source of grants to develop
local programs.
With respect to the numerous and
varied uses of the LUST Trust Fund
offered in.the comments, as noted
earlier, Congress has authorized,use of
the Fund to pay corrective action costs.
only under limited and spectfically
defined, eircumstances. After final
regulations, on the technical-standards
sand financial responsibility .go into
effect, Fund monies can he used to pay
for corrective, action; only in the,
following situations;-; .. , •.. :.-
(l)'An otorieror operator wbo- isre^i'freflto
undertake .the'canective:actien- and who is
capable of ^carrying out corrective actkm'
properly does not exist or cannot be
identified; !
(2) Prompt action by the Administrator (or
state) is necessary to protect human health
and the environment; "••'.'•
(3J The financial resources of the owner or
operator, inchidingiany UST financial
assurance, are inadequate to pay the entire
cost of the corrective.action, and,-
expenditures from the Fund are necessary to
assure effective corrective action; or
(4) An owner or operator has failed or
refused to-comply with an order to pterfonn
corrective action.. '
Section 9p03(hHll) explicitly prohibits
the expenditure of Fund monies for
corrective action iat any facility-where
theowner or operator ha's failed to
maintain evidence of financial
responsibility in the Tequired amounts,
except (1) in'cases where there .is no
solvent owner or operator, or (2} in
cases where .immediate action is
necessary to jresppnd to an imminent
and substantial .epdangerment of human
health or the environment, or .{3} to
undertake an "allowable corrective
action" to protect human health.
(Section 9003(h}(5) defines these
allowable corrective actions to include
"temporary or permanent relocation of
residents and alternative water
supplies" and exposure assessments
undertaken to >protect human health.)
One result of these requirements .is the
preclusion of many of-the alternative
uses for the Fund 'suggested by
commenters: Specifically, EPA does not
agree that the state should be required
to use the Trust Fund to cover costs in
excess of the financial responsibility
requirement. While the statute clearly
allows the state to-use the Trust Fund-in
such a situation, the decision should be
made-on a case-by-case basis at the
discretion of the state. EPA also .does
not agree with comrnenters who
suggested that the trust Fund be used to
(1) repay RRGs fat payments for
deductibles, and (2) to pay deductibles
for companies in bankruptcy. Owners
and operators are. expected to maintain
evidence of financial responsibility and
pay the costs of their releases. Congress
intended the Trust Fund to stand behind
an owner OT operator, who obtained
assurance to meet th& financial
responsibility .requirement and, as .
indicated ahove^is-ta be used in-
mstaaces, where Ae .cost of correjEitiye
action exceed&4heLevels of JuianciaL
responsibility required to he maintained.
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Federal Register / Vol. 53, No. 207 /Wednesday, October 26> 1988 / Rules and Regulations 43365
In response to the comment that Trust
Fund money should not be given to
states that do not have approved UST
regulatory programs, the Agency wants
to emphasize that the negotiation of
state cooperative agreements for use of
the LUST Trust Fund is proceeding on a
path separate from the approval of state
programs. However, ElPA has decided to
make a link between the LUST Trust
Fund and UST regulatory program to
ensure that future contamination is
minimized. After the effective date of
today's final rule, a state's success in .
making reasonable progress toward
submitting a completed application for
state program approval may be grounds
for increasing state access to the Trust
Fund in fiscal year 1990 and thereafter.
In response to the commenters urging
that the Trust Fund be made directly
available to local governments, EPA's
cooperative agreement process involves
states negotiating arrangements for
proper use, recovery, and accounting of
Trust Fund money with EPA. The
municipalities are not parties to these
negotiations and will need to rely on the
state to implement a sound and effective
program for the use of the Trust Fund for
corrective action. The statute does not
provide for any direct EPA/municipality
arrangement.
Finally, as discussed in Section IILW
of this preamble, the Agency has
decided to defer promulgation of final
procedures for suspension of
enforcement. Until such procedures are
promulgated, the Agency does not
intend to exercise its discretionary
suspension of enforcement authority. At
that tinie, the Agency will address the
use of LUST Trust Fund monies to
respond to releases from tanks whose
owner or operator is a member of a
class which has been granted a
suspension of enforcement.
V. State Program Approval
A. Background
Section 9004 of RCRA allows any
state to submit an underground storage
tank regulatory program for review and
approval by EPA. An EPA-approved
state UST regulatory program will
operate "in lieu of the Federal program.
The Agency may approve the state
program if the state demonstrates that
its program (1) imposes requirements
that are "no less stringent" than the
Fe'deral release detection, prevention,
correction, and financial responsibility
requirements, and (2) provides for
adequate enforcement -of compliance
•with Biieh requirements.
B. Financial Responsibility Objective
(§281.37)
In its final State Program Approval
rule (53 FR 37212, September 23,1988),
EPA promulgated criteria for state
program approval in the form of
objectives for seven of the technical
program elements in the final technical
standards rule (53 FR 37082, September
23,1988): New UST system design,
construction, installation and
notification; upgrading existing UST
systems; general operating
requirements; release detection; release
reporting and investigation; corrective
action; and out-of-service and closed
UST systems. The eighth objective for
financial responsibility of owners and
operators of petroleum UST systems is
promulgated in today's rule.
These objectives represent the
Agency's expectations of what
constitutes a no-less-stringent state
program. By requiring the state to •
achieve the objectives underlying the
detailed Federal requirements in each
element rather than match each
regulatory detail of the Federal
requirements, EPA provides a
performance-based measure for
evaluating programs and recognizes that
the precise details in the Federal
program are not the only feasible
approach to UST regulation. By
establishing these objectives, EPA also
provides a framework for approval that
guarantees that each state UST program
provides a minimum level of protection.
An important objective of the Federal
program is that owners and operators of
UST systems containing petroleum have
adequate financial responsibility to
undertake corrective action and meet
third-party liability claims. The Federal
law mandates $1 million per occurrence
with appropriate aggregate amounts as
the minimum level of assurance needed
by most owners and operators of
petroleum UST systems to meet cleanup
and liability costs. Today's Federal
financial responsibility rule allows an
exception for certain classes of owners
and operators who store small
quantities of petroleum for purposes
other than selling it as a product. More
specifically, owners and operators not
engaged in petroleum production,
refining, or marketing and who have a .
throughput of 10,000 gallons or less per
month are required to have only
$500,000 per occurrence for corrective
action and third-party liability claims. In
addition, the financial responsibility rule
sets the aggregate amounts at $2 million
for .owners and operators with more
than 100 UST systems, and $1 million for
those who have 100 or fewer.IJST
systems. Finally, the financial
responsibility requirements will be
phased-in over a 24-month period from
the date of promulgation for different
groups of owners and operators. In order
to be no less stringent than the Federal
requirements for financial responsibility
for USTs containing petroleum, the state
must have requirements for owners and
operators to have financial assurance
and for the types of mechanisms used to
provide that financial assurance.
The Agency received comments in
support of the holistic approach to
determining no less stringent state
programs, particularly because such an
approach would enable'a state to trade-
off more stringent technical
requirements with less stringent
financial requirements, for example,
lower amounts of financial
responsibility. While the Agency
understands that states may experience
difficulty in obtaining statutory or
regulatory authority to require $1 million
in coverage, that amount was
established by Congress in Subtitle I
and EPA believes it does not have the
flexibility to lower that level of coverage
as part of the Federal program or as part
of state program approval.
The first aspect pf this objective
(§ 281.37(a)) concerns the amount of
financial assurance, both per occurrence
and in aggregate, that an owner or
operator must have. First, the state must
have a statute or regulations that require
an owner or operator to have at least $1
million or $500,000 per occurrence and
$1 million or $2 million in aggregate,
depending on the size and type of the
operation. This requirement follows
directly from the Federal financial
responsibility regulations for petroleum-
containing UST systems.
The Supplemental Notice published
on December 23,1987 (52 FR 48644)
included an objective for financial
responsibility; however, aggregate levels
were not included in the proposed
objective; To remain consistent with the
Federal requirements for financial
responsibility, the Agency today is
promulgating the final objective with a
requirement that the owner or operator
have financial assurance in appropriate
aggregate levels. Addition of the
aggregate is necessary to ensure that
approved states'require an adequate
level of coverage. The aggregate level
varies depending on the number of tanks
owned or operated. Owners and
operators with 1 to 100 tanks must have
an aggregate level of coverage of $1
million arid those with more than 100
tanks must have an aggregate level of
coverage of $2 million. The final
objective establishes the same levels of
coverage. Further discussion on pre-
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43366 Federal Register / Vol. 53. No. 207 / Wednesday, October 26, 1988 / Rules anid Regulations
occurrence and aggregate levels of
coverage can be found in today's
preamble at Section 1II.D.
The second aspect of this objective
(§ 281.37(b)J concerns the phase-in
compliance schedule for owners and
operators. The objective proposed on
December 23,1987 (52 FR 48644) did not
include a provision for a phase-in
schedule. This provision is being added
to be consistent with decisions made
following the Supplemental Notice to the
proposed rule for financial responsibility
for petroleum USTs that was published
in the Federal Register on March 31,
1988 (53 FR 10401). In today's final
financial responsibility rule,,EPA has
decided to phase-in compliance over 24
months from the date of promulgation at
all UST systems following a schedule
based on net worth and the number of
tanks owned. Although EPA
recommends that a similar approach be
used by state programs, the Agency has
decided to allow flexibility in the
objective for states to use other phase-in
approaches provided that the schedule
is completed in 24 months. Approaches
that allow all of the regulated
community to wait until the end of the
24-month period would not be accepted
as an orderly schedule.
The third aspect of this objective
(§ 281.37(c)) concerns the variety of
financial mechanisms that may be used
by owners and operators to demonstrate
adequate financial responsibility. The
Federal financial responsibility rule •
allows a wide variety of mechanisms
and combinations of mechanisms to be
used. The state may also allow a variety
of financial mechanisms to be used. To
determine whether state-allowed or
required mechanisms are no less
stringent than the Federal requirement,
general criteria have been established
that are applicable to all financial,
mechanisms. By establishing these
criteria in the Federal objective, the
Agency believes that it is unnecessary
for the state to have detailed
requirements for each mechanism
affected by these criteria for purposes of
state program approval. However, ERA
encourages states to adopt the •financial
responsibility regulation, especially the
language of each mechanism, .since they
have been developed and tested to
ensure that adequate financial
responsibility will be available when '
necessary. For example, the state will
not be expected to demonstrate that its
regulations require a surety company to
state in a bond that the bond cannot be
cancelled during a 120^day period
folio wing'Holiceiof cancellatiort-pf the
bond to -the owner or'operator; The state
must, however, be .able to draw on the
funds assured by the bond before
cancellation occurs. The state
regulations must ensure that the time
period before the effective cancellation
of the bond provides ample opportunity
for the state -to assess the facility,
determine if a release has occurred, and,
if needed, draw funds from the
instrument In this way, the Federal
objectives for financial responsibility for
UST systems containing petroleum are
met.
Section 9004(c)(l) of Subtitle I allows
states to set up a fund that may be used
to meet the no less stringent requirement
for financial responsibility. The state
may choo.se to establish a state fund to
provide financial assurance for certain
classes of owners and operators or for
all owners and operators. The general
criteria for state funds are represented
in the objective (§ 281.37(a) and (c));
these criteria are essentially the same as
the requirements for state funds set out
in the Federal financial responsibility
rule in § 280.100. Further discussion on
state funds and their use in providing
financial assurance will be available in
guidance due to be issued this fall by
EPA. A briefer discussion can also be
found in EPA's State Program Approval
Handbook.
Some commenters expressed concern
that the requirement that states have a
financial responsibility program that is
no less stringent than the Federal
program in order to receive state
program approval will delay approval of
state programs. The commenters stated
that complex financial responsibility
requirements could discourage states
from submitting UST programs for
approval They urged that EPA
promulgate a simple financial
responsibility framework and provide
guidance to the states.
As explained above, the requirement
that an approved state program contain
financial responsibility requirements
that are no less stringent than those
under the Federal program is required.
by RCRA Section 9004. However, EPA
has developed an approach to state
program approval that provides states
as much latitude as possible consistent
with the statute in adopting approaches
• to 'fulfill the requirement The Agency
recognizes the .difficulties for states in
developing financial responsibility
programs and is preparing detailed
guidance and outreach assistance to
states to-help them develop their
programs.
A more -complete analysis
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Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43367
challenge and considerable confusion
about EPA's program for dealing with
this challenge. The Agency believes that
UST requirements can best be
implemented if the program is delegated
to the states and localities. In a
companion rule to the financial
responsibility rules, EPA has set forth
the requirements and approval
procedures for state UST programs (53
FR 37212, September 23,1988). States
with approved programs will have
primary enforcement responsibility for
their own UST programs. Under this
rule, EPA has provided .states as much
flexibility as possible to develop their
own approach to UST regulation and
implementation consistent with
statutory requirements.
Thus, in response to state concerns,
the Agency will be allowing each state
seeking program approval considerable
latitude in establishing the details of an
enforcement program. Although Federal
law mandates certain elements of the
financial responsibility requirements
(e.g., the one million dollar minimum
level of assurance), the Federal program
not only allows a wide variety of
mechanisms, but allows the states to
develop their own financial mechanisms
(e.g., state funds) to meet these
requirements. In short, contrary to the
concerns expressed in the comments,
EPA intends that, over time, states will
assume primary responsibility for the
UST program and will also have
considerable ability to tailor their
programs to each state's experiences
and resources.
States could adopt more stringent
provisions, such as reporting
requirements, than are established in
the Federal requirements, or they could
adopt any of the mechanisms for
assuring compliance that have been
submitted in comments. Although EPA
believes that the event-based reporting
requirements finalized today are
sufficient to ensure compliance by the
regulated community and to provide
timely, information to the implementing
agency for compliance monitoring,
states can and, in many instances, have
imposed annual notification
requirements on owners or operators.
In addition to assisting the states
seeking approval with the development
of their programs, EPA will be providing
the regulated community with extensive
compliance outreach materials, which
should include materials targeted to the
needs of the large and diverse UST
population. A secondary benefit of
compliance outreach should be a higher
degree-of awareness of these regulations
and a greater level of voluntary
compliance, thus easing the enforcement
burden on the states.
VII. Economic and Regulatory Impacts
A. Regulatory Impact Analysis
1. Compliance with Executive Order
12291
Sections 2 and 3 of Executive Order
12291 (46 FR 131393, February 19,1981)
require that a regulatory agency
determine whether a new regulation will
be "major" and, if so, that a regulatory
impact analysis (RIA) be conducted. A
major rule is defined as one that is likely
to result in (1) an annual effect on the
economy of $100 million or more; (2) a
major increase in costs or prices for
consumers, individual industries,
Federal, state, or local government
agencies, or geographic regions; or (3)
significant adverse effects on
competition, employment, investment,
productivity, innovation, or on the
ability of U.S.-based enterprises to
compete with foreign-based enterprises
in domestic or export markets."
EPA has conducted an RIA of the
Subtitle I financial responsibility
requirements for petroleum-containing
underground storage tanks. Based on
this analysis, the Agency has concluded
that this regulation may have annual
costs of greater than $100 million.
Therefore, the regulation promulgated
today is a major rule, as defined by E.O.
12291. The following six sections
summarize the results of the RIA:
Section 2 describes the integration of the
technical standards and financial
responsibility RIAs; section 3 describes
the regulated community affected by
this regulation; section 4 presents some
of the methods and assumptions used to
produce the financial responsibility RIA;
section 5 presents EPA's estimates, of
the. present value of real resource costs;
section 6 discusses the regulation's
economic impacts; and section 7
describes its potential benefits.
2. Integration of the Financial
Responsibility and Technical Standards
Regulatory Impact Analyses
Under section 9003 of Subtitle I of
RCRA, the Administrator of EPA is
required to promulgate both technical
and financial responsibility
requirements for USTs. The RIA
described here presents the costs,
economic impacts, and benefits
associated with the UST financial
responsibility requirements^ A separate
RIA assesses the costs, economic
impacts, and benefits ofthe technical
. standards (53 FR 37212, September 23,
1988).
The results ofthe RIA for the financial
responsibility regulation are presented
both in terms of the incremental costs
and economic impacts of the financial
responsibility requirements (the
additional costs and impacts that
owners or operators complying with the
technical standards will absorb to
comply with the financial responsibility
requirements) and in terms of the total
costs and economic impacts associated
with the imposition of the technical
standards and the financial
responsibility requirements. (The
benefits of the technical standards and.
the financial responsibility requirements
were not integrated because these two
regulations have different types of
benefits that are not additive.)
Methodology-—There are two
important differences between the
regulated community for the technical
standards rules and that for the
financial responsibility requirements.
First, the technical standards apply to
petroleum-containing and hazardous-
substance-containing USTs. The
financial responsibility requirements
only apply to petroleum-containing
USTs. Owners or operators of
hazardous-substance-containing USTs
are not yet required to demonstrate
evidence of financial responsibility.
Second, all owners or operators of USTs
falling within the scope of the technical
standards rule will incur costs to comply
with the. technical standards. States and
the Federal government, however, will
not incur costs to;Gomply with the
financial responsibility requirements,
because they, are not required to
demonstrate evidence of financial
responsibility for their USTs. Therefore,
the regulatory impact analysis for the
financial responsibility requirements
applies to a smaller universe of USTs
(approximately 1.5 million) than does
the regulatory impact analysis for the
technical standards (approximately 1.7
million). The combined costs and
economic impacts of both rules apply to
the entire universe of 1.7 million USTs.
The technical standards will require
firms to improve their methods of leak
detection within 2 to 5 years after these
rules are promulgated; in addition, firms
are allowed up to 10 years to replace or
upgrade their UST systems to meet UST
system performance requirements. To
comply with the financial responsibility
requirements, many firms will similarly
have to improve their methods of leak
detection and replace or upgrade UST
system components, although within a
faster timeframe. This is because, to
demonstrate evidence of financial
responsibility, many firms that cannot
self-insure and that do not currently
have insurance will have to attempt to
get insurance within two years of the,.
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43368 Federal ffegigter/..VQl. :5.3,. No.c2Q7; /Wediaaesday,October 26. 1988.
finanCial.reBppnsibility rule's effective
date. Insurers .will generally require
.upgrading of,UST systems as a
prerequisite to coverage.
For the financial responsibility RIA,
EPA assumed that insurers would
require that:
• Tanks be less than 15 years old or
retrofitted to meet new tank performance
standards; and
• Leak detection measures taken by tank
owners or operators be at least as stringent
as those required by the technical standards.
To avoid doubleHxmnting leak
detection and tank upgrading costs, the
combined costs of the technical
standards and the financial
responsibility requirements are
estimated by attributing to the financial
responsibility requirements the
difference between the present value of
the costs of meeting insurers'criteria
and the present value of the costs of
meeting the technical standards. The
only other cost elements added by the
financial responsibility requirements to
the total costs of both rules are the costs
of procuring and maintaining financial
assurance mechanisms.
The financial responsibility RIA
compares the economic impacts of the
technical standards alone to the
combined economic impacts of the
technical standards and the financial
responsibility requirements; While the
combined impacts of both requirements
are, in all cases, more severe than the
impacts of the technical standards
alone, in individual cases, the financial
responsibility requirements actually
help to mitigate the economic impacts of
the technical standards. Quicker
detection of UST releases and the
availability of insurance to pay UST
corrective action costs will lessen, for
some firms, the economic impacts of
having to comply with corrective action
requirements.
3. The Regulated Community
This regulation is estimated to apply
to 1.5 million underground storage tanks
(USTs) containing petroleum located at
468,000 separate facilities. For the
purpose of this analysis, the regulated
community was divided into four major
sectors: Retail motor fuel marketing,
agriculture, local government entities,
and general industry. Retail motor fuel
marketing is the largest single affected
sector and includes 193,000 retail motor
fuel outlets owned by approximately
90,000 firms. This sector has been
further subdivided into three segments:
Refiners, multi-outlet retail chains, and
open dealers (defined as firms owning
and operating^ single retail motor fuel
outlet). The agricultural sector includes
all-farms owning USTs with capacities
of more than 1,100 gallons;
approximately 46^)00 USTs located at
30,500 farms'meet this definition. Local
government entities own approximately
62,000 USTs at 29,000 facilities. For the
purposes of this analysis, the general
industry sector includes all other sectors
(i.e., sectors other than retail motor fuel
marketing, government, and agriculture)
where USTs are located. Firms in the
general industry sector range from large
manufacturing concerns to small retail
operations. USTs in this sector usually
are used to provide motor Jiiel for fleets
of vehicles (e,g.r at trucking firms and
automobile rental agencies) or to
provide convenient access to motor fuel
for off-the-rbad vehicles (e.g.,
construction equipment). The general
industry Sector is estimated to contain
642,000 USTs at 192,000 facilities owned
by approximately 137,000 firms.
4. Assumptions and Methodology Used
in the RIA
Following are the key assumptions
used to estimate the costs and other
impacts of this regulations:
• The costs and economic impacts of the
technical standards are the baseline from
which the costs and economic impacts of the
financial responsibility requirements will be
measured.
• Owners, rather than operators, satisfy
and pay the costs of financial responsibility
requirements, except when the owner is a
private individual and the operator is a
business corporation.
• All owners who qualify for self-
insurance use this mechanism to satisfy their
financial responsibility requirements and
incur real resource costs for developing and
maintaining the required records and reports.
• All firms or local governments currently
insured for corrective action and
compensation of third-parties will maintain
their insurance to comply with this
regulation.
• Firms or local governments that are-not
currently insured and that cannot use the
financial test of self-insurance will attempt to
obtain insurance (rather than other financial
assurance mechanisms) to comply with this
regulation.
• Insurance, will only be available to firms
or local governments meeting insurers'
criteria for insurability. The RIA presents
regulatory costs assuming that all firms and
local governments that do.not currently have
insurance or pass the financial test are able
to get insurance by meeting insurers' criteria
for insurability (i.e., upgrading or replacing
tanks greater than 15 years old and instituting
suitable leak detection measures}. Using this
assumption results in higher costs than
assuming that firms and local governments
that,doi not currently have insurance or meet
the financial test cannot get insurance.
Obtaining a suspension of enforcement
should be less expensive than meeting
insurers'• 'eligibility Tequirements-'withm %.
years and paying insurance premiums
thereafter. :
• Insurance premium costs are estimated
by assuming that,premiums will be double.
the expected value of corrective action and
third-party liability costs for the USTs
covered. The expected value of costs of
corrective actionjand third-party liability are
based on the UST model developed for. the
technical standards RIA.
5. Annual Real Resource Costs
There are three main cost elements hi
the combined total costs of the financial
responsibility and technical standards
requirements; Costs related to the tank
replacement and upgrading and to leak
detection; costs related to performing
corrective actionj.and the costs of
procuring financial assurance
mechanisms. The costs of procuring
financial assurance mechanisms do not
include the costs related to performing
corrective action because these costs
are accounted for separately. They also
do not include the costs of satisfying
third-party liability awards because
such costs would be incurred even if the
technical standards and the financial
responsibility requirements were not
promulgated. The cost of insurance, for
example, does not include that portion
of insurance premiums used to pay the
costs of .corrective action and third-
party liability awards. It does include
the cost of insurers' profits,
administrate costs, and sales costs.
These costs (the real resource costs of
insurance) are 0qual to approximately
40 percent of the total insurance
premium cost.
The present value of the combined
real resource costs of the technical
standards and |he financial
responsibility requirements over 30
years is $70.28 billion. $38.83 billion of
these costs represent the costs of tank
replacement, tank upgrading, and leak
detection. $29.49 billion of these costs .
represent the cpsts of performing
corrective action. $1.96 billion of these
costs represent, the real resource costs of
financial assurance .mechanisms. A
portion of these costs (e.g., the costs of
tank upgrading and replacement, and
the costs of procuring insurance) would
be incurred even if the technical
standards and financial responsibility
requirements were not promulgated. The
present value of the' total incremental
costs 'of both niles (the costs of the .
technical standards and the financial
responsibility requirements attributable
to the promulgation of these rules) is
$49.63 billion. $18.50 billion of these
costs are attributable to tank
replacement; tank'upgrading, and leak
detection; $29.49 billion are; attributable
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Federal Register / ,Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43363
to corrective action; and $1.64 billion are
attributable to procuring financial
assurance mechanisms. •
The incremental costs of complying
with? the financial.responsibility
requirements represent a minor portion
of the combined incremental costs of the
technical standards and financial
responsibility rules. The incremental
costs of the financial responsibility
requirements alone are $701 million.
These incremental costs include $1.55
billion for accelerated tank replacement,
tank upgrading, and leak detection (to
meet insurers' criteria for insurance);
$1.64 billion for financial assurance
mechanisms [for firms that do not
currently have them); and a $2.49 billion
cost savings in the cost of corrective
action. This savings results .from the
earlier .application of improved leak
detection, and earlier tank upgrading
than would be required if only the
technical standards were promulgated.
6. Economic Impacts
The economic impacts of the
regulations are assessed for all firms in
the retail motor fuel marketing sector,
except refiners, and for firms in the
general industry sector for which the
expected annual insurance premium
costs are more than 10 percent of the
before:t.ax-profits.
In the retail motor fuel marketing
sector, 'economic impacts are measured
in terms of the percentage' of existing
outlets surviving 5,10, and 15 years after
the imposition pf regulations. Through
year 5, 57 percent of existing small-firm-.
owned outlets would survive if only the
technical requirements were imposed.
(Small firms are defined as firms with
. less than $4.6 million in annual sales.
This corresponds to the Small Business
Administration's definition of small
firms in this sector.) Assuming the
imposition of technical and financial
responsibility requirements, 55 percent
of existing outlets survive, if all small
firms obtain insurance. By year 15, 34
percent "of outlets would survive the
imposition of technical requirements
and 47 perce'nt would survive the
imposition of both technical and
financial responsibility requirements, if
all small firms obtain insurance. Thus,
by year 15, the imposition of the
financial responsibility requirements
has a beneficial impact on the survival
of small-firm-owners and operators.
Small-firm-owned outlets that do not
have existing releases and that can
afford Improved leak detection and tank
upgrading-or replacement costs are -
better, abje'to survive with insurance
than without it. Those small-firm-owned
outlets Mthrexisting releases .and outlets
owned: 1$ &»nciaily-jnsrgiaal. small
firms will exit the industy more quickly
with the imposition of the financial
responsibility requirements than with
the imposition of the technical standards
alone. ,
The technical standards RIA does not
account.for the fact that many large
firms in the retail motor fuel marketing
sector have .insurance which can
mitigate the economic impacts of having
to perform corrective action. It thus
presents a worst case economic impact
scenario! The technical standards RIA
estimates that 73 percent of existing
retail motor fuel marketing outlets
owned by large firms (other than
refiners) would survive through year 5.
The financial responsibility RIA, which
accounts for the fact that many of these
firms have insurance, estimates that 83
percent of large-firm-owned outlets
survive through year 5. By year 15, only
50 percent of large*firm-owned outlets
would survive the imposition of the
technical standards if they did not have
insurance. When insurance is
considered, 78 percent of large-firm-
owned outlets survive through year 15.
In the general industry sector, EPA
examined financial data for firms in 65
four-digit SIC.cbde categories that
contain firms that own USTs. In only 4
of these SIC code categories would the
value of premiums exceed 10 percent of
the before-tax profits of average firms in
those categories having less than $1
million in assets, and the impact of these
premium costs on. the pre-tax returns on.
assets for these firms ranged between
.0.1 and 0.9 percent. Most firms in these
SIC code categories do not use USTs,
and it is impossible that, if the costs of
today's regulation imposed severe
impacts oh those'firms in those sectors
that do use them; they could avoid these
costs by closing their UST facilities.
7. Benefits
Today's rule is associated with a.,
variety of potential economic benefits
that are discussed in qualitative terms in
the RIA. Potential economic benefits
from the financial responsibility
requirements can be placed in three
categories:
• Resource allocation;
• Willingness to pay for distributional
goals; and
• Reductions in cleanup costs,
environmental and health damage, UST
releases, and business disruptions.
If the financial responsibility .
requirements induce firms tq consider
th6 futtcosts of UST releases as part of
their real production costs (i.e., cost
internalization), the result may be an.
improvement in4he aik>eative .efficiency
of LIST users. Sinee.allocative efficiency
improvements result in improvements
for the population in the aggregate, the
population can be expected to be willing
to pay for this improvemerit. Similarly,
the population'also could be willing to
pay for progress toward'distributional
goals (i.e., be willing to incur some cost
to ensure that the UST owners and
operators and the consumers of goods
whose production involves the use of
USTs and who benefit from the use of
the USTs also bear the costs of that
activity).
Small firms that use insurance to meet
their financial responsibility
requirements may be more inclined to
report releases from their USTs
promptly, whereas firms without
insurance may be reluctant to report
releases out of a fear that the costs
associated with the release could force
the firms.out of business. In addition,
firms having to obtain insurance will
have to meet insurers' eligibility
requirements (e.g., improved.leak
detection, and tank upgrading), thus
reducing .the likelihood of releases.
As reported above, meeting insurers'
eligibility criteria is estimated to save
$2.49 billion in corrective action costs
over 30 years. Over the long term, the
imposition of the financial-responsibility
requirements also reduces the economic
disruptions caused by the bankruptcy of
firms unable to meet'the costs of
performing corrective action or
satisfying third-party liability awards.
After 15 years, the number of surviving
outlets, is 14 percentage points higher if
financial responsibility requirements are
imposed.. . '••.
The RIA also estimates the
quantitative benefits of the 'financial
responsibility rule. It.provideS'3
comparison Of the value .of unfunded
financial responsibility obligations that
would occur if'the; technical standards
alone were implemented, to> the value of
unfunded financial responsibility
obligations if all businesses in'the retail
motor fuel marketing sector meet
financial .responsibility requirements
using -insurance or the financial test. In
making this comparison, the RIA finds
that the promulgation of the financial
responsibility, in addition to the
technical, standards saves $391 million,
or $494 per UST, over a 30-year period.
B. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. 601, etseq.], whenever an
agency is required to publish-a general-
notice of rulemaking forany'proposed.or
final rule, it must prepare and make
available for public 'Commenta
regulatory^ flexibility analysis that
describes the impact ftflhe rule on small
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43370 Federal Register ./Vol. m .No. 207. / -Wednesday, October 26t 1688 / Rules arid 'Regulations
entities :(iand
recordkeeping burden on the public tot
this Collection is estimated at 65,707
hours for the 265,534 respondents, with
an average of 0.1 hours per response.
These'burden estimates include all
aspects of the collection effort and may
include time for reviewing instructions,
searching existing data' sources,
gathering and maintaining the data
needed, completing and reviewing 'the
collection of information, etc.
If you wish to submit .comments
regarding anyiaspect of this collection .of
information,, including suggestions for
reducing the burden, or if you would like
•a .copy of the. information .collection
request (please reference ICR #3.359),
contact Rick Westland, Information
Policy Branch, PM-223, U.S.,
Environmental Protection Agency, 401 M
St., SW,, Washington, DC 20460 {20^
382-2745); and Marcus Peacock, Office
of Management and .Budget,
Washington, DC 20503.
List of Subjects hi 40 CER Parts 280 and
281
Administrative practice and
procedure, Environmental protection,
Hazardous materials insurance, Oil
•pollution, Penalties, Petroleum,
Reporting and recordkeeping
requirements. State program approval, ,
Surety bonds. Underground .Storage
tanks, Water, pollution- control.
Lee M.Thomas,
Administrator.
.Dated: October 14, 1988.
For ihe reasons set out in ihe
preamble, Parts 280 and 281 of Title 40
of. the Code of Federal Regulations are.
amended ss- follows:
PART 260— TECHNICAL STANDARDS
AND CORRECTIVE ACTION
REQUIREMENTS FOR OWNERS AND
OPERATORS OF UNDERGROUND
STORAGE TANKS
1. The authority citation for Part 280
continues to read as follows:
, and
6991{b), 699>l'(lO,
6991(h); .
2. Appendicest"throug"hlII'fo'llowing
Sub'part ifi 'are designated as,AppendiGes
3. 40CFR3PaErt 280 JB amended to add
Subpart H-—Financial Responsibility
Sec. : - • .
280,96 Applicability.
280;91 Compliance dates, "
280.92 Definition of terms.
280.93 Amenint and scope of required
' financial responsibility.
280.94 Allowable mechanisms and
combinations .of'mechanisms.
280.95 Financial test of self-insurariee.
280.96 Guarantee.
280.97 Insurance and risk retention, group
coverage. :
280.98 Surety jbond.
280.99 Letter of credit.
280.100 .Use of state-required mechanism.
280.101 State fund or other state assurance.
280.102 Trust fund.
280:103 Standby trust fund.
280.104 Substitution of financial-assurance
"mechanisms 'by owneror'operatdr.
.280.105 Cancellation omonrenewarby-a
provider of financial assurance.
280.106 Reporting by-ownerror operator.
280.107 Recordkeeping.
280.108 Drawing on financial assurance'
mechanisms.
•280,109 . Releasifjrpm,the requirements.
280.110 Bankruptcy or other incapacity of
owner or operator or jjrpyider-of
financial assurance. '
280.111 . Replenishment of guarantees, .letters
of credit, or [surety bonds.
280.112 Susperision of enforcement.
[Reserved] |
Subpart H—Financial Responsibility
§280.90 Applicability.
fa') This sabpart applies -to -owners and
operators of allpetroleum underground
storage tank (IJST) systems 'exceptais
otherwise;provided in this section.
fb)'Owners and operators 6f
petroleum UST systems: are'subjeet td;
these^requh-emeets if they are in '
operation on or after the date for
compliance established in ? 280i91.
{c) State and Federal .government
entities whoseidebts and liabilities aie
the debts and liabilities of a .state or the
United States are exempt from the
requirements of this subpart.
(d) The Tequirements of this subpart
do not apply to' owners -and operators of
any UST system described .in § 28O10
(b)orfQ). .
fe) If the owner -and operator of a
petroleum underground istOEage.tank ane
separate'persops, only one;persoais
required to demonstratte-'financial1
responsibittty;;however, bath parties aie
Jiable in Bvent |of .noncompkance. - .
Regardless ^f-w*ich iparty complied"*be
date set for compliance at a particular
The ;mf cnroaftian coltection
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FederalRegister / Vol. ^ No; 207 / Wednesday. October 26. 1988 /Rules .and RiBgaiQtions 43371
§280.91 Compliance dates.
Owners of petroleum underground
storage tanks are required to comply
with the requirements of this subpart by
the following dates:
(a) All petroleum marketing firms
owning 1,000 or more USTs and all other
UST owners that report a tangible net
worth of $20 million or more to the U.S.
Securities and Exchange Commission
(SEC), Dun and Bradstreet, the Energy
Information Administration, or the Rural
Electrification Administration; January
24,1989.
(b) All petroleum marketing firms
owning 100-999 USTs; October 26,1989.
(c) All petroleum marketing firms
owning 13-99 USTs at more than one
facility; April 26,1990.
(d) All petroleum UST owners not
described in paragraphs (a), (b), or (c) of
this section, including all local .
government entities; October 28,1990.
§ 280.92 Definition of terms.
When used in this subpart, the
following terms shall have the meanings
given below:
(a) "Accidental release" means any
sudden or nonsudden release of
petroleum from an underground storage
tank that results in a need for corrective
action and/or compensation for bodily
injury or property damage neither
expected nor intended by the tank
owner or operator.
(b) "Bodily injury" shall have the
meaning given to this term by applicable
state law; however, this term shall not
include those liabilities which,
consistent with standard insurance
industry practices, are excluded from
coverage in liability insurance policies
for bodily injury.
. (c) "Controlling interest" means direct
ownership of at least 50 percent of the
voting stock of another entity.
1 (d) "Director of the Implementing
Agency" means the EPA Regional
Administrator, or, in the case of a state
with a program approved under section
9004, the Director of the designated state
or local agency responsible for carrying
out an approved UST program.
(e) "Financial reporting year" means
the latest consecutive twelve-month
period for which any of the following
reports used to support a financial test
is prepared:
(1) a 10-K report submitted to the
SEC;
(2) an annual report of tangible net
worth submitted to Dun and Bradstreet;
or
(3) annual reports submitted to the
Energy Information Administration or
the Rural Electrification Administration.
"Financial reporting year" may thus
comprise a fiscal or a calendar year
period.
(f) "Legal defense cost" is any
expense that an owner or operator or
provider of financial assurance incurs in
defending against claims or actions
brought,
(1) By EPA or a state to require
corrective action or to recover the costs
of corrective action;
(2) By or on behalf of a third party for
bodily injury or property damage caused
by an accidental release; or
(3) By any person to enforce the terms
of a financial assurance mechanism.
(g) "Occurrence" means an accident,
including continuous or repeated
exposure to conditions, which results in
a release from an underground storage
tank.
Note: This definition is intended to assist in
the understanding of these regulations and is
not intended either to limit the meaning of
"occurrence" in a way that conflicts with
standard insurance usage or to prevent the
use of othet standard insurance terms in
place of "occurrence."
(h) "Owner or operator," when the
owner or operator are separate parties,
refers to the party that is obtaining or
has obtained financial assurances.
(i) "Petroleum marketing facilities"
include all facilities' at which petroleum
is produced or refined and all facilities
from which petroleum is sold or
transferred to other petroleum marketers
or to the public.
(j) "Petroleum marketing firms" are all
firms owning petroleum marketing
facilities. Firms owning other types of
facilities with USTs as well as
petroleum marketing facilities are
considered to be petroleum marketing
firms. .
(k) "Property damage" shall have the
meaning given this term by applicable
state law. This term shall not include
those liabilities which, consistent with
standard insurance industry practices,
are excluded from coverage in liability
insurance policies for property damage.
However, such exclusions for property
damage shall not include corrective
action associated with releases from
tanks which are covered by the policy.
(1) "Provider of financial assurance"
means an entity that provides financial
assurance to an owner or operator of an
underground storage tank through one of
the mechanisms listed in §§ 280.95-
280.103, including a guarantor, insurer,
risk retention group, surety, issuer of a
letter of credit, issuer of a state-required
mechanism, or a state.
(m) "Substantial business
relationship" means the extent of a
business relationship necessary under
applicable state law to make a
guarantee contract issued incident to
that relationship valid and enforceable.
A guarantee contract is issued "incident
to that relationship" if it arises from and
depends on existing economic
transactions between the guarantor and
the owner or operator.
(n) "Tangible net worth" means the
tangible assets that remain after
deducting liabilities; such assets do not
include intangibles such as goodwill and
rights to patents or royalties. For
purposes of this definition, "assets"
means all existing and all probable
future economic benefits obtained or
controlled by a particular entity as a
result of past transactions.
§ 280.93 Amount and scope of required
financial responsibility.
(a) Owners or operators of petroleum
underground storage tanks must
demonstrate financial responsibility for
taking corrective action and for
compensating third parties for bodily
injury and property damage caused by
accidental releases arising from the
operation of petroleum underground
storage tanks in at least the following
per-occurrence amounts:
(1) For owners Or operators of
petroleum underground storage tanks
that are located at petroleum marketing
facilities, or that handle an average of
more than 10,000 gallons of petroleum
per month based on annual throughput
for the previous calendar year; $1
million.
(2) For all other owners or operators
of petroleum underground storage tanks;
$500,000.
(b) Owners or operators of petroleum
underground storage tanks must
demonstrate financial responsibility for
taking corrective action and for
compensating third parties for bodily
injury and property damage caused-by
accidental releases arising from'the
operation of petroleum underground
storage tanks in at least the following
annual aggregate amounts:
(1) For owners or operators of 1 to 100
petroleum underground storage tanks, $1
million; and
(2) For owners or operators of 101 or
more petroleum underground storage
tanks, $2 million.
(c) For the purposes of paragraphs (b)
and (f) of this section, only, "a
petroleum underground storage tank"
means a single containment unit and
does not mean combinations of single
containment units.
(d) Except as provided in paragraph
(e) of this section, if the owner or
operator uses separate mechanisms or
separate combinations of mechanisms to
demonstrate financial responsibility for:
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43372 Fqderal Register !/ Val «SS, No; 297 / Wedaesctey, October 28, 1988, j/ iRifles autt-JLegulatidns
(1) Taking corrective action;
(2] Compensating third parties for
bodily injury and .property-damage
caused by sudden accidental releases;
or
(3) Compensating third parties for
bodily injury and property damage
caused by nonsudden accidental
releases, the amount of assurance
provided by each mechanism or
combination of mechanisms must "be,in
the full amount specified in paragraphs
(a) and (b) ,of this section.
(e) If an owner or operator uses
separate mechanisms or separate
combinations of mechanisms to
demonstrate financial responsibility for
different petroleum underground storage
tanks, the annual aggregate required
shall be based on the number of tanks
covered by each such separate
mechanism or combination of
mechanisms.
(f) Owners or operators shall review
the amount of aggregate assurance
provided whenever additional
petroleum underground storage tanks
are acquired or installed. If the number
of petroleum underground storage tanks
for which assurance must be provided
exceeds 100, the owner or operator shall
demonstrate financial responsibility in
the amount of at least $2 million of
annual aggregate assurance by the
anniversary of the date on which the
mechanism demonstrating financial
responsibility became effective. If
assurance is being demonstrated by a
combination of mechanisms, the owner
or operator shall demonstrate financial
responsibility in the amount of at least
$2 million of annual aggregate assurance
by the first-occurring effective date
anniversary of any one of the
mechanisms combined (other than a
financial test or guarantee) to provide
assurance.
(g) The amounts of assurance required
under this section exclude legal defense
costs.
(h) The required per-occurrence and
annual aggregate coverage amounts do
not in any way limit the liability of the
owner or operator.
§ 280.94 Allowable mechanisms and
combinations of mechanisms.
(a) Subject to the limitations of
paragraphs (b) and (c) of this section, an
owner or operator may use any one or
combination of the mechanisms listed in
§§ 280.95 through 280.103 to demonstrate
financial responsibility under this
subpart for one or more underground
storage tanks.
(b) An owner or operatormay use a
guarantee or surety bond to establish
financial responsibility-only if the
Attorney (s) General of thestate(a) in
which the underground storage tanks
are 'located has -(have) submitted^
written statement to the implementing
agency that a guarantee or isurety bond
executedas described in this section is
a legally valid and enforceable
obligation in that state.
[c) An owner or operator may use
self-insurance in combination with a
guarantee only if, for the purpose of
meeting the requirements of the
financial test under this rule, the
financial statements of the owner or
operator are not-consolidated with the
financial statements of the guarantor.
§ 280.95 Financial test of self-insurance.
(a) An owner or operator,'and/or
guarantor, may satisfy the requirements
of § 280.93 by passing a financial testas
specified in this section. To pass the
financial test of self-insurance, the
owner or operator, and/or guarantor
must meet the Icriteria of paragraph (b)
or (c) of this section based on year-end
financial statements for the latest
completed fiscal year.
(b)(l) The owner or operator, and/or
guarantor, must have a tangible net
worth of at least ten'times:
(i) The total of the applicable
aggregate amount required by § 280.93,
based on the number of underground
storage tanks for which a financial test
is used to demonstrate financial
responsibility to EPA .under this section
or to a state implementing agency under
a state program approved by EPA under
40 CFR Part 281;
(ii) The sum of the corrective action
cost estimates, the current closure and
post-closure care cost estimatss, and
amount of liability coverage for which a
financial test is used to demonstrate
financial responsibility to EPA under 40
CFR 264.101, 264.143, 264.145, 265.143,
165.145, 264.147, and 265.147 or to a state
implementing agency under a state
program authorized by EPA under 40
CFR Part 271; and
(iii) The sum of current plugging and
abandonment cost estimates for which a
financial test is used to demonstrate
financial responsibility to EPA under 40
CFR 144.63 or to a state implementing
agency under a state program
authorized by EPA under 40 CFR Part
145.
(2) The owner or-operator, and/or
guarantor, must have a tangible.net
worth of at least $10 million.
:(3) The owner or operator, and/or
guarantor, must have a letter signed by
the chief financial officer worded as
specified in paragraph >(d) of this
section.
(4) The owner or operator, and/or
guarantor, must either:
(i) File financial statements annually
with the UiS. Securities and Exchange
Commission, thp Energy Information
.Administeation,] or the Rural
Electrification Administration; or
(ii) Report annually the firm's tangible
net worth to Dun and Bradstreet, and
Dun .and Bradstreet must have assigned
the firm a financial strength-rating of 4A
orSA. i
(5) The firm'siyear-end financial
statements, if independently audited,
.cannot include an adverse auditor's
opinion, a disclaimer of opinion,'or a
"going concern'! qualification.
(c)(l) The owner or operator, and/or
guarantor must meet the financial test
requirements of 40 CFR 264.147(f)(l),
substituting the;appropriate amounts
specified in § 280.93 (b)(l) and (b)(2) for
the "amount of liability coverage" each
time specified in that section.
(2) The fiscariyear-end financial
statements of the owner or operator,
and/or guarantor, must be examined by
an independent! certified public
accountant andjbe accompanied by the
•accountant's report of the examination.
(3) The firm's jyear-end financial
statements cannot include an adverse
auditor's opinion, a disclaimer of
opinion, or-a "g^ing concern"
qualification. ;
(4) The owner, or operator, and/or
guarantor, mustihaye a letter signed by
the chief financial officer, worded as
specified in paragraph (d) of this
section. ;
(5) If the financial statements of the
owner or operator, and/or guarantor,
are not submitted annually to the U.S.
Securities and Exchange Commission,
the Energy Infoijmation Administration
or the Rural Electrification
Administration,;the owner or operator,
and/or guarantor, must obtain a special
report by an independent certified
public accountant stating that:
(i) He has compared the data that the
letter form the chief financial officer
.specifies as having been derived from
the latest year-end financial statements
of the owner or bperator, and/or
guarantor, with jthe amounts in such
financial statements; and
(ii) In connection with that
comparison, no matters came to his
attention which caused him to believe
that the specified data should be
adjusted. I
(d) To demonstrate that it meets the
financial test unpler paragraph (b) or (c)
of this section, the chief financial officer
of the owner or operator, or guarantor,
must sign, within 120 days of the close
of each financial reporting year, as
defined by the twelve-month period for
which financial statements used to
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Federal Register / VoL S3, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43373
support the financial test are prepared, a
letter worded exactly as follows, except
that the instructions in brackets are to
be replaced by the relevant information
and the brackets deleted:
Letter from Chief Financial Officer
I am the chief financial officer of [insert;
name and address of the owner or operator,
or guarantor}. This letter is hi support of the
use of [insert: "the financial test of self-
insurance," and/or "guarantee"] to
demonstrate financial responsibility for
[insert: "taking corrective action" and/or
"compensating third parties for bodily injury
and property damage"] caused by [insert
"suddent accidental releases" and/or
"nonsudden accidental releases"] in the
amount of at least [insert: dollar amount] per
occurrence and [insert: dollar amount] annual
aggregate arising from operating (an]
underground storage tank(s).
Underground storage tanks at the following
facilities are assured by this financial test or
a financial test under an authorized State
program by this [insert: "owner or operator,"
and/or "guarantor"]: [List for each facility:
the name and address of the facility where
tanks assured by this financial test are
located, and whether.tanks are assured by
this financial test or a financial test under a
State program approved under 40 CFR Part
281. If separate mechanisms or combinations
of mechanisms are being used to assure any
of the tanks at this facility, list each tank
assured by this financial test or a financial
test under a State program authorized under
40 CFR Part 281 by the tank identification
number provided in the notification
submitted pursuant to 40 CFR 280.22 or the
corresponding State requirements.]
A [insert: "financial test," and/or
"guarantee"] is also used by this [insert:
"owner or operator," or "guarantor"] to
demonstrate evidence of financial
responsibility in the following amounts under
other EPA regulations or state programs
authorized by EPA under 40 CFR Parts 271
and 145:
EPA Regulations Amount
Closure (§§ 264.143 and 265.143)-
Post-Closure Care (§§264.145 and
265.145)
Liability Coverage (§§ 264.147 and
265.147)..
Corrective Action (§§ 284.101(bH ....J
Plugging and Abandonment
(§144.63) ....
Closure
Post-Closure Care —...
Liability -Coverage
Corrective Action
Plugging and Abandonment™,
Total —.
This [insert: "owner or operator," or
"guarantor"] has not received aa adverse
opinion, a disclaimer of opinion, or a 'Agoing
concern", qualification frara.an independent
auditor,on his financial .statements for the
latest completed fiscal year.
[Fill in the information forAJtemaUve I if
the criteria =of paragraph!(b}-irf.§ 28O8S are
being used to demonstrate compliance with
the financial test requirements. Fill in the
information for Alternative II if the criteria of
paragraph (c) of § 280.95 are being used to
demonstrate compliance with the financial
test requirements.]
Alternative 1
1. Amount of annual UST aggre-
gate coverage bejng assured
by a financial test, and/or
guarantee
2. Amount of corrective action,
closure and post-closure
care costs, liability coverage,
and plugging and abandon-
ment costs covered by a fi-
nancial test, and/or guaran-
tee
3. Sum of lines 1 and 2...
4. Total tangible assets
5. Total liabilities [if any of the
amount reported on line 3 is
included in total liabilities,
you may deduct that amount
from this, line and add that
amount to line 6]
Tangible net worth [subtract
line 5 from line 4]
Alternative I—Continued
7. Total assets in the U.S. [re-
quired only if less than 90 '
percent of assets are located
in the U.S.] .$_
Yes No
8. Is line 6 at least $10 million?.,..i$—_ —
9. Is line 6 at least 6 times line 3? —_ —
10. Are at least 90 percent of
assets located in the U.S.? [If
"No," complete line 11.].; —
11. Is line 7 at least 6 times line 3? —
[Fill in either lines 12-15 or lines 16-18:]
12. Current assets .'. .....$
13. Current liabilities..
14. Net working capital [subtract
line 13 from line 12]
6.
10.
11.
12.
1.
8.
Yes
Is line 6 at least $10 million? _
Is line 6 at least 10 times line
3? -
Have financial statements for
the latest fiscal year been
filed with the Securities and
Exchange Commission? _
Have financial statements for
the latest fiscal year been
filed with the Energy Infor-
mation Administration? ..._
Have financial statements for
the lastest fiscal year been
filed with the Rural Electrifi-
cation Administration? _
Has financial information been
provided to Dun and Brad-
street, and has Dun and
Bradstreet-provided a finan-
cial strength rating of 4A or
5A? [Answer "Yes" only if
both criteria have been met.] .._
Alternative II
Amount of annual UST aggre-
gate coverage being assured
by a test, and/or guarantee—
Amount of corrective action,
closure and post-closure
care costs, liability coverage,
and plugging and abandon-
ment costs covered by a fi-
nancial test, and/or guaran-
tee ...„,.....„„......„„ »..-.$_
Sum of lines 1 and 2..~ ~$-
Total tangible assets .-.$_
Total liabilities {if any of the
amount .reported on line 3 is
included in total liabilities,
you may deduct that amount
from this line and add that
'amount to line 6] .'
Tangible net worth [subtract
line -5 bom line 4} _
Yes No
Is line 14 at least 6 times line
3?
16. Current bond rating of most.
recent bond issue
17. Name of rating service
18. Date of maturity of bond....
19. Have financial statements for
the latest fiscal year been
filed with the SEC, the
Energy Information Adminis-
tration, or the Rural Electrifi-
cation Administration?
, [If "No," please attach a report from an
independent certified public accountant
certifying that there are no material
differences between the data as reported in
lines 4-18 above and the financial statements
for the latest fiscal year.]
[For both Alternative I and Alternative II
complete the certification with this
statement.]
I hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR Part 280.95(d) as such regulations
were constituted on the date shown
immediately below,
[Signature]
[Name]
[Title]
[Date]
(e) If an owner or operator using the
test to provide financial assurance finds
that he or she no longer meets the .
requirements of the financial test based
on the year-end financial statements, the
owner or operator must obtain
alternative coverage within 150 days of
the end of the year for which financial
statements have been prepared.
(f) The Director of die implementing
agency-may require reports of financial
condition at any time from the owner or.
operator, and/or guarantor. If the
Director finds, on the basis of such
reports or other information, that the
owner or operator, and/or guarantor, no
longer meets the financial test
requkeiaents of § ;280.95{b) JOT (cj and
(d), the ;owner or operator.must Jobtain-
-------
43374. Federal Register /Vol. 53, No.. 207, / Wednesday, October 26, 1988 / Rides and Regulations
alternate coverage within 30 days after
notification of such a finding.
(g) If the owner or operator fails to
obtain alternate assurance within 150
days of finding that he or she no longer
meets the requirements of the financial
test based on the year-end financial
statements, or within 30 days of
notification by the Director of the
implementing agency that he or she no
longer meets the requirements of the
financial test, the owner or operator
must notify the Director of such failure
within 10 days.
§280.96 Guarantee.
(a) An owner or operator may satisfy
the requirements of § 280.93 by
obtaining a guarantee that conforms to
the requirements of this section. The
guarantor must be:
(1) A firm-that (i) possesses a
controlling interest in the owner or
operator; (ii) possesses a controlling
interest in a firm described under
paragraph (a)(l)(i) of this section; or, (iii)
is controlled through stock ownership by
a common parent firm that possesses a
controlling interest in the owner or
operator; or,
(2) A firm engaged in a substantial
business relationship with the owner or
operator and issuing the guarantee as an
act incident to that business
relationship.
(b) Within 120 days of the close of
each financial reporting year the
guarantor must demonstrate that it
meets the financial test criteria of
§ 280.95 based on year-end financial
statements for the latest completed
financial reporting year by completing
the letter from the chief financial officer
described in § 280.95(d) and must deliver
the letter to the owner or operator. If the
guarantor fails to meet the requirements
of the financial test at the end of any
financial reporting year, within 120 days
of the end of that financial reporting
year the guarantor shall send by
certified mail, before cancellation or
nonrenewal of the guarantee, notice to
the owner or operator. If the Director of
the implementing agency notifies the
guarantor that he no longer meets the
requirements of the financial test of
§ 280.95 (b) or (c) and (d), the guarantor
must notify the owner or operator within
10 days of receiving such notification
from the Director. In both cases, the
guarantee will terminate no less than
120 days after the date the owner or
operator receives the notification, as
evidenced by the return receipt. The
owner or operator must obtain
alternative coverage as specified in
§ 280.110{c).
(c) The guarantee must be worded as
follows, except that instructions in
brackets are to be replaced with the
relevant information and the brackets
deleted:
Guarantee
Guarantee made this [date] by [name of
guaranteeing entity], a business entity
organized under the laws of the state of
[name of state], herein referred to as
guarantor, to [the state implementing agency]
and to any and all third parties, and obligees,
on behalf of [owner or operator] of [business
address].
Recitals.
(i) Guarantor meets or exceeds the
financial test criteria of 40 CFR 280.95 (b) or
(c) and (d) and agrees to comply with the
requirements for guarantors as specified in 40
CFR 280.96(b).
(2) [Owner or operator] owns or operates
the following underground storage tank(s)
covered by this guarantee: [List the number
of tanks at each facility and the name(s) and
address(es) of the facility(ies) where the
tanks are located. If more than one
instrument is used to assure different tanks at
any one facility, for each tank covered by this
instrument, list the tank identification
number provided in the notification
submitted pursuant to 40 CFR 280.22 or the
corresponding state requirement, and the
name and address of the facility.] This
guarantee satisfies 40 CFR Part 280, Subpart
H requirements for assuring funding for
[insert: "taking corrective action" and/or
"compensating third parties for bodily injury
and property damage caused by" either
"sudden accidental releases" or "nonsudden
accidental releases" or "accidental releases";
if coverage is different for different tanks or
locations, indicate the type of coverage
applicable to each tank or location] arising
from operating the above-identified
underground storage tank(s) in the amount of
[insert dollar amount] per occurrence and
[insert dollar amount] annual aggregate.
(3) [Insert appropriate phrase: "On behalf
of our subsidiary" (if guarantor is corporate
parent of the owner or operator); "On behalf
of our affiliate" (if guarantor is a related firm
of the owner or operator); or "Incident to our
business relationship with" (if guarantor is
providing the guarantee as an incident to a
substantial business relationship with owner
or operator)] [owner or operator], guarantor
guarantees to [implementing agency] and to
any and all third parties that:
In the event that [owner or operator] fails
to provide alternative coverage within 60
days,after receipt of a notice of cancellation
of this guarantee and the [Director of the
implementing agency] has determined or
suspects that a release has occurred at an
underground storage tank covered by this.
guarantee, the guarantor, upon instructions
from the [Director], shall fund a standby trust
fund in. accordance with the provisions of 40
•CFR 280.108, in an amount not to exceed the
coverage limits specified above.
In the event that the [Director] determines
that [owner or operator] has failed to perform
corrective action for releases arising out of
the .operation of the above-identified tank(s]
in accordance with 40 CFR Part 280, Subpart
F, the-guarantor upon written-instructions
from the [Director] shall fund a standby trust
in accordance with the provisions of 40 CFR
280.108, in an amount not to exceed the
coverage limits specified above.
If [owner or operator] fails to satisfy a
judgment or.award based on a determination
of liability for bodily injury or property
damage to third parties caused by ["sudden"
and/or "nonsudden"] accidental releases
arising from the operation of the above-
identified tank(s),1 or fails to pay an amount
agreed to in settlement of a claim arising
from or alleged to arise from such injury or
damage, the guarantor, upon written
instructions from the [Director], shall fund a
standby trust in accordance with the
provisions of 40 CFR 280.108 to satisfy such
judgment(s), award(s), or settlement
agreement(s) up to the limits of coverage
specified above. [
(4) Guarantor agrees that if, at the end of
any fiscal year before cancellation of this
guarantee, the guarantor fails to meet the
financial test criteria of 40 CFR 280.95 (b) or
(c) and (d), guarantor shall send within 120
days of such failure, by certified mail, notice
to [owner or operator]. The guarantee will
terminate 120 days from the date of receipt of
the notice by [owner or operator], as
evidenced by the return receipt.
(5) Guarantor agrees to notify [owner or
operator] by certified mail of a voluntary or
involuntary proceeding under Title 11
. (Bankruptcy), U.S.! Code naming guarantor as
debtor, within 10 days after commencement
of the proceeding, j
(6) Guarantor agrees to remain bound
under this guarantee notwithstanding any
modification or alteration of any obligation of
[owner or operator] pursuant to 40 CFR Part
280.
(7) Guarantor agrees to remain bound
under this guarantee for so long as [owner or
operator] must comply with the applicable
financial responsibility requirements of 40
CFR Part 280, Subpart H for the above-
identified tank(s), except that guarantor may
cancel this guarantee by sending notice by
certified mail to [owner or operator], such
cancellation to become effective no earlier
than 120 days after receipt of such notice by
[owner or operator], as evidenced by the
return receipt. '
(8) The guarantor's obligation does not
apply to any of th^ following:
(a) Any obligation of [insert owner or
operator] under a Corkers' compensation,
disability benefits; or unemployment
compensation lawjor other similar law;
(b) Bodily injury! to an employee of [insert
owner or operator] arising from, and in the
course of, employment by [insert owner or
operator]; j
(c) Bodily injury [or property damage arising
from the ownership, maintenance, use, or
entrustment to others of any aircraft, motor
vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaded to, in the care,
custody, or control1 of, or occupied by [insert
owner or operator]! that is not the direct result
of a release from a petroleum underground
storage tank; !
(e) Bodily damage or property damage for
which [insert owner or operator] is obligated
-------
.Federal RegUteg j/ ypL $3. Ne. 207 ./- Wednesday, ©dtobet 26, 1988 / Rifles: ahd Regulatfans 43375
to ,pa.y damages by reason of the assumption
of liability in a contract or agreement other -
than a contract or agreement entered into to
meet the requirement? of .40, CER 280.83. ,
(9) Guarantor expressly waives jieljice of
acceptance of this guarantee by [the- ....
'impleirhjsnting agency], by any or all Ihirji .
parties, or1 by [owner or operator], :.. ' •
• Thereby certify that the wording of this
guarantee is identical to the wording"
specified in 40"CFR 280.96(c) as such
regulation's were constituted on the effective
date shown immediately below.
Effective date: —— <
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness or notary;
(d) An owner or operator who uses a
guarantee to satisfy, the requirements »f
§ 280.93 must establish a standby trust
fund when the guarantee is obtained.
Under the terms of the guarantee, all
amounts paid by the guarantor .under the
guarantee will be deposited directly into
; the standby trust fund hi accordance
with instructions from the Director of
the implementing agency under
§ 280.108. This standby trust fund must
me'et the requirements specifte
-------
43376 Federal Register / Vol. 53, No. 207 /Wednesday, October 26i 1988 / Rules and Regulations
Indicate the amount of coverage for each type
of coverage and/or for each underground
storage tank or location], exclusive of legal
defense costs. This coverage is provided
under [policy number]. The effective date of
said'policy Is [date].
2. The ["Insurer" or "Group"] further
certifies the following with respect to the
insurance described in Paragraph 1:
a. Bankruptcy or insolvency of the insured
shall not relieve the ["Insurer1* or "Group"] of
its obligations under the policy to which this
certificate applies.
b. The ["Insurer" or "Group"] is liable for
the payment of amounts within any
deductible applicable to the policy to the
provider of corrective action or a damaged
third-party, with a right of reimbursement by
the insured for any such payment made by
the ("Insurer" or "Group"]. This provision
does not apply with respect to that amount of
any deductible for which coverage is
demonstrated under another mechanism or
combination of mechanisms as specified in 40
CFR 280.95-280.102.
c. Whenever requested by [a Director of an
implementing agency], the ["Insurer" or
"Group"] agrees to furnish to [the Director] a
signed duplicate original of the policy and all
endorsements.
d. Cancellation or any other termination of
the insurance by the ["Insurer" or "Group"]
will be effective only upon written notice and
only after the expiration of 60 days after a
copy of such written notice is received by the
insured.
[Insert for claims-made policies:
e. The insurance covers claims for any
occurrence that commenced during the term
of the policy that is discovered and reported
to the ["Insurer" or "Group"] within six
months of the effective date of the
cancellation or other termination of the
policy.]
I hereby certify that the wording of this
instrument is identical to the wording in 40
CFR 280.97(b)(2] and that the ["Insurer" or
"Group"] is ["licensed to transact the
business of insurance, or eligible to provide
insurance as an excess or surplus lines
insurer, in one or more states"].
[Signature of authorized representative of
Insurer]
[Type name]
[Title], Authorized Representative of [name
of Insurer or Risk Retention Group]
[Address of Representative]
(c) Each insurance policy must be
issued by an insurer or a risk retention
group that, at a minimum, is licensed to
transact the business of insurance or
eligible to provide insurance as an
excess or surplus lines insurer in one or
more states.
§ 280.98 Surety bond.
(a) An owner or operator may satisfy
the requirements of § 280.93 by
obtaining a surety bond that conforms to
the requirements of this section. The
surety company issuing the bond must
be among those listed as, acceptable
sureties on federal bonds in the latest
Circular 570 of the U.S. Department of
the Treasury.-
(b) The surety bond must be worded
as follows, except that instructions in
brackets must be replaced with the
relevant information and the brackets
deleted:
Performance Bond ,
Date bond executed: :
Period of coverage: -
Principal: [legal name and business address
of owner or operator]
Type of organization: [insert "individual,"
"joint ve'nture," "partnership," or
"corporation"]
State of incorporation (if applicable):
Surety[ies): [name(s) and business
address(es)]
Scope of Coverage: [List the number of tanks
at each facility and the name(s) and
address(es) of the facility(ies) where the
tanks are located. If more than one
instrument is used to assure different tanks at
any one facility, for each tank covered by this
instrument, list the tank identification
number provided in the notification
submitted pursuant to 40 CFR 280.22, or the
corresponding state requirement, and the
name and address of the facility. List the
coverage guaranteed by the bond: "taking
corrective action" and/or "compensating
third parties for bodily injury and property
damage caused by" either "sudden accidental
releases" or "nonsudden accidental releases"
or "accidental releases" "arising from
operating the underground storage tank"].
Penal sums of bond:
Per occurrence $
Annual aggregate $ —
Surety's bond number: —-.
Know All Persons by These Presents, that
we, the Principaland Surety(ies), hereto are
firmly bound to [the implementing agency], in
the above penal sums for the payment of
which we bind ourselves, our heirs,
executors, administrators, successors, and
assigns jointly and severally; provided that,
where the Surety(ies) are corporations acting
as co-sureties, we, the Sureties, bind
ourselves in such sums jointly and severally
only for the purpose of allowing a joint action
or actions against any or all of us, and for all
other purposes each Surety binds itself,
jointly and severally with the Principal, for
the payment of such sums only as is set forth
opposite the name of such Surety, but if no
limit of liability is indicated, the limit of
liability shall be-the full amount of the penal
sums.
Whereas said Principal is required under
Subtitle I of the Resource Conservation and
Recovery Act (RCRA), as amended, to
provide financial assurance for [insert:
"taking corrective action" and/or
"compensating third parties for bodily injury
and property damage caused by" either
"sudden accidental releases" or "nonsudden
accidental releases" or "accidental releases";
if coverage is different for different tanks or
locations, indicate the type of coverage
applicable to each tank, or location] arising
from operating the underground storage tanks
identified above, and
Whereas said Principal shall establish a
standby trust fund as is' Tequired when a '.
surety bond is used to provide such financial
assurance; j ' .
Now, therefore, the conditions of the
obligation are such that if the Principal shall
faithfully ["takei corrective action, in
accordance with 40 CFR Part 280, Subpart F
and the Director of the state implementing
agency's instructions for," and/or
"compensate injured third parties for bodily
injury and property damage caused by"
either "sudden"ior "nonsudden" or "sudden
and nonsudden"] accidental releases arising
from operating the tank(s) indentified above,
or if the Principal shall provide alternate •
financial assurance, as specified in 40 CFR
Part 280, Subpart H, within 120,days after the
date the notice pf cancellation is received by
the Principal from the Surety(ies), then this
obligation shall jbe null and void;, otherwise it
is to remain in fjill force arid effect.
Such obligation does not apply to any of
the following:
(a) Any obligation of [insert owner or
operator] underj a workers' compensation,
disability benefits, or unemployment
' compensation law or other similar .law;
• (b) Bodily injury to an employee of [insert
owner or Operator] arising from, and in the
course of, employment by [insert owner or
operator]; :
(c) Bodily injury or property damage arising
from the ownership, maintenance, use, or
entrustment to others of any aircraft, motor
vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaned to, in the care,
custody, or control of, or occupied by [insert
owner or operator] that is not the direct result
of a release froip a petroleum underground
storage tank; |
fe) Bodily injury or property damage for
which [insert owner or operator] is obligated
to pay damages!by reasqn.of the assumption
of liability in a contract or agreement other
than a contract pr agreement entered into to
meet the requirements of 40 CFR 280.93.
The Surety(iei3) shall become liable on this
bond obligation only when the Principal has
failed to fulfill the conditions described
above. !
Upon notification by [the Director of the
implementing agency] that the Principal has
failed to ["take corrective action, in
accordance with 40 CFR Part 280, Subpart F
and the Director's instructions," and/or
"compensate injured third parties"] as
guaranteed by this bond, the'Surety(ies) shall
either perform [''corrective action in
accordance with 40 CFR Part 280 and the
Director's instnictions," and/or "third-party
liability compensation"] or place funds in an
amount up to the annual aggregate penal sum
into the standby trust fund as directed by [the
Regional Admiriistrator or the Director] under
40 CFR 280.108.1
Upon notification by [the Director] that the
Principal has failed to provide alternate
financial assurance within 60 days after the
date the notice of cancellation is received by
the Principal front the!Surety(ies) and:that
[the Director] has determined or suspects that
-------
FederalRegister.-/ Vol. .53, No. 207/ Wedriesday. October 2ft 1988 /Rules and Regulations 43377
a, release has occurred,, the Suretyfjes).shall.
place funds in an amount not exceeding, the
annual aggregate penal sum into the standby
trust fund as directed by'[the Director] under
40 CFR 280.108.
The Surety(ies) hereby waive(s)
notification of amendments to applicable •
laws, statutes, rules, and, regulations and
agrees that no such amendment shall in any
way alleviate its (their) obligation on this
bond. .
The liability of the Surety(ies) shall not be
discharged by any payment or succession of
payments hereunder, unless and until such
payment or payments shall amount in the
annual aggregate to the penal sum shown on
the face of the bond, but in no event shall the
obligation of the Surety(ies) hereunder
exceed the amount of said annual aggregate
penal sum.
. The Surety(ies) may cancel the bond by
sending notice of cancellation by certified
mail to the Principal, provided, however, that
cancellation shall not occur during the 120
days beginning on the date of receipt of the
notice of cancellation by the Principal, as
evidenced by the return receipt
The Principal may terminate this bond by
sending written notice to the Sureties).
In Witness Thereof, the Principal and
Surety[ies) have executed this Bond arid have
affixed their seals on the date set forth
above.
The persons whose signatures appear
below hereby certify that they are authorized
to execute this surety bond on behalf of the
Principal and Surety(ies) and that the
wording of this surety bond is identical to the
wording specified in 40 CFR 280.98[b) as such
regulations were constituted on the date this
bond was executed.
Principal
[Signature(s)]
[Names(s)]
[Title(s)]
[Corporate seal]
Corporate Surety(ies)
[Name and address]
[State of Incorporation: -
[Liability limit: $_ -
[Signature(s)]
[Names(s) and title(s)]
[Corporate seal]
[For every co-surety, provide signature(s),
corporate seal, and other information in the.
same manner as for Surety above.]
Bond premium: $ . .
(c) Under the terms of the bond, the
surety will .become liable on the bond
obligation when the owner or operator
fails to perform as guaranteed by the
bond. In all cases; the surety's liability is
limited to the pef-occurrence and annual
aggregate penal sums. "
(d) The owner or operator Who uses a
surety bond to satisfy the requirements
of § 280.93 must establish a standby
. trust fund when the surety bond is .
acquiied. Under the.terms of. the'bond,^
all ampunts-paid by the swirety.'under the
bond will be-deposited directly into the
.standby trust fund inaccordance'with
instructions .from the Director, under
§ 280.108. This standby trust fund must
meet the requirements specified in
§280.103,
§ 280.99 Letter of credit
(a) An owner or operator may satisfy
the requirements of § 280.93 by
obtaining an irrevocable standby letter
of credit that conforms to the
requirements of this section. The issuing
institution must be an entity that has the
authority to issue letters of credit in
each state where us'ed and whose letter-
of-credit operations are regulated and
examined by a federal or state agency.
(h) The letter of credit must be
worded as follows, except that
instructions in brackets are to be
replaced with the relevant information
and the brackets deleted:
Irrevocable Standby Letter of Credit
[Name and address of issuing institution]
[Name and address of Director(s) of state
implementing agency(ies)]
Dear Sir or Madam: We hereby establish
our Irrevocable Standby Letter of Credit No.
in your favor, at the request and for the
account of [owner or operator name] of
[address] up to the aggregate amountof [in
words] U.S. dollars ($[insert dollar amount]),
available upon presentation [insert, if more
than one Director of a state implementing .
agency is a beneficiary, "by any one of you"]
of
(1) your sight draft, bearing reference to
this letter of credit, No. -—r, and
(2) your signed statement reading as
follows: "I certify that the amount of the draft
is payable persiiant to regulations Issued
under authority of Subtitle I of the-Resource
Conservation and Recovery Act of 1976, as
amended."
This letter of credit may be drawn on to
cover [insert: "taking corrective action" .and/
or "compensating: third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases"] arising from operating
the underground storage tank(s) identified
below in the amount of [in words] $[insert
dollar amount] per occurrence and [in words]
$[msert dollar amount] annual aggregate:
[List the number of tanks at each facility-
and the.name(s) and address(es) of the
facility(ies) where the tanks are located. If
more than one instrument is used to assure
different tanks at any one facility, for each
tank covered by this instrument, list the tank
identification number pro.vided in the
notification submitted pursuant to 40 GFR
280.22, or the corresponding state
requirement* arid the name and address of
the facility.]
The letter of credit may not be drawn on to
cover any of the following:
(a) Any obligation of [insert owner or
operator] under a workers' compensation,
disability benefits, or unemployment
compettsatipn-tew or other similar lawi
(b) Bjodily injury to an employee of [insert
owner or;operator] arising from; aiiif-in" the:
course of, employment by [insert owner-pr
operator];
(c) Bodily injury or property damage arising
from the ownership, maintenance, use, or
.entrustment to others of any aircraft, motor.
vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaned'to, in the care,
custody, or control of, or occupied by [insert
owner or operator] that is not the direct result
of a release from a petroleum underground-
Storage .tank;
(e) Bodily injury or property damage for
which [insert'owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
meet the requirements of 40 CFR 280.93.
This letter of. credit is effective'-as of [date]
arid shall expire on [date], but such
expiration date shall be automatically
extended for a period of [at least the length of
the original term] on [expiration date] and on
each successive expiration date, unless, at
least 120 days before the eurent,expiration
date, we notify [owner or operator] by
certified mail that we .have decided not to
extend this letter of credit beyond the current
expiration date. In the event that [owner or
operator] is so notified, any unused portion of
the credit shall be available upon
presentation of your sight draft for 120 days
after the date of receipt by [owner or
operator], as shown on the signed return
receipt.
Whenever this letter of credit is drawn on
under and in compliance with the terms of
this credit, we shall duly honor such draft
upon presentation to us, and we shall deposit
the amount.of the draft directly into the
standby trust fund of [owner or operator] in
accordance with your instructions.
We certify that the wording of this letter of
credit is identical to the wording specified in
40 CFR 280.99(b) as such regulations were.
constituted on the date shown immediately
below.
[Signaturefs) and title(s) of officials) of
issuing institution]
[Date]
This credit is subject to [insert "the most
recent edition of the Uniform Customs and
Practice for Documentary. Credits, published
by the International Chamber of Commerce,"
or "the Uniform Commercial Code"].
(c] An owner or operator who uses a
letter of credit to satisfy the
requirements of § 280.93 must also
establish .a standby trust fund when the
letter of credit is acquired. Under the
terms of the letter of credit, all amounts
paid pursuant to a draft by the Director
of the implementing agency, will be
deposited by the issuing institution
directly into the standby trust fund hi .,
.accordance with instructions from the
Director under § 280.108. This standby
trust fund must meet the requirements
specified in 1:280.103-
(d) The letter ,of credit muatbe
irrevocable witfca.ieFm spiSeified fey the
issuing ihStitutidrt.>The1etter6feredit-
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43378
Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988 / Rules arid Regulations
must provide that credit be
automatically renewed for the same
term as the original term, unless, at least
120 days before the current expiration
date, the issuing institution notifies the
owner or operator by certified mail of its
decision not to renew the letter of -credit.
Under the terms of the letter of credit,
the 120 days will begin on the date when
the owner or operator receives the
notice, as evidenced by the return
receipt.
§ 200.100 Use of state-required
mechanism.
(a) For underground storage tanks
located in a state that does not have an
approved program, and where the state
requires owners or operators- of
underground storage tanks to
demonstrate financial responsibility for
taking corrective action and/or for
compensating third parties for bodily
injury and property damage, an owner
or operator may use a state-required
financial mechanism to meet .the '
requirements of § 280.93 if the Regional
Administrator determines .that the state
mechanism: is at least equivalent to the
financial mechanisms specified in this
subpart.
(b) The Regional Administrator will
evaluate the equivalency of a state-
required mechanism principally in terms
of: certainty of the availability of funds
for 'taking corrective action and/or for
compensating third parties; the amount
of funds that will be made available; ,
and the types bf costs covered. The
Regional Administrator may also
consider other factors as is necessary.
(c) The state, an owner or operator, or
any other interested party may submit
to the Regional Administrator a written
petition requesting that one or more of
the state-required mechanisms be .
considered acceptable for meeting the
requirements of § 280.93. The ; ,
submission must include copies of the
appropriate state statutory and
regulatory requirements and must show
the amount of funds for- corrective -action
and/or for compensating:fcird parties
assured by the mechanismfs). The'
Regional Administrator may require the
petition to submit additional information
as is deemed necessary to make this
determination. , ,
(dj Any petition under this section
may foe submitted on behalf of al! of the
state's underground storage tank owners
and operators.
{e) The Regional Administrator wiH
notify the petitioner ofJiis determination
regarding the mechanism's acceptability
in this subpast Pendrng-this-
determination, tfae owners and operators
using such mecharisms. will be deemed
to be in compliance with the
requirements of § 280.93 for
underground storage tanks located in
the state for the amounts and types of
costs covered by such mechanisms.
§ 280.101 State fund or ether state
assurance.
(a) An owner or operator may satisfy
the requirements of § 280.93 for
underground storage tanks located in a
state, where EPA is administering the
requirements of-this subpart, which
assures that monies will be available
from a state fund or state assurance
program to cover costs up to the limits
specified in § 280.93 or otherwise
assures that such costs will be paid if
the Regional Administrator determines •
that the state's assurance is at least
equivalent to the financial mechanisms
specified in this subpart.
(b) The Regional Administrator will
evaluate the equivalency of a state fund
or other state assurance principally in
terms of: Certainty of the availability of
funds for taking corrective action and/or
for compensating third parties; the
amount of funds that will be made
available; and the types of costs
covered. The Regional Administrator
may also consider other factors as is
necessary. .
. (c) The state must submit to the
Regional Administrator a description-of
the state fund orxrther state assurance
to be supplied as financial assurance,
along with a list of the classes of
underground storage tanks to which the
funds may be applied. The Regional
Administrator may require the state to
submit additional information as is
deemed necessary to make a
determination regarding the
acceptability of the state fund or other
state assurance. Pending the
determination-by the Regional
Administrator, the owner or operator of
a covered class of USTs will be deemed
to be in compliance with the •
,requirements of § 280.93 for;the amounts
and types of costs covered by the state.
fund or other state assurance,
, (d) The Regional Administrator will
notify the state of his determination
regarding the acceptability of the state's
fttnd or other assurance in lieu of
.financial mechanisms specified in this
snbpart. Within 60 days after the
Regional Administrator-notifies a state
that a state fund OF other state
assurance, is acceptable, the state must
provide'to each owner or operator for
whichdt is assumiiigJBnancLal
responsibility a letter or certificate
describing the .nature of fee-state's;
assumption pi responsibility. The letter
or certificate from the-state mast
ixidndev arisave attached to it, the •
following information: the facility's
name and address and the amount of
funds for corrective action and/or for
compensating third parties that is
assured by the jstate. The owner or
operator must maintain this letter or
certificate on file as proof of financial
responsibility in accordance with
§ 280.107(b)(5).|
§280.102 Trust fund.
(a) An owner or operator may satisfy
the requirements of § 280.93 by
establishing a trust fund.that conforms
to the requirements of this section. The
trustee must bej an entity that has the
authority to act as a trustee and whose
trust operations are regulated and
examined by a jfederal agency or an
agency of the state in which the fund is
established. '
(b) The wording of the trust agreement
must be identical to the wording
specified in § 280.103(b)(l), and must be
accompanied by a formal certification of
acknowledgement as specified in
§ 280.103(b){2).
(c) The trust fund, when established,
must be funded for the full required
amount of coverage, or funded for part
of the required iamount of coverage and
used in combination with other
mechanism(s) t!hat provide the
remaining required coverage.
(d) If the value of the trust fund is
greater than the required amount af
coverage, the oVvner or operator may
submit a written request to the Director
of the implementing agency .for release
of the excess, i
(e) If other financial assurance as •
specified in this subpart is substituted'
for all or part ojf the rrustfuhd, the
. owner or operator may submit a written
request to the.Director of the
implementing agency for release of the
excess. i
. (f) Within 60 jdays after receiving a
request from the owner or operator for
release of funds as specified in
paragraph'(d) or (ejt>f this section, the
Director of the implementing agency will
instfuct.the trustee to release to the
owner or operator such Juhds..as,the
Director specifies in writing.
§ 260. toa Standby trust fund.
: (a) An owner or operator using any
one of the mechanisms authorized by
§§280.98, 280.9J8,,or 280.99 must
establish astandby trust fund when the
inechaTOSTB is acquired. The trustee of
the slandby trust fund most be an entity
that has the auihoTity to act as & teustee
•ami whose trust operations are
regulated and examined by a Federal •
agency or an agency of the state in
which-tlae fund-is established,-
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Federal Register J Vol. 53, JNo- 207 / Wednesday. October 2fr. 198& /Hades afid :Eegafa&SMS 43379
(b)(l) The standby trust agreement
must be worded as foBows, except ihat
instructions in brackets are tote
replaced with the relevant information
and the brackets deleted:
Trust Agreement
Trust agreement, the "Agreement," entered
into as of [date] by and-between [name of die
owner or operator J, a [name of state] [insert
"corporation," "partnership," "association,"
or ^'proprietorship'^, the "Grantor," and
(name of corporate trustee], [insert
"Incorporated In the state of " or "a
national bank"], the "Trustee."
[Whereas, the United States Environmental
Protection Agency, "EPA," an agency of the
United States Government, has established
certain regulations applicable to fee Grantor,
requiring that an owner or operator of an
underground storage tank shall provide
assurance that funds will be available when
needed for corrective action and third-party
compensation for bodily injury and property
damage caused by sudden and nonsudden
accidental releases arising from the operation
of the underground storage tank [This
paragraph is only applicable to the standby
trust agreement.)];
[Whereas, the Grantor has elected to
establish [insert either "a guarantee," "surety
bond," or "letter of credit"] to provide all or
part of such financial assurance for the
underground storage tanks identified herein
and is required to establish a standby trust
fund able to accept payments from the
instrument {This paragraph is only applicable
to the standby trust agreement.)];
[Whereas, the Grantor, acting through its
duly authorized officers,-has selected the
Trustee .to be the trustee under this
agreement, and the Trustee is willing to act
as trustee;
How, therefore,:the Grantor and the Trustee
agree as follows:
Section 1. Definitions
As used in this Agreement:
(a) The term "Grantor" means the owner or
operator who enters into this Agreement and
any successors or assigns of the Grantor.
(b) The term "Trustee" means the Trustee
who enters into this Agreement and any
successor Trustee.
Section 2. Identification of the Financial
Assurance Mechanism.
This Agreement pertains to the [identify
the financial assurance mechanism, either a
guarantee, surety bond, or letter'of credit,
from which the standby trust fund is
established to receive payments (This
paragraph is only applicable to the standby
trust agreement.)].
Section 3. Establishment of Fond.
The Grantor and the Trustee hereby
establish a trust fund, the'TPund," for the
benefit of [implementing agency). The
Grantor and the Trustee intend that no third
party have access to the Fund except as
herein provided. [The Fund is established
initially as a standby to receive payments
and shall not consist of any property.]
Payments made by the,provider of financial
assurance pursuant to [the Director of the
implementing agency's] instruction are •
transferred to the Trustee and are referred to
as the Fund, together with alLearnings and
profits thereon, less any payments or
distributions made toy the Trustee:pursuant to
this Agreement The Fund shall he -held by
the Trustee, IN TRUST, as hereinafter
provided. The Trustee shall not be
responsible nor shall it undertake any
responsibility for the amount «r adequacy of,
nor any duty to collect from the Grantor as
provider of financial assurance, any
payments necessary to discharge any liability
of the Grantor established by [the.state
implementing agency],
Section 4. Payment for ["Corrective Action"
and/or Third-Party Liability Claims"],
The Trustee shall make, payments from the
Fund as [the Director of the implementing
agency] shall direct, in writing, to provide for
the payment of the .costs of [insert: "taking
corrective action" and/or compensating third
parties for bodily injury and property damage
caused by" either "sudden accidental
releases" or "nonsudden accidental releases"
or "accidental releases"] arising from
operating the tanks covered by the financial
assurance mechanism identified in this
Agreement.
The Fund may not be drawn upon to cover
any of the following:
(a) Any obligation of [insert owner or
operator] under a workers' compensation,
disability benefits, or unemployment
compensation law or other similar law;
(b) Bodily injury to an employee of [insert
owner or operator] arising from, and in the
course of employment by [insert owner or
operator];-
(c) Bodily injury or property damage arising
from the ownership, maintenance, use, or
entrustment to others of any aircraft, motor
vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaned to, in the care,
custody, or control of, or occupied by [insert
owner or operator] that is not the direct result
of a release from a petroleum underground
storage tank;
{e) Bodily injury or property damage for
which [insert owner or operator] is obligated
•to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
meet the requirements of 40 CFR 280.93. .
The Trustee shall reimburse the Grantor, or
other persons as specified by {the Director],
from the Fund for corrective action
expenditures and/or third-party liability
claims in such amounts as [the.Director] shall
direct in writing. In addition, the Trustee
shall refund to the Grantor such amounts as
[the Director] specifies in writing. Upon
refund, such funds shall no longer constitute
part of the Fund as defined herein.
Section 5. Payments Comprising the Fund
Payments made to the Trustee for the Fund
shall consist of cash and securities
acceptable to the Trustee.
Section 6, Trustee Management.
The Trustee shall invest and reinvest the
principal and income of the Fund and keep
the Fund invested as a single fund, without
distinction between principal and income, in
accordance with general .investment policies
and guidelines .which the Grantor may •
communicate in writing to the Trustee from
time to lime, subject, however, to the >
provisions of this Section.:In investing.
reinvesting, exchanging, selling, and
managing the F.uhd, the trustee shall
discharge lis duties with respect to the toast
fund solely in the interest of the beneficiaries
and with the care, skill, prudence, and
diligence under the circumstances then
prevailing which persons of prudence, acting
in alike capacity and familiar with such
matters, would use in fee conduct of an
enterprise of a-like character and with.like
aims; except feat
(i) Securities,or other obligations;of the
Grantor, or any other owner .or operator of
the tanks, or any of their affiliates as defined
in fee Investment Company Act of 1940, as
amended, 15 U.S.C. 80a-2[a), shall not be
acquired or held, .unless they, are securities or
other obligations of the federal or ,a state
government;
(ii) The Trustee is authorized to invest the
Fund in time or demand deposits of the
Trustee, to fee extent insured by an.agency of
the federal or state government; and
(iii) The Trustee is authorized to hold cash
awaiting investment or distribution
uninvested for a reasonable time and without
liability for the payment-of interest thereon.
Section 7. Commingling and Investment
The Trustee is expressly authorized in its
discretion:
[a) To transfer from time to time any or aH
of the assets of the Fund to any common,
commingled, or collective trust fund created
by the Trustee in which the Fund is eligible to
participate, subject to afl of the provisions
thereof, to be commingled with the assets of
other trusts participating therein; and
(b) To purchase shares in any investment
•company.registered under the Investment
Company Act of 1940,15 U.S.C. 80a-l et seq.,
including one which may be created,
managed, underwritten, or to which
investment advice is. rendered or fee shares
of which are sold by the Trustee. The Trustee
may vote such shares in its discretion.
Section 8. Express Powers of Trustee
Without in any way limiting the powers
and discretions conferred upon fee Trustee
by the other provisions of this Agreement or
by law, fee Trustee is expressly authorized
and empowered:
(a) To sell, exchange, convey, transfer, or
otherwise dispose of any property held by it,.
by public or private sale. No person dealing
with the Trustee shall be bound to see to fee
application of the purchase money or to
inquire into the validity or expediency of any
such sale or'other disposition;
[b) To make, execute, acknowledge, and
deliver any and all documents of transfer and
conveyance and any and all other
instruments feat maybe necessary or
appropriate to carry out the powers herein
granted;
(c) To register any securities held in the
Fund in its own name or in fee name of a
nominee and to hold any security in bearer
form or in book entry, or to combine
'certificates'representing suehsecurnies with
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-33380 Federal Register / VpL 53. No. 207 / Wednesday. October 20, 1968 /Rules ariid Regulations
certificates of the same issue held by the
Trustee in other fiduciary capacities, or to
deposit or arrange for the deposit of such
securities in a qualified central depository
even though, when so deposited, such •
securities may be merged and held in bulk in
the name of the nominee of such depository
with other securities deposited therein by
another person, or to deposit or arrange for
the deposit of any'securities issued by the
United States Government, or any agency or
instrumentality thereof, with a Federal
Reserve bank, but the books and records of
the Trustee shall at all times show that all
such securities are part of the Fund;
(d) To deposit any cash in the Fund in
interest-bearing accounts maintained or
savings certificates issued by the Trustee, in
its separate corporate capacity, or in any
other banking institution affiliated with the
Trustee, to the extent insured by an agency of
the federal or state government; and
(e] To compromise or otherwise adjust all
claims in favor of or against the Fund.
Section 9. Taxes and Expenses
All taxes of any kind that may be assessed
or levied against or in respect of the Fund
and all brokerage commissions incurred by
the Fund shall be paid from the Fund. All
other expenses incurred by the Trustee in
connection with the administration of this
Trust, including fees for legal services
rendered to the Trustee, the compensation of
the Trustee to the extent not paid directly by
the Grantor, and all other proper charges and
disbursements of the Trustee shall be paid
from the Fund.
Section 10. -Advice of Counsel
The Trustee may from time to time consult
with counsel, who may be counsel to the
Grantor, with respect to any questions arising
as to the construction of this Agreement or
any action to be taken hereunder. The "
Trustee shall be fully protected, to the extent
permitted by law, in acting upon the advice of
counsel.
Section 11. Trustee Compensation
The Trustee shall be entitled to reasonable
compensation for its services as agreed upon
in writing from time to time with the Grantor.
Section 12. Successor Trustee
The Trustee may-resign or the Grantor may
replace the Trustee, but such-resignation or
replacement shall not be effective until the
Grantor has appointed a successor trustee
and this successor accepts the appointment.
The successor trustee shall have the same
powers and duties as those conferred upon
the Trustee hereunder. Upon the'successor
trustee's acceptance of the appointment, the
Trustee shall assign, transfer, and pay over to
the successor trustee the funds and properties
then constituting the Fund. If for any reason
the Grantor cannot or does not act in the
event of the resignation of the Trustee, the
Trustee may apply to a court of competent
jurisdiction for the appointment of a
successor trustee or for instructions. The
successor trustee shall specify the date on
which it assumes administration of the trust
in writing sent to the Grantor and the present
Trustee by certified mail 10 days before such
change becomes effective. Any expenses
incurred by the Trustee as a result of any of
•the acts contemplated by this Section shall be
paid as provided in Section 9.
Section 13. Instructions to the Trustee.
All orders, requests, and instructions by
the Grantor to the Trustee shall be in writing,
signed by such persons as are designated in
the attached Schedule B or such other
designees as the Grantor may designate by
amendment to Schedule B. The Trustee shall
be fully protected in acting without inquiry in
accordance with the Grantor's orders,
requests, and instructions. All orders,
requests,' and instructions by [the Director of
the implementing agency] to the Trustee shall
be in writing, signed by [the,Director], and
the Trustee shall act and shall be fully
protected in acting in accordance with such
orders, requests, and instructions. The
Trustee shall have the right to assume, in the
absence of written notice to the contrary, that
no event constituting a change 'or a
termination of the authority of any person to
act on behalf of the Grantor or [the director]
hereunder has occurred. The Trustee shall
have no duty to act in the absence of such
orders, requests, and instructions from the
Grantor and/or [the Director], except as
provided for herein.
Section 14. Amendment of Agreement
This Agreement may be amended by an
instrument in writing executed by the
Grantor and the Trustee, or by the Trustee
and [the Director of the implementing agency]
if the Grantor ceases to exist.
Section 15. Irrevocability and Termination
Subject to the right of the parties to amend
this Agreement as provided in Section 14, this
Trust shall'be irrevocable and shall continue
until terminated at the written direction of
the Grantor and the Trustee, or by the
Trustee and [the Director of the implementing
agency], if the Grantor ceases to exist. Upon
termination of the Trust, all remaining trust
property, less final trust administration
expenses, shall be delivered to the Grantor.
Section 16. Immunity and Indemnification
The Trustee shall not incur personal
liability of any nature in connection with any
act or omission, made in good faith, in the
administration of this Trust, or in carrying out
any directions by the Grantor or [the Director
of the implementing agency] issued in
accordance with this Agreement. The Trustee
shall be indemnified and saved harmless by
the Grantor, from and against any personal
liability to which the Trustee may be
subjected by reason of any act or conduct in
its official capacity, including all expenses
reasonably incurred in its defense in the
event the Grantor fails io provide such
defense. t •
Section 17. Choice of Law
This Agreement shall be administered,
construed, and enforced according to the
laws of the state of [insert name of state], or
the Comptroller of the Currency in the case pf
National Association banks.
Section 18. Interpretation
As used in this Agreement, words in the
singular include the plural and words in the
plural include the singular. The descriptive
headings for each section of this Agreement
shall not affect the interpretation or the legal
efficacy of this Agreement.
In Witness whereof the parties have
caused this Agreement to be executed by
their respective officers duly authorized and
their corporate sejals (if applicable) to be
hereunto affixed knd attested as of the date
first above written. The parties below certify
that the wording of this Agreement is
identical to the wording specified in 40 CFR
28Q.103(b)(l) as such regulations were
constituted on the date written above.
[Signature of Grantor]
[Name of the Grantor]
[Title] |
Attest: . J
[Signature of Trustee]
Name of the Trustee]
Title] ! ...
Seal] j
Signature of Witness]
Name of the V^itness]
Title] j
Seal] !
(2) The standby trust agreement must
be accompanied by a formal
certification of acknowledgment similar
to the following!. State requirements may
differ on the proper content of this
acknowledgment.
State of 1 :
County of 1 ~
On this [date], before me personally c'ame
[owner or operator] to me known, who, being
by me duly'sworri, did depose and say that •
she/he resides at'[address], that she/he is
[title] of [corporation], the corporation
described in and which executed the above
instrument; that she/he knows the seal of
said corporation; that the seal affixed to such
instrument is such corporate seal; that it was
so affixed by order of the Board of Directors
of said corporation; and that she/he signed
her/his, name thereto by like order.
[Signature of Notary Public]
[Name of Notary Public]
(c) The Director of the implementing
agency will instruct the trustee to refund
the balance of die standby trust fund to
the provider of financial assurance if the
Director determines that no additional
corrective action costs or third-party
liability claims will occur as a result of a
release covered! by the financial
assurance mechanism for which the
standby trust fu^id was established.
(d) An owner |or operator may
establish one trust fund as the
depository mechanism for all funds
assured in compliance with this rule.
§280.104 Substitution of financial
assurance mechanisms by owner or
operator. '
(a) Ah owner lor operator may
substitute any alternate financial
assurance mechanisms as specified in
this siibpart, provided that at all times
he maintains an! effective financial
assurance mechanism or combination of
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Federal Register / Vol. 5S, No. 207 / Wednesday, October 26, 1988 / Rules and Regulations 43881
mechanisms that satisfies the
requirements of | 280,93.
(b) After obtaining alternate financial
assurance'as'-specified in this subpart,
an-owner or operator may cancel a
financial assurance .mechanism by
providing notice to the provider of
financial assurance.
§ 280.105 Cancellation or nonrenewal by a
provider of financial assurance.
(a) Except as, otherwise provided, a
provider of financial assurance may
cancel or fail to renew an assurance
mechanism by sending a notice of
termination by certified mail to the
owner or operator.
(!) Termination of a.guarantee, a
surety bond, or a letter of credit may not
occur until 120 days after the date on
which the owner or operator receives
the notice of termination, as evidenced
by the return receipt
(2) Termination of insurance, risk
retention group coverage, or state-
funded assurance may not occur until 60
days after the date on which the owner
or operator receives the notice of
termination, as evidenced by the return
receipt.
(b) If a provider of financial
responsibility cancels or fails to renew
for reasons other than incapacity of the
provider as specified in §280.106, the
owner or operator must obtain alternate
coverage as specified in this section
within 60 days after receipt of. the notice
of termination. If the owner or operator
fails to obtain alternate coverage within
60 days after receipt of the notice of
termination, .the owner or operator must
notify the Director of the implementing
agency of such failure and submit
(1) The name and address of the
provider of financial assurance;
(2) The effective date of termination;
and
(3J The evidence of the financial
assistance mechanism subject to the
termination maintained hi accordance
with | 280.107(b).
§280.106 Reporting by owner or operator.
[a) An owner or operator must submit
the appropriate forms listed in
§ 280.107{b) documenting current
evidence of financial responsibility to
the Director of the implementing agency:
(1) Within 30 days after the owner or
operator identifies a release from'an
underground storage tank required to-be'
reported under § 280.53 or § 280.61;
{2} If the owner or operator fails to
obtain alternate coverage as required tiy
this subpart, within 30 days after the
ow&eror operator Tecefvea-nafiGe-ofc
{i)-:C0mimeneHSHient «£a wotentarym
provider of financial assurance as-a
debtor,
(ii) Suspension or revocation of the
authority of a provider.of financial
assurance to issue a financial assurance
mechanism,
'(in) Failure of a guarantor to meet the
requirements of the financial test,
(iv) Other incapacity of a provider of
financial assurance; or
(3) As required by § 280.95(g) and
§ 280.105(b).
(b) An owner or operator must certify
compliance with the financial
responsibility requirements of this part
as specified in the new tank notification
form when notifying the appropriate
state or local agency of die installation
of a new underground storage tank
under § 280.22.
(c) The Director of the Implementing
Agency may require an owner or
.operator to submit evidence of financial
assurance as described in 1280.107fb)
or other information relevant to
compliance with this subpart at any
time.
(The information requirements in this
section have been approved by the Office of
Management and Budget and assigned OMB
control number 2050-0066.)'
§ 280.107 Recordkeaping.
(a) Owners or operators must
maintain evidence of all financial
assurance mechanisms used to
demonstrate financial responsibility
under this subpart for aa underground
storage tank until released from the
requirements of this subpart under
1208.109. An owner or operator must
maintain such evidence at the
underground storage tank site or the
owner's or operator's place of business.
Records maintained off-site must be
made available.upon request of the
implementing agency.
(b) An owner or operator must
maintain the following types of evidence
of financial responsibility:
(1) An owner or operator using an
assurance mechanism specified hi
§§ 280.95 through 280.100 or § 280.102
must maintain a copy of the instrument
worded as specified.
(2) An owner or operator using a
financial test or guarantee must
maintain a copy of the chief financial
officer's letter based on year-end
financial statements for the mostrecent
completed financial reporting year. Such
evidence ittust be on MeTao later ihaa
120 days afterthe dose of the financial
reporting year.
(33 An owner or operator sreing a
gaar^s*ee;, siae^ bond's? tetter >®f
credit, most maintaia a'.copy of the
and-copies of any amendments to the
agreement.
(4) An- owner or operator'using an
insurance policy or risk retention group
coverage must maintain! a copy of the
signed insurance policy or risk retention
group coverage policy, with the
endorsement or certificate-of insurance
and any amendments to the agreements.
(5) An owner or operator covered by a
state fund or other state assurance must
maintain on file a copy of any evidence
of coverage supplied by or required by
the State under § 280.101(d).
(6) An owner or operator using an
assurance mechanism specified in
§§ 280.95 through 280.102 must maintain
an updated copy of a certification of
financial responsibility worded as
follows, except that instructions in
brackets are to be- replaced with the
relevant information and the brackets
deleted:
Certification of Financial Responsibility
[Owner or pperator] hereby certifies that it
is in compliance with the rquirements of
Subpart H of 40 CFR Part 280. -
The'financial assurance mechanism[s] used
to demonstrate financial responsiblity under
Subpart H of 40 CFR Part 280 is [are] as
follows:
[For each mechanism, list the type of
mechanism, name of issuer, mechanism
number (if applicable), amount of coverage,
effective period of coverage and whether the
mechanism covers "taking corrective action"
and/or "compensating third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases."]
[Signature of owner or operator] .
[Name of owner or operator]
[Title]
[Date]
[Signature of witness or notary]
[Name of witness or notary]
[Date]
The owner or operator must update this
certification whenever the financial
assurance mechanism(s] used, to
demonstrate financial responsibility
change (s).
(The information requirements in this
section have been approved by the Office of
Management and Budget arid assigned OMB
control number 2050-0066.)
§280.108 Drawing on financial assurance
mechanisms.
(a) The Director of the implementing
agency shall require the.guarantor,
surety, • or institution issuing a leftes^of
credit to place the amount of funds
stipulated by foe Bdreetafc up to the limit
of funds provided by- the financial
assuEancemechaBism,, inia the standby
tesstifc
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43382 Federal Register / Vol. 53,.No. 207 / Wednesday, October 26, 1988 / Rules and Regulations
(l)(i) The owner or operator fails to
establish alternate financial assurance
within 60 days after receiving notice of
cancellation of'the guarantee, surety
bond, letter of credit, or, as .applicable,
other financial assurance mechanism;
and
(ii) The Director determines or
suspects that a release from an
underground storage tank covered by
the mechanism has occurred and so
notifies the owner or operator or the
owner or operator has notified the
Director pursuant to Subparts E or F of a
release from an underground storage
tank covered by the mechanism; or
(2) The conditions of paragraph (b)(l)
or (b)(2Hi) or (ii) of this.section are
satisfied.
(b) The Director of the implementing
agency may draw on a standby trust
fund when:
(1) The Director makes a final
determination that a release has
occurred and immediate or long-term
corrective action for the release is
needed, and the owner or operator, after
appropriate notice and opportunity to
comply, has not conducted corrrective
action as required under 40 CFR Part
280, Subpart F; or
(2) The Director has received either:
' (i) Certification from the owner or
operator and the third-party liability
claimant(s) and from attorneys-
representing the owner or operator and
the third-party liability claimant(s) that
a third-party liability claim should be
paid. The certification must be worded
as follows, except that instructions in
brackets are to be replaced with the
relevant information and the brackets
deleted:
Certification of Valid Claim
The undersigned, as principals and as legal
representatives of [insert owner or operator]
and [insert name and address of third-party
claimant], hereby certify that the claim of
bodily injury [and/or] property damage
caused by an accidental release arising from
operating [owner's or operator's]
underground storage tank should be paid in
the amount of $[ ].
[Signatures]
Owner or Operator
Attorney for Owner or Operator
(Notary) Date
[Signature(s)]
Claimant(s)
Attorney(s) for Claimant(s)
(Notary) Date
or (ii) A valid final court order
establishing a judgment against the
owner or operator for bodily injury or
property damage caused by an
accidental release from an underground '
storage tank covered by financial
assurance under this subpart and the
Director determines .that the owner or
operator has not satisfied the judgment.
(c) If the Director pf the implementing
agency determines,that th.e.amount of
corrective action'costs and third-party
liability claims eligible for payment
under paragraph (b} of this section may
exceed the balance of the standby trust
fund and the obligation of. the provider
of financial assurance, the first priority
for payment shall be corrective action
costs necessary to protect human health
and the environment". The Director, shall
pay third-party liability claims in the
order in which the Director receives
certifications under paragraph (b)(2](i) of
this section, and valid court orders under
paragraph (b)(2)(ii) of this-section.
§280.109 > Release from the requirements.
An owner or operator is no longer
required to maintain financial
responsibility under this subpart for an
underground storage tank after the tank,
has been properly closed or, if
corrective action is required, after
corrective action has been completed
and the tank has-been properly closed
as required by 40 CFR Part 280, Subpart
G.
§ J280.110 Bankruptcy or other incapacity
of owner or operator or provider of
financial assurance.
(a) Within 10 days after
commencement of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming an
owner or operator as debtor, the owner
or operator must notify the Director of
the implementing agency by certified
mail of such commencement and submit
the appropriate forms listed in
§280.107(b) documenting current
financial responsibility.
(b) Within 10 days after
commencement of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming a
guarantor providing financial assurance
as debtor, such guarantor must notify
the owner or operator by certified mail
of such commencement as required
under the terms of the guarantee
.specified in § 280.96.
(c) An owner or operator who obtains
financial assurance by a mechanism
other than the financial test of self-
insurance will be deemed to be without
the required financial assurance in the
event of a bankruptcy or incapacity of
its provider of financial assurance, or a
suspension or revocation of the
authority of the provider of financial
assurance to issue a guarantee,
insurance policy, risk retention group
coverage policy, surety bond, letter of
credit, or state-required mechanism. The
owner or operator must obtain alternate
financial assurance as specified-in this
subpart within 30 days after receiving
notice ofsuch £n .event,: If the .owner or
operator, does .hot obtain alternate
coverage within 30 days after such
notification, he must notify the Director
of the implementing agency.
(d) Within 3(|) days after receipt of
notification that a state fund or other
state assurance has become incapable
of paying for assured corrective action
or third-party compensation costs, the
owner or operator must obtain alternate
financial assurance.
§ 280.111I Replenishment of guarantees,
letters Of credit,1 or surety bonds.
(a) If at any time after a standby trust
is funded upon; the instruction of the
Director of the jimplementing agency
with funds drawn from a guarantee,
letter of credit,! or surety bond, and the
amount in the standby trust is reduced
below the full amount of coverage
required, the owner or operator shall by
the anniversary date of the financial
mechanism from which the funds were
drawn:
(1) Replenish the Value of financial
assurance to equal the full amount of
coverage required, or
(2) Acquire another financial
assurance mechanism for the amount by
which funds in|the standby trust have
been reduced.
(b) For purposes of this section, the
full amount of coverage required is the
amount of coverage to be provided by
§ 280.93 of this 'subpart. If a combination
of mechanisms! was used to provide the
assurance fund|s which were drawn
upon, replenishment shall occur by the
earliest anniversary date among the
mechanisms, j
§ 280.112 Suspension of enforcement
[Reserved] ;
PART 281— APPROVAL OF STATE
UNDERGROUND STORAGE TANK
PROGRAMS
4. The authority citation for Part 281
continues to read as follows:
Authority: Sees. 2002,9004, 9005,0006 of
the Solid Waste Disposal Act as amended by
the Resource Conservation and Recovery Act
of 1976, as amended (42 U.S.C. 6912, 6991 (c),
(dMe)). ;
5.40 CFR Part 281 is amended to add
§ 281.37 as folloWs:
§281.37 Financial responsibility for UST
systems containing petroleum.
(a) In order to be considered no less
stringent than die federal requirements
for financial responsibility for UST
systems containing petroleum, the state
requirements for financial responsibility
*U.S. GOVERNMENT PRINTING [OFFICE: 1990—720-136/06378
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Federal Register / Vol. 53, No, 207 / Wednesday, October 26. 1988 / Rules and Regulations 433B3
for petroleum UST systems must ensure
that:
(1) Owners and operators have $1
•million per occurrence for corrective , ,
action and third-party claims in a timely
manner to protect human health and the
environment;
(2) Owners and operators not engaged
in petroleum production, refining, and
marketing and who handle a throughput
of 10,000 gallons ,of petroleum per month
or less have $500,000 per occurrence for
cbrrective action arid third-party claims
in a timely manner to protect human
health and the environment;
(3) Owners and operators of 1 to 100
petroleum USTs must have an annual
aggregate of $1 million; and
(4) Owners and operators of 101 or
more petroleum USTs must have an
annual aggregate of $2 million.
(b) Phase-in of requirements.
Financial responsibility requirements for
petroleum UST systems must, at a
minimum; be scheduled to be applied at
all UST systems on an orderly schedule
that completes a phase-in of the
financial responsibility requirements
within 18 months after the effective date
of the federal regulations.
[c) States may allow the use of a wide
variety of financial assurance
mechanisms to meet this requirement.
Each financial mechanism must meet
the following criteria in order to be no ,
less stringent than the federal .
requirements. The mechanism must: Be
valid and enforceable; be issued by a
provider that is qualified or licensed in
the state; not permit cancellation
without allowing the state to draw
funds; ensure that funds will Only find
directly be used for corrective action
and third party liability costs; and
require that the provider notify the
Owner or operator of any circumstances
that would impair or suspend coverage,
(d) States must .require owners and
operators to maintain records that
demonstrate compliance with the state
financial responsibility requirements,
and these records must be made readily
available when requested by the
implementing agency.
[FR Doc. 88-34395 Filed 10-25-88; 8:45 am]
BILLING CODE 6560-50-M
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SEPA
OS-420
United States
Environmental Protection
Agency
Washington, DC 20460
Official Business.
Penalty for Private Use
""$"300"
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